When at first you cover a soaring knife near its all time high, try, try again to catch it on the way down. And if you are Whitney Tilson, this is precisely what you do. The fund which is now down 25% YTD has lost 21.4% on its second round Netflix investment, something which Zero Hedge readers were on the other side of for the entire 50% pick in one month. But heaven forbid you learn a lesson: "A couple of weeks ago we sent you an article we published entitled “Why We’re Long Netflix and Short Green Mountain Coffee Roasters,” which is attached in Appendix B. Since then, both stocks have moved against us, making them even more attractive in our opinion." Lordy...
We spoke to soon: it appears suicide is painless after all, as Fitch just changed the French outlook to negative.The punchline: "The Negative Outlook indicates a slightly greater than 50% chance of a downgrade over a two-year horizon." As for the line that will finally shut up France in its diplomatic spat with the UK: "Relative to other 'AAA' Euro Area Member States, France is in Fitch's judgement the most exposed to a further intensification of the crisis." And now, the market shifts its attention to non-French rating agencies, who will downgrade France in a "slightly" shorter timeframe... more like 2 hours according to some rumors.
Never a dull Friday when dealing with continents that have a terminal solvency, pardon, liquidity crisis.
- FITCH PLACES BELGIUM, SPAIN, ITALY, IRELAND, SLOVENIA AND CYPRUS ON RATING WATCH NEGATIVE
Shockingly, French-owned Fitch has nothing to say about... France.
Everybody wants a Santa rally in stocks: Wall Street, the financial media cheerleaders, mutal fund managers, politicos, pump-and-dumpers, retail investors, gamblers, grifters and even Mrs. Santa all want a year-end stock market rally. Santa's willing, but he's going to have to get past Mr. VIX. The VIX volatility index is a remarkably accurate indicator of market highs and lows. You can see how well extremes in the VIX line up with highs and lows in the S&P 500 in the charts below. I've marked the "Highs/Sells" in red lines and the "Lows/Buys" in black lines. As you can see, Mr. VIX isn't signaling a big fat buy here--he's signaling a big fat sell. The general idea with Mr. VIX is that when investors are panicky and bearish, then they buy hedges against further declines, and this spikes the VIX up. If the VIX breaches the upper Bollinger Band, that aligns rather closely with the stock market lows. If complacency is high and few investors feel much need to hedge against declines, then the VIX drops to the lower Bollinger Band. That generally aligns with market tops. The VIX just plummeted below 25. The last time it fell below 25, the market reversed and sold off hard. Bulls expecting Santa to deliver a rally come heck or high water have to explain why the VIX is no longer relevant, and what looks like a strong VIX sell signal is actually a monster-buy signal.
With Europe in desperate need of some entertainment in advance of what looks set to be a sad holiday season, the UK and Britain are willing to oblige. In a spat that hit fever pitch after (the ECB's!) Christian Noyer said two days ago that it was Britain that should be downgraded, not France, we have just had the first two blank ICBMs lobbed at opposing territory. As the BBC's Hugh Pym reports, Deputy PM Nick Clegg, calling in from Rio (unclear if he was there battling the imminent invasion of unhacked US drones following the pseudo act of war on behalf of Brazil telling Chevron to go to hell) tells French PM "recent remarks from members of the French government about the UK economy were simply unacceptable." Clegg comments follow French Finance Minister Baroin saying "economic situation in Great Britain is very worrying...." And so the childishness escalates more, pushing Europe even further into crisis instead of someone doing something about fixing the only thing that can possibly help the insolvent world: starting preparations for a global restructuring. As for the idiotic pissing contest between the two countries with epic chips on their shoulders, the final appropriate outcome would be Moodys and S&P coming out and downgrading them both to junk, and even that would be optimistic.
Reading just the first paragraph of Michael Feroli's note from this morning, one could be left with the impression that all is well, and the US has formally decoupled from anything and everything, especially reality. Alas, there are two other paragraphs, and both paint a bleak picture of the US economy if the current global autopilot persists. One thing is sure: decoupling is a myth for gullible children, and the longer the European recession lasts, and it will last long, as it will never be allowed to revert to fair value promptly by pulling off the band aid of three decades of cheap credit, and instead it will be bled to death using token austerity, rather than doing to right and very painful thing and cutting to the bone. And the longer the divergence persists, the more violent will be America's return to reality once the "lag" finally catches up with the trademarked mark to unicorn world created by America for America.
The Santa Claus rally may finally be here. In an ironic twist, as Corzine's firm is in bankruptcy and he is at personal risk of prosecution, we are rallying because for all intents and purposes, the ECB has allegedly told banks to load up on the MF Global trade. Banks are supposedly using ECB money to buy up short dated Italian and Spanish paper. Corzine must be bitter - his trade is the latest bailout.
The IPO "flip" now has the same attention span as everything else in the market. After pricing its IPO at $10, and breaking well above, even hitting $11.50 momentarily, the stock is now trading at $9.51 and probably about to be halted within minutes of first seeing public trade. Another epic win for the GS-led underwriting syndicate. As a reminder - if Goldman is selling you something, don't buy it. And who could possibly think that virtual farms aren't real cashflow positive?
So with just a 3 years delay, the SEC has finally put down the porn channel remote, and decided to do what it should have done back in 2008, which is to sue the former heads of Fannie and Freddie for "misleading investors about risky mortgages" in the case below, former Fannie CEO Daniel Mudd, who was paid $13.4 million in 2007. With MF Global telling everyone it had no European exposure as recently as September 30, this appears to be a recurrent theme. So at this pace, Corzine should expect the SEC to sue him... about 8 years after he passes away? Per Reuters: "The U.S. Securities and Exchange Commission sued three former executives at Fannie Mae and three at Freddie Mac, including former chief executives of both companies. The civil charges were filed in two separate lawsuits. The SEC said both firms have agreed to cooperate with the agency and have entered into non-prosecution agreements." Yes, your honor, we don't admit or deny that we got paid tens of millions to blow up the companies at the backbone of the American mortgage industry by lying what we were investing in, but we will cooperate... We promise. In the meantime, we won't hold our breath for the SEC to clawback even one cent from Mudd in this purely theatrical spectacle, of which we will see many more as the US enters election year. Incidentally, any and all LPs of Fortress Group may want to ask themselves what else (if anyhting) the current CEO of the company, who just happens to be Dan Mudd, is misrepresenting these days.
When we step back to consider the last year of investing dangerously an old song echoes in the back of our mind 'next verse, same as the first, a little bit louder and a little bit worse'. While new and more complex issues have arisen, at their core the same simple problems of debt saturation, global imbalances, and forced deleveraging remain front-and-center while the same liquidity-fueled 'temporary' solutions are spoon-fed to us the investing public. Sean Corrigan, Diapason Commodities' wordsmith, offers his critically voluminous perspective on the problems we face from earlier misallocations of capital and papering over the cracks of a world seeking reality but not allowed to face it. Specifically addressing US Stagflation and QE, European Austerity and 'German reparations, and how China's 'all-knowing bosses can 'fine-tune' a soft-landing economic miracle, Corrigan notes: "...one has to fear that the faulty signals given off by all the measures so far taken - many of them beyond even the conception of all but the most wild?eyed monetary cranks... - have already caused some of those same healing mechanisms to turn cancerous. Who can say how much well?intentioned effort over the past three years – however fruitful it has appeared to have been in the interim ? has been misled into taking for permanent and self?sustaining what is only a short?lived artefact of a massive monetary and fiscal intervention." The search for economic tooth-fairies continues and 2012 looks set to bring in still larger and more unimaginable 'solutions' as we become conditioned to expect the 'heavy-footed' intervention of monetary (and fiscal) policy-makers.
The committee on oversight and government reform is holding a hearing currently where Fed and Treasury officials will testify on the effect of the Euro crisis on US taxpayers. NY Fed President and former Goldmanite (also Bill Hatzius predecessor) Bill Dudley, Fed Board Acting Director of International Finance Steven Kamin, and Treasury Deputy Assistant Secretary for International Policy Mark Sobel will testify, in the House Oversight Committee. Without a doubt the three will say that Europe is cause of concern but nothing to worry about too much, even though earlier today a US Treasury official said that the EU debt crisis is a serious risk for US outlook, that it can hit the US through trade and the financial sector and that the IMF can't be substitute for strong and credible EU debt firewall.
One of the most idiotic concepts we have heard to come out of the current depression has been the completely meaningless "muddle through" which we took to the toolshed back in September (together with presenting BCG's proposal for a global financial tax - a concept which we believe will see far more play in 2012). Today we were delighted to hear the chairman of the fermentation committee also agree with us, by quoting none other than the ECRI's Achutan who said on 'muddling through' - "I would point out that that’s never happened. We never muddle through." Correct: the current economic situation merely continues to be the eye of the hurricane which has been made artificially and untenably larger only courtesy of the world's central banks. And in the battle of central planning against the laws of nature, we know who our money is on.
In what may come as a surprise to some, the top 3 banks in the world by market cap, are not based in the US, nor the UK, nor, obviously, Europe. All three are Chinese, namely ICBC, CCB and the Agricultural Bank of China. The top two US banks by market cap, Wells and JPM, are 4th and 6th respectively. And what is probably scarier, and what is not shown on the chart, is the amount of "assets" that these banks need to hold on their balance sheets to generate the returns needed to maintain this market cap: off the top of our head we would imagine that the US banks, when adding derivative exposure, have balance sheet risk that is orders of magnitude higher than that of China. Yet the most fascinating aspect is the amazing speed with which China took over the banking world (and with which market caps have increased), in the past 20 years. Without a single bank in the top 10 as recently as 2005, China now has 4 banks among the ten biggest in the world. Yet should China be worried and is history poised to repeat? Back in 1991, 6 of the top 10 largest banks in the world... were Japanese. Now not one of the 6 is to be found anywhere.
Christmas comes early for chart porn addicts this year, courtesy of Goldman Sachs which has compiled its top 100 favorite charts together in one place.