Baltic Dry Index. 1902 -38 (Down 54.8% since May 26, 2010.)
LIR Gold Target by 2019: $3,000.
I made a killing on Wall Street a few years ago...I shot my broker.
Groucho Marx.
Another weekend and the World Cup global escapism is nearly over. By Monday, Paul the German octopus with an uncanny ability to pick winning football teams, may be the latest hire at Ebenezer Squid’s dodgy outfit in Manhattan, provided Spain win tomorrow’s final. A somewhat less reliable rival parakeet using Elliott Wave technology has picked Holland, the other team in Sunday’s final. My reliable sources in London tell me that the Fed has it totally covered. Ex chairman Greenspan has gone with the Parakeet, so Helicopter Ben has gone with the German octopus. Both have hedged with CDS written by AIG and structured for them by Ebenezer’s highly skilled pool operators currently residing for the summer in the Hamptons.
Judging by the week’s stock rally, boom times lie directly ahead. I have my doubts. Thanks to the High Frequency Trading programs of the Squids, what should have been a normal summer short covering rally from a short term deeply oversold market, got turned instead into a feeding frenzy of buy back/get in at any price, as the Squids HFT programs played the field to excess. Somewhere, buried deep in the books “marked to fantasy” of some unfortunate traders, lurk hidden losses. Not everyone was a Squid with a licence to kill. My guess is those losses will stay hidden until the end of quarter. Back in the real world, the Baltic Dry Index continued its slump, and is now down 55% in just 6 weeks. Below, more on the BDI and why it might matter.
“The BDI is one of the purest leading indicators of economic activity. It measures the demand to move raw materials and precursors to production, as well as the supply of ships available to move this cargo. Consumer spending and other economic indicators are backward looking, meaning they examine what has already occurred. The BDI offers a real time glimpse at global raw material and infrastructure demand. Unlike stock and commodities markets, the Baltic Dry Index is totally devoid of speculative players. The trading is limited only to the member companies, and the only relevant parties securing contracts are those who have actual cargo to move and those who have the ships to move it.”
Equally dismal is what’s been happening with the other shipping indexes. The Capesize is down from 5300 to 2102. The Panamax from 4600 to 1944. A very good case can be made that the rebound rally from the post Lehman crash lows, is over. That rally was largely due to the massive Chinese stimulus package, roughly 35% of then GDP and the largest stimulus package by GDP in the world. All they got for their trouble was inventory overload, a massive real estate bubble, especially in the coastal powerhouse cities, domestic inflation, and an off and on trade war with America, where this being an election year, the war looks to be moving back on again as Democrats and Republicans line up to kick America’s largest creditor. Now it looks as if China’s technocrats have decided to pursue a China first policy, a policy that seeks to reign in the real estate bubble and cap the domestic inflation. If that kills some international trade so be it. I think stock markets ignore this sea change at their peril.
My guess is that the US stock market is in for another “flash crash” pretty soon, or worse another 1987 style crash with few Fed tools left to repair the damage.
JULY 10, 2010
BofA Admits Hiding Debt
Details Come as SEC Is Set to Unveil Review of Wall Street 'Window Dressing'
Bank of America Corp. admitted to making six transactions that incorrectly hid from view billions of dollars of debt, following a bid to cut the size of a unit's balance sheet and meet internal financial targets.
The disclosure, made in a letter to the Securities and Exchange Commission, comes as the agency prepares to unveil the results of an inquiry into banks' accounting for borrowing deals known as repurchase agreements, or "repos."
BofA's letter was sent in April in response to the inquiry, but this is the first time the details of the six trades in question have been disclosed. The bank had acknowledged in its last quarterly report that its accounting for the transactions, made at the ends of quarters from 2007 to 2009, was incorrect.
The bank's disclosure also suggests the trades may be an example of end-of-quarter "window dressing" on Wall Street, in which banks temporarily shed debt just before reporting their finances to the public. The practice, which The Wall Street Journal has uncovered in a series of articles, suggests the banks are carrying more risk most of the time than their investors or customers can easily see, and then juggling it during quarter-end reporting of financials.
Window dressing isn't illegal in itself. But intentionally masking debt to deceive investors violates regulatory guidelines. BofA said its incorrect accounting wasn't intentional.
Apart from requiring more disclosure about the bank's repo accounting, the SEC hasn't taken any action against BofA over the matter. The fact that the letter was released suggests the SEC has concluded its review.
Though much smaller in scope, Bank of America's accounting of the six trades is similar to what a bankruptcy-court examiner said Lehman Brothers Holdings Inc. did to make its balance sheet look better before it filed for bankruptcy in 2008. Lehman used a strategy dubbed "Repo 105" that helped the Wall Street firm move $50 billion in assets off its balance sheet, the examiner said in March.
We end for today suggesting readers follow the link below. My guess is that our new decade will go down in history as the decade the whole world defaulted.
Saturday, July 10, 2010
Part 2. How Often Have Sovereign Countries Defaulted in the Past?
http://www.calculatedriskblog.com/
"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."
Henry Hazlitt
More tomorrow on sunspots.
GI.
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