As one fellow blogger that I have the utmost respect for put it: "Did you catch the bit in boldface about 'tapping' federal retirement funds for short-term cash flow? Sounds so casual, so innocent, don't it? Think about it, though. Unlike private pension funds, whose trustees have a fiduciary duty under the ERISA Act to safeguard the interest of beneficiaries, fedgov pension funds are mere slush funds for politicians to grab at will. Under the sordid conflicts of interest which are tolerated within our imperial government, the managers of Social Security and federal retirement funds subserviently hand over their reserves to our insolvent government in ad hoc, 'we'll pay you back when we can afford to' transactions. In a private-sector pension fund, such malfeasance would land them straight in jail.
But then, government is all about granting itself the right to commit acts which are illegal for its subjects -- such as the Federal Reserve's 96-year-long currency counterfeiting operation. When the sovereign itself is dishonest, openly bilking its own pensioners, it is idle to talk of 'reform.' Organized crime is not amenable to reform. Either you end it, or you trust your security to the nebulous notion of 'honor among thieves.' Good luck with that!"
After the New York Times came out with a very ingenuous piece of "objective" fluffery, we have littel to add except to bring readers' attention to our initial thoughts on Mr. Cohen and his place in the Wall Street parthenon.
Lately, Goldman has been extolling the virtues of its theological affiliations and humanistic aspirations to, well, high heaven. Curious to dig deeper through the firm's purported philanthropic efforts, we decided to take a detailed look at the 2007 and 2008 tax records of the charitable Goldman Sachs Foundation. We will not comment on the performance of the actual Foundation: to the chagrin of many needy children who look up to the St. Goldman cathedral in anticipation of a generous holiday season, the Goldman Sachs Foundation has lost gobs of money in the past two years: the fund started off with $275 million in 2007, $269 million in 2008 and ended the year with $161 million. Of course, it is Goldman's prerogative to trade with its money as it desires: while this loss is deplorable, its only outcome will be that fewer Cap 'N' Trade propaganda initiatives will get the due "charitable funding" courtesy of Goldman. Yet what the foundation's tax record do provide, is a very unique and open glimpse in the myriad trading patterns of Goldman's proprietary trading operations... And boy does the firm trade.
"The Fed’s policy of maintaining low interest rates together with the weak dollar posed a threat to the global economic recovery. It is boosting speculative investment in stock and property markets and will pose new, real and insurmountable risks to the global recovery and particularly to the recovery in emerging markets. The situation has already encouraged a huge dollar carry trade and had a massive impact on global asset prices." Liu Mingkang, China Chief Banking Regulator
"Resisting – and thereby achieving success as a contrarian – isn’t easy. Things combine to make
it difficult, including natural herd tendencies and the pain imposed by being out of step, since
momentum invariably makes pro-cyclical actions look correct for a while. (That’s why it’s
essential to remember that “being too far ahead of your time is indistinguishable from being
wrong.”) Given the uncertain nature of the future, and thus the difficulty of being confident your
position is the right one – especially as price moves against you – it’s challenging to be a lonely
contrarian." Howard Marks, Oaktree
The biggest topic in the upcoming week will undoubtedly be the escalating debate over whether the People's Bank of China (PBoC) will relent to Obama's persistent pleading, and in addition to de-pegging, allow the renminbi to appreciate against the dollar. The debate is simple: the US needs the dollar to hit the bottom of the currency stack post haste, and for that to happen, China's currency needs to appreciate. This is merely in keeping with the Fed's current strategy of inflating assets at all costs via monetary manipulation as both fiscal and "consumer" based attempts to increase prices have largely failed (record unemployment may be a lagging economic indicator but it is a very much coincident wage-deflation indicator). It is in this environment that the PBoC has been sending mixed signals, with a variation of the "party line" language in its Thursday release being read as a prompt that China is willing to play Russian Roulette with over 1 billion increasingly unhappy citizens in the biggest communism-capitalism experiment in history. Yet as the Telegraph pointed out today, there is absolutely no risk (so far) of any accelerating renminbi appreciation becoming the policy course for China. So for a slightly more than "soundbite" level evaluation of the pros and cons of "de-pegging", we present the following curious piece of fiction from none other than paperback experts Morgan Stanley, and specifically its Chief Asia strategist, the mellifluously named Qing Wang.
Let’s say there are 100,000 barrels of oil in the world and 10 are sold each day and they are shipped from various places in various amounts but generally there are, at any given time, 30 days of oil at sea (300 barrels). If I am taking straight delivery, I would contract with the producers to deliver me 1 barrel of oil per day for a year or 5 years or whatever for $50 a barrel. My interest is to have a steady supply and the producers interest is to have a steady demand. He wants to charge as much as possible, I want to pay as little as possible.
The updated Goldman Sachs 13F is out. With 10,244 security holdings, amounting to $180 billion in gross exposure, split among 7 institutional investment managers (Goldman Sachs & Co; Goldman Sachs Asset Management; Goldman Sachs International; Goldman Sachs AG; Goldman Sachs Execution and Clearing; The Ayco Company; Goldman Sachs Trust Company), it presents an interesting picture of Goldman's core equity positions. The bulk of the security holdings are held at GS & Co. ($94.5 billion of market value), followed by Goldman Sachs Asset Management ($80 billion of market value). Furthermore, Goldman breaks down holdings based on value of Calls and Puts, in addition to underlying stock.
Wherever his spirit rests, Benjamin Franklin must be livid. When the hardearned savings of ordinary people are looted to enrich greedy bankers, and when they are told that this process is necessary to make America prosperous again, no wonder so many citizens have displayed so much anger at “Tea Parties.” - Coxe Report
The one must read report this weekend.
Fed's Bill Dudley Explains Bank Runs, Discusses Collateral Risks, Suggests Way To Prevent Systemic CollapseSubmitted by Tyler Durden on 11/13/2009 - 22:58
An impressively comprehensive presentation by Bill Dudley before the Center for Economic Policy Studies Symposium earlier, discusses, and ties in, all the key concepts Zero Hedge has been discussing over the past several months, among these the tri-party repo system, bank runs (what and why), collateral, moral hazard, maturity mismatch, unsecured markets, Primary Dealer Credit Facility, Commercial Paper Funding Facility, and liquidity. In fact, at some points in the speech we get the feeling Mr. Dudley is indirectly refuting some of Zero Hedge's recent allegations vis-a-vis the Fed's actions and regulatory oversight. The presentation is largely devoid of bias except for some of the proposals on how to avoid future systemic meltdowns, which of course are moral hazard prevention lite and philosophy heavy. Not a lite piece of reading, yet recommended for all who want a grasp of the big picture from the Fed's perspective.
The latest Paulson & Co. 13F is out: the man who inspires a million hedge fund clone portfolios has made some interesting changes to his holdings. The most notable is the documented addition of 300 million shares of Citigroup, a new position for the firm. Offsetting this is the sale of 8.2 million shares of Bank of America (which at 160 million shares is still the firm's second largest holding). Paulson has also divested his entire 2MM share Goldman Sachs stake.
As expected, yesterday was a CDS bloodbath straight out of Kandinsky Composition VIII. Today's action, which we will post later, will be a page out of Picasso's blue period. The market, even the formerly rational CDS one, is now a leveraged gyrator, which moves only based on how much daily pounding Bernanke feels like administering to the middle class by round-housing each and every green-tinted portrait of Washington, Hamilton, Jackson, Grant and Franklin (and a few more, less memorable ones) that the bald Chairman encounters.
Tactical asset allocation should give some exposure to unexpected shifts in interest rates.The problem owes itself to a duration mismatch in asset classes held today.
Equity duration is similar to bond duration. It measures the sensitivity of equities to interest rates. The research on this subject is fascinating. Each year Standard & Poor publishes a report with the duration for the S&P 500. They estimate the duration of the S&P 500 index to be 34 years at the middle of 2009. The index is very high in view of the history of the data.
If anyone still cares about the equity market, here is a pretty good summary of what the computers did this week, courtesy of the holidaypartyless folks at Manhattan's southernmost skyscraper (something tells us the elves, contrary to disclosed information, will be there, and we will be whereever the elves are).
Billionaire investor John Paulson, who recently announced that he is willing to invest $200 million to purchase up to 45% of the post-reorg new common stock in bankrupt telephone directory maker Idearc. Even though Paulson previously owned a substantial portion of prepetition debt which converts into roughly 13% of pro forma equity per the Plan of Reorg, his holdings would be capped at 45% (so essentially a net flow of $142 million for the 32% which would be acquired). Yet was was supposed to be a simple hunt in the back pocket for loose change for a transaction that leaves a few people puzzled as to what value the billionaire contrarian sees in a business model that is rapidly eaten away by Google at both the national, and more and more, the regional and city levels, just got a little more complicated. Yesterday Bennett Management Corp decided to outbid Paulson , by notifying the debtor that it was "willing to pay a significantly higher price" of $220 million for the same equity stake, and that also the estate would end up getting a much greater actual cash inflow as BMC would own only 1% of post-reorg equity.