NASDAQ

Not even a full hour of trading can pass anymore without a fresh Chinese fraud getting exposed. Today's plunge target: China Biotics.

This is the beginning of the end for Chinese reverse mergers. Alas, after having been the single most profitable trade in the market for the past 5 months when Chinese reverse merger frauds would guarantee up to 50% gains in the span of hours after people refusing to drink the kool aid and actually do their homework would expose one after another of these abortions which the flailing domestic exchanges (NYSE and NASDAQ) would gladly list in exchange for much needed fees, the party is coming to an end. Interactive Brokers has just announced that it will hike margin requirements from 50% to 100% over the next 3 days on virtually every single Chinese reverse merger name. Shortly, everyone else will follow through with a comparable increase. Timber ahead... and time to find the next "sure money" shorting scheme.

Silver's nearly 3% surge in trading in Asia may indicate that the long expected short squeeze may be underway. Bullion banks with very large concentrated short positions may be being forced to buy back their short positions – propelling silver higher. This could see silver surge over the record nominal high of $50.35/oz in short order. At the same time caution is merited as silver has risen nearly 10% in April so far and over 33% year to date. Speculators need to be very cautious as margin requirements may be increased again and profit taking could lead to sharp falls in price. Leveraged speculation is extremely high risk and should be avoided by investors and savers. Proof of the lack of animal spirits in the silver marker is seen in the data which shows that speculative sentiment on the COMEX (as seen in the Commitment of Traders/ COT data – see chart below) is subdued. While the total silver ETF holdings increased to a record, they are not far above the levels seen in December 2010 (see chart above). Importantly, even at $41.30/oz the dollar value of the total silver ETF holdings remains very small at just over $20.5 billion. To put that number in perspective, today bankers put a prospective value of around $60 billion on Glencore, one of the world’s largest commodity trading companies. BP has set up a fund worth $20 billion to cover legal claims from the oil spill disaster.

• Obama Push to Seize Budget Initiative (FT)
• China gives all clear on bond issuance bubble: Government Boosts the Bond Markets (China Daily)
• You mean they can't use 200% debt financing? Nasdaq OMX Needs Shareholders to Embrace Rejected Bid (Bloomberg)
• Complacent Europe Must Realise Spain Will be Next (FT)
• Japan's seismic nerve center (Japan Times)
• Kan’s DPJ Suffers Election Setback One Month After Japan Quake (Bloomberg)
• Edano Says Japan Doesn't Need BOJ to Help Fund Post-Quake Disaster Relief (Bloomberg)
• State Prosecutor Summons Mubarak (FT)
• US Doubts Air Power Can Turn Libyan Tide (FT)

Notorious contrarian Alfred Little, who recently made a splash in the alleged Chinese fraud basket, by issuing a scathing report against Deer Consumer Products (Nasdaq: DEER) which has since cut the price of the stock in half, yet gotten the author in hot trouble with the company which decided to sue both him and Seeking Alpha which hosted the report (even as shareholders of DEER should be thanking him for issuing the report when the stock was still at $11) is out with his latest report, taking on the next in a seemingly endless sequence of potential frauds (check the Nasdaq halt list and find the most recurring word): Puda Coal, Inc (NYSE: PUDA). Cutting to the chase: "Considering the 2009 and 2010 audited financials can no longer be relied upon, and  more importantly the complete lack of internal control that allowed Chairman Zhao to first steal the company, then sell half the company (pocketing the proceeds) and then pledge the other half of the company to a Chinese PE fund while piling on $530.3 million of 14.5% debt, I strongly believe $2.66 is the most this stock is worth today." Those buying puts are cautioned that the stock may halt and never reopen. Place your bets appropriately.

A somewhat contrarian view on commodities from Global Tactic Asset Allocation: "Most commodities remain deeply overvalued. As with other assets it does not really matter in the short-term (as long as the trend is positive) but it is paramount for longer-term projections. We have little doubts that commodity long-only who buy to hold are going to experience a >50% drawdown (from current levels) on their industrial metals, crude oil and agricultural positions sometimes in the next 24 months. Demand has been artificially boosted by China strategic reserve building, infrastructure intensive fiscal stimulus, booming demand from the rest of emerging economies and, as the trend persisted, by trend followers and money managers new attraction to the sector (you know it is not correlated so you should buy them to diversify your portfolio... sorry it WAS not correlated...). The introduction of physically-based ETFs is not helping in this matter as it represents a big short-term increase in marginal demand especially when the Fed is still busy implementing QE2."

Canadian companies have crossed a “pension Rubicon” and are continuing to dismantle traditional defined benefit plans even as the economy improves, according to a review by Towers Watson...

A stock falling due to a cut in FY outlook is nothing new. However, a stock cutting its outlook due to its biggest customer refusing to accept contracted shipments "until it reduces inventory levels" is probably the first confirmation we have ever seen of the massive inventory overbuild in China. The plunge in AMSC stock afterhours by over 40% is not surprising considering its entire business model is now turned upside down. What also should not be a surprise is when ever more companies delivering into China commence with comparable announcements. And with China drowning in excess inventory of virtually everything, this certainty is just a matter of time.

In other market-shaking news, The Bernank says the Fed WILL act if inflation is "more than transitory." Apparently, he finally had to pick up the check at a restaurant this week or perhaps he pumped his own gas over the weekend.

Contrarian, yet common sense, perspectives on Apple that so few seem able to see.

In what could easily be the biggest news of the day, even more important than the most recent Chinese rate hike, the one stock that determines the broader stock market level more than any other, Apple, may well get crushed today as index arbs dump it following news that the Nasdaq 100 intends to announce a rebalancing which will see AAPL drop from a 20% to a 12% weighing. According to the WSJ, the move is akin to what various exchanges do when they hike margin rates to prevent commodity prices from surging: "The rebalancing was driven in part by the seemingly unstoppable rise in Apple shares, which are up more than fourfold in the past two years. The tech company's big weighting means that a change in fortune for the maker of iPhones, iPods and iPads has a huge impact on one of the most heavily traded indexes in the market. After the rebalancing, which takes effect May 2, Apple will make up 12% of the Nasdaq-100." Whether this will be the end of the company's relentless rise remains to be seen although any impairment in the sensitive ecosystem of technical factors that has so far prevented any fund from selling the company may well be impaired at this point, leading to the first bona fide sell off in the name in the past 3 years.

During the Great Recession plenty of money was made betting against the consumer. In 2010, the number of non-business bankruptcy filings grew by 8.8% to 1.5 million. While this number may seem high, it is significantly lower than the 31.5% jump in 2009. In the shadow of bankruptcy lead defaults lies Portfolio Recovery Associates, Inc. (NASDAQ: PRAA). With a market cap of $1.4 billion, PRAA is the leading receivables management company. Read more to see how you can cash in on their ability to collect.

After first it was disclosed that TEPCO does not know the different between millions and thousands, the firm which is now set to be at least partially nationalized, has decided to blame its computers for the ongoing catastrophic handling of the Fukushima disaster. From NHK: "Tokyo Electric Power Company says it will review all data on radiation
leaked from the damaged Fukushima Daiichi nuclear plant, citing errors
in a computer program. The utility says it found errors in the program used to analyze
radioactive elements and their levels, after some experts noted that
radiation levels of leaked water inside the plant were too high." In other words, every "fact" you have heard so far in the past 3 weeks - you can forget it. And since the BLS is coming, and the Nasdaq is about to fund (105% debt financed) the Japan government's multitrillion restoration effort, it will all be well from now.

While it is admirable that the Nasdaq and ICE are doing their best to avoid going obsolete in a world in which exchanges no longer matter, the question of just how credible the market considers an offer which has a financing component accounting for 33% of the transaction funding ($3.8 billion), is very suspect. After all what prevents private equity firm XYZ to come up with a 100% debt funded overbiad thanks to a "highly confident" (also known as "highly conflicted") letter from Goldman that it can raise the debt. In this case we have debt underwriting "titans" Bank of America and Wells Fargo underwriting the $3.8 billion. In other words, this deal has the same probability of happening as the Fed has of sustaining the market without downticks for the next 3 months.

Gold commenced 2011 at $1,420.78/oz and with two days of trading left in the first quarter, gold is marginally higher at $1,420/oz. It is therefore flat for the quarter after another quarter of correction and consolidation. A lower quarterly close would be the first lower quarterly close in 9 quarters. This may be beneficial to some of those short the gold market who may be attempting to 'paint the tape' and engineer a lower quarterly close - in the forlorn hope that this could lead to momentum selling by trend, following hedge funds and traders. A lower quarterly close may be achieved but the fundamentals of anaemic supply and continuing strong demand both from the investment sector, but also from the jewellery and industrial sectors (dental and electronics primarily) internationally, and particularly in China and Asia in general will likely see gold continue to rise in 2011. Interestingly, March 2010 and the first quarter last year (see chart above), also saw gold flatline prior to strong gains in April and the second quarter of 2010 (Q2 10). Gold rose by nearly 6% last April and by nearly 12% in the quarter. The unresolved eurozone debt crisis and the emergence of the Japanese natural and nuclear disasters and geopolitical risk in oil producing nations means that the fundamentals today are as sound as they were in 2010 - if not more sound.