Tag Archives: Carl Icahn

Derivatives: Unexploded Financial Weapons

Central counterparties keep records of trades and help suck risk out of the banking system, but this only works if they themselves are well capitalised and have plans in place to deal with a sudden collapse of one or more of its members and get close to failure. Otherwise, they’re just unexploded nuclear bombs nestling deep in the financial system.   – Business Insider LINK.

Who are we kidding.  Since the 2008 de facto banking system collapse, the OTC derivatives problem has mushroomed out of control.   The Obama Government heralded in the Dodd Frank legislation, which allegedly made the financial system safer for everyone.  In reality it is nothing more than a fairlytale written with  the goal of allowing the Too Big To Fail banks to cover up their continued derivatives Ponzi scheme.

Now the BIS has issued yet another warning about the dangers lurking with derivatives. The “central clearing exchanges,” like the Depository Trust Clearing Corporation, are giant derivatives-infested vipers nest which harbors the next – and possibly imminent – financial system collapse.

This is one of the reasons behind Carl Icahn’s recent candor regarding the U.S. financial system:  “sooner or later there’s going to be a massive problem.”  LINK

In today’s episode of the Shadow of Truth,   we discuss the reasons why the BIS is sounding the derivatives alarm bell again and why Carl Icahn has become “Dr. Doom” on the stock market:

It’s A Truth Or Dare Stock Market

Hi Dave, I purchased a box of silver eagles on SD Bullion today! I also did the 250 strike on Amazon! Great report on Amazon! I’m really excited about the coins! Thanks for the help! I feel like I have taken a big step in protecting my family!  Thanks, Jeff

I received that email yesterday from a subscriber to my Short Seller’s Journal.  He made a $7500 profit on AMZN puts that I had recommended.  He took the profits plus part of his original capital and bought a box of silver eagles from Silver Doctors (SD Bullion is the best source to buy silver eagles based on price and reliability of service – I receive no benefit from saying this but I’ve been buying silver for over 15 years and I know how to differentiate between good and bad coin dealers).  He rolled the rest of his capital from the original AMZN put trade into the January 2017 $250 puts, which could end up being a home run.

There’s a rumor floating around the market that Google is looking at buying AIG. Remember AIG?  AIG is the big insurance company that was taking insane risks in the subprime mortgage derivatives market.  It blew up in 2008 and, in the process, had technically blown up Goldman Sachs.  Ex-Goldman CEO, Henry Paulson,  was strategically inserted into the Treasury Secretary post specifically to make sure that Goldman was bailed out when this happened.

AIG was also saved by the taxpayers.  It’s businesses were reinflated by the Fed’s QE and it’s stock ran from $20 to a recent high last of $64.  Carl Icahn, the quintessential stock operator took a stake in AIG in October and had been trying to force a break-up of the company.  The stock is down over 18% since Carl announced his position in the stock.  The Google rumors started flying around about a day ago. It has to be one of the most retarded ideas I’ve seen floated in quite some time.  It reminds me of the “clicks and eyeballs” analysis to justify the bloated valuations on internet stocks back in 1999.

Carl Icahn makes mistakes.  I took other side of one of his mistakes in the late 1990’s when he decided that taking control of the badly failing Stratosphere Casino in Vegas was a good idea.  His idea failed miserably and I made a lot of money for Bankers Trust from shorting the daylights out of the Stratosphere first mortgage bonds, which ultimately were worth zero after trading as high at $110 (110% of par value).

My point here is that something not being mentioned anywhere is going with AIG’s financial stability.  The credit default swap rate on AIG bonds has mysteriously shot straight up:

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I have no idea what has the CDS market spooked. But I know from 1st-hand experience that credit markets tend to have information and “see things” well before the stock market sees it. Accounting disclosure, by design, has become catastrophically opaque in the financial sector. Anyone who has only access to the SEC-filed financial documents is seeing no more than a sliver of the truth about what is going on at AIG, or at any financial company for that matter.

Whether or not this will turn out be big mistake for Icahn remains to be seen. But anyone who is jumping on AIG because there’s a rumor that Google should buy it is ignoring the signal being broadcast by the CDS market.   Often rumors designed to juice a stock are “coincidentally” floated at a time when someone privy to inside information decides that it’s time to get out of Dodge and needs an influx of “dumb” money to buy the stock so he can exit.  The CDS market is suggesting this could be the case with AIG.  We know Icahn is dumping AAPL right now…

This is the type of analysis and insight that subscribers to my Short Seller’s Journal receive on a weekly basis. At some point I will wade knee-deep into AIG’s financials and see if I can figure out why the CDS market is so spooked because I know the original factors which sunk AIG the first time around have likely reappeared, in a different form, and AIG could well be an epic short opportunity.

Short/Sell This Bounce In Glencore Stock AND Short The Bonds

Glencore stock has bounced at 16% today on a rumor that some investment group could take Glencore private.  Too be sure, there’s plenty of idiots out there with enough cash to pay 9x revenues for The Onion’s business section (Business Insider), but it’s another matter to find enough banks and institutional investors investors willing to finance a massive $40-50 billion buyout of an overleveraged commodity company.  This is especially true given that the outlook for Glencore’s base metal products is very grim given that the world is on the cusp on the worst economic depression in history.

The bonds have not moved in response to that rumor, with the Glencore 5.95’s of 2020 trading in the 70’s.  That’s 70 cents on the dollar.  That’s roughly a YTM of 6.44%, or about 500 basis points off the 5-yr Treasury.  That’s the equivalent of a low-B or triple-C rated bond, which reflects a fairly high probability of eventual insolvency.   Furthermore, the cost of credit default risk insurance got more expensive today.   Both of these markets are telling us that, not only was the rumor absurd but that the credit markets are expecting a turn for the worse.

Glencore is now going to conduct a fire sale of assets in order to start addressing its $30 billion in debt.   This is the absolute worst time to sell assets which derive their intrinsic value from base metals, energy and agricultural products.   This is the classic sign of a “fire sale” being conducted by a company that is walking the plank.   It also tells us that the willingness of the credit market – which have behaved like moronic drunken sailors for the last 5 years – is unwilling to chase bad money with more printed money.   

Glencore is entering the irreversible death spiral.   We used call the bonds issued by companies in Glencore’s predicament, “IDS bonds” – irreversible debt spiral bonds.  The only event that will save Glencore is a massive helicopter drop of more printed money and I doubt even that will move the needle on commodity prices (except gold and silver, of course) other than a brief knee-jerk bounce.  QE does not stimulate real economic growth.

Perhaps the best indicator that Glencore is poisonous is the fact that Carl Icahn is not trying to get involved.  In my opinion he sniffs out opportunities to capitalize on bubbling Ponzi schemes better than any investor I’ve observed.  The difference between Carl and the crooks who bought Glencore is that Icahn doesn’t get involved unless he has a “greater fool” in his back pocket.

The Glencore equity holders do not have a greater fool.   I take that back:  the bondholders who financed the original buyout are the greater fools.  And the greatest fools are participants in the pension plans managed by the greater fool institutional investors.

Not only is Carl Icahn not sniffing around Glencore’s back-side, he’s issued a statement today which indicates he’s going to take his chips off the table and find a different game to play.  The greater fools who will pay more than the previous fools are likely gone altogether from this market. But there will plenty of greatest fools who will try to catch falling knives…

Full Retard Fiat Monopoly Money

Some moronic German with too much printed monopoly money in his pocket has decided to pay nine times revenue for Business Insider – LINK.  Nine paper dollars for every paper dollar of revenue!!   It brings to mind the infamous picture of the German woman using her marks to fuel her furnace:

GermanMarksFor those who don’t know, Business Insider is the comic book version of “Wall Street News For Dummies.”   If you didn’t know that it was a serious attempt at “inside Wall Street reporting,” you would have thought that it was the business section of The Onion.

Paying 9x times sales for BI has got to be one of the most retarded business deals I’ve ever witnessed.  Especially since BI’s revenues are primarily derived from advertising.  Who in their right mind would pay anything for a quirky, nich-focused business dependent on ad revenues when Wall Street business activity is declining quickly and the world is on the cusp of the greatest economic depression in history?   Clearly Axel Springer was born with a silver spoon in his mouth and decided he needed to unload some of his pocket change.

Kudos to Henry Blodget, one of Business Insider’s founders, who has managed to bamboozle the business world again.  Recall he was Merrill Lynch’s internet stock “analyst” during the tech bubble years and made his fame as Amazon’s chief snake-oil salesman.  It should come as no surprise, of course, that Jeff Bezos is a 3% holder of Business Insider stock.

The earnings of the companies in the S&P 500 contracted about 1% year over year in the first half of 2015.  I expect an even bigger contraction in the 2nd half.  Typically, a shrewd businessman would not pay any multiple of revenues for a business with contracting earnings.  An even more shrewd businessman would likely balk at paying a measurable discount to revenues for Business Insider.

This deal is nothing more than direct evidence that QE has done nothing other than trigger the biggest misappropriation of capital in history.  But with ZIRP, capital free to privileged borrowers in the U.S.  Worse, with NIRP all over the EU, spoiled mush-brains like Springer can actually get paid to borrow money in euros.

This is going to end very badly.  As Carl Icahn said earlier today, “it’s not a question of if, it’s a question of when.”

“AAPL Is Crashing – It May Be Over”

We’re dying to see Icahn’s next filing on Apple. The fact that Carl has not Tweeted anything on Apple since June 24 is interesting. – The King Report, M. Ramsey Securities, Aug 4, 2015

AAPL has been by far the biggest contributor to the run-up in the stock market since the Fed began printing trillions of dollars to save the big banks and reinflate every paper-fueled financial bubble that has infected our economic system since the mid-1990’s. While everyone points to Bernanke as being the “king of the printing press,” the Maestro himself, Alan Greenspan, worked his “maestro-ism” by pressing down hard on the money-printing accelerator in order to “fix” every big financial collapse since the 1987 stock market plunge.

Now one-by-one the bubbles are popping. EU sovereign debt and the Chinese financial system are clearly the most visible for the time being.  It also looks like the pancreatic financial cancer that took down Greece has now invaded Spain.

But the bubble-popping pin is also starting to invade the U.S. economy. One has to wonder if the Obama Government will invoke the “national security clause” of the Patriot Act and try to incarcerate the bubble-popping-pin without a judicial hearing at Guantanamo (the Guantanamo that Obama promised to close after he was elected in 2008). Maybe Wesley Clark will suggest putting the bubble-pin in an internment camp…

The poster-child for the U.S. financial system bubble has been AAPL.  Aside from Carl Icahn pimping his big position in the stock for a few years, Wall Street money slaves have tripped over themselves to drool over the Company’s overpriced cellphones and computers.  Not only is the price of AAPL stock a bubble, but it is a bubble in marketing, shameless promotion and the amount of unused tech gadget computer power for which the AAPL cult adherents happily pay – often with credit.

While no one knows which coming event will ultimately crash the U.S. financial system, the economy is clearly receding deeper into recession.  The GDP bounce reported for Q2 is nothing more than statistical smoke and mirrors fabricated by Government statisticians and Orwellian propaganda.  Every private-sector economic metric is now showing declines further into negative territory.  Today, for instance, factory orders plunged for the 8th month in a row, down 6.2% for June vs. June 2014.

Along with the deteriorating economy, the dislocation between the fiction of stock market valuations and the reality of Main Street continues to widen.  This will not have a happy ending.  The law of “regression to the mean” will at some point assert itself in brutal fashion and the multiple paper-fueled financial bubbles blown by the Fed will pop and decimate our entire system.

I doubt AAPL will be the trigger, but anyone blindly bullish on the stock market has to take notice of the 15% plunge in AAPL’s stock since its recent all time high:

AAPL

With Carl Icahn likely selling furiously, if not out of his position entirely, and every large hedge fund over-weighted in AAPL, who will catch the falling knife?  If the Fed or the Swiss National Bank does not insert a safety-net – and it appears as if the SNB is already filled on AAPL paper – AAPL has a long way to fall before it reaches a fundamental price that makes any sense.  Of course, the same can be said for the entire stock market…

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