At 281 bps, 2s10s Hit Another All Time Record Wide

Somewhere Julian Robertson is convulsing in a fit of lucre-driven epilepsy. The question for today: what is the bigger pain trade - an outright stock short, or a UST flattener? Everyone knows one shouldn't go against the Fed, however the Fed is behind both of these... So where will it crack first?

Tavakoli: Time To Claw Back AIG Money Paid To Goldman Sachs

"Now that the crisis is over, and given the special circumstances of the crisis, and Goldman’s contribution to value-destroying securitizations, it is in the public interest to claw back the money paid to Goldman Sachs. AIG did not need to settle for 100 cents on the dollar in November 2008, and in September 2008, a good negotiator would have refused to hand over more collateral, and should have clawed some back (or insisted it was a temporary loan). Money should be clawed back before Goldman pays out taxpayer subsidized bonuses." - Janet Tavakoli

As Seen On Dow Jones

12:56 (Dow Jones) Goldman Sachs' (GS) managing director Lucas van Praag responds to several questions the Zero Hedge blog posted last week related to Goldman's prop trading operations as well as how it defines market risk and if it has a risk policy. Prop investing activities represent about 12% of the firm's net revenue, fair value accounting is a "critically important" aspect of risk management and firm says it isn't managing its business as if it has some sort of government guarantee. But more telling is the fact that Goldman took time to respond to these questions and criticisms, perhaps proving firm realizes its image has taken a beating and needs to be repaired. (SMR)

South Sea Company Bubble (Pre And Post Pop) Redux

In our holiday abbreviated week, there is one piece of data we wanted to highlight not so much to our constant, non-Fed originating readers, but to our constant-Federal Reserve fan base, with the hope that they may point it out to their chairman, whose recent remarks indicate that he is unaware of any bubbles forming anywhere. For a distinguished historian of Bernanke's stature, we are confident that he has heard of the original stock bubble, and in particular, the South Sea Company. The chart below demonstrates the relative indexed performance of the South Street Company and of Buffett darling, BYD (1211.HK). The Buffett investment is not alone: there are hundreds if not thousands of companies whose fundamentals, no matter how hard one tries, can never be spun enough to justify their ludicrous valuations. We all know what happened to the South Street Company. The only question remaining is when will the very first market bubble pop experience its most recent reincarnation in the form of BYD and all its brethren, whose only purpose in life is to make the top ticker, and so many others, lose fortunes (with a little nudging from the all seeing prop, and otherwise trading, market makers).

But why worry. This time it is different (someone is probably about to publish a book under that title), and all those who keep chasing the momentum are certain to find buyers when everyone turns seller, thank to the infinite liquidity provided by High Frequency Traders.

The Dollar Bashers Are Back In Force

As from one Englander to another, so from one massive dollar short to another, we next shift to Steven Englander of BarCap and his daily "Dear USD" hate mail. The man who has been obsessively telling his clients to sell dollars as if he was a subsidiary of Goldman Sachs, must have booked some serious L on the recent, and very much expected, dramatic dollar retracement over the past 3 weeks. In his latest "FX for paranoids and hopeless romantics" Englander does point out one relevant item: that the Fed needs EM countries to keep selling the dollar in order to i) keep commodity prices higher, thereby benefitting these very EMs, and ii) to keep commodity price inflation high, in the absence of other forms thereof (wage, non-commodity price, etc). And that is why, Englander hopes and prays, both for his book, and for those of his clients, that Bernanke will keep on talking big all the while printing more and more dollars as ever more wealth is channeled from the middle class to both Wall Street and abroad.

Izzy Englander (Semi) Full Frontal

If you have a hedge fund in dire need of some managed account TLC, call this man (and get ready for daily multi-hour explanations on why you put "this or that" trade to people who have yet to complete remedial math); if you have a strategy to front run mutual funds which may or may not end amicably with the SEC in the form of a few hundred dollar settlement, call this man; if you are in the market for some barely occupied property at 740 park, call this man; If you are a CDS trader with special Deutsche Bank sales coverage connections, call this man; if you work for RenTec and feel like borrowing some of their strategies and making a mint, call this man (by the time you get the non-compete subpoena you will be sitting on a beach, earning 20%).

All you need to know about the man who heads the big quant shop, er pardon hedge fund, at the soon to be bankrupt 666 Fifth.

Cautionary Observations From A Chronological Analysis Of The S&P 500 Balance Sheet

In the time before Bernanke, long-ago, investors cared about such arcana as cash flow statements, balance sheet (and even income statement before GAAP decided to play dead and allow companies, especially banks, to single-handedly determine what Earnings are). In this analysis, we highlight several cautionary trends that have emerged in the cumulative balance sheet of S&P 500 companies over the recent turbulent period. Our preliminary observations: even as balance sheet leverage has continued climbing, the assets of S&P 500 companies continue generating less and less cash flow, which begs the question: where will the next "efficiency paradigm" come from? And when.