Archive - Oct 13, 2009

Chief executive officer and president of the Federal Reserve Bank of New York (and ex-Goldmanite), William Dudley, delivered a speech this afternoon that contains, with supreme gall and irony, a subsection called “Transparency.” The title of the speech was thoughtfully crafted to allow a redirect. So here we go…

Whetever few voices of sanity remain, as every "expert" merely touts their book into the biggest bear market rally in history, need prominence. TrimTabs' Charles Biderman is among them. In this most recent Bloomberg interview, Biderman takes on what amounts to inaccurate data releases by the BLSand BEA, and tries to make some sense out of them. Biderman's punchline: "Gravity usually works at some point." The only question is when.

Currency devaluation in Latvia, government overthrow in Romania, and now blatant market manipulation in Egypt. Surely this all will somehow result in record bonuses on Wall Street. Bloomberg reports that Egypt's EGX70 index fell the most in two months after the "stock exchange suspended trading in 26 small and medium-sized companies on concern that some share prices may have been manipulated." At least the US stock market, the paragon of virtue that it is, is sure to never have to suffer the same indignity.

Having the reserve currency comes with a great deal of responsibility. Over the course of the last 15 years the United States has abused this power with reckless spending, wars abroad and a printing press that just won’t quit. As I mentioned many times during the financial crisis last fall, the dollar as a reserve currency likely saved our skin. Being the reserve currency made the dollar the obvious safehaven currency. The world was too dependent on the well-being of the dollar for it to implode. If it hadn’t been the reserve currency we probably would have faced a much more harmful crisis. But now the world is tired of seeing us abuse this privilege just as they grew tired of Britain’s abuse of the reserve currency.

Today the Fed repurchased $2.949 billion of 7 year bonds via its second to last POMO. There is $2.7 billion of dry powder left: one last arrow in the QE quiver, best used on yet another down day.

It is noon, and everything (equities, VIX, USTs) follows the dollar's decline tick for tick.

We have recently stated that it is our belief that at this point any excess liquidity pumped into the system (see the prior report from Goldman on the debt ceiling, in which the investment bank presents some ideas on how the Treasury (never mind the Fed) can increase liquidity in the market by reducingobligations until such time as (if) the Congress votes to raise the debt cap) will likely go to chase n ot so much returns in credit or equity markets, but directly to appreciate the price of gold. Reading through Rosie's Breakfast with Dave piece from earlier, leads us to believe that the strategist may have jumped on the dollar bull bandwagon.

"One should not read too much into the rhetoric that is likely to come out of the upcoming debate over the debt limit, since much of it will be meant for public consumption but will have little bearing on other policy debates that follow." - Goldman Sachs

The tone change in Mr. Lewis Liman's missives seems to correlate 0.999 with BofA/ML's desire to (not) cooperate with however many investigations the firm is mired in at any given moment.

"Because Bank of America has decided to reconsider its position with respect to your investigation, it will also produce privileged information to federal regulators and to the Congress... We are proceeding as quickly as possible so that we can waive the privilege in connection with your investigation and also promptly be in a position to produce privileged information to the others who have requested it. We presently hope and expect to be able to effect the waiver, both with respect to your Office and others, no later than Friday, October 16, 2009. While we regret the brief delay, the need for a fair and orderly process in connection with the waiver of the privilege with respect to multiple parties in unavoidable." - Lewis Liman, Cleary Gottlieb

Project Mayhem reviews the most important financial and geopolitical news of the past week and takes a look at the week ahead.

The place where the real big boys play, high yield cash bonds and CDS in IG, has seen unprecedented activity over the past year. Overall, more than $1 trillion in corporate issues were sold in 2009, although in fairness $192 billion of this amount is courtesy of taxpayer subsidized TLGP sponsored financial issuance (Mr. Blankfein, speaking of transparency, when do you plan on paying back your portion of TLGP debt?). Yet real speculative mania has never been as evident as what has transpired in the junk bond domain: YTD more than $103 billion of BB- and below rater paper has been issued, compared to just $48.8 billion for all of 2008.

• Goldman cut to "neutral" by Whitney (Bloomberg)
• Excess liquidity, plunging dollar now swiftly taking Gold into stratosphere - AU at new record (Bloomberg) - is the currency crisis finally upon us?
• Lloyd Blankfein redefines irony: To avoid crises, we need transparency (FT)
• John Crudele digs through more Goldman phone conversations: Somebody in Congress need to look into this (Post)
• CIT's CEO Peek to resign at year end, as company likely prepares for bankruptcy filing (AP)
• CIT debt swap struggles, bankruptcy looms (Reuters)

• Asian stocks were mixed Tuesday, with caution ahead of U.S. earnings.
• Bank of England likely to expand its bond-purchase program to $316B next month.
• China Vice PM: 3Q,4Q GDP to each grow higher on year vs. 7.1% in 1H 2009.
• China September passenger vehicle sales up 83.6% on year
• Contractors expect cuts in big weapon sales; Congress to vote on 2010 defense budget by month's end.
• Crude oil futures trade above $73/barrel, helped by a weak dollar, early strength in equities.
• German investor confidence unexpectedly drops as economy remains `fragile'