Lately Joseph Stiglitz' Vanity Fair article "Of the 1%, by the 1%, for the 1%" has gotten a lot of airplay. Unfortunately, Stiglitz appears to have been a decimal comma off. As Jeff Gundlach presents in a slide in his latest presentation, it is really about the 0.1%. And that's where America's exceptionalism (in three generations of theft from the middle and lower-classes) really shins through...
As usual, Jeff Gundlach provides one of the best, most comprehensive overviews of the economy with a fixed income/rates emphasis. 97 pages of pure facts as the voiceover was given during the earlier webcast, allowing the reader come to their own set of conclusions.
Here Comes Abacus V 2011: Former Head Of JPM's Structured Products Desk To Be Charged With Securities Fraud For CDO TransactionsSubmitted by Tyler Durden on 04/12/2011 - 18:29
Considering it was the charges of securities fraud levelled at Goldman last year (subsequently settled) in late April that were the primary catalyst for the start in the market sell off, it would not be surprising that in a year which so far is following the script of 2010 verbatim, that we should get another allegation of insider trading by a major bank in something relating to CDO fraud, just to seal the guarantee on QE3. Well, guess what. We just did. As Bloomberg's Joshua Gallu and Jody Shenn noticed first, in the FINRA Brokercheck record of one Michael Llodra, there is a curious announcement. To wit: "MR. LLODRA RECEIVED A WELLS CALL FROM THE STAFF OF THE US SECURITIES AND EXCHANGE COMMISSION INFORMING HIM THAT THEY ARE CONSIDERING RECOMMENDING THE COMMISSION COMMENCE AN ACTION CHARGING HIM WITH VIOLATING CERTAIN PROVISIONS OF THE FEDERAL SECURITIES LAWS BASED ON HIS INVOLVEMENT IN THE SALE OF A STRUCTURED PRODUCT IN 2007." And just who is Mr. Michael Llodra? Oh only the global head of structured-product collateralized debt obligations at a little firm known as JPMorgan. And while JPMorgan has not been named yet, this news coming out a day ahead of JPM earnings is bad to quite bad. Recall that the Abacus process against Goldman started with the filing of Wells notices against Fab Tourre and his supervisor (which were never disclosed in time - a fact observed then by Zero Hedge - and subsequently ended up costing GS a little pocket change in FINRA appeasement fees). Does this mean the SEC is about to launch an all out assault against JPM at some point in the indeterminate future? Well, for an agency which is in dire need of improving its image, this just may be the case. Not to mention that the double beneficiary of this action would be none other than Goldman Sachs: a market sell off here would guarantee QE3 and certainly weaken the firm's primary competitor. Two birds with one porn-addicted regulator.
Bad News For GM: As China's Own "Cash For Clunkers" Program Ends, Car Sales Come Far Below Expectations; BYD Sales PlungeSubmitted by Tyler Durden on 04/12/2011 - 17:38
Two months ago we reported that the recently bailed out Unionized Carmaker, for whom China (where they apparently do not care about falling steering wheels) has become a market more important than even the US, had seen some jarring demand weakness, following a 10% drop in January sales. We now learn that GM was not only the beneficiary of last year's Cash For Clunkers program in the US, but has been the recipient of recent incentives offered in the domestic Chinese market. Alas those are now over, and as Bloomberg reports "China’s passenger-car sales grew in March at a pace that was below forecasts after incentives ended and fuel prices rose, the China Association of Automobile Manufacturers said." That's putting it mildly: for an economy in which a growth rate of 10% is considered stagnating, what happened in March was equivalent to a drubbing: "Dispatches of cars including multipurpose vehicles and sport-utility vehicles to dealerships rose 6.52 percent from a year earlier to 1.3 million units, the association said in a statement today. That pace was about one-tenth of the 63 percent sales increase reported in March of last year." Which brings us to the question of the day: how does one spell "short GM" in Mandarin? Yet the irony of the day award goes to Charlie Munger, who may or may not have been completely "open" with his purchase of BYD shares: BYD sales plunge in March by 41% (Y/Y). Suck it in, Charlie.
If the objectives of Quantitative Easing 2 (QE2) were to: a) raise interest rates; b) slow economic growth; c) encourage speculation, and d) eviscerate the standard of living of the average American family, then it has been enormously successful. Clearly, with the benefit of 20/20 hindsight these results represent the Federal Reserve’s impact on the U.S. economy, regardless of their claims to the contrary...Why the Fed would believe the economy could benefit from the addition of $600 billion (the QE2 target) in reserves to a banking system that already had over $1.1 trillion in unused, idle, but potentially inflationary reserves on hand nearly defies understanding. The action, however, was not lost on holders of the $8 trillion Treasury securities outstanding. This increase in the level of interest rates occurred, not only during QE2, but in QE1 as well. Thus the Federal Reserve engineered a rate increase, and the injection of excess reserves had several other deleterious ramifications for the U.S. economy.
Something rather troubling for the "kick the bankrupt (and only modestly radioactive, still way below the unrevised legal threshold though) can down the street crowd"- Commentary Magazine reports that the "Budget Deal", won after so much theatrics, soap opera, and Razzie nominations, may in fact collapse shortly. "The big news today is that the $38.5 billion in
budget cuts announced with such fanfare on Friday night mostly aren’t
real. A good deal of it involves money from previous years and previous
budgets that hasn’t actually been spent." Commentary refers to an AP article in which it is made clear that the proposed legislation is one 'financed with a lot of one-time savings and cuts that officially "score" as savings to pay for spending elsewhere, but that often have little to no actual impact on the deficit...cuts to earmarks, unspent census money, leftover federal construction
funding, and $2.5 billion from the most recent renewal of highway
programs that can't be spent because of restrictions set by other
legislation. Another $3.5 billion comes from unused spending authority
from a program providing health care to children of lower-income
families." And once the more vocal fringers realize they have been cheated once again by both parties, it is possible that the whole thing could just as easily fall apart, and just in time for the US debt ceiling to be breached within 1-2 weeks tops.
For anyone wondering why a hypothetical situation in which Bill Dudley met with former colleague Jan Hatzius and told him "ok, we bailed you guys out, now it's your time to kill oil" seems all too possible in our day and age, the latest news on the economy from Gallup should make it all too clear. As of April 11, the polling agency's Economic Confidence Index has dropped to -37: the lowest reading since August of 2010. It appears that disgust with $4+ gas (Poverty Effect for all) is more than offsetting Brian Sack's attempt reclaim the Russell 36,000 (Wealth Effect for some). Gallup's conclusion is absolutely spot on: 'Global events, continued political battles about the budget in the
nation's capital, and a weak, if modestly improving job market add to
consumer uncertainties. As a result, it is not surprising that consumer confidence plummets even as Wall Street continues to do well. However,
if consumers continue to lack confidence and spending doesn't increase,
it is hard to see how the U.S. economy can continue its modest
improvement. In turn, it would seem Wall Street and Main Street will
have to align at some point going forward. Either Wall Street will prove
right and economic conditions on Main Street will improve or the
reverse will prove to be the case."
Egyptian state television is reporting that former president Hosni Mubarak suffered a heart attack during questioning by prosecutors investigating graft and abuse allegations which prompted his admission to hospital Tuesday. Well, with the credit bubble boiling over, and funds using other people's money to buy up bridges in the Kalahari desert from point A to point A, in pursuit of guaranteed 10% in Kalahari Bridge Collateralized Debt, who can really blame the Egyptians for trying to access the collateralized bullshit obligation market?
And now the one all the Fed frontrunners have been waiting for...(with a 40 minute NYU intern induced delay)
Across all operations in the schedule listed below, the Desk plans
to purchase approximately $97 billion. This represents
$80 billion in purchases of the announced $600 billion purchase program
and $17 billion in purchases associated with principal payments from
agency debt and agency MBS expected to be received between mid-April
As we had expected, the QE Lite component ($17 billion) is plunging due to a substantial halt in MBS prepays with the Fed. Time to lower our estimate even further on how much the Fed will monetize simply from rolling maturities and MBS prepays.
From Reuters: "NY Fed delays release of latest treasury purchase schedule due to technical problems." And this from the people who run the world and monetize a trillion+ in debt per year? Why doesn't the Fed tell us the true reason for the delay: Primary Dealer Bank Holding Company Hedge Fund XYZ is holding up the release of data until the exclusive of bond allocations to said bailed out hedge fund is ironed out in exchange for various recent commodity downgrade research reports?
While the rest of the world finally wakes up to the reality of pervasive Chinese reverse merger fraud, a topic we discussed way back in November and alleged that soon enough the bulk of Chinese companies receiving NYSE and Nasdaq listing are very possibly frauds, we would simply like to demonstrate the performance of our short Chinese basket discussed most recently here. At a 75% annualized profit, shorting Chinese fraud is proving to be two times as lucrative as being long silver.
Did you ever see Minority Report? It's one of Steven Spielberg's often forgotten about movies based on the short story by Philip K. Dick. In the movie, pre-couch Tom Cruise plays a police officer in the year 2054 who works for the highly specialized 'pre-crime' division. Using a bizarre array of technology and metaphysics, the pre-crime division sees into the future and stops criminals in their tracks, arresting them before they commit a crime... sometimes before they even think about committing a crime. This very elaborate and morally ambiguous law enforcement system is predicated on the government determining what your actions and intentions will be, often before you do. It turns out it's not all science fiction. Enter the IRS.
And the hits, er, cuts, just keep on coming. Q1 GDP, which everyone now has forgotten was supposed to be the inflection point in the new and improved American Golden Age story: remember that whole payroll tax benefit which was expected to contribute 1.5-2% GDP points, is being cut by everyone. From an original consensus of nearly 4%, this number is now down more than 50% according to Wall Street's cadre of so-called economists. The latest lemming to join the Jan Hatzius downgrade wagon (yes, folks: Goldman is and always will be the key factor in any swing in convention wisdom as today's move in crude demonstrates so vividly) is Morgan Stanley's own David Greenlaw who a month ago couldn't contain his enthusiasm about the explosion in US economic activity. So much for that giddyness... And now that Q1 GDP is done, look for Q2 and H2 GDP downward revisions, and screams of protest demanding more fiscal and monetary (QE3) stimulus. Since the fiscal route is a dead end, we let readers conclude what that means for the future of the DXY and all the carry trade derivatives.
Treasury Auctions Off $32 Billion In 3 Year Debt, Indirect Interest Drops, Total Debt Now At $14.297 TrillionSubmitted by Tyler Durden on 04/12/2011 - 13:13
Today the Treasury auctioned off $32 billion in 3 Year paper at a 1.28% high yield. The Bid To Cover was 3.25 with Primary Dealers and Directs once again responsible for two thirds of the auction, taking down 57.4% and 8.9% respectively. This was the lowest Direct Bidder purchase since 2009. The Primary Dealer hit ratio was a surprisingly high 25.8%. Indirects declined once again to a disturbing 33.7%, the third lowest since January 2009, and just betterthan the all time low February 2011 take down of 27.6%. Otherwise the auction was solid, coming about 5 bps inside of the When Issued. Keep an eye on CUSIP QC7: it will be the most monetized 3 year paper by the Fed over the next 2 weeks (recall the new POMO schedule is announced in under one hour). What is more important is that this latest addition takes total US debt (not the debt actually subject to the limit) once again to above the threshold: adding today's $32 billion to Friday's total of $14.265 trillion brings us to $14.297 trillion. And there is another $34 billion in auctions over the next two days. We are getting very, very close to where even the debt subject to the ceiling, which is about $50 billion lower than total debt, will be one auction away from breach.
Matt Taibbi Asks Why The Fed Gave $220 Million In Bailout Money To The Wives Of Two Morgan Stanley "Bigwigs"Submitted by Tyler Durden on 04/12/2011 - 12:51
Matt Taibbi has resurfaced with another stunner of Wall Street impropriety which will lead to merely more silence, even more unanswered questions and be quickly buried by the kleptocratic oligarchy: "It's hard to imagine a pair of people you would less want to hand a giant welfare check to — yet that's exactly what the Fed did. Just two months before the Macks bought their fancy carriage house in Manhattan, Christy and her pal Susan launched their investment initiative called Waterfall TALF. Neither seems to have any experience whatsoever in finance, beyond Susan's penchant for dabbling in thoroughbred racehorses. But with an upfront investment of $15 million, they quickly received $220 million in cash from the Fed, most of which they used to purchase student loans and commercial mortgages. The loans were set up so that Christy and Susan would keep 100 percent of any gains on the deals, while the Fed and the Treasury (read: the taxpayer) would eat 90 percent of the losses. Given out as part of a bailout program ostensibly designed to help ordinary people by kick-starting consumer lending, the deals were a classic heads-I-win, tails-you-lose investment."