So Much For The Taxpayer Profit In Citi: Treasury Shares To Be Offloaded Over 12 Months After Investors Balk At Overpriced Toxic HoldingsSubmitted by Tyler Durden on 12/16/2009 - 20:06
It was just a matter of time before the administration's covert plan of rewarding bank execs for massive failure by allowing them to load up their balance sheets with record risk once again, while paying out historic bonuses, blew up in Larry Summers' face. Today's attempt by the government to not only allow the failed Citi management team to pay itself an infinite amount of money more than it deserves for destroying one of America's landmark companies (why the hell is Vikram Pandit still in charge of the Titanic?) but to pretend that it "generated" another taxpayer win by selling off its shares at a profit, was aborted after hours, when Citi could barely find enough interest to sell $17 billion at the embarrassingly low price of $3.15, below that government's cost basis. This will preclude Obama from making a TV appearance tomorrow of how the US taxpayer made even more money by backstopping Moral Hazard. What the US taxpayer however did do, is funnel money straight out of its pocket, into that of Vikram's worthless lackeys. We somehow doubt this will make the teleprompter of whatever it is Obama will be praising in his TeeVeethon tomorrow.
The apocalyptic flavor of the month is dollar crisis. One should take the possibility seriously. The data does offer reasonable assurance that it won’t happen anytime soon. Yes, even in spite of massive (but not unprecedented) fiscal and monetary craziness, a socialist president, a populist legislature, and seething people just itching for the whole outhouse to go up in flames. Why doesn’t it make sense that the dollar should be out on its rear while gold or oil and their devotees dance in the street?
Because those distinctly American circumstances don’t incorporate a wide enough range of vision. The issue isn’t about the United States in a vacuum. It is about the United States as a reserve currency country whose debt acts as the world financial system’s risk-free collateral. Before any imminent implosion of the dollar, there is a whole zoo of more flawed economies like Dubai and Greece and dozens of others that would fall. As old as history itself is the truth that the last ones standing claim the spoils of victory. The United States has the 61st highest public debt ratio in the world.
A useful chart from Themis Trading presents the exponential jump in stock volume since the adoption of Reg NMS and the appearance of various ECN/ATS middlemen, whose primary goal in life is to scalp spread... sorry, provide liquidity to an extent never seen prior to 2007. It is these very organizations, and the scores of micro traders who make money only courtesy of the resultant increased daily speculation and momentum escalation, that are now screaming about the implications of what proposed Reg NMS 2 would do to their top and bottom line, for obvious reasons. The explosion in volume of course is notsynonymous with an increase in liquidity, unless one counts the "huge" benefit that one gets by trading Citi in 20 different exchanges (Citi alone accounted for 20% of NYSE volume today). The "strange attractor" of HFT, in which a HFT dominated stock attracts more HFTstrategies with the flip of a switch, is the only "benefit" of magnified "liquidity", while the threat of massive systemic imbalance as every single trader jumps on the same side of the trade, as highlighted recently by traders such as Wilmott and many others, continues growing ever larger. It is time to take the market back from all these various tolling operations which provide absolutely no real benefits to the market.
David Rosenberg And A Few Good Economic Observations: "Can You Handle The Truth?" His 2010 "Outlook"Submitted by Tyler Durden on 12/16/2009 - 18:10
Rosie doing what he does best: staking a lot by going against the consensus... Again
Citi Price Rumored At $3.15, $20.5 Billion In New Securities, Government To Keep $5 Billion In Common Stake As Below Cost-BasisSubmitted by Tyler Durden on 12/16/2009 - 17:53
Congratulations Citi: your ability to pay massive bonuses by rushing out of TARP just cost US Taxpayers their cost basis in your garbage stock (not like there was any doubt). Look for a firestorm of critism tomorrow as the populist anger at Vikram et al is rekindled, this time for cause.
House lawmakers voted by a razor thing margin of 218-214 to pass the borrowing increase. Not a single Republican lawmaker voted to support the hike. They argued that increasing the debt ceiling was giving the Democratic majority and the Obama administration a license to spend more money.
So Citi buying Wells' follow on, Wells buying BofA's, and BofA about to buy Citi's? The $50 billion circle jerk in full glory. Looks like the CEOless fbank is about to get the best deal of all (while everyone else bails). Offering to follow shortly.
Paul "We need a housing bubble" Krugman reaches new heights in objective, hypocrisy-free self-assessment. In his latest blog entry analyzes the destructive effects of the magazine cover effect. He should know...
The only real action after the FOMC statement so far has been on the long-end of the curve both in USTs and mortgages. Kneejerk sell off in the Fannie 30 Year, is matched only by the puke in treasuries, where the spread is now much tighter, wait, wider, no, no, tighter.
FOMC Statement: "Exceptionally" And "Extended", Liquidity Swap Arrangements Coming To An End On February 1, 2010Submitted by Tyler Durden on 12/16/2009 - 15:19
To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.
No sooner did Jeff Merkley announce his opposition to Bernanke ahead of tomorrow's reconfirmation farce/hearing, than key Republican Senator John McCain said that he was leaning against voting for the the Chairman. McCain said he would favor either former Fed Chief (and apparently only sane economist in the Administration) Paul Volcker, or ex-Treasury official, and creator of negative implied interest rates, John Taylor.
Senator And Member Of Senate Banking Committee Jeff Merkley Joins Opposition Against Ben Shalom BernankeSubmitted by Tyler Durden on 12/16/2009 - 13:57
“Tomorrow, I will vote against confirming Ben Bernanke as Chairman of the Federal Reserve. The reason, in short, is that as Chairman, Dr. Bernanke failed to recognize or remedy the factors that paved the road to this dark and difficult recession. Following our economic collapse, it is also apparent that he has not changed his overall approach to prioritizing Wall Street over American families." - Senator Jeff Merkley
Is The PIIGS Moment Of Fracking Approaching? S&P Joins Sovereign Risk Brigade, Downgrades Greece To BBB+Submitted by Tyler Durden on 12/16/2009 - 13:46
More bad news for a troubled Greece. More bad news for a troubled Greece. And all this happening even as finance minister George Papaconstantinou says that Greece "is not banking and not operating under the assumption" that the Hellenic country will be bailed out by its Eurozone neighbors. He has certainly studied the Dick Fuld script well.
Too Bigger To Fail? St. Louis Fed Warns Over Concentration Of Risk In Ever Growing, Ever Fewer "Big Banks"Submitted by Tyler Durden on 12/16/2009 - 13:37
One of the numerous adverse side-effects of the horrendous policy decision to start bailing out each and every risky bank, and thus allowing no more risk in any investment (for the time being), has been the very simple observation that massively mispriced risk has gotten concentrated to an unparalleled degree among very few players. The population of Big Banks has been massively trimmed (Goldman thanks everyone for allowing them to have massive Fixed Income bid/ask spreads) and now a mere five banks account for the bulk of loans, deposits, and derivative exposure. When the economy is faced with another Lehman event at some point in the future, when bailing one of the Big 5 is no longer feasible, the delayed consequences which have so far been successfully swept under the rug, will come back in time and bury any positive legacy that the Man Of The Year may have created. One indication that this time may be sooner than most think comes out of the St. Louis Fed itself, which has released a paper titled "The evolving size distribution of banks" in which it highlights the expected: big banks are getting bigger, and are holding a record share of all rosky assets. When the asset repricing moment occurs, absent an apriori renewal of Glass-Stagall, look for the inevitable moment of complete House Of Cards collapse.
Recently, an extended analysis by Shadow Stats' John Williams evaluated the risk of a hyperinflationary episode as one which has the potential to come as soon as next year. Somewhat in support of this theory yesterday's read of PPI came in above consensus, indicating that inflation may indeed be coming. Yet today's CPI data, whose core read came in at 0.0%, may have just poured a whole lot of cold water over Williams' thesis. Nonetheless, at the end of the day Williams may be right: the question remains - if and when the excess reserves start hitting the broader currency (as the Fed is scared shitless to withdraw liquidity on its own), we may experience a transition from deflation to inflation so rapid, that is has no historic analog. At the end of the day deflation will likely be the name of the game for quite some time, until such point as "Man of the Year" Bernanke finally flips (the turbo print switch on), and any pretence of prudent monetary policy is thrown out of the window. At that point, look for the stock market to promptly go to 36,000 followed by an even faster drop to 0, all the while the dollar gets hyperdeflated (Zimbabwe redux). With the Administration set on not losing the midterm elections by a landslide, don't expect much in terms of economic experimentation at least until 2011. At that point, all bets will be off as the Fed will likely have at most 2 more years of shelf life before both its, and thus Wall Street's, life support are forcefully yanked out.