Thursday, November 3, 2011

Hugh Hendry Channels Irony And Paradox In His Latest Financial Outlook

Hugh Hendry Eclectica Asset Management 2012 outlookYou know the old drill – China and Asia produce, the US consumes.  They cycle their greenbacks back over this way, finance our debt, we buy more of their stuff, and the beat goes on. This model officially stopped with the launch of QE2, Hendry says, as the US officially started rejecting the globalization that had made the global economy hum (perhaps largely at the expense of US employment and manufacturing).  With QE2, dollars were printed and exported – along with inflation – to Asia. This led to the countries in Asia – and Europe, too – raising rates to combat inflation.  The result, he says, is that global economic growth has essentially ground to a halt. So what’s next? A crash, of course. All this and much more, but probably most notably, we learn that Hendry's has made bets that he says will deliver a 40-to-1 return if the ECB cuts rates below 1% next year. More inside.

Michael Krieger Explains Why It Takes Only 5 Minutes

"Nothing has changed and absolutely nothing has been accomplished.  There is no “solution” to the crisis that will not result in massive pain, confusion and wealth decimation.  The reason is patently obvious.  At least half the continent is completely and helplessly bankrupt.  There are only two outcomes to the entire situation.  Either the sovereign debts are written off aggressively and the banking system declared insolvent and restructured or the ECB decides to turn on those printing presses to the tune of trillions and destroys the purchasing power of the union in Zimbabwe-like fashion.  People will read this and think I am exaggerating .  The phrase “it takes 5 minutes” keeps running through my head because all it takes is a small amount of time to see the situation for what it is.  I am not that smart.  This is obvious.  The scary thing is that it is abundantly clear that the vast majority of U.S. investors have not bothered to take the 5 minutes necessary to understand how extreme and binary the outcomes to all this is.  Their clients will suffer massively in the months and years ahead as a result of their laziness and lack of macro curiosity. " - Mike Krieger

SEC Opens Investigation Into MF Global Insider Trading, Ignores Glaring Evidence Of Client Capital Commingling

After reading the following just released announcement from Bloomberg stating that "the U.S. SEC is reviewing trades in MF Global Holdings Ltd. convertible bonds to determine whether some investors sold the debt based on confidential information before the firm’s demise, two people with direct knowledge of the matter told Bloomberg’s Joshua Gallu and Shannon D.Harrington" we are quite stunned: how on earth will the SEC, which is the official depository of the dumbest and most corrupt people on earth, go about doing this? And what about what is an already confirmed act of gross fiduciary duty breach in the form of commingling client accounts: is that one too complicated for the SEC, so it has to proceed with this ridiculous diversion and pretend it is doing something when the biggest criminal is right there starting everyone, especially those from New Jersey, in the face?

Bank Of America Common Dilution Coming: To Issue 400 Million New Shares

And to think it was less than two months ago that Warren Buffett took a bath to provide the bank with capital it had "absolutely no need for" but was happy to take it anyway. Well, it turns out the firm is preparing to raise just a "little" more capital. From the just released 10Q: "During the third quarter, global economic uncertainty and volatility continued as described more fully in the Executive Summary – Third Quarter 2011 Economic and Business Environment discussion on page 7. Concerns over these and other issues contributed to a widening of credit spreads for many financial institutions, including the Corporation, resulting in lowering of market values of debt and preferred stock issued by financial institutions. The uncertainty in the market evidenced by, among other things, volatility in credit spread movements, makes it economically advantageous at this time to consider retirement of issued junior subordinated debt and preferred stock. As a result of these matters, we intend to explore the issuance of common stock and senior notes in exchange for shares of preferred stock and, subject to any required amendments to the applicable governing documents, certain trust preferred capital debt securities (Trust Securities) issued by unconsolidated trust companies, in privately negotiated transactions. If we pursue the exchange of Trust Securities, we would immediately use the purchased Trust Securities to retire a corresponding amount of our junior subordinated debt that we previously issued to the unconsolidated trust companies. These transactions would increase Tier 1 common capital and, on an after-tax basis, reduce the combined level of interest expense and dividends paid on the combined junior subordinated debt and preferred stock....We will not issue more than 400 million shares of common stock or $3 billion in new senior notes in connection with these exchanges."

Bank Of America Posts Two $100MM+ Losses In Past Quarter

Remember when even the worst of all trading desks on Wall Street, that of Bank of America could do no wrong and disclosed a trading quarter of pure perfection? Yeah, that's over. The bank, which just jolted shareholders with news of material common dilution, in the form of $2.5 billion in new equity capital to be raised, has released its trading days data for Q3. Per the 10-Q: "During the three months ended September 30, 2011, positive trading-related revenue was recorded for 69 percent (44 days) of the trading days of which 47 percent (30 days) were daily trading gains of over $25 million, nine percent (six days) of the trading days had losses greater than $25 million, three percent (two days) of trading days had losses greater than $100 million and the largest loss was $119 million." On the flip side, BAC had not one $100MM+ trading win. In other words, BAC posted losses on a whopping 31% of the trading days (compared to 0% two quarters ago), something that indicates a very violent return to normalcy: after all if banks, with ZIRP, legal frontrunning, profit from default risk surges, and POMO are unable to make money 100% of the time, who else, besides all the day traders on twitter and the fine men and women on Fast Money of course, will post flawless trading records in the future?

Federal hiring proves to be recession-proof

Eric De Groot at Eric De Groot - 2 hours ago
Big government both the cause and solution to the US's economic imbalances. What a mess. Headline: Federal hiring proves to be recession-proof WASHINGTON — While Democrats and Republicans in Congress fight over President Barack Obama's new jobs bill, it's worth remembering that there already is one bipartisan job creation program the two parties have agreed on since the recession began:... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

More Fallout from MFGlobal/EU surprises with a rate cut/Chinese silver investment goes Parabolic/silver and gold rise

Good evening Ladies and Gentlemen: Gold finished the comex session at $1764.20 up a full $35.50.  Silver also had a good day rising by 56 cents to $34.48. The spark today was the surprise rate cut by the ECB by a quarter of a point to 1.25% from 1.5%.  Australia also cut their bench mark interest rate as we are now seeing global finances in turmoil.  I will discuss these and more details on the

ES Closes Below 200DMA After 4% Rally Off Overnight Lows

Amid average volume, ES managed to rally an impressive 45pts off overnight lows to close just shy of the 200DMA on what was mixed (at best) macro data in the US and seemingly more chaos in Europe (does anyone know for sure whether there will be a confidence vote?). High beta and most-shorted stocks dramatically outperformed the broad equity markets as 4% swing days have become so de-rigeur nowadays! Financials went from major loser soon after the open to middle of the pack by the close with only a very late day disconnect between HY credit and stocks (HY outperformed after the bell) of any note as we leaked higher all day long. Heavy new issuance in IG credit saw secondary bond trading pretty balanced from a net-buying/selling perspective - even as TSY yields rose significantly. TSYs saw 2s10s30s rise notably but combined with FX carry crosses, oil, gold, and the dollar - risk asset drivers in general were far less excited than stocks by the close. Commodities lifted further after Europe's close as the USD weakened more leaving gold and oil up around 1.5% on the day.

Just In Time For NFP Friday, AMD Announces It Is Slashing 10% Of Its Workforce

When it comes to the almighty corporation, employees are naturally expendable. Sure enough AMD is all too aware of this, per AP: "Advanced Micro Devices says it is cutting 10 percent of its workforce amid weak PC market. The chip-maker made the announcement Thursday after the market closed. Advanced Micro Devices Inc. says the cuts should help the company save $10 million in the fourth quarter and $118 million next year. The layoffs are expected to be finished by the end of the first quarter of 2012." From the company's 10K: "As of December 25, 2010, we had approximately 11,100 employees." Of course, in Banana America, this means tomorrow's NFP number will be a massive beat.

In The News Today

Dear Extended Family,

Gold is headed now into the $2000s with extreme violence.


Jim Sinclair’s Commentary

It would be funny if it wasn’t so sad.

Greek PM scraps referendum on Greek debt plan
ATHENS, Greece (AP) — Two officials close to the Greek prime minister say he has scrapped his plan to hold a referendum on the latest European debt deal for Greece after the main opposition leader said would back it.
The two officials said George Papandreou made the comments during an emergency Cabinet meeting Thursday. One also said the premier would not resign despite mounting pressure, and would await the outcome of Friday’s confidence vote in his government.
They spoke on condition of anonymity to disclose talks in the Cabinet meeting, being held in Parliament.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.
ATHENS, Greece (AP) — A spokesman for Greece’s government says it is prepared to discuss an opposition demand for the creation of a transitional government to approve the latest European bailout deal and secure the next installment of rescue loans for the country.
Government spokesman Ilias Mossialos, reading from a statement, said Thursday "we are ready for a serious discussion" on the conservative opposition proposal. Prime Minister George Papandreou faces a confidence vote on his government Friday.
Earlier, opposition leader Antonis Samaras called for a caretaker government to handle the political crisis triggered by Papandreou’s call to put the European deal to a referendum. His party says any transitional administration would not be made up of political party members.



Jim’s Mailbox

Hi Jim,

Knock knock, trick or treat!


Freddie Mac to Seek $6 Billion More from Taxpayers Published: Thursday, 3 Nov 2011 | 9:54 AM ET
Mortgage finance giant Freddie Mac said on Wednesday it will seek an additional $6 billion from U.S. taxpayers following its worst quarterly loss this year.
The government-owned company reported a comprehensive loss in the third quarter of $4.4 billion, it said in a filing with the U.S. Securities and Exchange Commission. That compared with a $1.1 billion loss for the second quarter of 2011.
Despite an income of $4.6 billion, the company registered a net worth deficit of $6.0 billion, which was partly attributed to the $1.6 billion quarterly dividend payment owed to the Treasury.
Freddie Mac has drawn $72.2 billion from the government since it was taken over at the height of the financial crisis in September 2008. The government seized both Freddie Mac and larger rival company Fannie Mae as mortgage losses at the two firms piled up and threatened them with insolvency.

Dear Eric,

CNN finally figured it out. Now they should try to hire back Greg Hunter with a significant raise.


Gold: The hedge against political stupidity  

Gold is far more than inflation/deflation hedge. Inflation and/or deflation are symptoms brought bout by the mismanagement of economy and society by centralized powers. Many choose to voice their concerns on Main Street through public assembly, while other, a very small portion of society, let the flow of capital do all of their talking.

Headline: Gold: The hedge against political stupidity
NEW YORK (CNNMoney) — Gold is said to be a hedge against inflation, deflation and all other nasty sorts of economic bugaboos. It looks like it may be a hedge against political incompetence too.
The price of gold has surged more than 7% in just the past week and a half. The yellow metal is now trading around $1,750 an ounce.
That’s still a bit lower from the all-time high of about $1,924 from just a few months ago. But experts think that a new record could be in the cards soon if the debt melodrama in Europe (As George Papandreou Turns?) continues.
The incessant chatter and gossip — will there be a referendum or not? — is only serving to make already jittery investors even more skittish. That’s a perfect recipe for a rally in gold, which is the quintessential safe haven because it’s something with tangible value … as opposed to a stock or paper currency.

Race To Devalue  

Global currency devaluation, often characterized as the fiat race to the bottom, makes gold look more attract with each passing day.
Headline: Australia Cuts Rates for First Time Since ’09 as Europe’s Crisis Hits Asia
Australia’s central bank cut interest rates for the first time since 2009 and a Chinese manufacturing index slid, stoking concern that Europe’s debt crisis is weighing on Asia’s export-dependent economies.
The Reserve Bank of Australia today reduced its key lending rate to 4.5 percent from 4.75 percent, saying Europe’s woes are starting to hit Asian trade. In China, a purchasing managers’ index fell to 50.4, the lowest level since February 2009, while South Korea reported the smallest gain in exports in two years.
Asian stocks fell for a second day as slowing growth in the region threatens to limit a global expansion already constrained by elevated unemployment in the U.S. and Europe’s crisis. The Chinese report showed a contraction in export orders, fueling speculation that Premier Wen Jiabao may loosen policies to support the world’s second-biggest economy.

Headline: ECB cuts key rate at 1st Draghi meeting
FRANKFURT, Germany (AP) — The European Central Bank has cut interest rates by a quarter percentage point under new head Mario Draghi as it tries to boost a weakening economy that’s reeling from a government debt crisis that threatens to spread from Greece.
The dramatic debut move from Draghi, which comes earlier than expected by many economists, takes the bank’s benchmark rate to 1.25 percent.
European growth is expected to slow to near in the last three months of the year, and the rate cut is aimed at preventing a slowdown from turning into an outright recession. Uncertainty from Europe’s debt crisis is a factor as business and consumers are reluctant to spend and investors are worried of the potential for more financial turmoil if Greece defaults on its debts.
The hope in the markets is that the rate cut will shore up confidence at a time when Europe is embroiled in a crisis stemming from Greek Prime Minister George Papandreou’s pledge to hold a referendum on the country’s latest bailout package.

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