Archive - Oct 23, 2009

There is some interesting new data out on how recessions affect people who come of age during distressed times. Not surpisingly, recessions can have a lasting impact on young people and literally alter the way they view the world going forward. Therefore, it makes sense for investors to understand exactly who the financial crisis will influence and what that will mean for companies and products.

I agree with Barry Eichengreen, reports of the U.S. dollar's demise are greatly exaggerated. The mighty greenback will come roaring back, perhaps sooner than you think.

~$297.7356.7 million in giant sucking sounds from the DIF.

            Bank                  DIF Loss   Assets   Loss Ratio


PR-192-2009 First Dupage Bank        $59.0   $279.0       21.15%
PR-191-2009 Riverview Community Bank $20.0   $108.0       18.52%
PR-190-2009 Bank of Elmwood         $101.1   $327.4       30.88%
PR-189-2009 Flagship National Bank   $59.0   $190.0       31.05%
PR-188-2009 Hillcrest Bank           $45.0    $83.0       54.22%
PR-187-2009 American United Bank     $44.0   $111.0       39.64%
PR-186-2009 Partners Bank            $28.6    $65.5       43.66%


Ouch                                $356.7 $1,163.9       30.65%

Radio Zero: Bair... that is all.

Listen here: http://cdo.zerohedge.com:8000/listen.pls

Our snag our West Coast Relay here: http://72.13.86.66:8000/listen.pls thanks to the absurdly generous donation of EGI Hosting!

Chat up the DJ (send your .mp3 files) here: radiozh.

Or... #radiozh on EFNet (for the real chat nerds).

Here we go again ...

100: Partners Bank, Naples, FL
101: American United Bank, Lawrenceville, GA
102: Hillcrest Bank Florida, Naples, FL
103: Flagship National Bank, Bradenton, FL

UPDATE:

104: Bank of Elmwood, Racine, WI
105: Riverview Community Bank, Otsego, MN

As you watch the bobbing metronome of Sheila C. Bair's head during this video ("...but as I said [left tick] we have the ability to immediately access [right tock] up to $500 billion from our Treasury line [left tick]...") wonder to yourself quietly:

• How is the FDIC going to slurp down another $500 billion without some roof rasing action on the debt ceiling?
• How can ANYONE promise that no insured depositor will ever (until the heat death of the universe) lose a dime?

Meanwhile, if anyone is spreading evil rumors about the FDIC, make sure to email flag@fdic.gov immediately.

Try not to get motion sick and vomit.  Also, try not to vomit.

Not to degrade a Johnny Cash classic- but you just can't help but recall the lyric as the FDIC closes bank number 101... American United Bank in Georgia.

Interest by foreign central banks to increase their gold holdings begs a more fundamental question. Have they lost confidence in the dollar? Probably not, at least not yet. As noted above, foreign central banks have purchased $53 billion worth of Treasury securities over the past 12 months. Although the pace of purchases has slowed from its rate of a year or so ago, we think foreign central banks would have become outright net sellers of Treasury securities if they had “lost confidence” in the greenback. Foreign central banks are not dumping dollars, but they appear to be diversifying away from the greenback on a flow basis.

Partners Bank in Naples, Florida is the 100th caller!

Bank of America is really unable to catch a break. The latest kick in the groin comes courtesy of the Chairman of the House Oversight Committee Edolphus Towns, who has announced he will launch a subpoena into whether Countrywide gave "favored terms to lawmakers and other VIPs." Concurrently, a panel is evaluating predatory lending practices at a variety of different banks. Some of the firms that will be told to provide information include Wells Fargo, JP Morgan, Citigroup, US Bank and GMAC.

Most of us are gathered at the station, watching for the Inflation Express to come rumbling in. But we've been waiting for a while now. Just when should we expect the big locomotive to arrive and start pushing the prices of most things uphill? We’d all like to know the exact date, of course, but no one can know for sure. Not even a careful reading of the Mayan calendar will help. What we can do is estimate a time range for price inflation to show up, and that alone should have some important implications for investment decisions.

Today's market action has been essentially one-way wholesale selling of every dollar-denominated asset class (except allegedly Kindles, which are now accepted as Fed discount window collateral (until HR 1207 passes we won't really know), and are rumored to soon have a direct brokerage feed allowing readers to buy (but not sell) Amazon stock). Stocks and bonds (entire curve affected, not just the far end) are both getting pounded, with the VIX climbing almost 10%, as the dollar has been rising all day. Either this is another headfake, this time without a Dick Bove scapegoat, or a dollar renaissance could finally be in the making, with a subsequent drubbing of all dollar-denominated assets. Once again the question is does the world, in its ongoing duel against the US federal reserve, finally feel lucky?

The Buy-Write or covered-call strategy has become increasingly popular and I suspect is dramatically responsible for the "surprising" rally in stocks and compression in vol of the last month or so. The covered write (long underlying stock and selling in-the-money calls against it) supposedly allowing investors to benefit from the enhanced return offered by the option premium. However, the synthetic equivalent of the position is a short put (think about the payoff profiles) and I wonder just how comfortable these home-gamers would be with the strategy of naked option writing. "Covered Call" just sounds so much better.

Anyone read Monday's WSJ about the myriad networking methods used by Raj to extract inside information? Funny how enormous amounts of money, effort, and time were used to "get an edge" in order to squeak out a paltry $70 million or so in a $7 billion hedge fund. He should have used his energy elsewhere, as in hiring a horde of Playstation gamers and Victoria's Secret models instead.

While certainly no Medallion (in anything but iambic pentameter), it appears that recently notorious and soon defunct hedge fund Galleon has been dabbling, among other things, in statistical arbitrage. One wonders if Moody's has been instrumental in providing the firm with any good VWAP "hot tips." Oddly, the firm's stat arb fund has performed an impressive 18% YTD, and had recorded just one down month in the past year. Perhaps the Feds should take a quick look at this particular strategy and discover how it has generated 64% since inception on a Jim Simons drool-inducing 0.96 sharpe, especially with such broad M/N indices as the HSKAX and HFRXEMN about to wiped out with impunity due to constituent underperformance.