"Dr. Bernanke is a dedicated and honorable public servant...however those factors in my mind do not outweigh my concerns on regulation and rebuilding the economy... Dr. Bernanke's approach helped set our economic house on fire. That fire has destroyed the jobs, the healthcare, the retirement savings, of millions of American working families. Since then Dr. Bernanke has shown himself to be quite adroit with the fire hose, helping to put that fire out. But as we look to the future, and we look beyond the stage of putting the fire out, I think we need to look to leadership that will be adept at rebuilding our economic house." - Sen. Merkley
The Fed's balance sheet assets are back to all time highs at $2.2 trillion, while the "collateralization" of the dollar with MBS/agencies hits an all time low of 89.7%. Look for the dollar to be backed by increasingly less valuable securities.
Thank god for that secondary, or else there would be no volume in the market today. No, seriously. Courtesy of the biggest and most botched secondary offering in history (you are welcome overpaid Citi bonus recipients), and thanks to Goldman et al buying up every share that has a $3.1x handle (we'll see how long that continues: after all someone has been loading up on Citi CDS to the gills) Citi accounts for 47% of all NYSE volume. Add the other fins, and the HFT are running straight out of luck. Watch for the cannibalization among the high frequency scalpers to start in earnest very soon.
My thoughts on the long-term debt cycle (trying to ignore the impact of the credit crisis specifically). The idea is that if you follow the cycle of the relationship of debt to equity, a better understanding of how debt and equity lead and lag one another through the cycle. Furthermore, I think it can highlight how risk aversion at the tails may put a floor on spreads in the short-term and implicitly a cap on equity valuations. This chart can be done in P/E ratio-land (but given the current silliness in valuations provides little insight), though we suggest trying to build the same chart with the Shiller longer-term P/Es (hint hint).
What do these five building have in common?
Greece 5 Year CDS up 28 to 269 bps. The all time high for the country was on January 20 at 292 bps, which was before Bernanke decided to have US taxpayers bailout the world.
Update: S&P just slashed the banks which Citigroup Crameresquely tells its clients to Buy, Buy, Buy.
Earlier, Goldman Sachs, which has a propensity for pissing pretty much everyone off these days, got in some hot water with the Teamsters, for allegedly "actively soliciting bond trades for clients and
underwriting credit-default swaps to benefit from a failed
exchange and resulting bankruptcy." We won't comment on this as we have repeatedly said it is quite farfetched to say that CDS in itself can create the kind of death spirals that those unfamiliar with the product tend to believe occur courtesy of CDS traders. However what did catch our attention was the following claim made by Goldman spokesman Michael DuVally: “Goldman does not have a position in [YRC], nor are
we making markets in the company’s bonds or credit-default
swaps.” That we will comment on, because it appears to be an outright lie.
Vote passes 16 to 7. Jeff Merkley breaks ranks with the Majority and deserves the praise of those 79% who believe Bernanke should be fired.We will shortly analyze why Senator Corker's real estate interests may have been quite a conflict of interest in his vote.Full Vote Count Below.
"Well, our theme throughout October and November has been that upon a break of the 50-dma EURUSD would post a rather sizable correction as I think the EUR above 1.50 is completely mispriced against the USD. Yesterday we thought 1.4550 being reached we would see a bounce, but a flurry of stops overnight took us a fair bit lower again. We are currently in sub-wave 3 (probably towards the end of sub-wave 3) of the initial bearish impulse. Any bounce close the 50-dma should be sold as the view for a stronger USD remains intact." - Nic Lenoir
After the collapse of Lehman, the Fed stepped in to bail out the financial system by providing blanket guarantees on virtually all asset classes. The chaos was palpable: we now know the "thinking" behind just the $700 billion TARP component of the bailout, thanks to PIMCO's latest brain trust addition: Neel Kashkari, whose rocket science math he himself encapsulated as follows: "We have $11 trillion residential mortgages, $3 trillion commercial mortgages. Total $14 trillion. Five percent of that is $700 billion. A nice round number." The same kind of back of the envelope math dominated Bernanke's decision to provide an explicit dollar for dollar guarantee for the entire ~$8 trillion in loans in the US financial system, and then some. By some estimates the Fed guaranteed in some form or another, up to $26 trillion. And while a lot was merely backstop funding, banks were happy to take advantage of actual funding to a material degree, approximately $1.6 trillion. The bulk of these funds came from by various "temporary" liquidity programs that the Fed adopted. It is precisely the bulk of these facilities that the Fed is now ending.
The naysayers are growing, while those that are taking remedial grade 1 at the Derek Zoolander school for Senators who can't read good are all for Benny and the Choppers.
Update: Senator Kay Bailey Hutchison also No on Bernanke
The hearing for the reconfirmation of the Honorable Chairman of the Year can be watched here live. Wall Street's emissaries can be vaguely seen in the background, taking notes of which Senator will not receive their bonus check this year.