Archive - Oct 15, 2009

Regular Zero Hedge guest Warren Pollock has taken UBS to court. An issue of contention is Pollock's question of just who it is that UBS has responsibility to: the market, its clients, or themselves. While the natural progression would be in the order presented, Pollock's claim is that it has become inverted, not only at UBS, with all banks caring exclusively about their own wealth and success first, above any secondary concerns they may have regarding proper treatment of markets or clients. This will be an interesting case to follow.

"The middle class became a resource to be pulled from - "the turkey at the thanksgiving dinner" - the middle class has gotten shakier and shakier, it has become hollowed out. The middle class makes us who we are. The middle class gives us political stability. It is safe to walk our streets because we have a middle class. And every time we hollow [the middle class] out we take the risk that something of what we know as America begins to die. That's what scares me." - Elizabeth Warren

Today, a U.S. House of Representatives’ panel voted to regulate privately traded derivatives. In a 43-26 vote by the House Financial Services Committee, this is being hailed as the first major step for the Obama Administrations’ plans to overhaul the nation’s financial system and its place in the “opaque and growing” $600 trillion global market. And they're looking to make yet another Agency soon!

A piece today by Bloomberg's Jonathan Weil focuses on ongoing accounting gimmicks, this time in the realm of Fair Value definitions as determined by SFAS 107. Weil compares the difference of Book (Carrying) Value to Fair Value which several banks hold their assets at, primarily consisting of loans. As a reminder, "Fair value is supposed to represent the price at which an asset would change hands in an orderly, arm’s-length transaction." Weil has noticed that for several banks the accountants have stretched so much that they are in fact holding FV at a higher value than book value. How that is conceivable in the current loan-impaired environment is a major question mark, especially since Weil goes off June 30th balance sheets, before the stock market bubble bonanza was in full force. Yet what caught our attention is a tangent as pertains to whether or not Citigroup may be back to its old accounting shenanigans once again.

Today's Philadelphia Fed October Business Outlook Survey came in at 11.5, below the consensus reading of 12, and a drop from September's read of 14.1. This number came in stark contrast to the Empire State Manufacturing Survey, which climbed to 34.6: the highest level since 2004! The growing uselessness of these "forward looking" surveys is increasingly being put in question.

The Institutional Risk Analytics Managing Director nails the banks' consistent beating of analyst expectations: financials keep "coming in better on non-recurring items." Indeed, once the government's "non-recurring" subisidy of free "money ends," and such by-now forgotten business lines as investment banking have to pick up, what then?

Additional observations from Whalen include bank subsidies, consumer credit trends, bank reserves, loss rates, non-performing assets, the regional versus the TBTF duel, and the reconciliation of Citi's positive net income and its EPS loss, and an outlook on a "disappointing" Q4.

Credit card companies are under pressure today as more negative trends in charge-off and delinquency rates are noted across the board. The main pure play credit card name that most follow for representative trends in the space, Capital One, released data that showed materially deteriorating numbers in both the US general annualized charge-off rate (9.77%, a significant increase from 9.32% in August), and the 30 day + delinquency rate (5.38% versus5.09% in August). Auto finance and international metrics were also broadly worse month over month.

“Bank repossessions, or REOs, jumped 21 percent from the second quarter to the third quarter, corresponding to jumps in defaults and scheduled auctions in the previous two quarters,” said James J. Saccacio, chief executive officer of RealtyTrac. “REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts and high volumes of distressed properties.”

Equities are slightly lower than they were last night after GS beat expectations by less than expected, if that makes any sense. There are two key charts to focus on. The Nasdaq yesterday left an indecision candle on what people could see as a double top in formation. Obviously it all depends on how we trade today. If we trade down or even gap down and follow through into the close then maybe we have something, but it's not worth trying to front run it too much at this point.

Yes folks, in due time, all that wealth will trickle down to the peasants who have to work for a living. Just be patient. Oh, you're hungry now? Facing a tough Christmas? Don't worry, those good Samaritans at Goldman Sachs are considering a billion dollar donation to charity. God bless their golden hearts. We need more good bankers like them.

Today the pound surged by more than 2% against the euro, its biggest jump since January, after an interview in the FT with BOE executive director for markets Paul Fisher hinted that the UK may be coming to an end on the UK's version of quantitative easing. While the entire interview is a must read for the latest in Central Bank thoughts on numerous issues such as the Input gap, deflation and fiscal policy, it is the topic of QE that sparked the move in the GBP. Curiously, even CBs are unable to disentangle the vicious loop of an "improving economy" driven exclusively from a declining national currency, which in turn lifts equities as the underlying debt deflates or inflates with every tick of whatever the respective currency seems to do: just look at the S&P - it trades not with any fundamentals (the euphoria in AA and INTC stocks is well over with the gaps on their "stellar" earnings about to be filled) but merely with what the perceived value of debt is as represented by currency fluctuations. And of course, and decline in the currency is seen as an equity positive. Yet even countries such as Britain, which have benefited immensely from doing just what the Fed has proven to be an expert in (printing, printing, printing), are realizing the time to pull the plus is near. The question: when, if ever, willBernanke finally follow suit as well?

No, we don't mean the markets. We ran a server changeover last night which meant tampering with some DNS settings.  As a result you may experience dizziness, hot flashes, and issues with logins.  You might try (in order):

Sitting down.

A cold compress.

Clearing your browser's cache and/or waiting for the DNS update to gel with your local ISP.

In any event, the symptoms are temporary and will abate in their own time.  If you continue to have trouble, drop Marla an email via marla@zh.

• Asian stocks advance on earnings speculation; treasuries, dollar decline.
• China's direct investment from abroad climbs 18.9% to $7.9B as global slump eases.
• DJIA again topped the 10,000 mark after Wednesday's 144.80-point rally.
• Dollar falls to 14-month low versus Euro on better earnings, stock rally.
• Fed says some FOMC members were open to expanding mortgage bond purchases.
• Industrial prodn in Euro Zone rose for the fourth straight month in August.
• Oil hits one-year high above $75 as stocks rally.

• Jobless claims "drop" as prior numbers get upwardly revised as always to maintain the downward trend (AP)
• The fixed income and hedge fund monopolist known as Goldman Sachs beats by "less than expected," sets aside less than a trillion for bonuses (Reuters and NY Times)
• European nations opt for dollar issues (FT, h/t Paul)
• This is Jamie's land, this is your land (Reuters)
• PIMCO is the latest on the anti-MBS bandwagon (Bloomberg)
• New rivals pose threat to NYSE (NYT)

The economy may be out of the recession. Markets have turned around. But the key thing weighing on any American’s mind with a job is his fear of losing it. Now at a 26-year high of 9.8%- household foreclosures rose more than 5% from summer to fall, as federal assistance efforts are overwhelmed by a flood of unemployed.