Dagong Rating Agency: "The US Has Already Defaulted" 

Submitted by Tyler Durden on 06/10/2011 08:52 -0400

The soundbite of the day comes from AFP which quotes the infamous Chinese Rating Agency Dagong, known for being a little too truthy, which told state media Global Times what everyone already knows but is afraid to say out loud: "'In our opinion, the United States has already been defaulting....Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies - eroding the wealth of creditors including China, Mr Guan said." Oddly enough, this contradict Tim Geithner's heartfelt appeal that the US is pursuing a strong dollar policy. The Dagong announcement follows on the heels of various reports from earlier this weeks (most notably the SAFE announcement which was subsequently pulled) which are urging China to not only pull its US holdings, but to minimize its USD exposure in total. Now if only Moody's would opine on the stealth 1.5 TARP Chinese bailout we noted earlier this week, then the full out credit rating cold war would be on like Donkey Kong.

 

 

Nasdaq Now Down For The Year 

Tepper giveth (the escalator), Tepper taketh away (the elevator)

With Technical Support Breached, Here Is Where The ES Is Heading Next 

Now that the market has successfully retested the 150 DMA with a little assistance from David Tepper who really said nothing new, below we present the immediate support levels in the ES. The 200 DMA and the March swing lows are next (and yes, there are about 20 points in the ES before we go to unchanged for the year).

Risk Free Precious Metals Arbitrage? 

Submitted by Tyler Durden on 06/10/2011 09:48 -0400

One picture explains so much. One is the Comex Gold contract, the other is the Hong Kong traded one. One bid is above the other's ask.

 

 

Kitco Charged With Massive Tax Fraud Scheme, Business Viability In Question 

Submitted by Tyler Durden on 06/10/2011 09:37 -0400

Life for the precious metals dealer, and home of the often times infamous Jon Nadler, Kitco just got very ugly. "Claiming widespread tax fraud in the gold refining and trading sector, Revenue Quebec and police investigators this week conducted searches and seizures at 70 locations, mostly in the Montreal area. One of the targeted sites was the downtown Montreal location of Kitco, a major buyer and seller of gold. A note on the floor of its office on Thursday said that “operational constraints” had forced the service counter to close this week." It is unclear if this alleged tax fraud bust means Kitco could be out of business shortly, although based on the following statement it is somewhat difficult to have an optimistic outlook on the future employment prospects of said Mr. Nadler: "The company said it has asked Superior Court of Québec to appoint an interim receiver so that it may continue normal operations under the supervision of the accounting firm RSM Richter. The action was taken “to allow for the time required to vigorously contest Revenu Québec’s unfounded claims." At the heart of the allegation: "In a communique, Revenue Quebec said that by converting pure gold into a gold object and then refining it back into a pure state, some in the gold industry had used “artificial transactions” to obtain refunds of taxes that were never actually paid." Apparently Kitco was one of them. Oh well, we will miss the pretty charts.

More On The CMBX Wipe Out Courtesy Of The Federal Reserve 

Submitted by Tyler Durden on 06/10/2011 09:24 -0400

Well, the problems in CMBX are finally hitting some of the mainstream media. We first pointed out the problems in CMBX last Thursday. HYG is down just over 1% since then. We highlighted the CMBX and ABX problems again on Tuesday. Since then HYG is only down a little bit, but as we suggested at the time, it has now underperformed stocks. It moved 1:1 with stocks on Wednesday and was only up marginally yesterday in spite of a decent size stock gain. I am not sure what it means that there were two Bloomberg articles today talking about CMBS market and how it has impacted the rest of the credit market. CNBC just mentioned CMBX. How long has it been since they mentioned CMBX? I suspect it has been awhile. This could be a sign that the problem has played out. It isn't new news to people focused on credit markets. My only hope as someone who is still a little bearish, is that if we do get another round of weakness, the CMBX boogey man will encourage some people who typically don't play in credit, to buy some CDS or even sell financial stocks, which would be good for the short.

US Import Prices Post Surprising Jump, Rise 0.2% In May Despite First Decline In Fuel Import Prices Since September 2010 

Submitted by Tyler Durden on 06/10/2011 08:41 -0400

Bernanke's push for monetary easing just got more complicated. While the market had hoped that the most recent Import price index would post a decline of -0.7% M/M, following an increase of 2.2% (revised to 2.1%), the data disappointed and showed that inflation exports by our trading partners is again picking up (and if we are right and Chinese inflation exports only pick up in earnest in the H2, this is just the beginning) making the push for "deflation combating" stimulus that much harder. Oddly, unlike in previous months when the inflation was led by surging Fuel Imports prices, May saw the first Fuel Import price decline since September 2010, dropping -0.2%, with core non-fuel imports being the primary cause for the pick up. From the release: "All Imports: Import prices ticked up 0.2 percent in May after rising more than 1.0 percent in each of the previous seven months. The May advance was led by higher nonfuel prices. In contrast, fuel prices declined for the month. Prices for overall imports advanced 12.5 percent over the past year, the largest 12-month month increase since the index rose 13.1 percent between September 2007 and September 2008. Prices for fuel decreased 0.2 percent in May, the first monthly decline for the index since a 1.5 percent drop in September 2010. In May, a 0.4 percent drop in petroleum prices more than offset a 4.1 percent increase in natural gas prices. Despite the May decrease, fuel prices advanced 42.3 percent over the past 12 months, the largest year-over-year rise since the index increased 54.4 percent for the year ended April 2010. Both petroleum and natural gas prices rose for the May 2010-11 period, advancing 44.6 percent and 8.8 percent, respectively." 

Tepper Agrees With Zero Hedge, Sees QE3 Only If S&P "Falls Several Hundred Points" 

Submitted by Tyler Durden on 06/10/2011 08:31 -0400

As we have opined since January, when we predicted a major market swoon in the April-May timeframe, the only gating factor for more QE is a substantial drop in the market. As a result we predicted a telegraphing of a major economic slowdown to commence some time in April. We were off by a month. We also were off in anticipating just how stupid and obstinate the market is, as stocks continue to believe that QE3 will come in no matter what, yet it is precisely stocks, and nothing else in the economy, that will be the catalyst for more easing, thus leaving mutual funds in a conundrum of having to sell in order to generate profits. So far, few have been willing to push the sell button which will see many of them getting wiped out courtesy of record margin debt and record low cash balances. Earlier today we once again received validation of our outlook when David Tepper told CNBC that while he is skeptical on QE3 overall, "If (the S&P 500 falls) a couple hundred points and financial conditions tightened maybe they would reconsider... there is no logic to QE3 now and the only result might be more food and energy inflation." Once again, the only "logic" would be for Bernie "Madoff" Bernanke to look at his Bberg Screen and see the S&P under 1000. At that point he will have no choice. Absent that, the S&P will still drop to that level but in a very slow bleed which will see even more asset managers put out of business. Once again: game theory at its best...or worst, now that the whole "career risk" thing has been flipped and he who sells first keeps their job. We give the painfully inefficient market a few more weeks before they grasp this.

Former Bailout Inspector General Neil Barofsky: "You Should Be Scared. I'm Scared. You Can't Not Be Scared. You Can't Look At What Happened In The Run-Up To 2008 and See How It's Not Going to Repeat Itself, Given What We've Done" 

Posted by: George Washington

Post date: 06/10/2011 - 00:53

Sigtarp speaks truth to power ...

ES Dripping On Ugly Asian Data 

Submitted by Tyler Durden on 06/10/2011 02:19 -0400

It appears that Asia is not done tightening. In a surprising move South Korea's central bank on Friday raised its policy rate by a quarter point which was against market expectations and comes after rates were held steady for past two months. From Bloomberg: "South Korea’s Kospi Index (KOSPI) fell 0.7 percent, erasing a 1.1 percent gain, after Governor Kim Choong Soo boosted the benchmark seven-day repurchase rate to 3.25 percent from 3 percent, following quarter-percent increases in January and March." In other news, the beancount for China's GDP appears to be slowing following a smaller than expected trade surplus: "The Shanghai Composite Index slid 0.4 percent after China’s customs bureau said exports rose 19 percent from a year earlier and imports climbed 28 percent. The compared with the median forecasts for a 20 percent gain in overseas shipments and a 22 percent increase in exports" (we will have a full breakdown of the Chinese trade numbers tomorrow). Too bad the inflation in China is not slowing to go with its GDP, and the latest CPI print is now expected to be a record 5.5%. And completing the pain out of Asia was the deplorable Indian IP number which tumbled to just 4.4% YoY. As the chart below shows futures are definitely not liking this latest set of data (but, but, the services ISM was not a total disaster...) and the EURUSD is back to intraday lows. Europe opens next and Europe will not be happy.

Is Credit On The Verge Of An Oversaturation "Perfect Storm" Implosion 

Submitted by Tyler Durden on 06/10/2011 01:52 -0400

Something quite disturbing happened during today's latest attempt by the Fed to sell $3.8 billion in face amount of Maiden Lane 2 assets: it had a busted dutch auction. In fact, the auction was so massively busted, the New York Fed managed to sell only half of the bonds for sale, or $1.898 billion in 36 Cusips of the total 73 Cusips offered for sale. Suddenly, the Fed's attempts to sale piecemeal portions of the $31 billion Maiden Lane II portfolio that was offered to be repurchased by AIG, and subsequently was offered for open auction as Zero Hedge first suggested, is starting to backfire, after a month ago several traders complained that instead of "dribbling" out small piece of the portfolio (the previous average auction block notional for sale was under $1 billion). As per Housing Wire from May 17, which cited a complaint by an MBS trader: "if you charge ahead and bleed out one or two lists a week for the next 10 to 12 weeks, prices will continue to go lower, and in the interest of maximizing value for the taxpayer, I think it is time to re-engage the large portfolio bid you had or make available to other counterparties the ability to bid large chunks of what you have left to sell." Well, the trader got what he wanted... And in the process may have blown up the credit market. As Bloomberg reports, "Federal Reserve auctions of mortgage securities that the central bank assumed in the rescue of American International Group Inc. are fueling a selloff in credit markets as Wall Street rushes to hedge against losses on stockpiled debt." Sure enough, someone focusing on the equity market may be completely oblivious to the devastation that has been unleashed on HY and IG traders: "Declines in credit-default swaps indexes used to protect against losses on subprime housing debt and commercial mortgages accelerated this month, reaching almost 20 percent in the past five weeks as the cost of the insurance climbs, according to Markit Group Ltd. The plunge this week started infecting everything from junk bonds to the debt of financial companies." And while as Bloomberg points out that there is a confluence of technical and fundamental factors affecting credit sentiment,  "You almost have a perfect storm of events,” said Shah of AllianceBernstein. “You have both the fundamental justifications for the market going lower and you have the technicals being created by Maiden Lane” there is a far scarier implication. If dealers and funds are unable to handle a mere $31 billion MBS portfolio disposition, and its weekly sale (think of its as a reverse repo) is starting to cause massive ripples in the bond market, just what will happen when dealers are forced to hold back the tens of billions in weekly bond auctions they freely flip back to the Fed now. In other words, is the credit market on the verge of a oversaturation implosion (hence the title)?

Casey Research: How I Know Another Correction Is Coming

The gold price has been rising steadily for almost a year now, with nary a correction. It fell only 4% last month, and the biggest decline since last July was January’s 6.2% drop. These barely register as “corrections” when one considers that we’ve had 18 of them greater than 5% since the bull market began in 2001.
We’re getting used to a persistently rising gold price. Any decline is met with more buying, pushing the price to new highs. But how long can we realistically expect this pattern to continue?
The answer will ultimately be determined by the fundamental factors pushing on the price – more Greece, more money printing, and more economic bad news will all drive gold higher. But even then, have we really said goodbye to big corrections?
Read the rest from Casey Research.





Growth in Despair the Only U.S. ‘Growth’

Electric Company Of Saudi Arabia Warns Country May Run Out Of Oil By 2030 

Submitted by Tyler Durden on 06/10/2011 07:29 -0400

Sometimes we wish the oil minister of former OPEC member Saudi Arabia ("we can supply any amount of oil"), Wikileaks ("Saudi Said To Have Overstated Crude Oil Reserves By 300 Billion Barrels or 40%"), and now Saudi Arabia's very own electricity company would coordinate their story. In a little noticed comment by Abdel Salam al-Yamani, head of the Saudi Electricity Company, in Al Mashka, which so far has been captured by only El Economista magazine, has provided the most recent insider confirmation of peak oil: a very troubling development for those who still naively believe that Saudi Arabia has any marginal boosting capacity, or more importantly, is willing to risk pumping more than possible. Yet, caught between a revolutionary rock and various other cartel nut cases, Saudi will soon be forced to sell as much oil as it can in order to placate it increasingly angry population with ever greater and ever more frequent "gifts" buying the transitory admiration of its people.

Sterling And Euro Fall On Economic Concerns - Gold Rises To Record £950.81 British Pounds An Ounce 

Submitted by Tyler Durden on 06/10/2011 07:12 -0400

Gold has risen to new record nominal highs in British pounds and is consolidating just below recent record nominal highs in U.S. dollars, euros and other currencies. The ECB’s rate decision and Trichet’s ‘signals’ saw the euro fall sharply against the dollar and against gold with gold in euro terms quickly rising from €1,050/oz to over €1,065/oz. The fact that these new record highs are just nominal and not more important adjusted for inflation highs is a crucial fact not acknowledged by many commentators and analysts. As ever, it is important to realize that the inflation adjusted high for gold in 1980 is over $2,400/oz. When interest rates do rise, central banks will have to make them very gradual. With inflation and stagflation deepening, negative real interest rates are likely to remain with us for some time which bodes well for gold (and silver). The Titanic analogy grows increasingly apt. The various major currencies all face real challenges and are like various floors on the Titanic. The massive ship is holed and water is flowing into it, gradually affecting all floors of the boat. Gold represents the lifeboat.