According to some estimates, there are currently about 500 hedge funds in the world with AUM over $100 million. This means that roughly half of these asset managers collected performance and management fees for one simple task: to hold AAPL stock. According to the latest just released Hedge Fund Tracker from Goldman Sachs, a record high number of hedge funds, or 226, were long AAPL stock as of March 31, just days ahead of its all time highs, in what can only be described as the world's biggest hedge fund hotel (California). Because the only thing that is roughly comparable to the chart of the recently parabolic move higher in the AAPL stock is the number of hedge funds holders: 216 at the end of 2011, 209 at the end of Q3, 181 at the end of Q2, 173 at the end of Q1 2011, and so on. And while they may all be long the stock for their own "fundamental" reasons, the reality is that whenever there is a scramble for safety, on margin calls or simply due to general Risk Off behavior, it is the winners that would get sold, as selling beget selling, and eventually liquidations. Only in this case, 226 hedge funds all have the same winner. So far the AAPL drop has been relatively benign, not least of all because the stock is the NASDAQ, which just happens to be the growth frontrunning of the 2012 stock market. But what happens if the Fed continues to push off the NEW QE announcement: just how much of a general collateral redemption onslaught can the said hotel withstand before its tenants all scramble to leave at the very same time?
They call their clients muppets, they lose their clients massive amounts of money, they get preferential government treatment and get paid billions in bonuses at the same time they accept trillions in bailout aid. Exactly why not a class actiion FB suit again?
By The Time Operation Twist 1 Is Over, The Fed Will Have Quietly Completed 40% Of Operation Twist 2 As WellSubmitted by Tyler Durden on 05/20/2012 20:36 -0500
By the time Operation Twist (1) ends in just over 40 days time, on June 30, Fed Chairman Ben Bernanke, according to his previously announced "loose" target, will hope to have extended the average maturity of all bonds in the System Open Market Account (SOMA) to a record of roughly 100 months from 75 month at the onset of the program in October 2011. After all the sole purpose of Twist was to load up the Fed's portfolio with duration, forcing the rest of the market to shift its investing curve even further into risky assets, as the Fed will have effectively onboarded the bulk of securities in the 3-4% return interval. Now as we showed back in early April, hopes that the Fed will simply continue with Operation Twist 2 after the end of "season" 1, as suggested by some clueless "access journalists" who merely relay what they are told by higher powers, are completely misguided as the Fed simply does not have enough short-term securities (1-3 years) to sell, and would have at most 2 months of inventory for a continued sterilized operation. Which however, does not mean that the Fed can not be quietly ramping up its operations in the ongoing Twisting episode. Because as Stone McCarthy demonstrates, as of the past week, the Fed has already surpassed its 100 month maturity target of 100 months, and is at 102.82 months as of May 16. And this is with 6 more weeks of Twist to go: at the current rate of SOMA purchases, the Fed will have a total portfolio average maturity of just shy of 110 months by June 30! Which means that contrary to market expectations of what the Fed's own stated goal may have been, Bernanke will have gobbled up nearly 40% more long-dated Flow relative to estimates! In other words, Ben does not need to do a full blown Operation Twist 2 episode: by the time Twist 1 is over, he will have attained nearly 40% of the goals of the next potential sterilized operation.
This week we bring back Alasdair Macleod, publisher of Finance and economics.org, because, as he puts it "every horror that we discussed last time we spoke is coming about". Especially scary since our previous conversation with him was less than three weeks ago... Today's interview continues building on his excellent synopsis from last month that detailed the origins of the Eurozone crisis. The fundamental shortcomings warned of at the Euro's creation in 1997, combined with the excessive sovereign debts run up since then, have finally expressed themselves at a scale too large to be contained any longer. Today, Alasdair details in-depth the huge and serious challenges facing Greece and the major Eurozone countries, and the likely impacts of the fast-dwindling options left remaining. He sees no happy ending to this story, no outcome in which serious pain and permanent behavior change can be avoided. And for those looking for shelter from the unfolding economic storm, he sees few options besides the precious metals (which he believes are severely under priced at the moment):
There's a big, fat "I told you so" coming down the pike.
- Inside J.P. Morgan's Blunder (WSJ) - Where we learn that Jamie Dimon did not inform his regulator, the Fed, where he is a board member of the massive JPM loss even as he was fully aware of the possible unlimited downside
- Euro Attempted Recovery Countered By Asian Sovereigns (MNI)
- Santander, BBVA Among Spanish Banks Downgraded by Moody’s (Bloomberg)
- Defiant Message From Greece (WSJ)
- G-8 Leaders to Discuss Oil Market as Iran Embargo Nears (Bloomberg)
- Spain hires Goldman Sachs to value Bankia (Reuters)
- China to exclude foreign firms in shale gas tender (Reuters)
- Fed Board Nominees Powell, Stein Win Senate Confirmation (Bloomberg)
- Defiant Message From Greece (WSJ)
- Fitch Cuts Greece as Leaders Spar Over Euro Membership (Bloomberg)
- Madrid Hails Moves by Regions to Cut Spending (WSJ)
The best charts are those that need no explanation. Such as this one.
The business cycle ought to be thought of as a series of discrete phases, each one quite distinct from the other, rather than as a smooth and uninterrupted process through time. This is how Goldman Sachs describes what is a compelling view of the dynamics of macro acceleration-and-deceleration and expansion-and-contraction and how these separate phases of their so-called 'swirlogram' can be mapped into asset class performance. This means that unlike traditional business cycle momentum jockeys and the extrapolating 'rulers' of the world, trade positioning should depend not only on the current state of the cycle but also on the near-term phase transition. As the cycle turns, so do assets; economic acceleration serves as an early indicator of looming shifts. Hence, vigilance in monitoring the business cycle with an eye towards identifying cyclical turning points is instrumental to a disciplined investment process. These lessons are timely too. Back in March, the business cycle peaked. The GLI shifted from the Expansion phase to the Slowdown phase; growth remained positive but acceleration turned negative. More ominously, April GLI growth was quite modest, with downward revisions to the last few months of data too. If the current downbeat data trajectory is extended, current GLI readings may prove to be overly optimistic. And should acceleration remains negative (which today's Philly Fed will drive), there is not much of a growth buffer to prevent the cycle from slipping into the Contraction phase, where the message for asset markets is clear and sobering.
Fear & Panic are the Banking Cartel’s Weapons V. the Gold & Silver Bull. Patience and Logic are the Best Defense.Submitted by smartknowledgeu on 05/17/2012 08:11 -0500
Currently, there is massive negativity surrounding gold and silver and in particular, gold and silver mining stocks. At times like this, when gold and silver have taken a fairly brutal hit in a condensed period of time thanks to low daily trading volumes both in PM futures and PM stock markets that make it very easy for the banking cartel to manipulate them, it can be difficult not to sell out of everything and run for the hills if one allows emotions to dictate one’s decisions (always a bad move).
- As ZH warned last week, JPMorgan’s Trading Loss Is Said to Rise at Least 50% (NYT)
- Spanish recession bites, may be prolonged (Reuters)
- Obama Lunch With Boehner Ends With Standoff Over Budget (Bloomberg)
- Hilsenrath: Fed Minutes Reflect Wariness About Recovery's Strength (WSJ)
- N. Korea Ship Seizes Chinese Boats for Ransom, Global Times Says (Bloomberg)
- Greece Plans for June 17 Vote Under Caretake Government (Bloomberg)
- Hollande turns to experience to fill French posts (FT)
- ECB Stops Loans to Some Greek Banks as Draghi Talks Exit (Bloomberg)
- Spain Urges EU to Provide More Support (WSJ)
- North Korea resumes work on nuclear reactor: report (Reuters)
- Fed’s Bullard Says Labor Policy Is Key to Cut Joblessness (Bloomberg)
- China Expands Scope for Short Selling, Securities Journal Says (Bloomberg)
Just As I Warned Of JPM's Exposure, Those Other Warnings Will Come To Pass As Well. I pull stuff out of my analytical archives and low and behold, who do I find?
At various stages in the last two years everyone from China, to Germany, to the Fed to the IMF, to Martians, to the Imperial Death Star has been fingered as the latest saviour of the status quo. And so far — in spite of a few multi-billion-dollar half-hearted efforts like the €440 billion EFSF — nobody has really shown up. Perhaps that’s because nobody thus far fancies funnelling the money down a black hole. After Greece comes Portugal, and Spain and Ireland and Italy, all of whom together have on the face of things at least €780 billion outstanding (which of course has been securitised and hypothecated up throughout the European financial system into a far larger amount of shadow liabilities, for a critical figure of at least €3 trillion) and no real viable route (other than perhaps fire sales of state property? Sell the Parthenon to Goldman Sachs?) to paying this back (austerity has just led to falling tax revenues, meaning even more money has had to be borrowed), not to mention the trillions owed by the now-jobless citizens of these countries, which is now also imperilled. What’s the incentive in throwing more time, effort, energy and resources into a solution that will likely ultimately prove as futile as the EFSF?
The trouble is that this is playing chicken with an eighteen-wheeler.
Because it is one thing to predict the inevitable when one doesn't have a PhD in Economics, it is something totally different when it comes from the likes of Goldman Sachs (Huw Pill and Themistokis Fiotakis to be precise). In this case, that something is what happens at T+1, T being the inevitable (there's that word again) point where payments from the ECB to sustain the zombified Greek patient, all of which go to ECB funded entities anyway, stop. The biggest concern is that, as we suggested first thing this morning, the ECB is now engaged in a fatal game of chicken, whereby it is forcing Greeks to vote "Pro Bailout" (something that just dawned on the FT), in exchange for continued funding, because unlike last year when the threat of a referendum resulted in the termination of G-Pap, now there is no leader who can be sacrificed, and Europe has no real leverage over the people who have lost so much already, aside from threatening a full out bank system collapse. However, this could very well backfire as more and more Greeks pull their money out, not wanting to find out who blinks first as it would be their money that could be locked up in perpetuity, in essence making the ECB threat into a self-fulfilling prophecy. And as Goldman says, "If confidence is lost and a run on banks occurs, the implications are hard to assess." Well, as ZH warned yesterday, this is already starting. Again from the FT: "Athens-based bankers said withdrawals exceeded €1.2bn on Monday and Tuesday – 0.75 per cent of deposits – as President Karolos Papoulias failed in two final meetings with conservative, socialist and leftwing leaders to form a national unity government." Or double what was suggested yesterday...