Some quick updates of the risk off. Today’s actuion is creating a perfect set up for the Flach Crash scenario we have been arguing for. Everybody is now “sucked” into being long the market. As we have written, risk in equities market, has been mispriced for way too long, and we could now expect some major valatility to start occuring. Don’t forget, LinkedIn at P/E 1000, Groupon IPO and this time it is different. Peoples minds never change, and this time is not different. For a bearish summary see our post from earlier this week;

http://www.thetrader.se/2011/06/01/the-top/

http://www.thetrader.se/2011/06/02/credit-anticipates-and-equity-confirms-danger-ahead/

NFP below all expectations. This is sooo bad. SPX futures below 1300. Double Dip here we come. GDP revisions to follow, again. Look for US to sue Moodys after the rating agency revises US credit.

Some great must see charts on the Inequalities in US below. Remember why we got the Arab spring? Has the US gone too far in polarizing the society? Click the link to see all 20 charts. http://www.stanford.edu/group/scspi/cgi-bin/facts.php

Productivity and Real Income

We are a richer country overall because of a spectacular rise in labor productivity. But who has profited from this rise? Although the growth of labor productivity has expanded total national income, the real income and wages of the median worker have at the same time stagnated.

Labor productivity and income of the median worker

Europe has new problems, beside the Debt threat. The deadly E Coli bacteria seems scary. Could this become something bigger, like the Swine Flue? Bloomberg reports;

E. coli that has sickened thousands in Europe has become the deadliest outbreak of the bacteria on record as a rare strain is causing kidney failure in unprecedented numbers, U.S. health officials said.

At least 16 people have died and 1,624 cases have been reported, according to the World Health Organization in Geneva. The number of reported cases is based on hospital records, and the actual number of infections may be 10 or more times higher, said Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota.

The strain circulating in Germany and nine other European countries produces a toxin not usually seen in E. coli that can damage the kidneys and other organs. Germany alone has reported 470 cases of the kidney ailment and officials advised against eating raw tomatoes, cucumbers and leafy salads.

“We usually consider that a rare complication, and to have 470 is absolutely extraordinary,” said Robert Tauxe, deputy director of food-borne illnesses at the U.S. Centers for Disease Control and Prevention in Atlanta, in a telephone interview. “This is a new public health problem.”

The biggest outbreak in the U.S. of a toxin-producing E. coli gave 41 people the potentially fatal complication, known as hemolytic uremic syndrome. That event, caused by a different strain, occurred in tainted meat at the Jack in the Box fast- food chain in 1993, Tauxe said.

The E. coli found in Germany has killed more people and resulted in more cases of severe kidney damage than any outbreak on record, he said. However, it may not be the biggest outbreak.

Full article;

http://www.bloomberg.com/news/2011-06-03/e-coli-outbreak-in-europe-reaches-deadliest-on-record-with-kidney-failure.html

This time it is different. Like the old Einstein said, “only thing greater than the universe, is the stupidity of people”. LinkedIn at 1000 P/E and now everybody making bargains shopping on Groupon. This time it is really different, or?

Chart; businessinsider

Some points of why you should buy the stock, according to the Groupon CEO, ANDREW MASON;

We are always reinventing ourselves.

In our early days, each Groupon market featured only one deal per day. The model was built around our limitations: We had a tiny community of customers and merchants.

As we grew, we ran into the opposite problem. Overwhelming demand from merchants, with nine-month waiting lists in some markets, left merchant demand unfilled and contributed to hundreds of Groupon clones springing up around the world. And our customer base grew so large that many of our merchants had an entirely new problem: Struggling with too many customers instead of too few.

To adapt, we increased our investment in technology and released deal targeting, enabling us to feature different deals for different subscribers in the same market based on their personal preferences. In addition to providing a more relevant customer experience, this helped us to manage the flow of customers and opened the Groupon marketplace to more merchants, in turn diminishing a reason for clones to exist.

Today, we are pursuing models of reinvention that would not be possible without the critical mass of customers and merchants we have achieved. Groupon NOW, for example, allows customers to pull deals on demand for immediate redemption, and helps keep merchants bustling throughout the day.

Expect us to make ambitious bets on our future that distract us from our current business. Some bets we’ll get right, and others we’ll get wrong, but we think it’s the only way to continuously build disruptive products.

We are unusual and we like it that way.

We want the time people spend with Groupon to be memorable. Life is too short to be a boring company. Whether it’s with a deal for something unusual, such as fire dancing classes, or a marketing

Greece’s bail out On, Off, On, Off. Total confusion and assymetry of information. Nobody knows what’s going on. Troika giving money, not giving money news almost on a real term basis. Troika is the Russian word for ”three of a kind”. Some headlines in Greek press today;

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_03/06/2011_393443

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_02/06/2011_393412

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_02/06/2011_393408

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_02/06/2011_393411

http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_29580_02/06/2011_393329

Something must happen, as Greece has no cash in a months time. Athens Index looks like it might form a bottom at these levels.

A topic not discussed in mainstream media, is the debt burdens of Local Chinese Government. Thetrader argues this could spur into something bigger. Chinese debt problem soon problem of the World? Stratfor reports;

Debates have continued in China about a proposed nationwide bailout of local government debts. The debate has helped to reveal the extent of the local debt problem and has drawn in numerous government institutions all seeking a solution that does not damage their interests. The issue is becoming a defining debate for China’s 2012 political leadership transition.

The re-emergence of the local government debt debate has revealed more information about the massive size of the problem. It is also becoming a defining policy debate in the country’s ongoing political and economic transition.

In the PBOC’s 2010 China Regional Financial Operations Report, the central bank revealed the official version of some critical statistics related to China’s local government debt. The report indicated that the number of local government financing vehicles grew 25 percent since 2008, to more than 10,000. Loans to these entities grew 50 percent in 2009 (during the credit boom to avoid recession) and 20 percent in 2010, and the total sum of local debt is now estimated at 14 trillion yuan, larger than the 10 trillion yuan total attributed to the Finance Ministry bailout plan. Most of these loans are long term because of their affiliation with infrastructure projects, with about half of them being five-year loans (hence due in 2014-15). In Chongqing municipality, for example, about 60 percent of the loans were covered by collateral.

Why is the debate re-emerging now? Is it because of the conclusion of recent investigations into the local debt situation, or, more worryingly, because of the recent slowdown in certain quarters of China’s economy? Conducting a large-scale bailout rapidly — rather than in the more typically Chinese gradual and piecemeal fashion — would suggest a crisis response. The increasing  signs of a slowing economy, especially in the property sector where regulations have been tightened, suggest growing risks of pressuring local governments that depend on land sales for revenue and of squeezing banks that are heavily exposed to the real estate sector. Beijing retains many tools to re-accelerate growth if a crisis is looming. But as its economic model peaks, the prospect of a slowdown becomes more realistic, and the local debt problem grows in proportion. STRATFOR sources in Beijing suggest that the local debt debate is taking a generational as well as an institutional aspect and becoming a defining debate of the 2012 political transition.

Read more: China’s Local Government Bailout Debate | STRATFOR

Some rather self explanatory charts.

The Fed’s balance Sheet is expanding. Keep the POMO rocking.

Below “other” assets, that still nobody knows what it is. Some of it S&P futures for sure. Watch the little downtick we had. Fed trying out to sell some?

Last chart shows another high in Adjusted Monetary Base. Watch any possible downtick in this graph, an be sure to exit the equities futures accordingly. And Fed still sees no inflation…..

Charts; Zero Hedge

They used to be the greatest mobile phone maker, in the World. Then they lost the touch, haven’t produced a cool touch/smart phone, while the rivals such as Iphone have done all he right things. You can buy Skype for 8.5 billion USD, or even better, buy LinkedIn at 1000 p/e, and try to ramp up that business. Or, maybe buying Nokia, still the world’s biggest mobile phone maker, for a fraction of what the breakup value is. Nokia is becoming a take over target at these levels. Bloomberg reports,

Nokia Oyj (NOK1V), the world’s largest mobile-phone maker, has destroyed so much shareholder value that it may be worth 52 percent more if sold and broken into pieces.

The Espoo, Finland-based company, once worth almost $300 billion, has seen its market value tumble 77 percent to $25.6 billion sinceApple Inc. (AAPL) introduced the iPhone in June 2007. Including net cash, Nokia is now cheaper than its 10 biggest rivals based on earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg.

By separating its mobile phone, infrastructure equipment and mapping software businesses and accounting for its patents, Nokia could be worth $39 billion, based on the valuations of comparable companies, the data show. While Nokia cut its revenue forecast at its mobile-phone unit and may earn less this year than any time in almost two decades, sales of its assets could attract companies from Microsoft Corp. to Samsung Electronics Co. and HTC Corp. (2498), according to Jefferies Group Inc.

“It’s a classic situation where the parts are worth more than the whole,” said Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc., which oversees $3.6 billion. “The clock is ticking. Nokia is a good brand, but it’s a tired brand and they need to come up with something. They are going to be a strong candidate for a takeover.”

http://www.bloomberg.com/news/2011-06-03/nokia-breakup-worth-52-gain-to-battered-shareholders-real-m-a.html

Greece is continuing down the chaotic path. Since the creditors want cheap assets, only one year after Greece got the bail out, both people and some politicians are getting annoyed. They demand more time, in order to evaluate different possibilities on how to fix the country. Kathimerini reports;

The rifts within the ruling PASOK party, caused by the government’s handling of the debt crisis, were laid bare on Thursday when 16 Socialist deputies sent a letter to Prime Minister George Papandreou demanding that Parliament be given time to properly debate the new set of austerity measures Greece is about to agree with the troika.

Papandreou looks set to reveal the measures on Friday, when he will meet with Eurogroup chief Jean Claude-Juncker, but the Socialist deputies expressed concern about the midterm fiscal package and the government’s privatization plan not being subject to the usual democratic process.

They said Papandreou and his ministers had not given an evaluation of Greece’s progress one year after signing an emergency loan agreement with the European Union and the International Monetary Fund.