We have all heard the saying that the market is like a bug in search of a windshield. Today, courtesy of Peter Tchir we proposed another one: the market is like a child in search of a Santa Claus (and Bernanke will likely be the jolly fat man).To clarify: "Tthe markets are waiting for the ECB or FED or both, or Santa Claus, to announce some new program to stop this horrific decline of a couple percent in the market. Smart money is betting that the ECB, FED, or some other government agency will step up and give us a reason to rally. The data shows that the economy is taking a leg lower. Very few of the 'macro' problems have been fixed. Japan is still spewing radiation. MENA, with the possible exception of Egypt is worse than ever. Killing Osama eliminated one man, only to expose the potential danger from a nation, that we half considered allies while never trusting them or treating them well. The PIGS are back at the trough with their unending appetite for cheaper debt. We are using accounting tricks to keep exactly 25 million under our debt ceiling until at least August 2nd (or whatever date that Tim deems appropriate). Against the logic that things are getting worse and nothing has worked, is the Pavlovian response that governments bailout the markets and it is stupid to bet against a fresh round of stupid intervention. On data alone, the market would be lower, but we are so conditioned to expecting support at every crisis that no one is willing to miss the next rally. We all know St. Nicholas comes on December 25th, and we all know Trichet, Ben, and crew come every time the Dow drops 3%."
2, 5-Year Spec Treasury Long Positions Surge, 10 Year Shorts Highest Since August: Is Major Curve Flattening Next?Submitted by Tyler Durden on 05/23/2011 11:47 -0400
Back on March 18, Goldman Sachs advised clients to do an outright shirt on the 5 Year treasury (with a 2.3% target). And while our skeptical approach to Goldman recommendations has been no secret for a while (as in do the opposite), little did we realize just how pervasive the counter-squid trade has become. Amusingly, since Goldman recommended putting the trade on, net non-commercial speculative contracts (longs minus shorts) have surged to a multi-year high of 265,550 as of May 17. This is nearly double the 137,765 in net contract positioning when Goldman put its recommendation on. While it is unclear how much of a factor, if at all, Goldman's reco has been in this inverse trade recommendation (it appears even the dumb money among Goldman's clients is doing what the smart money and its prop desk is engaging in: namely doing the opposite of what the sell-side recommends), it is very clear that traders have congregated in the short end of the curve, with both 2 and 5 year net exposure near multi year highs, even as the 10 Year, which has seen a rise in yield over the past month, has just tumbled to the highest short exposure since August 2010. That said, will specs again be carted out head first as they were recently in the EUR and USD mauling? And if so, will the ensuing curve flattening result in another major leg down for the financials. The answer is certainly yes, as soon as pain thresholds on either side are breached and the profit taking begins (or the CME hikes Treasury margins).
Yesterday we presented the latest 13F quarterly compilation summary, as prepared by Goldman's David Kostin, in raw format. Today, we bring you his high level observations on what this update means for stocks from a big picture perspective, as well as thematically. "We estimate hedge funds own roughly 3% of the US equity market. Turnover of all hedge fund positions averaged 32% during 1Q
2011 (roughly 130% annualized). The tilt of hedge fund holdings towards large-cap stocks has been increasing for almost 10 years.
The typical hedge fund operates 48% net long, flat versus 4Q 2010. Combining long and short position data, hedge funds have the
greatest net portfolio exposure to Consumer Discretionary (18%), Information Technology (16%), and Energy (14%). Our Hedge Fund
VIP basket has 15 new constituents: SSCC, BP, MRO, PCLN, VRX, TEVA, YHOO, CVX, MET, NFLX, MA, SINA, CHK, EQIX, and ESV." In addition, for all you technicians, here is the full weekly chartporn from GS.
Stock markets on crack are about to join Lindsey Lohan and Charlie Sheen in rehab. We are witnessing the end of the third great bubble in debt, the greatest accumulation of IOU’s in history. The Federal Reserve is now manipulating all markets, and the exercise is certain to end in tears. The only way out from this will be to suffer an economic and financial crisis worse than we have seen to date. Dow 3,500, here we come. Looking for oil at $15 a barrel. Gold craters to $250 and silver to $4. A 2% yield on ten year Treasuries anyone?
It's getting hot in here!
The recent correction in the commodities markets may be providing Bernake, Geithner and their easy money acolytes with a sense of relief given the relentless run up in prices of raw materials since the announcement of QE back in 2008, but they should not sleep tight just yet. As anyone in the markets will tell you, when any underlying has a price move so vertical in its trajectory it’s bound to face a correction as the smart money, having gotten in for fundamental reasons much earlier along the trend line now wait for the panic buyers or the Johnny-come-lately’s to give the rally that last unsustainable spike to unload their longs and leave the suckers holding $40.00 silver in their purses. So one must step back and take a long view. Although it would appear that those of us who warn that inflation is not just a threat but very much a fact of life now were knee-jerk pontificators jumping on the commodities rally trend for political (read: Fed/Obama bashing) reasons, the analysis is quite sound. Most important, it is methodical not emotional as price surges tend to make investors and analysts from time to time. Here are some facts: even with the inevitable correction in commodities, as of this writing crude oil is 35% more expensive than it was a year ago…advancing with ups and downs along the way from as low as $17.50/bbl in November of 2001 to its current level of over $100/bbl or around a 19% annual appreciation in a decade since the Fed started giving away dollars. Silver 93% Wheat 84% Cotton 100% Coffee 55% Cattle 10% etc etc. Gold is up 22% for the year. More revealing, it is up an astonishing 450% since 2001. In that same decade the USD index against all currencies shed 40% of its value.
With all eyes on the commodity sell-off, none of the popular media carousel (except for Zerohedge) was mentioning the euro crash/ dollar rush. This smells like a dollar short squeeze to us: a paradigm shift?
As the days go by, we are getting the feel that this is becoming more than a normal correction for silver. It looks like the first phase of the secular bull has been completed! So what's next for the white metal?
This guy hasn't got the slightest idea (or wants it to appear that way), and more Silver Shenanigans from Europe...
There is a great disturbance in the world's financial Force. Many sense it as a storm on the horizon, something not yet visible but telegraphed by a rising, swirling wind and a new electric scent in the air. I don't claim to have a complete narrative that accounts for all the points of friction wearing down the moving parts, nor do I claim a "solution." But a few observations might help inform our awareness of the disturbance....The Fed is busily destroying the village, suposedly to save it--only it's the global village. But the Fed isn't the only player with a stake in its game, and the other players, notably China, are tipping their hand that they will have to act, and soon, to protect their own domestic economies from the Fed's destructive policies.
Over the weekend, Dian Chu proposed the "precious metals (and specifically silver) are a bubble" argument to a rather vociferous reaction from readers. Today, to keep the argument balanced, we present the counterpoint from Doug Casey: basically, there is no spoon...or bubble: "A meme is now circulating that gold is in a bubble and that it's time for the wise investor to sell. To me, that’s a ridiculous notion. Certainly a premature one. It pays to remain as objective as you can be when analyzing any investment. People have a tendency to fall in love with an asset class, usually because it’s treated them so well. We saw that happen, most recently, with Internet stocks in the late ‘90s and houses up to 2007. Investment bubbles are driven primarily by emotion, although there's always some rationale for the emotion to latch on to. Perversely, when it comes to investing, reason is recruited mainly to provide cover for passion and preconception. In the same way, people tend to hate certain investments unreasonably, usually at the bottom of a bear market, after they've lost a lot of money and thinking about the asset means reliving the pain and loss. Love-and-hate cycles occur for all investment classes. But there’s only one investment I can think of that many people either love or hate reflexively, almost without regard to market performance: gold. And, to a lesser degree, silver. It’s strange that these two metals provoke such powerful psychological reactions – especially among people who dislike them."
If the world is coming to an end, why is the VIX making new multi-year lows?
Never have so many, said so much, that's so wrong. It seems like a combination of deficits and rating agency action have sparked a myriad of comments, many of which are just plain wrong....First, on the deficit. NEITHER party is reducing the existing cumulative deficit nor amount of debt outstanding. They are NOT creating surpluses anytime in the next few years (decades)! They are cutting the projected deficit...Secondly, after getting wrong what the deficit reduction really is, they get wrong the likelihood. Talks about 2030 being balanced. Excuse me???? In November the talking heads thought we might see tax cuts expire. They didn't see new spending. In December, we got both! Why do we assume things will be better 15 years from now when we can't predict a few months out very well? Probably, the obvious reason. IBGYBG. I'll Be Gone, You'll Be Gone. Stocks have rallied from 900's to 1,300 as the smart money bet on unwavering and unlimited government support. Tepper was spot on. He called it for what is was. Now, smart money may be realizing that game is over... The pundits can continue to be wrong about their budget commentary, can scream til they are blue in the face that the rating agencies don't get it, but we have moved one more step towards that slippery slope where government support for stock prices is getting more difficult to implement.
“Gold has gone up too fast too far” “Silver is in a bubble” We are starting to see more and more of these warning statements in the past couple of days. But sentiment and underlying indicators don’t point at major positivism in the segment at all, on the contrary, investors are still wary of this asset class.
I love/hate when things line up like this.