RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 02/12/10
Just when you thought the parasitism at the SEC could no longer surprise, we find ourselves stunned yet again: "The Securities and Exchange Commission, facing the probability that resurgent congressional Republicans will cut its budget, has put on hold part of the work it has been tasked with by the Dodd-Frank financial law. The SEC will delay setting up five new offices mandated by the law, including a new office to field tips from informants about wrongdoing that was a signature accomplishment of SEC Chairman Mary Schapiro. The so-called whistleblower office won't be staffed; its functions will temporarily be carried out instead by existing enforcement staff, the SEC said on its website. A new credit rating office, an office for municipal securities and two separate offices focused on investors and women and minorities are also on hold." In other words, let's all just sing Kumbaya and pretend our markets are supervised even as Wall Street continues to funnel trillions of NPV dollars in its pockets today, while sticking future generations with what is now nearly $14 trillion in debt.
With the recent realization that virtually the entire residential mortgage securitization system in America is hinging on fraud, as few if any of the recent structured finance packages actually were in possession of the necessary mortgage promissory notes (which were often improperly retained by seller banks as has been made all too clear after rounds of sworn and recorded servicer testimonies) we have seen a veritable explosion in the discussions, papers, essays and op-eds that claim that the existing housing system in America is based on a legal lie. Yet despite what has become glaringly obvious, the administration and the banks simply refuse to deal with the issue: that is to be expected as the damaging discoveries would result in a collapse in trillions of structured finance products leading to a fall out far worse than anything in the post-Lehman days. Furthermore, since banks now have recourse to trillions in fungible excess reserves the backdoor schemes to fill capital deficiencies will allow banks to pad the funding holes for the indefinite future. Additionally, rumors that the banks are pushing hard for a class settlement with the various attorneys general who have not yet been co-opted, bribed and otherwise converted to the fold indicates that it may only be a matter of time before this topic, which has lead so many in the blogosphere to the edge of hysteria will soon be buried. So is this merely another open and shut case which will disappear soon, and banks will continue with life and record bonuses as they know? Perhaps not. Bloomberg's Jonathan Weil suggests that instead of going after the banks and the legal system, which is now obviously beyond repair, those who seek justice should instead go after what could be the weakest link in the entire fraudclosure chain: the (well paid) auditors of these banks who may have committed fraud by signing off on their financial statements.
Kroger Stock Plunges After CEO Discloses Recovery "Slower And Weaker"; Americans "Cautious" In Buying FoodSubmitted by Tyler Durden on 12/02/2010 15:17 -0400
Another day passes, proving that you have economic propaganda (is the Dow at 36,000 yet, solely on ponzi hot potato passing between 3 computers and 2 primary dealer), and then you have reality. A quick look at KR stock indicates that not all is good with the largest US supermarket chain. Sure enough, earlier today, the company announced it was lowering the top end of its full-year profit forecast. Kroger projected per-share earnings of $1.65 to $1.78, compared with its previous forecast of $1.60 to $1.80, according to a statement today by the Cincinnati-based retailer. The consensus is $1.78. It was, however, the commentary from the conference call is most telling: The slow economic recovery is hurting grocery sales and consumers are “cautious in their spending,” Chief Executive Officer David Dillon told analysts on a conference call. The recovery is slower and weaker than Kroger had expected and competition remains “intense,” he said. Hear that: the economy is "slower and weaker"...Although that only pertains to such irrelevant items as food and drink. And who needs those when you have Kindles to keep you fed and warm at night.
Some time in January, we presented an extended analysis by Mark Hart's Corriente Fund in which the successful hedge manager presented a comprehensive case for the Chinese bubble. Today, about a year later, and after China is finally on the verge of realy pulling in the liquidity avalanche, tired of importing Bernanke's rampant inflation, Art Cashin looks at the very same Mark Hart in his market commentary: "Several readers asked if I had more details on Mark Hart’s bearish call on China. I pulled up a couple of articles, most notably the U.K. Telegraph. Mr. Hart manages Corriente Advisors. He set up a bearish sub-prime fund in 2006 and a bearish European debt fund in 2007. The anomalies he sees in China are somewhat familiar: Excess floor space exceeds 3.3 billion square meters and there are still 200m being built this year; The price to rent ratio is 39.4 times versus 22.8 times in America before the housing crises; Banks are hiding their exposure in Local Investment Vehicles; On a Sovereign level, China’s debt to GDP comes out at 107%, five times published numbers; China has consumed just 65% of the cement it has produced in the last six years; There are 200m tons of excess steel capacity, more than the EU and Japan’s total production this year. According to the articles, Mr. Hart has been growing bearish on China for months. Several other successful hedge fund managers are also said to be making negative bets on China. It certainly bears watching." We would like to help Art, and provide with a redux of what we posted back in January that summarizes Corriente's outlook.
Recently China has once again attained prominent status among the investment community, where while the majority still adheres to the old, permabullish view that Chinese risks are contained, increasingly more fund managers are convinced that the Beijing-based central-planned economy is due for a major pullback. One such one investor, as we pointed out previously, is Jim Chanos, whose exemplary track record means his opinion should never be ignored. Somehow we doubt Chanos is much insulted by Jim Rogers' derogatory remarks of his understanding of the China situation. He who laughs last...
We present critical observations by Corriente Advisors which incorporate all the salient ideas of Chanos, Edwards, Grice and other such skeptics into a fluid narrative which is a must read for all fascinated by the topic of China.
Madoff Trustee Charges JP Morgan With "Enabling" Massive Fraud; Seeks Over $6 Billion In Recouped Profits And DamagesSubmitted by Tyler Durden on 12/02/2010 14:20 -0400
Madoff trustee charges JP Morgan with "Enabling" massive fraud; $1 billion in profits and $5.4 billion in damages sought to be recovered. Says JP Morgan had clear doubts about Madoff operation and should have been more vigilant about firm's cash flows.
Blythe Masters Reminds The RICO Club She Hasn't Been Fired Yet As Gold Chart Exhibits Thor's Hammer FormationSubmitted by Tyler Durden on 12/02/2010 14:10 -0400
Another perfectly normal 6-sigma gold manipulation day where as gold was about to break $1,400, out of nowhere suddenly arrives JP Morgan's very own Blythe Masters. Elsewhere, the Comex check their spot gold screen, sighs, and switches over the SEC-endorsed porn channel. In other words: everything can be sold, except stocks as a down day (now that it is confirmed that banks pledge equity as collateral to their central banks and thus will blow up should market crash) means the Ponzi is failing. That can not happen.
Howard Marks' Scrapbook On Lessons From A Rhyming History; And Why We Believe This Time It Is DifferentSubmitted by Tyler Durden on 12/02/2010 13:56 -0400
As always, a must read letter (which is a compilation of many prior Howard Marks missives: "Thanks to the tendency of investors to forget lessons and repeat behavior, it sometimes seems there’s no longer a need for me to come up with new ideas for these memos. Rather, all I have to do is recycle components from previous memos, like a builder reusing elements from old houses") from the chairman of Oaktree who, prudent as always, cautions against the latest episode of Fed-funded irrational exuberance: "Investors who engaged in aggressive behavior just a few years ago experienced significant pain as a result. Perhaps the punishment was too brief, and perhaps it was reversed too soon. Thus some are acting aggressively once again. It’s possible that such behavior won’t be punished again the second time around, but prudent investors shouldn’t take the risk." On the other hand, whole countries are now at stake should the market decline. Taking on one central bank is tough... Taking on all the printers in the world may be a task that only nature can eventually tackle.
In a speech which on the surface is meant to convey the skepticism of the Charles Plosser over QE2, the Philadelphia Fed president admits that much more QE may ultimately be needed. "If the economy grows more quickly than I currently anticipate, the purchase program will need to be reconsidered and perhaps curtailed before the full $600 billion in purchases is completed. On the other hand, if serious risks of deflation or deflationary expectations emerge, then we would need to consider whether expanded asset purchases should be used to address these risks." And much more deflation will eventually emerge especially for large scale purchases which rely on credit procurement (coupled with increasing inflation in commodities which are first degree liquidity derivatives): after all, the collapse in the shadow banking system, and the M3, are all the matter, and the Fed has no control over these (now that European greater fool securitized investors are extinct). It is precisely the Fed's QE3 response that should start being factored in. As everything else is noise, we will immediately present the latest meltdown in the shadow economy when the quarterly update is posted at noon on December 9.
Some emotional words from Vermont Senator Bernie Sanders over the increasing social inequality in America, which he now defines as indicative of America's transition to a banana republic: "Many of the nation's billionaires are on the war path. They want more, more, more. Their greed has no end, and apparently there is very little concern for our country or for the people of this country if it gets in the way of the accumulation of more and more wealth, and more and more power. Today as the middle class collapses, the top 1% earns 23.5% of all income, more than the bottom 50%. Today, if you can believe it, the top 1/10th of 1% earns about 12 cents of every dollar in America... It is very clear that the people on top are doing extraordinarily well as the poverty is decreasing... Today the crooks on Wall Street, the people whose illegal, reckless actions have resulted in the millions of Americans losing their jobs, their savings, after we bailed them out, the CEOs are making more money than before the bailout. The US now has by far the most unequal distribution of income and wealth of any major country on earth." Not surprisingly, Sanders is not too happy about the proposed tax cut for the richest.
Was this the peak of the world's most overpriced stock Netflix? A new Form 4 filing indicates that the first defection in realization of a sinking ship may have occurred. On November 4, Netflix Chief Financial Officer Barry McCarthy sold 100,000 share equivalents, with 91,181 shares sold between $200.36 and $201.11 and the balance from option exercise. The sale has left Barry with just 51,563 shares of NFLX stock. Altogether the proceeds from the transaction are listed as just over $17 million. This also means that in next week's massive insider selling disclosure which we will present on Monday, Netflix will feature prominently in the top 10 of the world's artificially levitating companies. If the CFO believes the time to take profit is in, what does it mean for the millions of other hot potato holders? At last check Netflix was down almost $20 from the all time high hit earlier this week. It has far more to go, especially if as we expect the company will announce a follow on equity offering shortly.
RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 02/12/10
RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 02/12/10
Just kidding. More importantly, it now appears that the $1,400 barrier in spot gold will be breached shortly.