As horrific as the gulf environmental catastrophe is, an even more intractable and cataclysmic disaster may be looming. The yet unknowable costs associated with clean-up, litigation and compensation damages due to arguably the world’s worst environmental tragedy, may be in the process of triggering a credit event by British Petroleum (BP) that will be equally devastating to global over-the-counter (OTC) derivatives. The potential contagion may eventually show that Lehman Bros. and Bear Stearns were simply early warning signals of the devastation lurking and continuing to grow unchecked in the $615T OTC Derivatives market. What is yet unknowable is what the reality is of BP’s off-balance sheet obligations and leverage positions. How many Special Purpose Entities (SPEs) is it operating? Remember, during the Enron debacle Andrew Fastow, the Enron CFO, asserted in testimony nearly 10 years ago that GE had 2500 such entities already in existence. BP has even more physical assets than Enron and GE. Furthermore, no one knows the true size of BP’s OTC derivative contracts such as Interest Rate Swaps and Currency Swaps. Only the major international banks have visibility to what the collateral obligations associated with these instruments are, their credit trigger events and who the counter parties are. They are obviously not talking, but as I will explain, they are aggressively repositioning trillions of dollars in global currency, swap, derivative, options, debt and equity portfolios.
Goldman's David Viniar is currently being grilled in the second day of the FCIC's hearings by Brooksley Born, who is asking the smartest questions of the CFO we have ever heard on TV. The webcast can be seen here. The main question being hammered again and again is why and how did Goldman profit twice on AIG, first by being bailed out by taxpayers, when the firm received a par payout on its collateral exposure with the insurer, and secondly, and much more importantly, how and why the firm made a profit of $1.2 billion by buying and selling CDS on the insurer, which comports with Lloyd Blankfein's previous statement that the firm was fully insured against an AIG collapse. This is a topic Zero Hedge has covered since March of 2009. Much more important at this point is the tangent of the circumstances surrounding the AIG CDS sale: we harken back to our post from January 2010, titled "Did Goldman Sell Its $2.5 Billion AIG CDS While In Possession Of Material, Non-Public Information?" in which we speculated that not only did Goldman receive an unfair second profit via the CDS, but that in fact it sold this insurance while potentially in possession of material non-public information. Now that this topic has finally surfaced to the broader population, we would like to once again bring attention to it, and we hope Brooksley Born has a chance to follow up on it.
On March 13, David Kostin boldy went where A. Joseph Cohen has gone so many times before, by becoming the best contrarian indicator around. To wit: "Investors we met this week remain bullish in both outlook and
positioning, consistent with our view. We expect S&P 500 to
rise to 1300 by mid-year (+13%), before ending 2010 at 1250 (+9%)." Kostin missed his target by 30% in 3 months. We are not sure if even his equally capable predecessor, AJ Cohen, was as skilled at so wholesomely raping and pillaging the P&L of the firm's few clients who still are terrified to utter a squeek of disapproval against the monopolist for fear of losing those oh so precious trading axes, formerly rightfully belonging to GS archrivals Lehman and Bear Stearns. Luckily, we have Christine Varney keeping an eye on such market monopolistic behavior.
Today's lower than expected interest in the 3-month LTRO operation was supposed to indicate a sign of stability for European banks. Nothing could be further from the truth. In an article which recaps a variety of data points presented here previously, the FT summarizes that European banks continue to exist solely due to a record and unprecedented $1 trillion in emergency loans issued to Europe's commercial banks. In turn, almost 40% of this liquidity is then recycled, and stored back with the ECB, as the very same banks have no trust whatsoever in any of their peers. In short: no matter what the Stress Tests indicate, the European financial system is now in a worse condition than ever in history, including the days just after Lehman.
- The $5 trillion rollover (Reuters) -
good of Reuters to pick up on this theme. We
wrote about this is November, and the number is not $5 trillion, it
is $15 trillion
- Yet another jobs miss: ADP comes in at +13,000 on expectations of +60,000 (Bloomberg)
- Scrutiny of Goldman's board focusing on silence over conflicts (Bloomberg)
- As expected, Alex now a hurricane (Bloomberg)
- "Not only is Elena Kagan perhaps the most unqualified person to ever be
nominated to the Supreme Court, but she is a neoliberal globalist hack
who had the silver spoon of privilege surgically implanted in her Kagan
rectum at birth" - All in the Family; The Globalist Kagans of Brooklyn (American Everyman)
- Putin rips Russian spy bust (WSJ)
- Why Obamanomics has failed (WSJ)
- Todd Harrison: Where we've been and where we're going (Minyanville)
- Krugman spits in the faces of imaginary bond vigilantes (NYT)
“We will have a financial crisis again — it’s just a question of the frequency,” said the economist Kenneth Rogoff, who, with Carmen M. Reinhart, wrote a terrific book titled “This Time Is Different: Eight Centuries of Financial Folly.” The title says it all. We’ve been through this before and will go through it again.
Nobody would have thought June 29 would be a remarkable date - middle of summer, everyone watching the world cup, HFT computers out for their annual hard disk defrag and front running optimization, press release scanning robots out for their annual oil change, even hurricanes barely willing to form. Yet at the end of the day, June 29 ended up joining a list of such memorable dates as The Bear Stearns Crash, the May Flash Crash, the Lehman Crash, and the March 2009 666 crash: based on the TRIN/ARMS index, the NYSE index hit 5.88. It has been higher on just 4 other times before, specifically the four dates noted above. The indicator tracks up/down stocks divided by up/down volume on the NYSE -the higher the number, the greater the rush into decliners. Today's reading indicated that on the NYSE people could not get enough of selling, and in size. What is more worrisome is that in the last two months, we have seen an amplitude in the TRIN that has never occurred before: it has approached 0 (on low-volume melt up days), all the way to 12+ on 5/6 and nearly 6 today. This simply means that, as we have been claiming for a long time, there is increasingly less liquidity in the market. And we are talking real deep liquidity, not the churn BS that HFT algos do in Citi and now Tesla (thank you Goldman), and then, oops, drop all bids when something odd happens on 8,800 shares and the NYSE has to come in, bail out the market, and in the process derail the order flow of millions of shares of pent up supply and demand. A few more episodes like that and there will no demand and a lot of supply.
10yr 310bps/S&P 1040... all you have to watch.
A quick piece on how we're selecting stocks to short for the balance of 2010, along with a live spreadsheet of over 1,400 non-financial stocks in our initial pool of candidates, including their pricing and key solvency metrics.
The BP crisis in the Gulf of Mexico has rightfully been analysed (mostly) from the ecological perspective. People’s lives and livelihoods are in grave danger. But that focus has equally masked something very serious from a financial perspective, in my opinion, that could lead to an acceleration of the crisis brought about by the Lehman implosion.
Ridiculed By Americans Everywhere, Krugman Now Threatens, Gives Unsolicited Advice To Germany, Pisses Entire Nation OffSubmitted by Tyler Durden on 06/23/2010 19:37 -0400
These days it's hard being a religious fanatic, also known as a Keynesian. It is even harder when you are Paul Krugman (sadly, the cornerstone of NYT's entire paywall strategy), and everyone in your own country is already sick and tired of, and openly ignores your constant appeals to drown the world in new and record amounts of debt, thus ignoring your appeals with impunity. So what do you do when nobody takes you seriously for thousands of miles around? Why you go even further - to the core of Europe in fact... where you proceed to threaten, badger, insult and give your unsolicited advice to anyone that listens. That "unlucky soul" in this case happens to be Germany daily Handeslbatt, which ran an interview with the "economist" in which Krugman stick not a foot, but an entire SS-20 nuclear warhead armed ICBM, in his mouth. And since Krugman is unaware, preaching the benefits of record deficit spending in Germany, ever since that little experiment in hyperinflation known as the Weimar Republic, tends to generate adverse reactions. Which is precisely what happened in this case. Luckily, now Krugman is a persona non grata in at least one country. Unfortunately, it is not the one in which his trite platitudes and melancholic remembrances of the golden days of Greenspan's credit bubble are still published on a daily basis.
Chasing bigger investment returns, the agency that manages Florida's $113.8 billion public pension fund wants to make far riskier investment bets.
Don Coxe of Coxe Advisors is out with his latest monthly newsletter, a must read report on why the Loonie may be a better investment than both the CNY and the USD combined, why investors should beware of Greeks baring facts, the BP disaster, and, most importantly, quotes Browning, in an extensive analysis of gold: "Leave the fire ashes. What survives is gold."
There are some, like Pimco and Whitney Tilson's T2, who enjoy talking their book, and demonstrating they just love to live dangerously by buying the stock of a company which has an Upside/Downside ratio of 1 (or 100% on both sides, with the government dead set on pushing the "equation" solidly to the D side). Then, there are those, who would rather go to Vegas, breathe in deeply some beta radiation courtesy of the Us DoD and DoE, play some serious blackjack, get the presidential suite and all the Grey Goose comped, and have the very same wining odds as a BP investment, even as the house is gamed to win in the long run (thank you HFT).For those in the first camp, below, courtesy of My Investing Notebook, is Whitney Tilson's case on why BP's stock price belongs tens of dollars higher. For the sake of Blackrock and every pensioner in the UK, we hope Tilson is correct. For now, he has a ways to get above hist cost basis.
If there is one person in this world who has less credibility than the Goblin in chief, Ben Bernanke, it has got to be the Goblin emeritus, or the man who spawned the monetary policy that will eventually destroy the world. Which is why when we read Alan Greenspan's Op-ed in the WSJ, we cringed, as we actually agree with pretty much most of what he is saying. It may be time to reevaluate our stance on the world: is Goldman just a bunch of really nice guys? Are HFTs just altruistic liquidity providers? Is prop trading not just legalized frontrunning at a massive scale? Will the US hit one quadrillion in debt with 0.01% on the 30 Year? Will Dennis Kneale refute the theory of relativity? The doubt has now set in... But seriously, who but Krugman (and 99% of tenured economists) could read the following and disagree: "The United States, and most of the rest of the developed world, is in need of a tectonic shift in fiscal policy...With huge deficits currently having no evident effect on either
inflation or long-term interest rates, the budget constraints of the
past are missing. It is little comfort that the dollar is still the
least worst of the major fiat currencies. But the inexorable rise in
the price of gold indicates a large number of investors are seeking a
safe haven beyond fiat currencies." and this "Perceptions of a large U.S. borrowing capacity are misleading."