This weekend’s not so secret meeting was the first step towards what could be a rapid end game of Greek debt restructuring. The lenders are unlikely to give Greece the exact same terms as Portugal and seem intent on demanding collateral against future loans. Greece must resist providing collateral since it now realizes it will not be able to pay back all the debt. Greece will push hard for better terms, but if collateral is required, it will be in Greece’s best interest to restructure sooner rather than later. Since the sovereign restructuring process is a negotiation without much ability to use the courts, Greece will find a way to minimize the damage to itself and its citizens while creating a debt structure that is sustainable. This will all be done while retaining the Euro as its currency. Greece may be looking at re-introducing new Drachmas, but this round of restructuring will still be in Euros.
According the official spokesperson for CME Group, which owns NYMEX, the performance bond increases are designed to address "increased risk". If this were so, however, such changes would apply only to short sellers and new long buyers who purchased up in the higher price ranges. Most of the older long buyers were sitting on huge profits from the upward movement of silver, when the new bond requirements were imposed in the $49 range. They posed no greater risk at all than they did back when they made their purchases at $18, $20, $25 per ounce, etc. Coupled with the sudden increased performance in bonds, there has been an all-out media effort to convince people that a “bubble is bursting” even though, as we will shortly explain, anyone who is worth his salt as an analyst knows it isn't true. There has NEVER been any bubble in silver in 2011, and therefore, it cannot possibly "burst”. There has simply been an unwinding of a grossly underpriced asset that has been subject to a multi-year price suppression effort. Be that as it may, this downturn provides, for the first time in a long time, more than mere gambling opportunities. Highly leveraged and undercapitalized speculators have been kicked out of their positions, and they had pushed the price of silver up very fast. It would have gone to the same levels, anyway, and beyond, but the process would have been slower and steadier if the market had been limited to cash buyers and well-capitalized investors.
And so the damage from last week's commodity crash continues. Reuters reports that the flagship commodity fund run by top Phibro trader Andrew Hall suffered a 12 percent fall last week as oil prices tumbled, a fund investor said on Monday, demonstrating how the plunge walloped some of the market's most experienced traders. "The Astenbeck II fund, which was worth an estimated $2.6 billion in late April, took the hit as oil prices plummeted and commodities saw the biggest price drop in 2-1/2 years last week. Last week's losses would have come to just over $300 million, based on those figures, and likely wiped out the year's 10 percent gains through March. Hall, who made headlines for a giant $100 million bonus while at Citigroup, now serves as the head trader of Phibro, a unit of Occidental Petroleum since 2009. He is well-known as an oil bull who often takes large directional bets on the price. The fund, part of Hall's Astenbeck Capital Management, made returns of 12 percent last year, one investor said. "All the big funds have been hit fairly hard (last week)," said the investor, "Astenbeck is down 12 percent."
Commodity Correction Over? WTI Retraces 38.2 Of Drop From Highs, And 61.4 From Thursday Algo-Inspired Flash CrashSubmitted by Tyler Durden on 05/09/2011 - 14:58
At this point it appears rather safe to say that the commodity correction is over, as SocGen predicted over the weekend. As of this minute, WTI has retraced the key 38.2 Fib level from its highs, and looks set to take out the $104.6 price which would mark half the correction from the top. And, just as notably, the retracement from the Thursday algo inspired collapse, is now 61.8%. So much for that. We wonder if this means the peasantry can put Eric Holder back in the carbonite, and is it time for the CME to shift its attention from silver to WTI margin hikes? The answer, according to cramer and central planning, is a resounding yes.
And yes, this is not news.
Head Of Eurogroup Admits To Lying About "Secret Greek Meeting" Out Of Fears For Market Collapse - "When It Becomes Serious, You Have...Submitted by Tyler Durden on 05/09/2011 - 13:54
On Friday the misinformation floated about the Greek expulsion event hit a fever pitch: while we correctly speculated that nobody would be expelled from the Eurozone, the amount of conflicting info was at an all time record, with glaring inconsistencies between various quoted authoritarians. Now, courtesy of the WSJ blog, we learn that, for the first time in history, a spokesman for Jean Claude Juncker, the PM of Luxembourg, and the head of the Eurogroup council of eurozone finance ministers, admits openly to having lied to media outlets. "In a phone call and text messages with two reporters for Dow Jones and the Wall Street Journal, Mr. Schuller repeatedly said no meeting would be held. He apparently said they same to other news outlets; at least one more moved his denials on financial newswires. Of course, there was a meeting–although not, apparently, to talk about Greece quitting the currency, which would be an extreme step to say the least. Mr. Juncker even said a few words to reporters who had hustled to Luxembourg to stake out the gathering. So why the lie? “I was told to say there was no meeting,” said Mr. Schuller, reached by telephone Monday. “We had certain necessities to consider.” Necessities? Why yes: such as perpetuating the now open lie that is the ponzi market: "Evening in Europe is midday in the United States. “We had Wall Street open at that point in time,” Mr. Schuller said. The euro was falling on the Spiegel report, which had overhyped the meeting. “There was a very good reason to deny that the meeting was taking place.” It was, he said, “self-preservation.”" And there you have it: the Eurozone itself now admits that it will sacrifice credibility at the expense of a few FX pips and a few basis points in the ES.Everything else is smoke and mirrors. And people think that central bankers will consider the threat of inflation should the Russell 2000 ever retrace back into bear market territory...
And The Surreal Morphs Into The Tragi-Pathetic: Portugal Opens Criminal Inquiry Into Rating AgenciesSubmitted by Tyler Durden on 05/09/2011 - 13:36
Just a ROFL-inducing headline from Bloomberg for now:
- PORTUGAL OPENS CRIMINAL INQUIRY INTO RATING AGENCIES
Are blogs next?
One of the key catalysts that precipitated the perfect storm in precious metals selling last week was the WSJ article that John Burbank, among others, had sold off some or all of his holdings. Today, in a Bloomberg TV interview, Burbank refutes all the skeptics who think the top of gold is here, and makes it clear that while his offloading of the precious metal was merely a temporary trade to lock in profits, the long term fundamentals for gold are as strong as they have every been. So here it is: "The biggest reason to stay in gold is because central banks around the
world can see the writing on the wall long term, which is that the
dollar will be devalued one way or another and that Congress has no
appetite for hard decisions which would be deflationary in nature, and
therefore, make the dollar higher than gold and not as much of a
necessary holding. You also have the Chinese consumer, who has become a
very large buyer, matching almost the Indian consumer and I think quite
clearly, will exceed the Indian consumer. I think ultimately, physical
gold is the story. It is a scarcity story. The more the U.S. dithers and
the more the Fed is willing to print money, as opposed to dealing with
inflation properly, the more this trend will happen. That is the biggest
reason to stay in gold right now. Otherwise, most of the beneficiaries
of quantitative easing will be backing off as most investors get back to
neutral."... "I think that long-term it is clear sovereign yields will be weak and commodities will be strong. It just a question of when we get there and when we price that in." As for risk assets heading toward June 30: "I think risk assets sell off. I think they sell off now into it and we bottom again in commodities this summer." And there you have it, straight from the horse's mouth, instead of from some FRBNY pre-cleared journalist.
I know there is something deep in our psychology to which Black Swan hedges appeal. It seduces me too. A part of brains are wired to fear the unknown, when they part dominates our rational thinking, we process facts in a fearful way. There is another part that embraces complexity, uncertainty, and conflict. This part most people need to nurture. Why? Because fear on an applied level equals conservatism: when one conserves, there is no expansion, no newness. Instead there is theory and dogma and ritual tinged with worry and despair. A trader snorting coke off a luscious Ukrainian tummy needs the opposite. Says the Preacher: “There is a time to embrace, and a time to refrain from embracing.” I think this wise rabbi means this: learn to trust yourself, trust in your ability to rebuild and be awesome. But don’t bet the whole megillah on how big you think your dick is.
Goldman Turns "Tactically" Neutral On Stocks, Believes S&P Not Pricing In "Downshift In Macro Picture", Proposes "Zero...Submitted by Tyler Durden on 05/09/2011 - 12:32
In another key note out of Goldman, we now learn that it is not only Jim O'Neill who is the natural hedge to the firm's other diametrically opposing views (as discussed earlier). While it is no secret that the firm's chief strategist David Kostin continues to ignore warnings from Jan Hatzius et al warning that the economy is set for a period of slower than expected growth, we now find that Goldman's Roman Maranets is out with a note in which he says that "the downshift in the macro picture (excluding Friday’s payrolls print) has not been fully reflected in the level of SPX, prompting us to shift the tactical trading stance in equities to neutral." Hmm, it is somewhat odd that nobody else has noticed that Goldman is now, well, neutral (and we all know what that means in sellside lingo) on the market. Now, the question is whether this is an honest opinion, or merely a way for the firm's prop desk to accumulate ES at the expense of its clients. Judging by the market's sudden surge, asset managers seem to be convinced it is the latter. That said, the firm is now proposing a USD long as a "Zero Cost Cross-Asset Hedge for SPX" due to the firm's motivation "to find application of our framework in construction of “cheap” cross-asset hedges for investors being long SPX." Of course, why not just buy the USD and the market. We are long past the point where anything makes logical sense any longer courtesy of central planning. We wonder how Thomas Stolper feels now that his thunder has been stolen by both Maranets and Fiotakis, who predicted the EURUSD toptick to within minutes of the near-800 pip plunge in the pair in less than a week.
Moody's Investors Service has today placed Greece's B1 local and foreign currency government bond ratings on review for possible downgrade...Moody's says that a multi-notch downgrade is possible if it concludes that there is large risk that Greece's debt metrics are on an unsustainable path. In Moody's view, such conditions would materially increase the risk of debt restructuring over the short to medium term. Under such conditions, euro area policymakers have stated that future loans from the Exchange Stability Mechanism would be extended only if private creditors were to bear some of the losses. If the path of Greek debt-to-GDP were to appear unsustainable, then Greece might itself have an incentive to seek a change in the terms of its debt obligations.
And so the battle of propaganda begins: on one hand we have the US government demanding the population take a leap of faith that Osama was killed then promptly converted into lead-containing fish food, now Iran has stepped up to the plate claiming it has 'evidence' that bin Laden was in fact dead long ago. From RIA: "Iranian Intelligence Minister Heidar Moslehi said Tehran has evidence
that al-Qaeda leader Osama bin Laden had died of disease long before the
United States' alleged raid on the terrorist, FARS Iranian news agency
said. "We have accurate information that bin Laden died of illness some time ago," Moslehi said." And since Osama's body was promptly dumped at sea, and Obama decided to not release any pictures of the corpse, the conspiracy brigade will surely have a field day with this one. We can only hope Iran's evidence takes a shorter time to produce than WikiLeaks' Bank of America "killer" expose.
And so we see why the proverbial 15 minute inflation reduction, even achieved though such brute force methods as relentless margin hikes everywhere except in the ES and 100x forward P/E stocks, is nothing but hot air. After dropping by over 10% in a few days, crude is now trading at a level that corresponded to gasoline in the low $3.00 range. Instead, as AAA reports, average gas prices did decline.... by $0.006. Apparently in his extended Princetonian studies, Printocchio never got to the class which says that prices are sticky on the way up, and refuse to plunge with the same enthusiasm, especially when involving margin starved companies which are more than happy not to undercut each other on overhead prices for a long, long time.
And another major source of physical demand in the already very undersupplied silver market appears. Just released from Sprott Asset Management, who recently added to the perfect storm in silver by cashing out on the record PSLV premium and converting proceeds to miner stocks: "The Sprott Silver Bullion Fund is an innovative offering, being the
first mutual fund in Canada to invest primarily in unencumbered, fully
allocated silver bullion. The Fund's objective is to seek to provide a
secure and liquid investment for investors seeking exposure to silver
bullion without the inconvenience associated with direct investment." We can't wait to discover how many tons of silver this mutual fund will soak up imminently, and where the always exciting adventure of "COMEX registered silver" takes us next...
Reuters Special Report On What Caused The "Causeless" Crude Crash; Other Hedge Fund Casualties IdentifiedSubmitted by Tyler Durden on 05/09/2011 - 10:31
A tremendous report by Reuters' Matthew Goldstein, Svea Herbst, Jennifer Ablan, Emma Farge, David Sheppard, Claire Milhench, Zaida Espana, Robert Campbell and Josh Schneyer, identifies that while the shaky macroeconomic conditions and an overbought market were among the key reasons for last week's history crude rout, the match that caused an unseen before plunge in commodities was, you guessed it, "computers." Naturally, this is not unexpected to Zero Hedge readers who have been warned about the massive instability of a market comprised almost entirely of unsupervised algos, since the spring of 2009 (a phenomenon which the CFTC and SEC will not "comprehend" and/or change, until it is too late). Additionally, in addition to the previously identified losses at Clive Capital and Andrew Hall's latest plaything, Reuters also identifies BlueGold, Winton Capital and FTC. Basically, throw out a name that has energy exposure (let's not forget Touradji or Centaurus) and you likely have a winner. Must read.