Imagine a world without bankers. That thought either rattles you to the core of your being, or it brings on the kind of ecstasy heretofore only available in a Southeast Asian massage parlor. If you are a Congressman, addicted to the effluent from the wallets of your owners on Wall Street and their lobbyists in Washington, if you are a real estate developer who believes no amount of office space and no amount of luxury condominiums is too much, or if you summer in the Hamptons and Nantucket, then you are clearly in the first camp. If you are a typical ZH’er, spending your weekends at the range with your Beretta or sharpening the tines on your pitchfork, then welcome to SE Asia and the world of your wildest fantasy.
With Massive Money Market Outflows (And Little Reinvestment) Are Consumers Funding Spending Habits Via MM Liquidation?Submitted by Tyler Durden on 04/04/2010 - 00:50
In its attempt to reignite the credit and risk bubble, the administration will stop at nothing from getting mom and pop to throw their zero interest earning Money Market funds away and to invest it all into shares of Apple and Amazon stock. Yet while holdings in money market funds are literally evaporating (down 8.5% as a % of total assets in the past 3 months alone), the proceeds are going not into stocks, but into IG and HY bonds (to a marginally greater extent), but mostly into Government Bonds. The greater population is betting an increasing amount of its life savings that David Rosenberg is right, and that Jim Grant, and all the other Bond bears, are wrong. In the week ended March 31, 2010, $32 billion in Money Market funds was pulled, according to Lipper/AMG, the third biggest outflow since the collapse of Lehman brothers. Year To Date, a massive $274 billion in money markets has been withdrawn, yet under $200 billion has been reinvested, of which $100 billion has gone into All Taxable Bonds (i.e., non IG, HY, Bank, EM, and Global debt) implying Treasuries are the primary investment class for the broader population by a massive margin. What about the $80 billion delta? Have investors pulled $80 billion from money markets without reinvesting, simply to purchase any and all deferred products and services? Has the government converted money markets into piggy banks for simple purchases, instead of a source for pushing stocks higher? Of course, with cash in MMs earning nothing, Americans would rather extract at least some intangible joy from owning a one-day fad like the latest iToeclipper from Steve Jobs, then see their cash do nothing (and hope that the deflationists will be proven correct at some point in the (not so) distant future). Too bad the levered and unlevered cash flow from that Kindle or the iPad is zero at best and worst.
Jim Grant Takes On David Rosenberg And The Bond Bulls, Warns The Fed Chairman: "Watch Your Back Ben Bernanke, Cycles Turn"Submitted by Tyler Durden on 04/03/2010 - 14:25
In one of the most erudite, intelligent, and insightful conversations on the Bond bull/bear debate, David Rosenberg and Jim Grant go all out at each other, trading blows in this "Great Debate" which is a must see by all. As we pointed out yesterday, Grant is very bearish on bonds, and in a self-made prospectus has decided to downgrade the US, since the rating agencies, which have long been thoroughly incompetent, corrupt and afraid to disturb the status quo, will not do so until it is too late. Jim's point is simple: you can't resolve massive debt with more debt, and says Treasuries, which he calls "certificates of confiscation" are a surefire way to lose one's money. He points to the record supply of US Treasuries, makes fun of the SEC (who doesn't), and in a stunning move, cautions the Fed Chairman, whose ongoing dollar debasement, was once considered treason by the US. His conclusion: "watch your back, Ben Bernanke. Cycles turn" could not have come at a more opportune time. As a contrarian, Rosenberg discusses the McKinsey report looking at sovereign debt, and the Reinhart and Rogoff studies on debt default and highlights that there is a major disconnect between theoretical applications of sovereign default models and practice: in essence the US is still deleveraging as private debt is decreasing and public debt is surging but to a slower degree. In essence, David claims, the second largest monthly debt issuance in March of $333 billion is merely a side effect of ongoing deleveraging, which is a leading and/or coincident indicator of deflation: an environment in which the long bond thrives (Japan is a good reference point).
Abstract: Back in October, 2009 I penned an article titled, A Blight on Humanity, where I reported that, in an Asian depository there had been found 60 metric tonnes of “Good Delivery” gold bricks that had been gutted and filled with tungsten. That article was followed up with, On Doing God’s Work, where additional information on the fake gold bricks was presented. This lengthy report has been written to provide the background and genesis of who was involved, why the fake gold was produced and how it was fed into the international gold market. - Ron Kirby
The chart says bond curve got more worried, and the CDS curve was … what it was in January. It seems that the CDS market reacted to the bailout news, while bonds continued to sell off. Differences in the curves at other times are reflections of inflation expectations and non-credit idiosyncratic risk. Neither curve is pricing in magical lightning from Zeus’ butthole that miracles billions of euros...Seems that all Greece has to show for their trouble is higher interest costs on a mountain of issuance coming up. On a global scale, aggregate debt repudiation either through inflation or default will be the endgame.
If there is one acronym that is more indicative of the madness of herds than BRIC, it is the recurring stupidity that is GARP, which tends to show its head at or just after the market has peaked. With hedge funds still in possession of 3.0x + leveraged liquidity and easy money no longer an option, bottom of the barrel PMs need a self validation in the form of some branding concept, even if it means buying 60x forward P/E stocks that trade on valuations made not out of fumes but of sublimated insanity. Sure enough, here comes Goldman's latest GARP reminder, telling all its best clients that after a 100% run up, IT is the sector to invest in... Just like it told them to buy, no sell, no stay away from Euros in just the last month. So without further ado, here, for those who need to throw money down the trash chute, is David Kostin on the magic that is GARP.
Primary Dealers Net Treasury Long Positions Spike To 2010 Highs, Is There A Major Derisking Occurring In PD Portfolios?Submitted by Tyler Durden on 04/02/2010 - 23:55
The FRBNY has disclosed that Primary Dealer bond holdings have surged to 2010 highs, with net Coupon holdings of nearly $20 billion, and all Treasuries (including Bills) accounting for $36 billion. Contrast these holdings with the lows recorded in late January in which Coupons were a net short position of ($24) billion. Bills have also surged by $32 billion from ($15) billion on February 17, to $17 billion on March 24. Incidentally the accumulation has occurred even as recent Bill and Coupon auctions have been very week over the past two weeks. Are PDs becoming unable to offload auction allocations? After all this is capital that the Primary Dealers would much rather use to gun the stock market than be locked up in instruments yielding virtually nothing. Alternatively, if PDs are accumulating Treasuries, could this merely be an indication that they are reallocating capital away from equities and to USTs? Furthermore, Corporate bond holdings have dropped to near 2010 lows - is there a major shift away from risk (yes, that includes stocks) occurring under the surface? Altogether, PDs have spent $33 billion to cover shorts and accumulate fixed income instruments (including Agency and MBS) over the past month, and $60 billion Year To Date.
Whew. That was fast. It didn't take long for Wall Street to figure out how to game Obama's new mortgage modification program, did it? The plan was hyped as help for "struggling homeowners", but it turns out, it's just another stealth bailout for pudgy bank-execs. It's funny, the program hasn't even kicked in yet and, already, bigtime speculators are riffling through their filing cabinets looking any garbage paper they can find to dump on Uncle Sam.
Summarizing last week's key economic releases in a few simple charts, as well as an overview of Barclays' macro outlook for the rest of the year.
Goldman Joins JPMorgan On The PR Offensive Against The US Middle Class, As Americans Find A Surprise Champion In The Face Of Fed's Tom HoenigSubmitted by Tyler Durden on 04/02/2010 - 16:04
The campaign by the big banks against the people of the US is getting louder by the day. First, it was JP Morgan' Jamie Dimon, who segued into the Goldman "god' banker" refrain that all megabanks are not just critical but need to get even bigger in the form a 36-page lament to shareholders (in which among other things he repeats that even though JPM was bailed out, and even though it was handed Bear with Maiden Lane I left to pick up all the crap he did not want, none of those activities by the US taxpayers were necessary), and today it is none other than Goldman Sachs, which after prudently keeping a low public profile for a few months, is about to remind everyone who runs the world. And with the US public comprised of phlegmatic sheep, or morts as Michael Lewis put it very graphically, it appears that nobody is willing to stand up to those who run not just the markets, the economy and the administration, than the Fed's contrarian Tom Hoenig. In an exclusive interview with HuffPo's Shahien Nasiripour, Hoenig indicates that even among members of the Fed, there are people who not only think rationally, but realize that should the big banks/hedge funds (really just JPM and GS at this point) get their wishes to continue the status quo, the next leg of the crisis can't be far behind.The only problem: this time America itself will go down with the big banks: remember - all negative swap spreads indicate is that the banks insured by America, are now perceived as less risky than America itself.
Jim Grant Presents A Prospectus For The United States, Discusses The Death Penalty For US Coinage DebasersSubmitted by Tyler Durden on 04/02/2010 - 14:46
Jim Grant joins Morgan Stanley (and contrary to Rosenberg's expectations) in anticipating US rates to rise promptly, primarily due to the world's negative "reappraisal of the US Treasury." This is not so much a debate on inflation or deflation, as it is a call on the (un)trustworthiness of the US as a lender. To that end, Grant has put together a Treasury prospectus (which we will post as soon as we procure it) which as Jim puts it "is a compendium of the salient facts about the Treasury as if it were an issuer that did not have a printing press... All you need to know about the credit risk of the US." The first risk factor, via the GAO, "improper payments that should not have been paid by the Treasury totalled $98.7 billion, equivalent to 5% of Treasury outlays." Keep in mind the UST raised $333 billion in net debt in March, as we pointed out yesterday. Grant also discusses the Coinage Act of 1792, whose section 19 stipulates "that the penalty for anyone who would debase the coinage of the US, is death." By that logic, a firing squad may soon need to be sequestered to Washington. Grant's concludes that there is a "great suspension of disbelief in out US monetary system on behalf of the world over. One wonders when people will say no."
We are back testing the support on the daily chart in bonds today following NFP. Number did not beat expectations but speculative pressure and fear of a discount rate hike next week (we think it probably won't happen and if it does it should not impact rates materially) helped push the market lower. The support here is key at 114-25, if we break below the next level is 111-26. Looking at the 30-minute chart, I think we have a very clean ABC formation and the next move could well be up. Since we are right on support I would look at being long via option structures, and quickly reverse to shorts if we close below 114-25. - Nic Lenoir
As was expected in light of recent FX moderating overtures by Beijing, China will not find out if it is or is not a currency manipulator on April 15. The NYT reports that the decision from the Treasury will be deferred until after China President Hu Jintao visit Washington. "China experts said it was unlikely that China would have agreed to the visit unless there was at least an informal assurance by the Treasury Department that it would not be named a currency manipulator either on or around April 15 — the deadline for the Obama administration to submit one of its twice-a-year reports on foreign exchange to Congress." This does not mean that China will refloat the CNY, but that we are merely back to square one, after some loud TV appearances by politicians, and some even louder columns written recently by so-called pundits.
The great Pali experiment is over, after Pali Holdings, the parent of Pali Capital, filed for chapter 11 yesterday. The company listed $716,300 in assets and $31.8 million in debts. The reason for the bankruptcy was provided in the filed affidavit as follows: "Pali Capital experienced consistent pre-tax losses commencing with the second quarter of 2008 and continuing through and including the fourth quarter of 2009, caused by among other things, a substantial slowdown in sales and trading by Pali Capital’s primary institutional clients. These losses are projected to continue into at least the first quarter of 2010. As a result, it was difficult for Pali Capital to maintain adequate levels of excess regulatory net capital to support normal business operations, although Pali Capital is in compliance with its minimum regulatory net capital requirements through February 28, 2010." So after 4 CEOs in 17 months all Pali is left with is a list of secured and unsecured creditors. And in probably not the wisest move for the privacy of said creditors, the firm has listed the home addresses of Kevin Fisher, Ari Nathan, Leon Brenner and some other rather high profile financiers.