Monday Market Movement – Pulling on Global Threads and the SEP
by Phil - December 6th, 2010 8:28 am
"We think the global (and overall European) outlook remains robust."
That’s the word from Goldman Sachs’ Erik Nielson this weekend, who also observes that he was "Possibly deluded by the wonderful vibrancy of California." Deluded indeed seems to be an excellent choice of words with a new report out showing that California leads the nation in a local government pension crisis that has a $3.5Tn hole to fill and will not be sufficient to pay benefits through 2020 along with 5 other states while another 20 states will run out of funding by 2025. Is Nielson just saying anything to herd more suckers into the market by telling the sidelined cash that it’s safe to go back in the water or is he cleverly employing an SEP Field to bamboozle the public?
An SEP (Somebody Else’s Problem) Field s an effect that causes people to ignore matters which are generally important to a group but may not seem specifically important to the individual. As Douglas Adams put it:
An SEP is something we can’t see, or don’t see, or our brain doesn’t let us see, because we think that it’s somebody else’s problem… The brain just edits it out, it’s like a blind spot. If you look at it directly you won’t see it unless you know precisely what it is. Your only hope is to catch it by surprise out of the corner of your eye. It relies on people’s natural predisposition not to see anything they don’t want to, were not expecting, or can’t explain.
SEP’s are commonly used by politicians to justify ridiculous policies like kicking crises down the road, ignoring pension and other unfunded obligations (that’s going to be your children’s problem), massive deficits (grandchildren’s problem), unemployment (lazy people’s problem), global warming (someone living south of you’s problem) and, of course unfair tax policies (poor people’s problem). They are also used by analysts, CEOs, their lobbyists and journalists (especially TV ones) to distract the "beautiful sheeple" from focusing on what’s really happening.
Not at all our problem is the price of vegetables in China and that’s a good thing for us because they have risen 20% in 30 days. Officially, China’s inflation rate was 4.4% in October but even that is expected to jump 14% to 5% in November. "Many see China’s monetary tightening as a pre-emptive tap on…
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DiggFlip, Flop and Friday – Options Expiration Spectacular!
by Phil - November 19th, 2010 8:25 am
I don’t care if I die
Don’t ever leave me
don’t ever say goodbye
Things were going according to plan (even though the plan was horrifying) and everyone was happy but then Uncle Ben had to screw it up this morning when "The Bernank," speaking in Germany, indicated that the Fed would pull the plug on QE2 if they thought inflation would rise higher than "2 percent or a bit less."
WHA-WHA-WHAT? Keep in mind that WE are the only country on the planet Earth that is still pretending inflation is under 2% and he’s making this speech in China, where inflation is 4.4% so what do you think happened?
Of course, if you can answer that, you are smarter than the Wall Street Journal (but then again, who isn’t when it’s being run by people like Roger Ailes, who just said of National Public Radio: "They are, of course, Nazis. They have a kind of Nazi attitude. They are the left wing of Nazism.") who went with the headline: "Dollar Sinks Despite Chines Rate Rise" because they clearly do not understand the workings of International Monetary Policy, which I would find disturbing if the Wall Street Journal were a trusted source of financial information and not just a right-wing mouthpiece. As our friend Jon Stewart so aptly pointed out last night, there’s a pretty large disconnect between Conservatives and reality these days and it should be no surprise to any of us that this carries over to their trading positions.
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| George Soros Plans to Overthrow America | ||||
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Fortunately, PSW readers are well aware that any indication by The Bernank that the…
Hooray, ECB Saves Eurozone 2nd Time; Allied Irish Bonds Bid at 45% of Face Value, Anglo Irish SubDebt has 99.99% Default Odds;Irish Citizens “Namatized”
by ilene - November 19th, 2010 6:49 am
Hooray, ECB Saves Eurozone 2nd Time; Allied Irish Bonds Bid at 45% of Face Value, Anglo Irish SubDebt has 99.99% Default Odds;Irish Citizens "Namatized"
Courtesy of Mish
Market participants are giddy today on the great news that Ireland will go deeper in debt in a foolish attempt to bail out the German and UK bondholders who were in turn foolish enough to lend ridiculous amounts of money to Irish banks in various real estate schemes.
The Irish government was of course foolish enough to guarantee all of this foolishness which means that Irish citizens many of whom were sucked into buying property at foolish prices are now on the hook to bail out the bondholders, rubbing salt into the wounds of Irish taxpayers, not all of whom were foolish enough to freely participate in the general foolishness.
Got that?
Here is a short video from the Wall Street Journal that explains why the bailout will not work.
Ireland Nears Bailout
Now let’s consider details of this foolishness in greater detail, starting with Crude Oil Rises From Four-Week Low as Ireland Nears Bailout
Crude oil increased from a four-week low as Ireland moved closer to a European Union-led financial bailout, strengthening the euro and boosting commodities.
Irish Central Bank Governor Patrick Honohan said in an interview with state broadcaster RTE today he expects the country to ask the EU and the International Monetary Fund for “tens of billions” of euros to rescue its banks.
Desirable Outcome
“If these talks were to result in a substantial contingency capital funding” pool that didn’t need to be drawn down, that “would be a very desirable outcome,” Finance Minister Brian Lenihan said in the Irish parliament in Dublin today. He said no agreement has yet been reached.
Fairy Tale Nonsense
Check out that fairy tale silliness from Finance Minister Brian Lenihan, then answer this question: What are the odds that a "substantial contingency capital funding” would not be drawn down?
If you answered zero percent you are a winner, which makes the Irish taxpayer a loser.
Allied Irish Bonds Have Face Value Bid of 45 Percent
Bloomberg reports Allied Irish Bonds Fall on Concern IMF ‘Bad Guy’ to Impose Loss.
Allied Irish Banks Plc’s 12.5 percent subordinated bonds due 2019 were quoted at a bid price of about 45 percent of face value, according to Jefferies International in London, down
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World of Worry Wednesday – The China Syndrome
by Phil - November 17th, 2010 7:52 am
Strap in kids, it’s going to be a bumpy ride!
Nomura Holdings joined Goldman Sachs in advising investors to cash out of China and that sent the Hang Seng down 478 points for the day (2%) along with another 2% loss on the Shanghai. “The likelihood of a re-introduction of price controls on food is growing,” Nomura’s Sean Darby said in a report today. “The recent run-up in agriculture prices worldwide and signs of hoarding appear to have pushed the authorities to reconsider draconian measures.” Premier Wen Jiabao confirmed on state television that the cabinet is drafting measures to counter overly rapid price gains. “Command style economic principles generally mean much lower multiples over time on the sector and stocks,” said Darby.
The US has it’s own "command style" economy with B-B-B-Bennie and the Fed commanding our inflation to go higher while China is trying to get their 4.4% inflation under control. The joke is, like Sidney Poitier and and Tony Curtis, our economies are shackled together through the Yuan peg as well as our codependent trading relationship. That has the World’s #1 (falling) and #2 (rising) economies engaged in a Global tug of war that threatens to tear the rest of the World to pieces and it’s just getting worse every day.
With the US pushing top-down QE2 inflation and China’s Premier calling for consumer price controls on food (and soon fuel too as a severe winter is forecast for China) it’s not surprising that Carlsberg’s Chongquing Brewery Company fell limit down (10%) on the Shanghai this morning along with several other food and beverage distributors. Copper, sugar and rubber also went limit-down in China with copper dropping all the way to $3.60 (down 10% in a week) into China’s close at 3am.
Meanwhile Bernanke is like the Sorcerer’s Apprentice: Given the magic hat – he commands his broom army to fetch buckets of dollars to inflate the economy the easy way but his lazy solution quickly turns into disaster as the waters start rising and he finds he has no way to stem the rising tide of inflation. Already, the rest of the world is drowning and not many have China’s ability to bail themselves out. This is not likely to end well…
Europe (who are caught in the middle) is already under tremendous strain with Matt…
Monday Market Movement – Meaty Beaty Big and Bouncy!!
by Phil - November 15th, 2010 7:40 am
The Fed is in all-out attack mode this week with $35Bn scheduled for release in the next 5 days. If that doesn’t goose the markets, then I think we are screwed because people, $35Bn is A LOT of money for a week. It’s $1.82Tn a year at that pace or 12% of our entire GDP being created by the Fed to give you the illusion that all is well with the markets. So say, thank you Chairman Bernanke, for treating us like children who would rather be lied to than facing reality and making necessary choices.
Speaking of necessary choices, I HIGHLY recommend looking at Barry Ritholtz’s "Fix It Yourself" deficit kit. Barry takes the more complex (but also good) NY Times article and presents the very excellent chart that shows us exactly what budget cap needs to be filled and what the available choices are to fill it. It’s a great way to think about the budget and also it makes you realize that 5 or 6 reasonable people sitting down with this chart at a table should be able to knock this thing out in a weekend if we were living in a rational world or perhaps one where an out-of-control Central Bank cooperated with a deceitful Treasury Department to maintain a status quo that clearly is not working for the American people.
QE2 is not about "fixing" the economy, it’s about FIXING the profits of the Primary Dealers (Gang of 12) who are estimated to reap a $50Bn benefit by simply acting as the conduits through which the Fed distributes our money as if they were the town Santa tossing candy off the back of a fire truck.
POMO spending might keep equities up and that is good for those of us who own them but what is it doing for the great unwashed and unemployed masses? Speaking of unemployed, did you know that 100,000 of Octobers 156,000 jobs created were not actual jobs but a bookkeeping entry as the government changed the "seasonal adjustment" it made to payroll numbers? Our friend, John Maudlin, explained the shenanigans over the weekend:
"According to John Williams at Shadow Government Statistics, the BLS’ fiddling with the figures via what he calls ‘seasonal-factor games’ actually created 200,000 phantom jobs last month. John cites such finagling as the
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Stock World Weekly
by ilene - November 14th, 2010 10:28 pm
The latest Stock World Weekly Newsletter summarizing the events of last week, and discussing next week, is now available here. As always, we love feedback. - Ilene
Thank G20 It’s Friday – Yet Another Global Cluster F*ck
by Phil - November 12th, 2010 8:09 am
Why should we be surprised?
The last G20 meeting ended in chaos, the same nonsense that triggered a flight into commodities in Q3 as Global investors lost faith in ALL of the World leaders to be able to solve ANY of the many problems that face the Global Economy. Why should this time be different as the current conference broke up with NOTHING accomplished other than to promise to get right on these issues at next year’s meeting. REALLY? Do we look like a planet that has another 6 months to wait for you to do something???
The delay by the Group of 20 industrial and developing powers in defining the external imbalances they had vowed to address represents a blurring of what at first had appeared to be clear goals designed to counter the growing threat of trade and currency wars, in which countries seek competitive advantage by weakening their currencies. The U.S. and G-20 host South Korea ran into strong opposition from such exporting powers as China and Germany to a proposal to quantify limits on current-account surpluses and deficits. Without cooperation, the IMF warns, not only will the G-20 fail to achieve a much-needed boost to growth, but it could tip the scales on the European sovereign-debt crisis and fuel capital flows into emerging countries that overheats their economies.
China is already overheating, with a 4.4% inflation rate but that’s much worse when you consider that Food Inflation was 10.1% in October from the previous year. With average family incomes of less than $2,000 – food is pretty much all these poor people can afford! The other thing people MUST buy in China (because they can do without furniture, manufactured clothing and power) is housing, and that rose 4.9% in the past year despite the BOC’s aggressive tightening measures. A lot of this is due to the Yuan’s peg to the dollar as Bernanke’s mad plan to devalue the Dollar is dropping China’s currency as well and that’s good for the manufacturers, who benefit from competitive export prices, but bad for their workers, who need to eat.
"Dollar issuance by the United States is out of control, leading to an inflation assault on China," the Chinese commerce minister said in comments reported on Tuesday. Chen Deming, speaking at a trade fair in southern China, said that exporters…
A SPECULATIVE FERVOR IN THE COMMODITY SPACE
by ilene - November 9th, 2010 6:56 pm
A SPECULATIVE FERVOR IN THE COMMODITY SPACE
Courtesy of The Pragmatic Capitalist
Via David Rosenberg at Gluskin Sheff:
Moreover, look at the latest Commitment of
Traders report at what has happened to the commodity complex.
- The speculative long interest in gold has risen since late August to a near-record 253,638 contracts;
- The speculative longs in oil have doubled to 208,726 contracts;
- For copper, the net non-commercial longs has tripled to 25,139 contracts;
- Meanwhile, there is a huge net short position in Treasury
bonds on the Chicago Board of Trade of 25,240 contracts, and;- The net longs on the euro has swelled on the Mercantile Exchange, to 35,879 contracts.
Lord help us if the U.S. dollar ever embarks on a countertrend rally — everything from credit, to stocks, to volatility, to commodities have become abnormally correlated to the greenback.
Source: Gluskin Sheff
Whig Party Wednesday – Reps take the House and QE Too!
by Phil - November 3rd, 2010 8:03 am
Now, like many Americans, the Democrats know what it’s like to lose their House.
Back in the mid-1800′s, the nation had another kind of Tea Party as the Whigs became a successful 3rd party, even going so far as to put two men in the White House – William Henry Harrison and Zachary Taylor plus Millard Fillmore, who succeeded "Old Rough and Ready" who died just after a year in office but that was a long term compared to Harrison, who caught pneumonia making a long inauguration speech in the freezing rain and died of it a month later despite attempts to cure him with opium, castor oil and leeches – treatments we are likely to see again as the Republicans vow to repeal Health Care legislation.
I don’t have to talk about what happened last night, Barry Ritholtz did a great job of it in "The Tragedy of the Obama Administration" so let’s just focus on the repercussions of the changeover and, of course, today’s upcoming Fed decision. The Board of Governors were meeting all day yesterday and will meet again this morning to discuss their policy decision and one would think they can’t be so deaf as to see that our citizens are not interested in additional deficit spending, which is exactly what QE2 is when the Fed writes checks to paper over the Treasury’s profligate spending.
Look for new and improved ways of not taxing corporations. Like GM, which will not have to pay taxes on its next $45.4Bn of earnings despite the fact that the Government paid for their losses already and allowed the company to bust union contracts and trash benefits for the millions of retired and fired workers as they shut down and sold brands – permanently shipping US manufacturing jobs overseas.
Of course, this tax break isn’t about GM. GM just sets a good precedent for similar treatment of Banksters and others who received relief under TARP and, of course, whatever they decide to call the next emergency bailout of Big Business. If the market breaks our tops, we are going to be loving the XLF which already owns most of the people who got elected last night. With FAS at $22.44, we can sell the April $19 puts for $2.75 and buy the Jan $17/21.67 bull call spread for $3.10 and that’s net .35 on the $4.67…
Oil Spill: Commission Finds That Companies Knew of Cement Flaws in the Macondo Well
by ilene - October 28th, 2010 8:16 pm
Oil Spill: Commission Finds That Companies Knew of Cement Flaws in the Macondo Well [UPDATE]
By BRYAN WALSH, courtesy of TIME
[Update: Looking again over the letter from the commission's investigator, Fred Bartlit, it's not obvious how clear Halliburton's one warning to BP on the cement test were. From the letter:
Halliburton provided data from one of the two February tests to BP in an email dated March 8, 2010. The data appeared in a technical report along with other information. There is no indication that Halliburton highlighted to BP the significance of the foam stability data or that BP personnel raised any questions about it. There is no indication that Halliburton provided the data from the other February test to BP.
If Halliburton really failed to highlight the problems with the cement test to BP, and simply buried the data in a vast technical report, that would seem to shift more of the blame to Halliburton—although at the end of the day, it is still BP's well. And as Bartlit notes at the end of his letter, since there's always a risk that cement jobs can be faulty, there are tests that can be done to doublecheck the quality—and BP and Transocean, the company actually operating the Deepwater Horizon, did not seem to perform these tests. More info will be forthcoming as the companies respond, but right now it's not looking good for Halliburton—the company's share prices are already down by 8%.]
Original post: In the first official finding of responsibility for the Deepwater Horizon catastrophe—the worst oil spill in U.S. history—the presidential commission investigating the accident found that both Halliburton and BP knew before the explosion on April 20 that the cement mixture that was meant to seal the Macondo well was unstable. Despite that fact, they still went ahead with the work, setting the stage for the accident. The staff found that Halliburton—in charge of cementing the Macondo well—had conducted four laboratory tests that indicated the cement mixture standards wasn’t up to industry standards. The results of at least one of those tests was given to BP on March 8, yet BP failed to act on it. Another Halliburton cement test was carried out about a week before the Deepwater Horizon blowout—and the test also found the cement was unstable—yet the results were never sent to BP.
All of this new information comes…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(