As my Friday entry noted last week, this weekend has us positioned at a critical turnbuckle for this market. The underlying economy is already corroding, despite already being in a corrosive state to begin with. Will a redoubling of capital market exuberance infuse the flat economy with some juice, or will the flat economy suck the juice out of exuberant capital markets? (The latter.)
Enjoy these free samples from my newsstand…
Carloads -2% and Intermodal +3%. 14 of 20 segments posted gains y/y. Cumulative volume -3.2% y/y: Petroleum products +47%, Motor Vehicles/Parts +31.2%, Lumber/Wood +23.1%, Grain -22.7%, Farm Products (ex Grain) -12.9%, Coal -10.1%.
JP Morgan Revises 1q12 10Q: Admit to $2 Billion Losses | ZeroHedge
Rumors of Bruno Iksil (“London Whale”) confirmed: $2B in mark to market losses net out to $800mm after JPM offsets with gains. CIO office still working with $8B in gains from hedging activity. VaR models suggest max $4.5B potential losses from unwinding these positions.
Tyler Durden discusses how CIO office built long, synthetic credit position by shorting CDX Series 9 (10Y IG9 CDS Index). Originally a hedge of JPM’s corporate credit exposure, it turned into a momentum trade, since Iksil was trading size and having to continually increase his stake to remain market neutral per his model. Investors started noticing the arb spread between the IG9 Index and the underlying FMV, so they started playing the compression trade. When the skew stayed wide, everyone knew there was a whale stuck short IG9, and JPM’s trade grew too big to unwind.
My Investment Strategy & My Kind of Portfolio Manager | Julian Robertson (Tiger Management)
Long/Short is optimal management strategy, looking for bad management teams & overvalued companies in declining/misunderstood industries. Likes competitive PMs.
Presentation: The End of the Bond Bull Market from an Equity Investor’s Perspective | Doug Kass (Seabreeze Partners)
His biggest position is now short Treasury bonds.
Presentation: “Deficits Don’t Matter” | Jeff Gundlach (DoubleLine)
Does a bit of MMT throughout. Suggests that more spending must occur to support growth across global economies, but austerity must take long-term approach to reduce deficits/debt.
Invest in stocks? Forget About It | The Big Picture
USA Today story says Main Street has shunned stocks. Barry Ritholtz calls this the secular bear market’s sign of bottoming.
Morgan Stanley 10-Q: Will Face $10 Billion Collateral Call in 3-Notch Rating Downgrade | ZeroHedge
Due to OTC derivative contracts’ collateral requirements. While that’s a lot of money, it would take a big downgrade to trigger, but Moody’s is threatening.
Shale Gas Hype: Subprime 2.0? | naked capitalism
Yves Smith discusses natural gas: overestimated reserves, understated environmental effects, leverage, and risky/complex/unprofitable business models.
Video: Greek Neo-Nazi party “Golden Dawn” election celebration press conference | Business Insider
No amount of social unrest, depression or distress should bring such animals to power. Sly yet reprehensible the first time; inexcusable the second, without plea of ignorance: “for those who betrayed the homeland, the time has come to fear… the fight continues even stronger–inside and outside of Parliament.”
Greece Elections: Higher Risk for An Interruption of the Adjustment Program | Goldman Sachs
Before what’s next in Greek politics: Pro-bailout parties (New Democracy & PASOK) will try to form a coalition government, but they’ll likely not have enough for a majority.
First Official Greek Exit Polls: Pro-Bailout Parties Plunge; Anti-Bailout Radical Left, Neo-Nazis Soar | ZeroHedge
60% of the new Greek parliament will be anti-bailout.
Said German FinMin Wolfgang Schaeuble: “If Greek voters were to vote for a majority that does not honour those agreements, then Greece will have to bear the consequences of that.”