New Record For GLD Gold Holdings (+5 Tonnes); Gold On Its Way To Validate Goldman's $1,400/Oz PredictionSubmitted by Tyler Durden on 06/22/2010 17:26 -0400
On June 17, we wondered whether the "parabolic blow off in gold accumulation by ETFs is about to cause a gold price explosion?" Sure enough, yesterday, Goldman Sachs came out with a bullish report on gold in which the firm stated that should gold purchasing by ETFs continue at the recent pace, then gold at $1,400 is a virtual certainty. A quick look at the closing NAV in the gold holdings of GLD, as a proxy of the broader Gold ETF community, indicates that $1,400 - here we come. Just overnight, GLD added another 5.2 tonnes of gold, bringing its new total to a fresh all time high of 1,313.13 tonnes, a whopping 76 tonnes higher than a month ago. As the indexed chart below demonstrates, what we thought could become a positive feedback loop whereby non-physical ETFs scramble to at least catch up to a par NAV, is already in process: the ETF accumulation by GLD, which is now the 6th largest gold-owning entity in the world, has become a self-fulfilling prophecy. If the ETF is indeed purchasing said gold in the open market, there is no way this would not be moving the price much higher, absent massive synthetic shorting by the LBMA. Yet at some point, internal risk controls at even a firm with infinite margin like JPMorgan will take over, and force the bank to cover its record short exposure. When that happens, the already disclosed demand by entities such as ETFs and Central Banks, will catch up with the most manipulated and distorted supply curve in the history of economics.
Goldman's Allison Nathan is out tonight with a report that will leave an unpleasant taste in the mouths of growth/BRIC bulls. In an analysis whose key catalyst is a downward revision of demand growth expectations, Goldman materially cuts its short and mid-term forecast prices for key commodities oil and copper. "Commodity markets are generally rebounding strongly off their lows but sentiment remains fragile on European and Chinese concerns and potential signs of slowing positive economic momentum, despite generally healthy macro data and further improvements in commodity fundamentals. These concerns have caused the market to revise down expectations for future growth, and, in turn, discount future commodity supply constraints." Specifically, Goldman has revised its 3 Month oil forecast to $87 from $96 (old forecast can be found here), nat gas unchanged, copper to $6,800 from $8,125, and zinc to $2,000 from $2,600. What is most amusing is the sheer loathing that comes of the page in which Nathan is forced to be constructive on gold. "We see upside risk to our forecast should investor demand continue to support further flows into the gold-ETFs or central banks continue to accumulate gold. For example, if gold-ETF buying were to continue at its current pace for the remainder of the year, we would expect gold prices to rise to $1,400/toz by the end of 2010."
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.
Goldman's macroeconomists led by Jan Hatzius have launched a new tool, the US-MAP, also known as a Macro-data Assessment Platform, whose purposes will be to track up/downside macroeconomic "surprises" relative to expectations. As lately we have had nothing but downside surprises, yet the market keeps ploughing higher for some computerized reason, this would be a useful tool to keep track of just how overoptimistic the economic consensus is. Yet as usual, Goldman introduces a fudge factor in the way it grades the importance of specific economic data: for example according to Goldman's relevance matrix, such lagging and manipulated data as the Conference Board Confidence Index is given the same weight as the ISM Services and the ADP report, and greater weight than Initial Claims, New, Existing and Pending Home Sales, the Empire Index, Industrial Production, Core PPI , the Trade Balance, Housing Starts and, stunningly, actual Consumer Spending. How this makes any sense, we don't know - then again we did not win the Wall Street All Star Economic Prize last year, so address your queries to Jan. Yet even with all this doctoring, Hatzius is forced to admit: "A visual check of US-MAP readings for the data released thus far in June confirms the predominance of downside surprises." In other words, it is about time economists start factoring in a double dip instead of continuing to live in the land of unicorns, endless stimulus and pixie dust. The game of "the data beat expectations" is now over. Now what?
Ferocity Of Imminent Spain-Germany Cold War Will Only Be Second To Upcoming Fox Biz-CNBC No Holds BarredSubmitted by Tyler Durden on 06/19/2010 00:38 -0400
One of the more ominous news of the day came from Reuters, which reported that the previously disclosed rumor that Spain was seeking a €250 billion bail out package, had in fact originated from high-placed German officials. The move, which will could easily set off an intraeuropean cold war, was prompted by the increasing schism between Europe's (so far) solvent core and the insolvent Club Med, and was intended "for Spain to take tougher austerity measures to cut its huge budget deficit." Instead, the tsunami of denial that resulted, only exacerbated matters and made it seems like Spain is truly on the brink. Compounding this animosity, was the disclosure that Spain's direct counterattack took the form of the El Pais story that "quoted Spanish government officials as saying Madrid wanted to publish the results of stress tests being conducted on its banks to reassure markets" a move which has been opposed by Germany and especially by Austria, which believes that publishing the true deplorable state of affairs of its Erste and Raiffeisen Bank would cause yet another bank run. At the end of the day, none of this helped either unlock Spain's frozen interbank or money markets, or encourage a sense of credibility in the euro (turns out that was only courtesy of the biggest short squeeze in Euro history). In fact, if such political low blows are to be expected, it is only a matter of time before all investors completely desert Europe and let it deal with its escalating vendettas on its own. Yet all of this pales in comparison with the very sweaty locker room war that was just unleashed by Fox Business' Charlie Gasparino against CNBC, and particularly its early morning anchor, Joe Kernen.
The BP oil spill is part of the same problem as the financial crisis: They are two examples of the era we are living in, the era of corporate anarchy. In a nutshell, in this era of corporate anarchy, corporations do not have to abide by any rules—none at all. Legal, moral, ethical, even financial rules are irrelevant. They have all been rescinded in the pursuit of profit—literally nothing else matters. As a result, corporations currently exist in a state of almost pure anarchy—but an anarchy directly related to their size: The larger the corporation, the greater its absolute freedom to do and act as it pleases. That's why so many medium-sized corporations are hell-bent on growth over profits: The biggest of them all, like BP and Goldman Sachs, live in a positively Hobbesian State of Nature, free to do as they please, with nary a consequence.
As previously reported, BP has already hired Goldman, Blackstone and Credit Suisse. Now Charlie Gasparino reports that the British firm is apparently in the process of hiring every single investment bank in existence: new banks rumored to be in contract negotiations include Morgan Stanley, HSBC, UBS and Standard Chartered. According to Charlie "they are being asked to somehow guarantee that they would lend money to the company." Another angle is that the firm is preempting any possible hostile takeover, by preventing any competitor firm from hiring any of these banks, which pretty much round out all the megabank firms that have a credible capital markets desk (sorry RBS), and thus make a hostile acquisition problematic. At least so far there has been no taxpayer capital going to BP, so retainer and success fees for the 7 banks, which will likely run into the hundreds of millions, will only be footed by BP's ever angrier shareholders.
CNBC reporting that BP is preparing to launch a $10 billion bond issue. It is unclear if that other most loved company in America, Goldman Sachs, will be lead underwriter. The fact that the firm is willing to come to market at a time when its 5 year spreads are in the 500 bps ballpartk is very troubling, and likely indicative that courtesy of counterparty arranagements collapsing, the oil company's access to liquidity must be getting problematic. Whether or not this is also a signal that the firm anticipates much greater cash outflows than just the $20 billion escrow is unclear, but seems likely, as BP will now do all it can to shore up as much liquidity as it can. At least the firm did not announce a stock underwriting at this new baseline stock price, which would be a huge blow to equity longs.
Open Letter to the US DOJ: In response to your open investigation regarding the suppression of silver prices in the COMEX futures markets by JP Morgan, we believe that two PM ETFs, the SLV, of which JP Morgan serves as custodian, and the GLD, of which HSBC serves as custodian, firmly deserve a thorough investigation as well.
Why Did Fed Advocate #1 Mel Watt (And 7 Others) Hold A Fundraiser Within 48 Hours Of The House FinReg Vote?Submitted by Tyler Durden on 06/16/2010 18:41 -0400
These are the kinds of stories that just make one's blood boil: the WaPo reports that the Office of Congressional Ethics (find the 10 oxymorons) is investigating either allegedly violently corrupt congressmen who held fundraisers within 48 hours of the House vote on Wall Street reform. This is not only pathetic, this is stupidity on a gargantuan scale: America deserves its manifest despotism for allowing such cretins to be voted in. And who leads this particular parade of 8 dunces? Why our old friend, North Carolina Democrat, Mel Watt, whom we have written extensively about before, specifically in his capacity of Fed advocate #1, who repeatedly tried to kill the Paul-Grayson bill to audit the fed (we refuse to capitalize this institution any longer). For previous stories on Watt's BofA/Wachovia/American Express/ABA-facilitated escapades, read here and here. And just in case the purpose of the probe was not quite clear to our less than cynical readers, here is the WaPo explaining why these are 8 Congressmen who have hopefully just waved all their chances to reelection goodbye, and hopefully will find a job at their Wall Street-based sponsors: "The probe is focused on whether the timing of accepting the campaign checks created an unacceptable appearance of a conflict, according to sources familiar with the investigation and letters sent by the OCE to lobbyists requesting information. The OCE's spokesman declined to comment for this article, citing the ongoing nature of the investigation."
Barney Frank has released the House "offer" language on various issues to be discussed tomorrow during the House-Senate Conference Committee, which will convene at 11am in Rayburn Room 2128. While some of the items on the docket relating to Investor Protection and Executive Compensation, are largely irrelevant, Barney will also discuss such critical issues as the Fed Audit, the Fed's emergency lending power, and Foreign FX swaps. Ignoring that 80% of the S population demand an end to fed secrecy, the just released proposed language also appears to peddle exclusively to Bernanke and his Wall Street superiors, in that items under debate for the audit will not include monetary policy, and it will be America's sad fate to extinguish under a 0% interest rate, never knowing how such lunacy can have come to be, until such time as the banking system blows itself up once again. This way the American public will never know whether someone like Goldman Sachs (in addition to Jerome Kerviel) has had any influence in determining monetary policy.
When (not if) the need arises to dismantle the TBTFs, full of noncashflow producing loans, the next time around we have a Flashiest Crash, we will have no way to do so, despite the widely propagandized Obama FinReg reform. These are the words of Obama's right shoulder man Paul Volcker, who on William Isaac's program earlier noted that proposed legislation is "not going to prevent the top five banks from being saved." In that sense, the primary goal of Obama's attempt to overhaul financial regulations: the prevention of taxpayer bailouts when banks implode, is a miserable failure, yet it will not stop countless hours of self-congratulatory, teleprompterized appearances by the president, the Congressman from Fannie Mae and the Senator from Countrywide. In other news, the bankers win again, and nothing changes. Next up: how to get bank leverage to 100x all over again, without alerting the general public that next (if not this) year's bonuses will be once again fully funded by the US middle class.
Nouriel Roubini was on CNBC earlier, sparring with Mohamed El-Erian, providing a very indecisive prediction about the future of the US economy. The RGE economist who previously would say the depression is only just starting, is unwilling to commit to a prediction of a double dip for the US, and barely do so for Europe. His anticipation of sub 2% GDP growth in H2 is... higher than that of perpetually optimistic Goldman Sachs, which sees 1.5% H2 growth. So much for swinging for the fences. But when existing subscribers expect to a given set of data, it is quite understandable. It is, nonetheless, good to see that the Doctor read the ConvergEx report we posted some time ago indicating how the Fed, and everyone else calling for a projected reduction in unemployment, are pathological liars: "With 130.2 million people presently employed, that works out to an addition of 385,000 jobs in each month, May through December – and that’s just to reach 9.4%. The low-end Fed projection is 9.3%. Considering the economy added 290,000 jobs (more on this later) last month, 385,000 seems a touch ambitious to say the least." And this does not include the atrocious May report, which means the economy has to add over 400k real private, non-census jobs a month. This is impossible. At least Roubini admits: "eventually even the US can't outrun a trillion budget deficit for the next ten years." To all speculators: good luck timing the turning point into the last crash. An oddly unsatisyfing clip, but the head to head between Roubini and El-Erian 5 minutes into the clip is amusing: Keynesian vs. non-Keynesian.
61% Underfunded Illinois Teachers Pension Fund Goes For Broke, Becomes Next AIG-In-Waiting By Selling Billions In CDSSubmitted by Tyler Durden on 06/14/2010 15:47 -0400
“If you were to have faxed me this balance sheet and asked me to guess who it belonged to, I would have guessed, Citadel, Magnetar or even a proprietary trading desk at a bank.” So begins a story by Alexandra Harris of the Medill Journalism school at Northwestern, which, however, does not focus on some exotic product-specialized hedge fund, or some discount window (taxpayer capital) backed prop desk (hedge fund) at a TBTF bank, but instead at the 61% underfunded, $33.7 billion Illinois Teachers Retirement System (TRS), which just happened to lose $4.4 billion in 2009 (a year when, courtesy of America's conversion from capitalism to socialism, the market rose 60%), and 5% in2008. Yet underperformance can be explained. What can not, is that the TRS has now become a shadow AIG. As Harris notes "TRS is largely on the risky side of the contracts, selling and writing OTC derivatives, including credit default swaps, insurance-like contracts that guarantee payment in the event of a default, that were blamed in part for the 2008 collapse of Lehman Bros. and bailout of insurance giant American International Group Inc., or AIG." Demonstrating just how far the fund is willing to go in the "for broke" category, knowing full well that if it repeats AIG's implosion, the government will likely bail it out, is the disclosure that a stunning 81.5% of the fund's investments are considered risky - this means it is the fourth-riskiest investment portfolio for a pension fund in the U.S! All it will take is another Flash Crash-like event, or a liquidity crunch, and the 355,000 "full-time, part-time and substitute public school teachers and administrators working outside the city of Chicago" will likely end up with a big, fat donut in their retirement portfolios courtesy of some deranged lunatic, portfolio manager, situated externally at a bank like Goldman Sachs, who in taking a page straight out of Obama's bailout nation, has decided there is no such thing as risk. And to those naive enough to think the TRS is the only such fund which has now gone all-in on "no risk and infinite return", wait until such stories start emerging about every single massively underfunded pension and fully insolvent fund in the US.
Gasparino Says BP Has Hired Goldman And Blackstone, Does Either Have A Restructuring Advisory Mandate?Submitted by Tyler Durden on 06/14/2010 14:28 -0400
Fox Business' Gasparino reports that BP has hired Goldman and Blackstone, among other financial adivsors. While the hiring of Goldman is perfectly logical as an advisor to prevent a hostile take over, Blackstone's advisory practice is really known for just one group - restructuring. Did BP just finally hire a restructuring banker? We are waiting for confirmation to find out if a bankruptcy-focused legal advisor has also been retained to validate this assumption.If that is the case Simmons will be right and the firm could pursue some form of (dis)orderly bankruptcy. Matt Simmons that is. Not Simmons'd firm Simmons & Co, which on Friday upgrade BP to a Buy with a $52 price target.