Pay close attention because this could be a record-breaking amount of mauling ever attempted by the colossus of client care as Goldman shows it does not discriminate between millionaire and billionaire Muppets. In a bizarre story in CNN Money, we are told that two billionaire 'married' executives of Marvell Technologies - MRVL (no, not the comic book though that would be spectacular) are suing Goldman for what initially appears to be a straight-forward alleged fraud of unauthorized transfer of ownership of their MRVL shares to Goldman's internal fund to enable more borrow availability for shorts (1 Corzine-ing). But the story gets better. The executives, upon the advice of another Goldman broker were advised to take levered long positions in competitor NVDA's shares (which GS was allegedly selling out of its own book - 2 Corzine-ings) only to very rapidly face significant losses when the company missed and the stock dropped notably (3 Corzine-ings). Then, GS sends the MRVL execs margin calls on that position (4 Corzine-ings) and unwilling to accept the MRVL shares as collateral due to its low share price (5 Corzine-ings), forces the former MRVL executives to sell their MRVL shares (6 Corzine-ings) to meet cash calls - all the while remembering that GS had transferred the ownership in order that they could allegedly have more of this hard-to-borrow stock to short (7 Corzine-ings). What's more, the couple's suit alleges that Goldman and a hedge fund run by Goldman were buying MRVL's shares at the same time the firm was forcing Sutardja and Dai to sell (8 Corzine-ings). Both NVDA and MRVL's shares have since more than doubled from their late 2008 lows. The couple claim they lost more than $100 million because of their forced sales and general Muppet massacre.
Do not, however, feel too bad for these two Muppets as Sutardja and Dia are not without controversy themselves. In 2008, MRVL paid a $10 million fine to settle allegations from the SEC that the company backdated the options it paid out to its executives. As part of the settlement, Dai, who was once Marvell's COO, paid a personal fine of $500,000 and was barred from being a director or officer of a publicly traded company for five years.
In what appears to be surprising news for some, Reuters has an article titled "Americans brace for next foreclosure wave" whose key premise is that "a painful part two of the [housing] slump looks set to unfold: Many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures." Thank the robosettlement, where in exchange for a few wrist slaps, contract law was thoroughly trampled by America's attorneys general, but far more importantly to the country's crony capitalist system, the foreclosure pipeline was once again unclogged, and whether one does or does not have a legal title on a given house, the banks are now fully in their right to foreclose on it. What this means also is that America's record shadow housing inventory, which is far greater than any fabricated number the NAR reports on a monthly basis, is about to get unleashed on buyers, shifting the supply curve much further to the right, as up to 9 million new properties slowly but surely appear on the market. And while many will no longer be able to live mortgage free, forcing them to go out and rent (and no longer be able to afford incremental iGizmos), it also means that the prevalent price of homes is about to take another major tumble, making buffoons out of all those who, once again, called for a housing bottom in early 2012. Here's the simply math: there will be no housing bottom until the 9 million excess homes clear. Period. Until then it is a buyer's market, even if said buyer is unable to obtain bank financing, as ultimately it will be the seller who is forced to monetize (or vacate if underwater) their home in a world of ever diminishing cashflows. The fear of the supply onslaught will only make the dumpage that much faster.
That the market can be stupid long enough to make anyone seem like a fool is well-known and appreciated by all (even if the final fate of centrally planned markets is even better known by all). What apparently is not known by those who are self-professed trading experts, is that flipflopping like a windsock in a hurricane, with the comic regularity of a Goldman FX advisor who shall remain nameless hell bent on skewering what little clients one has left, only makes one look like a complete and utter buffoon. And yet this is precisely what "one of the best gold traders" CNBC knows does over and over and over, to the point where not only does nobody give any credibility to the utterances from said expert's mouth, but it makes the entire venue into sheer unadulterated, laugh out loud stand up comedy (even more so than normal). And while we do not grasp how CNBC's producers consistently invite said individual to dig ever deeper holes for himself, the other perspective is quite clear: after all each contributor makes $200 per CNBC appearance. In the case of the abovementioned gold expert, we can see how this is a make or break cash infusion.
Treasury yields retraced more than 60% of their rise post-FOMC yesterday leaving them only marginally higher on the week as, despite another late afternoon light volume surge to VWAP, stocks closed with their second biggest daily loss of the year. Three days in a row now, ES (the S&P 500 e-mini futures contract) has closed at its VWAP - suggesting institutional blocks continue to look for opportune/efficient selling levels (as opposed to buying the dips which we are so used to). After Spain's auction debacle and the ISM Services miss, it seems that with no Fed standing guard that good is good but bad is not better anymore as the S&P 500 cash lost over 1% (down 2% from Monday's peak to today's trough). Financials underperformed and the majors (which we noted on Monday sagging after Europe's close) have been really hurt with Citi, BofA, and MS down 6 to 7% since then. Equity markets in the US and Europe played catch up once again to credit's more realistic assessment of the world as HYG (the high-yield bond ETF) is back at one-month lows, down 2.7% from its end-Feb highs (or five months worth of yield, oops). Investment grade credit (which remains rich to its fair-value) was not helped as Treasuries were the place of refuge for the day as 30Y yields dropped their most in 2012. Commodities suffered significant damage as Silver tumbled to meet Gold's loss for the week, both down 3% Copper and Oil also dropped notably and are now back in sync with the USD for the week -1% or so. Most major FX remained USD positive except for JPY which retraced its snap lower from yesterday as carry trades were generally exited (with EUR and AUD weakness mirroring JPY strength post-FOMC) leaving DXY near 3-week highs. Who-/What-ever was doing the buying in the afternoon clearly levered the position (using AAPL or options) as VIX dumped once again out of nowhere intraday - closing near its lows of the day. However, VIX did close up near one-month highs as it catches up to Europe's VIX flare. Given the drop in implied correlation (and in-line VIX-S&P move) we suspect the covered-call strategy of the year was coming undone a little at the seams as single-name vol underperformed.
"Won't Be Fooled This Week Either": Retail Celebrates Highest Stock Prices Since 2007 With Biggest Redemptions Of 2012Submitted by Tyler Durden on 04/04/2012 - 15:23
Another week of artificial stock rampage courtesy of a transitory, one-time $2 trillion liquidity spike (that is now ending, if only temporarily), and another week of retail investors refusing to be suckered in (and joining corporate insiders who just sold a record amount of their own stock). In the week ended March 28, domestic equity mutual funds per ICI saw another $3.5 billion in equity redemptions: the biggest since the start of 2012, bring total 2012 YTD outflows to $19 billion, nearly 100% more than the outflow for the comparable period in 2011, which saw "only" $10 billion in outflows. Truly a good way to celebrate the highest artificial stock market high since December 2007. And to all the "but the money is simply going into ETFs" apologists: you are right, with one caveat: Bond ETFs! ... And of course, the TVIX.
It’s important to put yourself in the minds of OECD policy makers. They are largely managing a retirement class that is moving out of the workforce and looking to draw upon its savings -- savings that are (mostly) in real estate, bonds, and equities. Given this demographic reality, growth in nominal terms is undoubtedly the new policy of the West. While a 'nominal GDP targeting' approach has been officially rejected (so far), don't believe it. Reflationary policy aimed at sustaining asset prices at high levels will continue to be the policy going forward. While it’s unclear how long a post-credit bubble world can sustain such period of forced growth, what is perfectly clear is that oil is no longer available to fund such growth. For the seventh year since 2005, global oil production in 2011 failed to surpass 74 mbpd (million barrels per day) on an annual basis. But while the West is set to dote upon its retirement class for many years to come, the five billion people in the developing world are ready to undertake the next leg of their industrial growth. They are already using oil at the margin as their populations urbanize. But as the developing world comes on board as new users of petroleum, they still need growing resources of other energy to fund the new growth which now lies ahead of them. This unchangeable fact sets the world on an inexorable path: a competitive race for BTU.
Central Banks' extreme interventionist policies (whether direct money-printing or indirect subordination of existing risk-takers) has left an investing public with a very different risk-reward environment (and very different forecast distributions for future outcomes) as we pointed out earlier. As Matt King of Citigroup notes, the 'risk-on risk-off' environment is here to stay meaning the traditional safety of bonds now offers even less upside and more downside (thanks to subordination) and equities or higher-beta more upside (thanks to central banker puts under asset markets). This helps explain the portfolio-rebalancing effect of QE et al. However, this leads to a focus on high-beta momentum with a growing chasm between price and value - and more likelihood of catastrophic loss when risk-goes-off (as liquidity spigots are closed however temporarily). Efficient frontiers are now not so efficient with marginal returns now perceived as accelerating for incremental risk-taking as the Fed has your back. This means market-cap weighted indices will naturally favor the highest-beta (much more volatile) names that will suffer the most when risk re-appears - so focus on equal-weighted or fundamental-weighted indices for risk-balanced-return. Trying to be long the tails is key as central bankers repress normal investors away from core safety leaving behind the precipice of over-invested, over-risk-stuffed momentum chasers holding the bag.
Uncle Sam's bills of almost $4tn per year relative to his income of just over $2tn means that he does what most American's do - he borrows money - and it is this simple fact that underpins the reasoning that there is no painless way out of the mountain of debt that we have amassed over the last few decades. While none of this is new, the straightforward nature of this video's message makes it hard to argue, from anything other than an ivory tower, that this supposed self-sustaining print-and/or-borrow-fest can go on forever. Paying off your mortgage with your credit card remains the clearest analogy of what is occurring and while the Mutually Assured Destruction case is made again and again for why the analogous credit-card-providers will never halt our limit, it seems increasingly clear that the fiat money fiasco has switched regimes to chaos rather than the apparent nominal calmness of the great moderation.
As the mainstream media gets over-run with 'buy-the-dippers' and 'healthy retracement' protagonists with the S&P down a monstrous 1.5% from its highs, it is perhaps worth noting (h/t Doug Kass) that Europe's broad equity market index is now down over 5% from it's peak two weeks ago (as is the UK's FTSE index). In yet another echo of last year's liquidity-fueled spurt-and-slump, European equity markets (along with US and European credit markets as we have already noted) are sending a warning signal that trouble may lay immediately ahead for US equities. The Euro-Stoxx index has just crossed below its 100DMA for the first time in over 4 months having dropped over 4% on the last two days. Add to this size of margin debt (as we noted earlier) and the ultra-low levels of cash at equity mutual funds and what is now the largest drop since the rally began (an incredible fact that we have hardly dropped more than 2% peak to trough in five months in Cembalest's sweet serenity) may well mean more pain is to come.
Let's get it all out there. America's dirty laundry that is. Our family secrets. The skeletons in the closet. The goal is to create a list of the many and numerous ways in which our country is deluding itself into believing we are the greatest, smartest, most innovative, freedom loving country that ever was. Don't get me wrong, I'm not some unpatriotic ne'er do well. I love what the Founding Fathers of our country set out to accomplish, faults and all. I love it so much, I was willing to put my life on the line for this country by serving in a US Marine Corps special forces unit for 8 years (your move armchair patriot). But we have drifted so far from the original concepts, I believe our current central planning apparatus more closely resembles the USSR than what most people think is the USA. So I'm going to kick this list off but in no way do I intend this to be exhaustive.
Earlier today, we remarked on the story of a 77-year old Greek, now identified as Dimitris Christoulas, who at around 9 am took his life in the middle of Athens' central Syntagma Square with a bullet to his head. His full suicide note has been released. The note, presented below, ends in a solemn call to arms to "hang the traitors of this country."
Who will buy our debt in the coming months and years? Europe is saturated with debt and doesn’t have the means to purchase our debt. Japan is a train wreck waiting to happen. China’s customers aren’t buying their crap, so their economic miracle is about to go in reverse. The Federal Reserve cannot buy $1 trillion of Treasury bonds per year forever without creating more speculative bubbles and raging inflation in the things people need to live. The Minsky Moment will be the point when the U.S. Treasury begins having funding problems due to the spiraling debt incurred in financing perpetual government deficits. At this point no buyer will be found to bid at 2% to 3% yields for U.S. Treasuries; consequently, a major sell-off will ensue leading to a sudden and precipitous collapse in market clearing asset prices and a sharp drop in market liquidity. In layman terms that means – the shit will hit the fan. The Federal Reserve and Treasury will be caught in their own web of lies. The only way to attract buyers will be to dramatically increase interest rates. Doing this in a country up to its eyeballs in debt will be suicide. We will abruptly know how it feels to be Greek....The entire financial world is hopelessly entangled by the $700 trillion of derivatives that ensure mass destruction if one of the dominoes falls. This is the reason an otherwise inconsequential country like Greece had to be “saved”.