Tuesday, May 31, 2011

Double Dip In Housing Is Confirmed, S&P/Case-Shiller Index at Mid-2002 Levels (Data Through March 2011)

Source: S&P and Fiserv
Read the full press release at Standard and Poor's.

"National Home Prices Hit New Low in 2011 Q1 According to the S&P/Case-Shiller Home Price Indices

New York, May 31, 2011 – Data through March 2011, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels." (read more)

Related: Rising Housing Rents Risk U.S. Inflation (Bloomberg)

Kyle Bass: Small Lehman Creditors Are Getting Freight Trained!

Source: CNBC
Lehman Brothers senior creditors are battling over $55-60 billion worth of recoveries in the Lehman estate. Kyle Bass of Hayman Capital (who made $500 million betting against subprime mortgages using CDS) thinks elite hedge funds (Paulson & Co. and Baupost) have an unfair advantage in this case because they have a "cozy relationship with the restructuring advisor", and the "small investor is literally getting freight trained in this process"!

Quotes from his CNBC appearance:
($34 billion of Lehman principal protected notes sold to retail investors in family offices) "don't have a collective voice on the creditors committee. When the official creditors committee was put together there wasn't a seat for them. They are one of the largest single claimants"

"What's interesting to me is as we go through the process, you realize that our country is based on this foundation of the rule of law and you invest in a company because there's a capital structure. What's happening here is the capital structure is being redrawn in the bankruptcy by the big funds with the advisors who I think have too close of a relationship."

"So the real issue here is the little guy, the small investor in this case, is literally getting freight trained in the process and they have no voice; and the banks that sold them these bonds are not looking out in their best interest because they don't want to have that difficult conversation with the people they cost a lot of money to."

*Bass said he owns European claims (Lehman Brothers International - Europe)

From Hayman Capital's recent letter to investors:
"These elite hedge funds appear to have a very cozy relationship with the restructuring advisor in this case. They have no doubt worked together in the past and have expectations to work together in the future. We can only speculate as to why they believe they are entitled to bend and possibly break the long established expectation of seniority that comes with purchasing senior bonds.">

If interested, FINRA.org reports Lehman Brothers Holdings Inc. bond trades. LEHM.HEO currently trades at 25, +31% from February 3, 2010. It traded at 10.87 on January 30, 2009.


Lehman Brothers Holdings Inc. Note (source: FINRA.org)

Friday, May 27, 2011

Fitch and Satyajit Das Explained the Credit Crash Before It Happened (2005, 2007 Reports)

Possible Effects of Overlapping Credit Markets Fitch 2005
I found a research report written by derivatives expert Satyajit Das in February 2007 titled "Credit Crash?" (Wilmott). If you want to learn about credit derivatives, this is the paper to read. The first synthetic CDO was engineered by JPMorgan in 1997, when its credit derivative team sold a BISTRO, or Broad Index Secured Offering, which allowed them to sell $10 billion of credit risk. It was done by accident to get a bonus. The report opened with a quote from Alan Greenspan on credit default swaps in 2006, who Satyajit disagreed with.
"On 18 May 2006, Greenspan (speaking at the Bond Market Association) spoke eloquently about the stabilising effect of credit default swaps (“CDS”) on the international financial system

“The CDS is probably the most important instrument in finance. … What CDS did is layoff all the risk of highly leveraged institutions – and that’s what banks are, highly leveraged – on stable American and international institutions.”

We will critically examine whether the position espoused by Greenspan is in fact true." (read more)
Near the end he provided a diagram titled "The Coming Credit Crash" which was based on this diagram from a July 18, 2005 Fitch report ("Hedge Funds: An Emerging Force in the Global Credit Markets") h/t securitzation.net.

It is amazing how fragile this market was and how CDS failed to contain it. There was even detailed data on subprime MBS deal performance.

Question: If retail investors were able to trade senior debt, leveraged loans, ABS, CMBS and credit default swaps alongside institutional investors using an online brokerage, would systemic risk have been mitigated with increased price transparency and liquidity? It is funny to me that retail investors are "accredited" enough to blow their money on penny stocks that have no underlying revenues, earnings or even capital, but not able to participate alongside hedge fund manager John Paulson in an ABX Index for pennies betting against pools of subprime mortgage-backed securities (trading insurance). Why couldn't a discount brokerage provide deal performance from data providers Lewtan, CoreLogic or Intex, like they provide S&P reports for stocks.

Look at this chart of select tranche spreads of ABX.HE indices (06-01 BBB, 06-02 BBB, 07-01 BBB, 06-01-BBB-, 06-02 BBB-, 06-03 BBB-) from this Nomura report in 2007. The report also breaks out "deal-collateral characteristics" for each series, "deal loan characteristics", "deal underwriting analytics" and "deal prepayment speeds". Were credit hedge funds and investment banks long MBS portfolios not watching this data? Or was it strictly a liquidity problem?

Source: Nomura via Securitization.net

I also stumbled upon this Bloomberg oped by Paul Wilmott on May 24, 2011 titled "Bankers Can’t Avoid Risk by Hiding It".

Are Credit Default Swaps Associated with Higher Corporate Defaults? (By New York Fed Staff)

I always wanted to know this.
Are Credit Default Swaps Associated with Higher Corporate Defaults?

May 2011 Number 494
JEL classification: G21, G33

Authors: Stavros Peristiani and Vanessa Savino

"Are companies with traded credit default swap (CDS) positions on their debt more likely to default? Using a proportional hazard model of bankruptcy and Merton’s contingent claims approach, we estimate the probability of default for U.S. nonfinancial firms. Our analysis does not generally find a persistent link between CDS and default over the entire period 2001-08, but does reveal a higher probability of default for firms with CDS over the last few years of that period. Further, we find that firms trading in the CDS market exhibited a higher Moody’s KMV expected default frequency during 2004-08. These findings are consistent with those of Henry Hu and Bernard Black, who argue that agency conflicts between hedged creditors and debtors would increase the likelihood of corporate default. In addition, our paper highlights other explanations for the higher defaults of CDS firms. Consistent with fire-sale spiral theories, we find a positive link between institutional ownership exposure and corporate distress, with CDS firms facing stronger selling pressures during the recent financial turmoil."

Continue reading: http://www.newyorkfed.org/research/staff_reports/sr494.html

Thursday, May 26, 2011

Carl Icahn Issues Warning; CDSs Were Extremely Risky The Way They Were Used (CNBC)

On CNBC last night, after the Ira Sohn conference, hedge fund manager and shareholder activist Carl Icahn warned there could be another "problem" because nothing has changed inside these investment banks [video after the jump].
"I do think though that there could be another major problem. Now, will it happen next week? Next year? I don't know, and certainly nobody knows. But I don't think the system is working properly. I really find it amazing that we're almost back to where it was, where there's so much leverage going on in the investment banks today. There's just way too much leverage and way too much risk-taking with other people's money."

"I know a lot of my friends on Wall Street will hate my saying this, but the Glass–Steagall thing, or something like it, wasn't a bad thing. In other words, a bank should be a bank. Investment bankers should be an investment banker. Investment bankers serve a purpose, their purpose is raising capital and whatever, but I think today, and i know a lot of people won't like hearing this, what's going on today I think we're going back in the same trap; and I will tell you that very few people understood how toxic and how risky those derivatives were. CDSs were extremely risky the way they were used, and you know, you look at Wall Street and say, hey, they did it, but then you can't really blame the Wall Street guys. You can't blame a tiger. If you take a fierce man-eating tiger and put him in with a lot of sheep, you can't blame the tiger for eating the sheep, that's his nature. And that's the nature of Wall Street guys."

Ok, I think I get it. Wall Street guys are the tigers, and American taxpayers are the sheep for bailing them out? Remember, Wall Street should have gone down with the sheep they slaughtered.

I still don't understand why investment banks haven't been disrupted by the internet and social networking yet. These i-banks obviously do not provide value in current form; well maybe for hedge funds and institutional clients that get to play in their illiquid markets (retail investors are accredited enough to blow their money on fraudulent penny stocks but not able to buy the ABX Index (credit default swaps on pools of subprime mortgage backed securities) alongside hedge fund manager John Paulson who made billions LOL, read more). Electronic investment banking has to be a trillion dollar opportunity for an internet venture capitalist. SecondMarket and Prosper.com (on the consumer side) are kind of making moves in this space. The problem is the existing financial infrastructure is still in place which isn't transparent and permanently misprices risk in the system. Plus the incentive structures and the assembly line of fraud at these banks, and this preposterous "accredited investor" rule, makes the problem even worse. Read my post on July 10, 2010: Accredited Investor Rule is Nonsense (Exposed in 2008), Knock Down Existing Financial Infrastructure.

Fukushima a Stake Through Nuclear Industry's Heart - Guest Post

Guest post by OilPrice.com (interesting view on nuclear)

Fukushima a stake through nuclear industry's heart

Despite the managed media campaign by Tokyo Electric Company, the Japanese government and nuclear industry flacks worldwide, the 11 March 9.0 on the Richter scale earthquake, followed by a tsunami that off-lined TEPCO's six reactor Daiichi Fukushima nuclear power complex represents a global mortal blow to the nuclear power industry, which had been optimistic of a renaissance following worldwide concerns about global warming. While TEPCO's PR spin doctors along with Japanese government flacks will continue to parsimoniously dribble out information about the real situation at the stricken reactors while blandly assuring the Japanese population and the world that all is well even as nuclear lobbyists bleat "it can't happen here," all but the most obtuse are beginning to realize that catastrophes at nuclear power facilities, whether man-made (Chernobyl) or natural (Fukushima) have radioactive pollution consequences of potentially global significance.

Wednesday, May 25, 2011

SAC Makes Decent Trade In Domino's Pizza (DPZ) After 5.3% Stake In January

DPZ October 2010-May 25 2011 (StockCharts.com)
In a premium link fest I posted on January 25, 2011, I linked to a DealBook article titled "SAC Takes a Slice of Domino’s". I wanted to watch this trade.

At the end of Q4 2010 (12/31/2010), SAC Capital disclosed that it owned 1,065,841 shares or 1.77% of DPZ (*at the end of Q3 2010 SAC owned 39,000 shares). A couple weeks later, according to a 13G filing on January 24, 2011 (after an event on January 12), SAC Capital Advisors LP disclosed a 5.3% stake or 3,190,753 shares in Domino's Pizza. At the end of Q1 2011 (3/31/2011) SAC owned 62,510 shares of DPZ, so it looks like SAC dumped DPZ shares two months too early! No? DPZ jumped from $18.5 to $24.5 in May.

I'm mainly showing how you can track hedge fund trades using 13D, 13G and 13F SEC filings. Of course I'm not sure if these trades were long only in nature or as a hedge against undisclosed short positions, or on credit default swaps (hidden over-the-counter credit derivatives that trade on public company debt). That is why I did this post last year: "Don't Be Misled By 13F Filings, They Don't Disclose Shorts, Credit Default Swap Exposure (CDS)".

SAC Capital is one of the largest actively managed hedge funds with $14 billion under management (or $16 billion in the 3/31/2011 filing; not sure if that's AUM) and is currently being investigated for insider trading. Two portfolio managers already plead guilty to insider trading charges earlier this year. It is interesting how this company runs. Steve Cohen, who runs the firm, gives various portfolio managers "hundred of millions of dollars to invest", while he runs a $3 billion book. At DealBook:
"Unlike many hedge funds that are controlled by one portfolio manager who makes all the investment decisions, SAC is decentralized; 142 small teams are each given control over hundred of millions of dollars to invest."

David Stockman: Vicious Sell-Off In Bond Market Could Force Action on Budget Deficit, Debt

10-year Treasury Yield
David Stockman, former budget director under President Reagan, appeared on Bloomberg TV on May 23 and warned that a major dislocation in the bond market could force congressional action on the $1.5 trillion budget deficit and national debt ($6 billion a day borrowing spree). The catalyst could be the end of QE2, when the Fed stops buying Treasuries. He said both parties are advocating a "de-facto" default by not addressing the issue (cut spending and increase tax revenues). Watch the Bloomberg video after the jump. I threw up a chart of the 10-year treasury yield (via St. Louis Fed). When the 10-year yield breaks through that downtrend line from 1982, watch out for bond vigilantes. Here are a few quotes from the transcript.

On when Washington will get to the point of discussing raising taxes:
"I think [Washington will discuss raising taxes] only when we get a major, thundering conflagration in the bond market."

"For the last 10 years, Congress has been lulled to sleep by the central banks that keep buying all the debt and therefore holding down the real cost of interest on the middle and long term debt that we are issuing every day.

"And frankly, bond fund managers who somehow think that the tooth fairy is going to arrive and fix this problem, when it's clear that is not going to happen, and that we have sovereign risk on the debt of the United States, just as clearly as the world is now discovering there are sovereign risks in the European debt issues and so forth."

On whether there will be a 9/11-style crisis in the economy:
"That kind of crisis would be a vicious sell-off in the global bond market. That could come sooner than people think, because the Fed is getting out of the market with QE2 ending.”

"For the last six months, the Fed has bought nearly 100% of this $6 billion a day that's been issued. Once they are out of the market, where is the new bid, where is the new demand going to come from? The Chinese are getting out of the market because finally they are having to deal with the rip-roaring inflation they have had. The people's printing press of China will not be buying as much U.S. debt because of its own internal problems.”

"When we get to real investors, what are some of the real investors saying today? PIMCO is short the bond, they're selling, they're not buying.

"When we get into a two-way market when real investors began to look at real risk, begin to look at the gong show in Washington and the magnitude of the gap that we are borrowing, I think we're going to get a re-rating of sovereign risk. We're going to get a huge dislocation in the global bond market, and then maybe the wake-up call will finally come."

Tuesday, May 24, 2011

St. Joe is Whitney Tilson's Largest Short Position, Berkowitz Wants $JOE As Largest Position

T2 Partners VIC slides (see below) 
Keep an eye on the St. Joe ($JOE) value war. Now value manager Whitney Tilson, of T2 Partners, has joined the fight. Tilson told CNBC's Fast Money on 5/3/2011 that St. Joe was his largest short position and that $JOE "is worth half to a third" of its current price. JOE was trading around $26 that day, so $8.6-$13 per share? He joins hedge fund manager David Einhorn, of Greenlight Capital, who released an extensive research report last October explaining why $JOE was worth $7 to $10 a share. According to David Einhorn's Q1 Investor letter, Greenlight Capital was still short JOE shares. JOE is currently trading at $21.85, so decent timing so far.

Here is what Whitney Tilson said on CNBC. Watch the video after the jump.

On a potential sale:
JOE inflection point
"I think there was a flurry of activity to try and sell it but given the stock is trading at two or three times what we think it's really worth, and how depressed the real estate market is and so forth, we think there's almost no chance of the company getting sold."

St. Joe should be valued based on timberland assets:
"Basically they have 500-plus thousand acres of timberland that's worth $7 to $10 a share, and then they have a bunch of beautiful developments that were built at the peak of the market that are basically most of them are ghost towns at this point. The bubble burst and they're largely empty. and that is these developments which we think have virtually no value, nor will they ever, account for being valued in the marketplace. well over $1 billion and we think there's almost no value there."

Impairment charges needed:
"Sales prices of some of the lots and houses that are being sold are being done at, you know, 10% or 20% of the peak valuation. Yet St. Joe hasn't taken any impairments on these assets and we think they're going to have to."

And then there's the long side. The Fairholme Fund, run by Bruce Berkowitz, owns about 30% of the company and wants to own more. From Institutional Investor on 5/19/2011:
"Fairholme’s logic is relatively simple: St. Joe’s fortunes will rise again when real estate does; the land was purchased cheaply, paying them to wait; the new airport, on land donated by the company, will spur development in the Panhandle; and new company management will help. With Northwest Florida Beaches International Airport opened last May, the region should be able to develop not just as a vacation spot but as a commercial hub, Berkowitz contends."

"Although St. Joe currently represents less than 3 percent of Fairholme’s assets, Berkowitz hopes to make it a more significant holding. “Our game plan will be to make it a bigger part of the portfolio,” he says. “We’re not wasting our time or our shareholders’ or partners’ time. I hope one day St. Joe is our largest position.”"

Other large mutual funds and institutions bought a huge chunk of shares recently. I addressed this in my previous blog post on 4/24/2011:

Monday, May 23, 2011

EUR/USD Breaks 1.40; Resumes Downtrend From 2007 (Big Red Candle)

EUR/USD via FXstreet.com
About two months ago I mentioned that the 5-year downtrend on EUR/USD (Euro in U.S. Dollars) was in play. It broke the trend, hit an exhaustion point, and then failed to confirm itself. Look at the huge red candle on the monthly chart! EUR/USD is now trading at 1.3991 after it hit a peak of 1.494 on May 4. Eurozone debt fears could be getting serious again, if that's what the Euro is pricing in. Spain and Italy were in the news this morning, see links on my previous post. Commodities and equity index futures are taking a hit this morning (except gold). Keep an eye on the S&P trendline when the market opens and $22 resistance on UUP (US Dollar Index ETF).

July Crude Oil -2.78% at 97.32
June E-mini S&P -1.09% at 1313.25
Gold spot -0.04%% at 1508.72
Silver spot -0.97% at 34.69
US Dollar Index (NYBOT) +0.60% at 76.30

Macro Reads (Housing, Cash, QE), Eurozone and LinkedIn IPO Wars - 5/22/2011

Robert Shiller's Housing Index
(The Big Picture, 4/13/2011)
Macro

Farmland best bet in gloomy outlook, says Yale's Shiller (InvestmentNews) - *Robert Shiller gave his outlook on the housing market during a Fox Business segment on 5/19/2011. I embedded the video after the jump.

Once bullish, contrarian Jim Grant (of Interest Rate Observer) likes cash now (AP)

To Eat and Survive in LA: On Track for a Million Food Stamp Users by Gregor Macdonald (Gregor.us)

Housing in North America: Peak Oil’s Primary Victim by Gregor Macdonald (Gregor.us)

Richard Koo (Nomura Research Institute) Explains Why An Unwind Of QE2, With Nothing To Replace It, Could Lead To The Biggest Depression Yet (Zero Hedge)


Eurozone action

Massive blow for Spain's ruling party clouds Euro outlook; S&P cut outlook for Italy to "negative" from "stable" (FXStreet)

European Stocks Sink as Debt Concern Deepens; Commerzbank, Santander Slide (Bloomberg)

S&P’s Italy Warning May Fan Contagion as Greece Cuts (Bloomberg)


LinkedIn IPO Wars

The LinkedIn IPO debate (Felix Salmon)

Primitive Underwriting for Web 2.0 Deals (LinkedIn should have done a Dutch Auction) (ReformedBroker)

Was LinkedIn Scammed? by Joe Nocera (New York Times)

Even The "Smart" Arguments Justifying LinkedIn's IPO Pop Are Bogus (Business Insider)

Two replies by blogger The Epicurean Dealmaker, a pseudonymous investment banker: "Jane You Ignorant Slut" and "Dan You Pompous Ass" (? lol).

Why Linkedin Didnt Use An Auction & Why Their Bankers Didn’t Screw-Up by The_Analyst (Stone Street Advisors)

Thursday, May 19, 2011

LinkedIn Financials, Key Metrics, Valuation; Hit $122 High ($11.5 Billion Valuation) After $45 IPO (LNKD)

$LNKD (LinkedIn Intraday Chart) - FreeStockCharts.com
The social-networking trading frenzy has officially begun. LinkedIn ($LNKD) traded 171% above its IPO price of $45 when it hit a $122.70 high in its first day of trading on the NYSE. $LNKD opened at $83 and closed at $94, or an $8.9 billion market cap. The $122 high valued LNKD at $11.5 billion. So is Monster Worldwide ($MWW), TheLadders, CareerBuilder and ManPower ($MAN) now in play? Matt Nesto, on the Daily Ticker with Henry Blodget, wondered if LinkedIn would buy head hunter/staffing agency Robert Half International ($RHI). Robert Half had $3.2 in revenues during the past 12 months.

LinkedIn could start their own electronic staffing agency. How about taking it one step further; someone starts a professional social-networking site where users actually work for potential employers from their computer at home as unpaid TeleInterns™ or temp-to-hire TeleTemps™. Remember my post yesterday on telepresence hologram technology using Cisco/Musion Systems? Multiple TeleTemps™ could work in your office as holograms from their computers at home.

LinkedIn is growing significantly. From the prospectus:

Quarterly Adjusted EBITDA Trend
LinkedIn Quarterly Revenue Trend
"We have achieved significant growth as our network has scaled and as we have expanded our product offerings. From 2009 to 2010, net revenue increased $123.0 million, or 102%, net income increased $19.4 million, or 487%, and adjusted EBITDA increased $33.3 million, or 227%. In the three months ended March 31, 2011, net revenue increased $49.2 million, or 110%, net income increased $0.3 million, or 14%, and adjusted EBITDA increased $4.2 million, or 46%, over the three months ended March 31, 2010. See “Adjusted EBITDA” below for a definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income (loss)."

As of March 31, 2011, LNKD's price/sales ratio as of today's close ($94.25 per share or $8.9 billion market cap) was 30 using $292 million trailing 12 month revenues (see numbers above). You can breakout earnings as well. The price/sales ratio seems pretty steep; however, if sales keep rising exponentially it could easily fill the gap. Read Henry Blodget's post showing different revenue, net income and EBITDA projections for 2011, 2012, 2013 and 2014.

Other comparables: Goldman Sachs's recent investment in Facebook (FBOOK) valued at 25x sales, Google (GOOG) trades at 5.5x sales, Yahoo (YHOO) at 3.5x sales, Salesforce (CRM) at 10.9x sales, OpenTable (OPEN) at 19.29x sales, China's Baidu (BIDU) at 33x sales, China's Renren (RENN) at 70x sales, Monster Worldwide at 1.9x sales, and Apple (AAPL) at 3.6x sales. How do you value this?

Interesting earnings comparable for Facebook (TheStreet.com):

"Using LinkedIn's current valuation as a comparable metric-- 600 times its 2010 earnings of $15.4 million -- Facebook would be worth around $360 billion in the public markets. The company reportedly earned $600 million in net income"

Eric Jackson of IronFire Capital Thinks LinkedIn IPO is Overvalued

Source: LinkedIn Press Center
LinkedIn, or Facebook for professional profiles, will be trading on the NYSE ($LNKD) today after it IPO'd 7.84 million shares at $45. It values the company at $4.25 billion. See the 10% owners and LinkedIn press release here. Eric Jackson, founder of hedge fund IronFire Capital, thinks it is overvalued. Watch the Bloomberg video below and read his article at Forbes ("Why You Should Opt Out of the LinkedIn IPO"). It will be very interesting to watch social networking companies trade on the exchanges. I originally found the video on Eric Jackson's blog Breakout Performance. He is also on Twitter. I have a question: How will social networking analysts and traders quantify immediate flight risk? (ex. "Was Friendster valuation too high?" MarketWatch 5/26/2004; "Amazingly, MySpace’s Decline Is Accelerating" - TechCrunch 3/23/2011).

Technical Views On The Market (Louise Yamada, Jeff Macke and S&P Charts) 5/18/2011

Jeff Macke and Louise Yamada (Louise Yamada Technical Research Advisors) gave technical views on the market yesterday (5/17/2011) on Breakout (Yahoo Finance).
My chart below shows SPX trend 

I threw up some lines as well on the S&P 500. You can see the uptrend line from August 2010, $1344 resistance level from February 2011 and an ascending channel which started in March 2011. The second chart shows a descending channel from the beginning of May. At this point there needs to be confirmation, but there is a possibility the market could breakdown here. So the S&P is at an inflection point and waiting for a downside catalyst for volatility. I remember on 4/28/2011 on CNBC Doug Kass said he was short SPDRS ($SPY) with out-of-the-money calls as a hedge. On May 9 he wrote an article titled "Kass: Sell The Rallies". Follow him on Twitter for updates. It probably makes sense to hedge either direction right now. Even SAC Capital's Steve Cohen said he sees a market pause. SAC Capital actively manages $14 billion. Also GMO's Jeremy Grantham said to lighten up on risk. The volatility index closed at 16.23 today (see $VIX vs. $SPX chart below). I'm going to watch currencies (EUR/USD, USDX and UUP) and commodities.

Wednesday, May 18, 2011

LinkedIn's $45 IPO Values LNKD at $4.25 billion; List of 10% Owners (SEC)

LinkedIn Corp. Ownership (SEC)
LinkedIn priced its IPO at $45 per share which values the company at $4.25 billion (read more at Reuters). Check out the 10% owners of LinkedIn Corp below via SEC.gov, and read the prospectus. This is the first social networking IPO. Next up Facebook ($FBOOK), Zynga ($ZYNGA), Twitter ($TWIT) and Groupon ($GRPN)? Let the value unlocking begin. From the LinkedIn Press Center:

"Mountain View, Calif. — May 18, 2011 — LinkedIn Corporation, the world’s largest professional network on the Internet, today announced the pricing of its initial public offering of 7,840,000 shares of common stock at a price to the public of $45.00 per share. A total of 4,827,804 shares are being offered by LinkedIn Corporation, and a total of 3,012,196 shares are being offered by selling stockholders. In addition, LinkedIn Corporation has granted the underwriters a 30-day option to purchase up to an additional 1,176,000 shares to cover over-allotments, if any. LinkedIn will not receive any proceeds from the sale of shares by the selling stockholders."

Tuesday, May 17, 2011

The Joy of Natural Gas, It's Here Aplenty - Guest Post

Source: NGSA.org
Guest post by Llewellyn King for OilPrice.com

The Joy of Natural Gas, It's Here Aplenty

Tired of high gasoline pump prices? Wondering why, with our fearsome energy hunger, all the energy seems to be in the Middle East?

That was yesterday's story.

Almost overnight -- well, in a few short years -- the energy picture has been changing in the US. We are not energy beggars anymore. We have energy bounty -- and that does not include the energy from wind and sun, or the controversial energy from the atom.

Now we have plenty of the most versatile of the hydrocarbons -- more versatile than coal, and oil. It is natural gas; and it is going to change the face of America remarkably quickly, whether it is used to make electricity for electric cars or is burned directly in cars.

Natural gas is the new oil, maybe the new gold, and certainly the most exciting energy development in a long time.

Indeed, it is a Cinderella story: a hopeless orphan who is now the belle of the ball.

Originally, natural gas was found in conjunction with oil and was regarded as something of a nuisance. It was mostly cursed and "flared" or burned at the well; and it is still flared when there is no way of moving it to market, either in a pipe or as a liquid. Cities favored a low-grade gas made from coal for lamps and heating because coal could be transported by rail.

The Future: Holographic TelePresence Video Technology (Videos)

Cisco Conference (Source: Musion Systems Vimeo)
Am I missing something here? Why hasn't holographic telepresence technology been adopted by the household sector yet? Is it even available? It is currently being used on stages and podiums during conferences or shows. In the first video (from 2007) watch Cisco CEO John Chambers on a stage in Bangalore, India, and two Cisco executives in San Jose, California, demonstrate for the first time an "on-stage telepresence experience" using Musion System's holographic projection. I also embedded a video from TelePresence Options, a site devoted to telepresence technology. Won't this revolutionize household entertainment and communication? Imagine being able to beam in a live concert or boxing match anywhere in your house, or even outside in 3D 4D. Or beaming in a group of friends or family who live in different locations. Could you beam someone while walking down the street with a mobile device? Corporations have already adopted telepresence technology for video conferencing. I want to see 4D telepresence holograms; this has to be the future. Companies competing in the telepresence space: Cisco, Skype (Microsoft), Polycom, Avaya... Anyone have more videos? I stumbled upon telepresence hologram techonology after reading this post by Rick Bookstaber: "Get Ready For The Mother Of All Commodity Paradigm Shifts, Which No One Sees Coming". Telepresence technologies could cut the need for personal and business travel dramatically.

Video #1: "Cisco On-Stage Holographic TelePresence Experience" MusionSystems (2007)
Video #2: "Musion TelePresence Launch - Berlin" (2009)
Video #3: "ImmersiveTech Summit 2010 Howard Lichtman Telepresence"

Bill Gross Explains PIMCO's Negative "Government-Related" Exposure, QE3 Will Be Policy Language

Bill Gross, who runs the $240 billion PIMCO Total Return Fund (PTTRX), was on Bloomberg TV today explaining why the fund increased its negative "government-related" exposure, and if it meant the fund was short treasuries. He said it was related to swaps which are derivatives. Watch the Bloomberg video after the jump for more information. He also talked about Greece, the debt ceiling and U.S. Dollar.

As of 4/30/2011, the PIMCO Total Return Fund increased "net cash and equivalents" to 37% from 31% on 3/31/2011; decreased "mortgage" exposure to 24% from 28%; decreased "investment grade credit" to 17% from 18%; increased "emerging markets" to 11% from 10%; remained unchanged on "non-US developed"; decreased "high-yield credit" to 5% from 6%; remained unchanged on "municipal" securities, and decreased "government-related" exposure to -4% from -3%.

Bill Gross on PIMCO's negative "government-related" exposure using swaps, and the end of QE2:
"That to some extent speaks to a durational statement, to the extent that you're selling swaps and basically reducing the duration of your portfolio."
"We simply suggest that since the Fed has been purchasing 70% to 75% of all the Treasuries that have been offered over the past year to year and half, that it's a legitimate question of who will buy them and at what yield. We simply think that treasury yields have been artificially repressed not only by QE1 and QE2 but by the policy rate."
"The Federal Reserve of New York has estimated perhaps 50 to 100 basis points of under-yielding, over-priced valuation from these programs in combination."
"We think 10-year treasuries will be higher in yield. Now they're around 3.18%; we suspect still that 4% is a beginning level of attraction going forward."

Language will dominate Fed policy after QE2 (June 30):
"If the Fed continues to suggest that unemployment is a priority and inflation is contained, then you can expect Fed funds to stay at twenty-five basis points, and that's a very significant anchor for 2s, 5s and even for 10s. So follow the policy language going forward. Expect QE2 to end and that QE3 probably will take the form of language instead of actual purchases going forward."

Eric Sprott On The Silver Raid; Still Sees $100 Silver (Keiser Report Video)

Silver ETF Plunge ($SLV)
Two weeks ago there was a major exhaustion point in the silver chart which resulted in a 33% crash from its peak ($49.30 I believe). SLV (silver ETF) put options and vertical spreads were active and made a lot of money betting on downside risk. I think technicals combined with margin calls, and I'm sure manipulation (which Sprott gets into), played a major role in the plunge. To your left is a SLV chart showing the plunge.

Eric Sprott, who runs Sprott Asset Management, is active in silver and gold, and created the Sprott Physical Silver Trust (PSLV) which trades on the NYSE. He was on CNBC in May 2010 telling you to buy silver which was a great call. A few months later Mr. Sprott gave a presentation at the Casey Research Gold & Resource Research Summit and said "between the ETFs, you and us, there is no (physical) silver left."

Before the major sell off, Sprott sold PSLV units at a premium to NAV, but said he reinvested the proceeds back into silver (spot) or shares. He believes the silver sell off was a "raid" and related to the paper markets, margin increases and the commercial shorts. Zero Hedge explained the details today in a post. Eric Sprott is still very bullish on silver and thinks it could hit $100 an ounce. Watch the video below courtesy of Keiser Report.

Monday, May 16, 2011

Steve Cohen at SALT, Paulson at UBS Conf, Whitney Tilson, John Taylor, Jim Rogers, Druckenmiller (5/15/2011)

Guru/hedge fund link fest (5/8/2011 to 5/15/2011)

Steve Cohen - S|A|C
*Billionaire hedge fund manager Steve Cohen, who runs $14 billion hedge fund SAC Capital, spoke at the SALT Conference (SkyBridge Alternatives) last week in Las Vegas. From the transcript courtesy of Deal Breaker, Mr. Cohen sees a market pause ("maybe people are worried about a growth scare") but thinks the second half of 2011 will be "decent". He believes the energy sector is "interesting" and the "commodities sell-off provides a nice entry point". He said he's more worried about 2012 as some of the government stimulus wears off. And regarding the budget deficit, Cohen said the bond market could force government action. This is the first time Distressed Volatility has seen Steve Cohen give market calls. When is your blog starting up Mr. Cohen?

*What If the U.S. Treasury Defaults? (Stanley Druckenmiller, who ran money with George Soros) - WSJ (h/t Zero Hedge)
"Some have argued that since investors are still willing to lend to the Treasury at very low rates, the government's financial future can't really be that bad. "Complete nonsense," Mr. Druckenmiller responds. "It's not a free market. It's not a clean market." The Federal Reserve is doing much of the buying of Treasury bonds lately through its "quantitative easing" (QE) program, he points out. "The market isn't saying anything about the future. It's saying there's a phony buyer of $19 billion of Treasurys a week." 
Warming to the topic, he asks, "When do you generally get action from governments? When their bond market blows up." But that isn't happening now, he says, because the Fed is "aiding and abetting" the politicians' "reckless behavior."

*Here's What John Paulson Said On Housing, Financials, Gold and the S&P at UBS's Financial Services Conference (he's bullish on the recovery, sees 40-60% upside in bank stocks and 34% upside in the S&P) Business Insider (5/10/2011) 

*Currency Hedge Fund Manager John Taylor Says ‘Risk Rally’ (higher-yielding assets) Is Coming to an End (FX Concepts) - Bloomberg (5/12/2011)

*Jim Rogers Says Dollar Is Long-Term ‘Total Disaster’ (Jim is "currently long the dollar because the market consensus is for the currency to fall", "short emerging markets", and believes the 30 year bull market in U.S. bonds is coming to an end. But, like the dollar, he's not shorting because "95 percent of the market expects them to decline.") - Bloomberg (5/12/2011)

*Value Investor Whitney Tilson's May 2011 Presentation (T2 Partners), $MSFT, $BRK - Zero Hedge (5/3/2011)

*Cyclical Bulls Within Secular Bears & Their Short Duration - Pragmatic Capitalism (via John Hussman's Weekly Market Comment).
"As the guys at Nautilus Capital note, cyclical bull markets within secular bears have tended to average just 26 months, with an average gain of 85%, while cyclical bears within secular bears have averaged 19 months, with steep average losses of -39%."

*Felix Zulauf turns bearish, expects major correction and QE3 - Credit Writedowns

Sunday, May 15, 2011

George Soros Speaking at CATO On Hayek, Reflexivity (4/28/2011)

Reflexivity Cycle
If you like economics and market behavior you might be interested in this recent discussion at the CATO institute ("Richard Epstein, George Soros, and Bruce Caldwell Discuss Hayek's Constitution of Liberty"). I added the new rap battle between Keynes and Hayek for your entertainment after the video.

To your left is a diagram of a cycle driven by reflexivity (price -> perception -> fundamentals). Read "George Soros, Reflexivity and Market Reversals" by Marvin Bolt at Seeking Alpha on March 16, 2009 (around the historical market low). Here is a quote from the end of the article.

"We are at a unique time in history. The economy and financial markets have been driven by a variety of reflexive forces resulting in widespread destabilization. However, a fully developed parabolic stock market decline offers strong evidence that the extremes have been reached. Insights from George Soros’ theory of reflexivity, supported by examples from the past, lead us to conclude that the imminent reversal will be breathtaking. As we wrote this, the Dow had just surpassed 7,000 after testing 6,500. Indeed, the reversal might be at hand." That worked out quite well. (Continue reading at Seeking Alpha).

George Soros quotes from the transcript; watch videos after the jump:

"Hayek argued that economic agents base their decisions not on reality but their interpretation of reality and the two are never the same. That's what I called fallibility. Hayek also recognized that decisions based on imperfect understanding are bound to have unintended consequences. But Hayek and I drew diametrically different inferences from this insight. Hayek used it to extol the virtues of the invisible hand, which was the unintended consequence of economic agents perusing their self interest. I used it to demonstrate the inherent instability of financial markets.

In my theory of reflexivity I assert that the thinking of economic agents serves two functions: on the one hand, they try to understand reality that's the cognitive function. On the other, they try to make an impact on the situation and that's the participating or manipulative function. The two functions connect reality and the participants' perception of reality in opposite directions. As long as the two functions work independently they each produced determinate results. But when they operate simultaneous they interfere with each other by introducing an element of uncertainty into both the participants' understanding and the actual course of events. I call the interplay between the two functions that gives rise to the uncertainty reflexivity. 

The two way connection between the cognitive and manipulative functions works as feedback loop; the feedback is either positive or negative. The positive feedback reinforces both the prevailing trend and the prevailing bias and leads to a mispricing of financial assets. Negative feedback corrects the bias. At one extreme lies equilibrium, at the other are the financial bubbles. They occur when the mispricing goes too far and becomes unsustainable and the boom is then followed by a bust. In the real world, positive and negative feedback are intermingled and the two extremes are rarely if ever reached." (read the full transcript)

Saturday, May 14, 2011

Jeremy Grantham (GMO): Lighten Up On Risk-Taking; QE3 Required To Keep Speculative Game Going

Source: GMO
Jeremy Grantham, co-founder and chief investment strategist of GMO LLC, which manages $108 billion in client assets, released part 2 of his Q1 Investment Letter. He thinks you should "lighten up on risk-taking now and don't wait for October 1 as previously recommended". He did say QE3 could keep the "speculative game going" though, but it is a risky bet.

GMO May 2011 Quarterly Letter: "Time To Be Serious (and probably too early) Once Again"
"With these headwinds, I do not feel the same degree of confidence that I did, which was considerable, that the Fed could carry all before it until October 1 of this year. A third round of quantitative easing would very probably keep the speculative game going. But without a QE3, there seem to be too many unexpected (indeed unexpectable) special factors weighing against risk-taking in these overpriced times. I had recommended taking a little more risk than was justified by value alone in honor of Year 3, QE2, and the Fed in general. Risk now should be more reflective of an investment world that has stocks selling at 40% over fair value (about 920 on the S&P 500) and fixed income, manipulated by the Fed, also badly overpriced."

"The market may still get to, say, 1500 before October, but I doubt it, especially without a QE3, although the chance of going up a little more by October 1 is probably still better than even. And whether it will reach 1500 or not, the environment has simply become too risky to justify prudent investors hanging around, hoping to get lucky. So now is not the time to float along with the Fed, but to fight it. Investors should take a hard-nosed value approach, which at GMO means having substantial cash reserves around a base of high quality blue chips and emerging market equities, both of which have semi-respectable real imputed returns of over 4% real on our 7-year forecast. The GMO position has also taken a few more percentage points of equity risk off the table."

Wednesday, May 11, 2011

David Einhorn is Still Short St. Joe and Moody's, Buys Yahoo (Greenlight Q1 Letter)

According to David Einhorn's Q1 2011 Investment Letter (released on April 29, 2011 courtesy of DealBreaker.com), Greenlight Capital is still short Moody's (MCO) and St. Joe (JOE), and recently went long Yahoo (YHOO). And now value investor Whitney Tilson, of T2 Partners, has JOE as his largest short position. I'll get into that next. Read Einhorn's amazing report on St. Joe: "Field of Schemes: If You Build It They Won't Come". Per my proprietary valuation models, JOE is worth $7-$15 a share and Yahoo is worth $31-$33 a share. In my next post on Whitney Tilson I'll dig into the longs and shorts in JOE.
"We kept our highest conviction older ideas (including MCO and St. Joe) and our highest conviction newer ideas (including the energy-technology stocks described above)."

House Speaker Boehner on the Debt Ceiling (Economic Club of New York, 5/9/2011)

The $14.29 trillion debt ceiling is officially in play and Congress has to decide whether to raise it again, and under what conditions. I'm going to post different views on the situation (next David Stockman). Below is the video and transcript of House Speaker John Boehner's remarks at the Economic Club of New York on 5/9/2011. Richard Koo, chief economist at the Nomura Research Institute, believes the U.S. could follow the path of Japan if we cut government spending and borrowing too early after the bursting of a nationwide asset bubble (see INET conference and Bloomberg TV videos). However, even Ben Bernanke, the Chairman of the Federal Reserve, has said that the U.S. must address its budget deficit and national debt. From Bernanke's speech in October 2010:

"Over the medium- and long-term, however, the story is quite different. If current policy settings are maintained, and under reasonable assumptions about economic growth, the federal budget will be on an unsustainable path in coming years, with the ratio of federal debt held by the public to national income rising at an increasing pace.2 Moreover, as the national debt grows, so will the associated interest payments, which in turn will lead to further increases in projected deficits. "

Quotes from John Boehner's address to the Economic Club of New York (read the full transcript below if you can't watch the video):

“It's true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process.

“To increase the debt limit without simultaneously addressing the drivers of our debt -- in defiance of the will of our people -- would be monumentally arrogant and massively irresponsible.

“It would send a signal to investors and entrepreneurs everywhere that America still is not serious about dealing with our spending addiction.

“It would erode confidence in our economy and reduce certainty for small businesses. And this would destroy even more American jobs.

“So let me be as clear as I can be. Without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase. And the cuts should be greater than the accompanying increase in debt authority the president is given.

“We should be talking about cuts of trillions, not just billions.

Greece 5Y Credit Default Swaps At 1372; Up From 399 a Year Ago (Greece 5Y CDS Chart)

Greece 5Y CDS (Bloomberg)
Greece 5Y CDSs (credit default swaps) are trading at 1372bps, up from 399bps in January 2010 ("1/30/2010: Pricing of Greek CDS, 10Y Bond Yields Sense Risk (CDS 399bps, 10Y 6.85%"). That is up 243% in a year and three months folks. Did you (or Greece?) scoop some in your retail brokerage account? Ha. Anyone know when CDS will be available for retail consumption? E-mini CDS? Credit default swaps are insurance policies on debt that are priced in basis points per year (the premium or spread). Greece 5Y credit default swaps, similar to CDS on subprime mortgage-backed securities in 2007/8, have been rising for three years now and reflect the country's poor financial health. For more information read announcements made by S&P and Moody's a few days ago. To your left is the 5 year chart of Greece 5Y CDS via Bloomberg.

Recent articles:

Greece restructuring ‘only a matter of time - eFinancialNews

EU and IMF start key Athens visit as Greeks strike - Reuters

EU paymaster Merkel guarded on new aid for Greece - Reuters

Greece will need more aid (Official says Athens hopes for a new $86 billion financing package) - WSJ

Milligan Says `Ultimately' Greece Must Restructure Debt - Bloomberg Video via Washington Post

Roubini’s guide to a Greek debt restructuring - FT Alphaville

Greece taps markets after rating cut, EU mulls help - Reuters
"Greek Prime Minister George Papandreou lashed out at financial markets late on Monday, accusing them of lack of transparency and corruption.

"Profiteering, CDS, derivatives traded without any transparency are threatening to blow up whole countries," he told an anti-corruption conference." /
ouch

S&P Downgrades Greece to B; Moody's Places Greece B1 Bonds On Review For Possible Downgrade; 2-Year Greek Bonds Yield 25%

Source: Wikimedia Commons
Before reading these announcements, look at what Greek bonds are yielding as of May 10, 2011. Click the link for the Bloomberg quote.

3-month Greece Government Bond 8.06% (updated on May 9); 
6-month Greece Government Bond 6.13%;
1-year Greece Government Bond 6.26%;
2-year Greece Government Bond 25.17%;
5-year Greece Government Bond 16.377%,
10-year Greece Government Bond 15.43%,
30-year Greece Government Bond 10.41%.

From Moody's Investors Service yesterday:
"Moody's places Greece's ratings on review for possible downgrade

London, 09 May 2011 -- Moody's Investors Service has today placed Greece's B1 local and foreign currency government bond ratings on review for possible downgrade.

Moody's decision to initiate this review was prompted by:

(1) revisions to fiscal metrics, most notably the significant upward revision of the 2010 general government deficit;

(2) increased uncertainty about the sustainability of Greek sovereign debt in the context of potential delays in the achievement of fiscal consolidation targets; and

(3) concerns about the probability and the implications of a delayed and weaker economic recovery.

Moody's review will focus on the factors that will drive the country's debt dynamics over the next few years.

Moody's says that a multi-notch downgrade is possible if it concludes that there is large risk that Greece's debt metrics are on an unsustainable path. In Moody's view, such conditions would materially increase the risk of debt restructuring over the short to medium term. Under such conditions, euro area policymakers have stated that future loans from the Exchange Stability Mechanism would be extended only if private creditors were to bear some of the losses. If the path of Greek debt-to-GDP were to appear unsustainable, then Greece might itself have an incentive to seek a change in the terms of its debt obligations." [continue reading at Moodys.com]

From Standard and Poor's on May 9, 2011:
"Ratings On Greece Lowered To 'B/C' From 'BB-/B' On Rising Rescheduling Risk; Remain On CreditWatch Negative

Tuesday, May 10, 2011

Nomura's Richard Koo Warns U.S. Could Repeat Japan's Mistakes! (INET Bretton Woods Video)

Source: Nomura
Richard Koo, Chief Economist at Nomura Research Institute, spoke at the INET Bretton Woods conference on April 6, 2011. Mr. Koo sees similarities between Japan's deflationary experience from 1990 to 2005 and the U.S. today (zero percent interest rates, QE2).

He first compared the US housing market (S&P/Case Shiller Home Price Index) to Japan's housing market when they crashed 14 years apart (2006 in the U.S; 1992 in Japan). I put up a snapshot of the chart. Read his slides while watching the video: The World in Balance Sheet Recession: What-Post 2008 U.S., Europe and China Can Learn From Japan 1990-2005 (Slides).

He strongly believes that once an economy experiences a nationwide asset bubble, the Government must step in to borrow and spend until the private sector recovers (finishes deleveraging balance sheets), or risk an economic crash. So how does the story end in the the U.S.? I'm hearing either Weimar Republic style hyperinflation, Japanese deflation or 70's style stagflation. FYI, according to Clear Capital's Home Data Index, U.S. home prices dipped below the March 2009 low in April (read more).

May 2011 Rail Report by AAR (Link)

The May AAR (Association of American Railroads) Rail Time Indicators report is packed with freight data and economic trends through April 2011. Find the archive here and weekly rail statistics here.

Clear Capital: U.S. Home Prices Dip Below March 2009 Low (4/2011)

According to Clear Capital's "Home Data Index™" (HDI), U.S. home prices through April 2011 dipped below the March 2009 low. Also this can't be good, "‘Underwater’ Homeowners Rise to 28 Percent: Zillow" (Bloomberg). Read the full report at Clear Capital.

Relative Index Value (Source: Clear Capital)
"Clear Capital® Reports National Double Dip

U.S. home prices double dip as West, South and Northeast regions fall prey to the last grip of winter.

TRUCKEE, CA – May 5, 2011 – Clear Capital (www.clearcapital.com) today released its monthly Home Data Index™ (HDI) Market Report, and reports prices have double dipped nationally 0.7 percent below prior lows experienced in March 2009. This month’s HDI Market Report provides the most current (through April 2011) and relevant analysis of how local markets performed compared to the national trend in home prices.

Report highlights include:
  • National quarterly home prices changed -4.9%; while year-over-year national price changes reached -5.0%.
  • National home prices have fallen 11.5% over the previous nine-month period, a rate of decline not experienced since 2008.
  • In a sign of the continued volatility and fragility of home prices, all the major Metropolitan Statistical Areas (MSA) tracked in this month’s report showed quarter-over-quarter price declines.
  • National REO saturation rate reaches 34.5%.

“The latest data through April shows a continued increase in the proportion of distressed sales that are taking hold in markets nationwide,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital. “With more than one-third of national home sales being REO, market prices are being weighed down as many markets have not regained enough footing to withstand the strain of the high proportion of REO sales.

In light of the compounding effects of winter’s seasonal slowdown and increased distressed sale activity, the market now faces the true test of whether prices can rebound in the historically active spring season,” added Villacorta.

As national home prices reached new lows this past winter, hopes remain for a spring revival. Markets have entered uncharted territory, however, as this current home buying season will be the first since 2008 without any tax credit incentive. A note of caution to those looking for a strong end to 2011: The last time no incentives were in place and distressed inventories were this high, home prices fell sharply."

Read more at Clear Capital.

Monday, May 9, 2011

Updates: Gold, Silver, S&P, Treasuries, Munis, Greece, Housing, Fed (5/4/2011-5/9/2011)

Links to articles and videos on gold, silver, equities, munis, Treasuries, housing, Greece, EU rates and Fed governors.

Interview with Jim Rogers: Why Gold Can Go Higher (TheStreet.com) 5/9/2011

Deutsche Bank To Invest $1 Billion In Oil And Gold For John Paulson (ClusterStock) 5/9/2011

Kass: Sell the Rallies (TheStreet.com) 5/9/2011

Treasury Volatility Approaching Four-Year Low as Bonds Rally at End of QE2 (Bloomberg) 5/9/2011

Moody's Mulls Greece Downgrade On Debt, Recovery Concerns (WSJ) 5/9/2011

S&P cuts Greek credit rating to B (Financial Times) 5/9/2011 -EUR/USD is selling off; currently at 1.43581.

EU eyes lower rates for Greece, Ireland amid chaos (Reuters, CNBC Video)

Morgan Stanley Follows Goldman, Downgrades Economy (Zero Hedge) 5/8/2011

BOJ Warns Monetization May Lead To Severe Inflation, Rise In Long-Term Interest Rates; Yet Will Buy ¥350 Billion In Bonds (Zero Hedge) 5/8/2011

*Goldman Sachs Chief Equity Strategist David Kostin kept his 1,500 target on the S&P despite a H2 2011 GDP downgrade by GS economists (click the links to read more at Zero Hedge)

Saturday, May 7, 2011

JPMorgan's Thomas Lee Raises 2011 S&P Target to 1,475 (Bloomberg)

Source: BloombergTV
JPMorgan's Chief U.S. Equity Strategist, Thomas Lee, raised his year-end (2011) target on the S&P to $1,475 from 1,425, and his 2012 EPS estimate to $105 from $102 (14.04 multiple = 1,475). During his interview on Bloomberg TV on May 2, 2011 (see below), Lee said to watch stocks relative to "tail assets" (ex. gold and oil) to prove that the move is real. He believes the death of Osama Bin Laden will help this correlation, since gold and oil are used as terrorism insurance (terror premium in the price).

"We should see relative performance of stocks versus what we call tail assets. In other words, if stocks begin to outperform gold; stocks versus oil; we know investors are starting to believe this."

On Treasury yields moving lower (10-year went from 3.77% to almost 3.25%).

"It just shows you the Treasury market is a lot more than just about QE, *because I think everyone was thinking Treasuries (yields?) would back up because of QE (*double check this). But, you know what? Maybe a lot of it is discounted. It is really hard to tell what the 10-year is telling us. I would just tell you, I'm worried if the 10-year is at 4.5 to 5.0%; that would really destroy the case for stocks."

Mr. Lee believes we are in a structural bull market. I thought we were in a cyclical bull market?

SPX 1475 2011 Target, 1,250 Low (FreeStockCharts)
"It's been a very tough market. Remember people have been kind of bearish on this; they've been wanting to sell every rally here and it's been hard to embrace this as a secular bull market" (does this mean the Dow won't hit Charles Nenner's target of 5,000 in 2013?)

A few weeks ago Lee said the S&P will not breach the 1,250 low this year. I embedded that video as well. If you look at the chart to your left, 1,475 looks possible if the S&P were to rise to the vertex point of the 2-year wedge. By the way, ever since the market bottomed in March 2009, Tom Lee's S&P targets have been spot on.

JP Morgan's Tom Lee: S&P Target 1,300, 14.5x 2011 $90 Earnings By Year End - June 15, 2010

JP Morgan's Thomas Lee on 2010: S&P Will Hit 1300, Cyclicals.. - December 16, 2009

JP Morgan's Lee Sees Recovery, S&P Target 1,100" - June 17, 2009

Friday, May 6, 2011

Jim Chanos: China's Economic Growth Path Is Unsustainable (CNBC)

Jim Chanos (Source: CNBC)
Famed short seller Jim Chanos, who runs the $6.7 billion hedge fund Kynikos Associates (went short Enron before it collapsed), was on CNBC yesterday. If you're a hyper-bull on China and "resource economies" (Brazil, Australia and Canada etc), you might want to take his view into consideration. Watch the video after the jump.

"Well, we have what we think is an unsustainable growth path for china. They are growing on the back of investment, and specifically real estate construction. So the consumer as a percent of China's economy is actually dropping, Maria. Net exports, are also dropping interestingly enough. All of the slack and then some is picked up by construction. Particularly and most concerning, high-rise construction of offices and condos in the tier one, tier two and tier three cities. Fixed asset investment including land, according to the Chinese, is now 70% of their economy. And to put that in perspective, the asian tigers in the mid-90s, that grew so fast and then blew up, had a number about half that. About 30% to 35%. So China has embarked on something almost unprecedented here."

Related blog post (4/25/2011): "China Has 64 Million Vacant Apartments, Shanghai Property Index Near Inflection Point (000006.SS Charts), Andy Xie On Inflation"

Thursday, May 5, 2011

It's Time for Obama to Spook the Oil Markets - Guest Post

$5 by 5/30?
Oceandesetoiles - Flickr
Guest post by Llewellyn King for OilPrice.com

It's Time for Obama to Spook the Oil Markets

The fate of the Obama presidency hangs not on a birth certificate or the red ink on the federal budget but by the hose nozzle of your local gas station.

Electoral discontent is measured by the price of a gallon of gasoline. Heading past $4 toward $5, that is a lethal trajectory for President Barack Obama.

Enter the demagogues, especially the clown-in-a-business-suit, Donald Trump. Unfettered by the gravity that goes with facts, Trump says that he would fix the oil price - now around $110 a barrel - by facing down the producers, particularly the Organization of the Petroleum Exporting Countries (OPEC). He told an interviewer on television that he would call OPEC and tell them to pump more or face the consequences. The latter, he did not specify. War? Against whom?

In a compelling book by Leah McGrath Goodman, "The Asylum: The Renegades Who Highjacked the World's Oil Market," the author lays out the ugly fact that often - in fact, as often as not - the price of oil is set not in Vienna at the headquarters of OPEC, but in downtown Manhattan at the New York Mercantile Exchange (NYMEX).

Tens of thousands of future contracts are traded in nanoseconds at the NYMEX, and the price of oil is set. This price affects not only the price which will be paid when these contracts expire and delivery takes place, but also, according to Goodman, the all-important over-the-counter market, where sellers trade more directly with buyers without government oversight.