26Mar2015 Market Close: Markets Closed Down In The Red, War In Yemen Continues, Oil And U.S Dollar Rise

Bankruptcy judge says to approve LightSquared bankruptcy exit plan

(Reuters) – A U.S. bankruptcy judge said on Thursday she will approve wireless venture LightSquared’s plan to exit bankruptcy and repay its largest creditor, Dish Network Corp Chairman Charles Ergen, in full.

Fed market gurus prep rate hike amid last-minute anxieties

NEW YORK (Reuters) – The New York Federal Reserve officials tasked with prying interest rates off the floor have been meeting with bankers and traders to plot how best to do it, amid deep uncertainty over how much control they will really have over short-term lending markets.

What Would Happen If ETF Holders Sold All At Once? Howard Marks Explains

The realization that there is, as of this moment, at best negligible and very often zero liquidity in bonds (or even stocks) is known by most: a topic we first discussed back in the summer of 2013 (a good place to start is Phantom Markets: Why The TBAC Is Suddenly Very Worried About Market Liquidity) has become so pervasive that even the BIS admitted last week bond market liquidity has cratered, with some estimates suggesting that corporate bond liquidity is down 90% since Lehman, mostly thanks to central banks’ unprecedented absorption of some $5 trillion in “high quality collateral” from the private market.

In fact, moments ago the head of the Bank of England himself, Mark Carney, warned about the risk of “disorderly unwinding of portfolios” due to the lack of market liquidity.

“Market adjustments to date have occurred without significant stress. However the risk of a sharp and disorderly reversal remains given the compressed credit and liquidity risk premia,” Carney told a news conference after a meeting of the FSB.

“As a result, market participants need to be mindful of the risks of diminished market liquidity, asset price discontinuities and contagion across asset markets.”

Liquidity, which is increasingly synonymous with the inverse of Fed counterparty risk because in a world in which the Fed has onboarded virtually all risk, there is no need for market-making since only buying is encouraged and any concentrated selling leads to an immediate market break, has become such a buzzword, it is the topic of Howard Marks’ latest letter.

We will skip the big picture of Marks’ observations …

Oil up 5 percent after Saudi strikes in Yemen; dollar limits gains

NEW YORK (Reuters) – Oil jumped about 5 percent on Thursday, rallying a second straight day, after air strikes in Yemen by Saudi Arabia and its Gulf Arab allies sparked fears of a bigger Middle East battle that could disrupt world crude supplies.

Who’s Behind All of the Wars?

Image by Terry Robinson

Bankers hate peace …

Lee Fang reports:

The possibility of an Iran nuclear deal depressing weapons sales was raised by Myles Walton, an analyst from Germany’s Deutsche Bank, during a Lockheed earnings call this past January 27. Walton asked Marillyn Hewson, the chief executive of Lockheed Martin, if an Iran agreement could “impede what you see as progress in foreign military sales.” Financial industry analysts such as Walton use earnings calls as an opportunity to ask publicly-traded corporations like Lockheed about issues that might harm profitability.

Hewson replied that “that really isn’t coming up,” but stressed that “volatility all around the region” should continue to bring in new business. According to Hewson, “A lot of volatility, a lot of instability, a lot of things that are happening” in both the Middle East and the Asia-Pacific region means both are “growth areas” for Lockheed Martin.

The Deutsche Bank-Lockheed exchange ” …

CSX Cuts Outlook Despite CEO Saying “Expects No Impact From Low Oil Prices”

When CSX CEO Michael Ward arrogantly strode onto CNBC six weeks ago and proclaimed, he has “not seen any changes,” suggesting everything’s fine down to $30-35 oil and “expected no impact on crude shipments,” we carefully suggested he was being a little careful with the truth. So, when today, the company issued the following statement:

*CSX DOESN’T EXPECT TO REACH HIGH END OF CRUDE-BY-RAIL FORECAST

We could not help but wonder just how rapidly the deterioration had occurred or if, once again, a CEO had come on business media and lied through his teeth.

CSX CEO Michael Ward giving the all-clear 6 weeks ago…rail freight transportation company CSX’s CEO Michael Ward stated ‘unequivocally’ that as far as the movement of crude by rail he has “not seen any changes,” suggesting everything’s fine down to $30-35 oil and “expected no impact on crude shipments.”

And last week’s tumble in rail loadings…

And now CSX cuts the 2015 outlook…

*CSX DOESN’T EXPECT TO REACH HIGH END OF CRUDE-BY-RAIL FORECAST

CSX had forecast avg daily crude trains of 4-4.5 in 2015 vs 3.5 in 2014 “given pricing pressure in the global crude oil market,” spokeswoman Melanie Cost says in e-mailed statement.

RadioShack rescue deal dogged by fights, demands for new auction

WILMINGTON, Del. (Reuters) – RadioShack Corp’s rescue deal to keep 1,740 stores open was attacked on Thursday by the bankrupt retailer’s top creditor, a failed bidder who called the auction a sham and sought a new sale.

Common Sense: Bargain Hunting With a Strong Dollar in Europe, but Finding a Mixed Bag

With the euro approaching parity with the dollar, it seems to be time for a shopping spree on the Continent. But currency fluctuations are complicated.

Government Report Finds DEA Agents Had “Sex Parties” With Prostitutes Hired By Drug Cartels

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Although some of the DEA agents participating in these parties denied it, the information in the case file suggested they should have known the prostitutes in attendance were paid with cartel funds. A foreign officer also alleged providing protection for the DEA agents’ weapons and property during the parties, the report said. The foreign officers further alleged that in addition to soliciting prostitutes, three DEA SSAs [special agents] in particular were provided money, expensive gifts, and weapons from drug cartel members.

* A deputy U.S. Marshal “entered into a romantic relationship” with a fugitive’s spouse and would not break off the relationship for more than a year, even after being told by supervisors to end it.

* An ATF “Director of Industry Operations” had “solicited consensual sex with anonymous partners and modified a hotel room door to facilitate sexual play.” The ATF employee even disabled a hotel’s fire detection system, and when caught by the hotel, said he had done it before.

– From the Politico article: DEA Agents Had ‘Sex Parties’ with Prostitutes, Watchdog Says

There’s no agency in government more vehemently opposed to ending the immoral and counterproductive “war on drugs” than the Drug Enforcement Administration (DEA). …

Modest Losses for the Market After an Early Retreat

Oil prices were rising as concerns grew about Middle East turmoil, but investors seemed to be biding their time. Bond prices fell, and gold was up only a little.

Oil Prices Jump as Saudi and Yemen Fighting Escalates

Concerns over a possible disruption in supplies forced prices up as Saudi Arabia began airstrikes against Yemen.

Wheels: Their Ranks Thinned, the Surviving Car Dealerships Thrive

Battered by the recession, the auto sales industry is recovering, in part through consolidation and by embracing new information technology.

Wall St. up in choppy trade as tech bounces back

NEW YORK (Reuters) – U.S. stocks were little changed on Thursday, well off session lows as tech shares recovered, with the S&P 500 struggling to avoid a fourth straight daily decline.

Putin Says Attempts To Tip Nuclear Balance Don’t Scare Russia, Moscow Will Uncover “Schemes”

Russia is once again ratcheting up the rhetoric, this time to a fever pitch. Just a day after Putin’s Security Council posted a remarkably accurate and amusingly concise assessment of US foreign policy aims on its website, a spokesman for the Russian Foreign Ministry as well as President Putin himself are out with strong condemnations of both the NATO presence in Eastern Europe as well as US plans to arm Kiev.

The comments come on the heels of a House vote which showed overwhelming support for the provision of lethal aid to Kiev and just a day after the first batch of American humvees received a warm welcome from President Petro Poroshenko. As a reminder, here’s what both sides had to say about Congress’s willingness to maybe start an all out proxy war in the Baltics:

The prepackaged spin is already ready: “sending weapons to the Kiev government would not mean involvement in a new war for America”, claimed the abovementioned Eliot Engel who sponsored the document. “The people of Ukraine are not looking for American troops,” Engel said. “They are just looking for the weapons.”

So the only question is how Russia will responds to this escalation: according to RT, “Washington’s decision to supply Ukraine with ammunition and weapons would “explode the whole situation” in eastern Ukraine and Russia would be forced to respond “appropriately,” Russia’s Deputy Foreign Minister Sergey …

Trans-Pacific Partnership Seen as Door for Foreign Suits Against U.S.

The 12-nation accord would let foreign corporations challenge American actions and regulations that hurt their business, a classified document obtained by The Times says.

Thank You, Fed – Warren And Jorge Are Thrilled By Another Play Day In The Casino

Submitted by David Stockman via Contra Corner blog,

Kraft shareholders woke up $12 billion richer this week and for that they should thank their lucky stars—-or at least send a case of Cristal to Janet and her merry band of money printers. Having passed-out free money to carry traders for 75 months running and after inserting a liquidity and verbal “put” under every market dip since March 2009, the money printers had generated downright giddiness (as of Tuesday night!) in the Wall Street casino.

And when it came to the shares of Kraft, the casino was indeed giddy even before the deal was announced. A few months ago when it was trading about $55/share, the company was already valued at 31X its $1.75 per share of net income for the year then ending.

So now those fast money traders who somehow “got wind” of the deal early are just plain tickled pink. At $83 per share they are up 50% on their cash position and several hundred percent on their call options. That’s quite the pay day, amounting to about 47X last year’s earnings on Jell-O, Kool-Aid, Lunchables, Maxwell House, Oscar Mayer, Philadelphia cream cheese, Planters peanuts and Velveeta spreads.

Setting aside the Kool-Aid, you might wonder how hot dogs, peanuts and sliced cheese are really worth such a snappy valuation multiple. Actually, however, that’s not the complete wonder of it. In the year just ended, Kraft posted an hardly impressive $2.9 billion of adjusted EBITDA less CapEx. Yet the casino is now pegging its total enterprise v …

10Y Treasury Yield Tops 2.00% Following Consecutive Weak Auctions

Following a 0.9bp tail in yesterday’s 5Y auction and 1.1bp tail in today’s 7Y, 10Y yields have snapped 12bps higher and broken back above 2.00% for the first time since The FOMC meeting last week…

Charts: Bloomberg

Fewer U.S. Jobless Claims Suggest a Rebounding Economy

The Labor Department said on Thursday that weekly applications for jobless aid fell 9,000 to a seasonally adjusted 282,000.

Common Sense: An Update: A Voice for Gay Marriage, Now Wed

Bob Page, who took a lonely stand against a North Carolina constitutional amendment banning same-sex marriage, married his long-time partner on Wednesday — in North Carolina.

Following A 1-Week 17% Client-Muppeting, Goldman Removes Sandisk From Conviction Buy List

If you liked it at $83, you’ll love it at $66… is apparently the message from Goldman Sachs as last week’s transition of Sandisk to the company’s “Conviction Buy” list has left clients with a Cramer-esque muppet-hole of around 17% (and rising). One wonders if it is still a conviction buy… or if Goldman should be convicted for selling it to clients…

Goldman on March 17th…

We add SanDisk to the CL given our increased confidence in 2015 S/D and attractive valuation (7% FCF yield) post the pull-back (-18% YTD vs. the SOX +2%).

We see a 34% total return (vs. the semi median of -3%) to our 12-month, $106 price target on:

1) Tight 2015 NAND S/D. Supply: 2H14 NAND SPE orders were very low, implying reasonable near-term supply. Demand: Our checks at MWC suggest the iPhone 6 has helped drive higher NAND per phone at other OEMs.

2) We expect gross margins to expand 400 bps by 4Q15 from the weaker yen, mix, and cost reductions.

3) There could be longer-term upside from SanDisk’s new hyper-scale all flash array product.

Beyond Iran And Pakistan: 7 Nuclear Wannabes

Submitted by Andrew Topf via OilPrice.com,

The meltdown at the Fukushima Daiichi nuclear complex in 2011 following the Japanese tsunami forced a major rethink of nuclear power as a safe form of electricity generation. As radiation from the plant spewed into the ocean and nearby communities following an immediate evacuation, the world reaction was swift and dramatic. Within days the spot price of uranium collapsed. Japan ordered the shutdown and maintenance of all its existing reactors. Germany, a major consumer of nuclear power, permanently closed 8 of its 17 nuclear reactors; other European countries shelved their nuclear plans.

While fear still lingers of a nuclear catastrophe on a similar scale as Fukushima, or earlier accidents such as Three Mile Island or Chernobyl, that hasn’t stopped a slew of countries from moving forward on plans to develop nuclear plants as an adjunct to existing power sources like hydro, coal, natural gas and good ol’ oil.

Especially in developing countries that lack access to fossil fuels, nuclear is seen as a viable and cost-effective form of baseload power.

Of course, these plans immediately arouse suspicions that nuclear power is being used as a ruse for developing nuclear weapons. The most obvious example is Iran, which already operates a large nuclear reactor – Bushehr 1 – but continues to engage in uranium enrichment despite a requirement by the United Nations Security Council to suspend such activities. Iran’s nuclear ambitions have resulted in U.S.-led sanctions and raised the opprobrium of Israel, which in turn has found itself at odds with the United States, particularly the Obama Administration, which seeks an accommodation with Iran.

Pakis …

Ugly, Tailing 7 Year Auction Prices At Lowest Bid To Cover Since May 2009

If yesterday’s 5 Year auction was ugly across the board, today’s 7 Year was even uglier.

The ugliness started at the very top, where the High Yield came at 1.792%, tailing 1.1 bps to the 1.781% When Issued. But the Bid to Cover really stole the thunder, sliding from 2.368 in February to just 2.317. This was the lowest coverage since May of 2009. The internals were not as exciting, with Directs holding 12.3% (below the TTM average of 16.5%), Indirects left with 50.51% (above the 48.2% average), and Dealers virtually unchanged from a month ago at 37.2%.

The auction was so weak it has accelerated the selling across the curve, and the 10Y, after sliding to the low 1.80%s earlier this morning, is about to rise above 2.00% yet again.