Archive - Oct 12, 2009

More risk? More complexity? What are investors and trustees to do? Let me share some comments with you. The financial engineers are working hard to "tame risk" but in my experience when everyone is rushing to play the same game, they all knowingly (or inadvertently) add to systemic risk.

Three months ago Zero Hedge, amidst a whole lot of hyperventilating, schizo-paranoid ramblings, managed to discuss sponsored, or naked access, as a key concern in the ongoing debate against HFT. Once again, we feel humbled that the WSJ (SEC) has decided to read between our disjointed commentary and make a prominent article (regulatory issue) of this critical topic.

Did Comcast think it can poach the crack Power Lunch (no pun intended) CNBC team all on its own? Turns out the answer is a flat out no. According to Reuters not only will GE likely exit its Comcast venture within 4 years (apparently the Comcast deal is virtually a certainty now, much to the chagrin of the Squawk Box team et al), but others media conglomerates are also considering getting involved in what could soon become a heated bidding war for the ample assets partially hidden by variousgrotesquely stretched sweaters.

A month ago Zero Hedge speculated that the SEC was preparing to throw Wachtell Lipton and Ed Herlihy at the wolves, in case its planned settlement to indemnify Ken Lewis of all sins failed. Well, it failed, now that a jury trial is in the works to determine just how guilty Ken Lewis et al have been of shareholder fraud. And, as expected, Wachtell Lipton is about to be run over by a 200 ton freight train.

We Wouldn't Want Anyone to Get Hurt, Now Would We?

While it is improbable that Eminem will be battling to this song any time soon, digesting the anti-Central Bank message for broader consumption is likely not something that will hurt Ron Paul's cause.

Yet more dusty footprints of High Frequency Trading's shadow domination of markets emerges, courtesy of Matt Goldstein's latest column "The victims of high-frequency trading." Matt focuses on the blatant example of a self-perpetuating myth, driven exclusively by reinforcing algorithms in the April 27 collapse of Dendreon stock, which dropped by 70% in 70 seconds. Bloomberg did a good summary of the events that cost many DNDN investors hundreds of thousands in losses, and which now, five months after the event, the regulators have still not disclosed any additional data to bring this presumably aberrant event to closure.

With everyone lately focused on China's foreign reserve position, analysts have forgotten that America also has an International Reserve account consisting of foreign currency positions, as well as gold reserves and equivalents. And while the total combined holdings as of the most recently reported period are a joke compared to China's $2+ trillion, the most recent number of $133.6 billion does raise red flags, particularly when one traces this number's level throughout the year.

Since we are already in a deflation, the argument over inflation or deflation is moot. The real question is: how long will we remain in a deflation? And, if deflation ends, will we then see inflation, hyperinflation, or real growth?

Many deflationists assume that since we are following the Japanese path that we will have the same economic results as Japan. That is, a stagnant economy with generally falling prices as has been seen for the last 19 years in Japan.

While it depends mostly on what the government's responses will be, our experience will more likely be stagnation with long-term inflation rather than long-term deflation. The economic differences are significant.

Think you know what aspects of America's banking system need to be changed?

Are you sure you're not missing anything?

Zero Hedge has compiled a list of the 8 worst/best [take your pick] stocks of 2009. The selection criteria include Russell 2000 stocks which have returned over 1,000% from their 52 week low, and which have a 10% or higher short interest. The last criteria is a function of our ongoing belief that this entire rally has been built on the backs of forced short covering action, in which those experiencing a squeeze are happy to lift any offers as long as they can get respective repo desks/margin call repo men off their backs. Another interesting observation is the 1 year growth in revenue and EBITDA. We use the term growth loosely as the median growth Year over Year for the universe of 8 has been -20% and -25% respectively: not exactly the stuff 1,000%+ rallies are made of. Lastly, of the eight companies, four have negative unlevered LTM free cash flows, which in this day and age of Fed sponsored moral hazard may in fact be a good thing.

Sorry, boring tape today, not much is going to happen until we get some of these earnings later this week. In the meantime, nothing else to do but watch Michelle Caruso-Cabrera puff her chest out with that cable knit sweater, and observe the various bottle rockets and shanks perpetrated by the GS Prop Desk on a low volume day.

As more and more traditional newspapers wake up to the threat posed by the new commoditized information paradigm, the generic response spearheaded by Rupert Murdoch has been to make information a premium product once again. The problem with that approach is that it implicitly takes head on instantaneous data dissemination and distribution platforms like Google and Twitter. Whether this is a fight that is sustainable is very much open to debate. One person who does not think so is Russian billionaire Alexander Lebedev who is taking a diametrically opposite route, and plans on cutting the price of his London Evening Standard newspaper to zero, coupled with an increase in circulation from 250,000 to 600,000.

The fallout from the recent investigations by the Attorney General into the New York Pension Fund system will be the likely topic of numerous analyses for months to come as details of more impropriety are uncovered. In the meantime, we would like to highlight to our readers some of the more recent recipients of New York State's generosity, which in acting as a Fund of Funds for New Yorkers, continues investing capital in numerous Private Equity and Hedge Fund firms, as well as directing real estate investments.

As part of its proposed 2010 budget, the CTA is preparing more pain for Chicago residents, which include transit fare hikes across the board. Transit authorities throughout the country (most notably New York's MTA) are doing all their best to pretend they do not need to file for bankruptcy, even as all signs point to the contrary. As ChicagoBreakingNews reports, the list of increases would be comprehensive and impact virtually every transportation category.