Archive - Oct 2009

Let me know the chances of the FDIC's absorbing a behemoth such as the CDO trading, CDS writing, off balance sheet VIE having, QSPE bulging, California and Florida Zero recovery 2nd lien sporting Wells Fargo in the case some of its arcane and non-performing assets really hit the fan. I am getting ahead of myself though. Let's take this from the beginning.

The following post is a revision of an article I wrote for my blog. The topic is the similarities between the leap of faith that investors took when they gave their money to Bernie Madoff and the leap of faith required of those who currently own and buy shares of Goldman Sachs. Upon some reflection, there are a number of interesting parallels. The data does not include the most recent earnings report, but given another incredible performance this quarter I thought the commentary was still very relevant.

Rajmahal was just the beginning. The Sri Lankan, who just made the record books for spending a generous $100 million on bail and has even bigger digs in New York's Sutton Place complex (although not quite Richard Perry big), is just the proverbial appetizer. And if regulators have truly decided to start treating the hedge fund industry like the 21st century equivalent of organized crime (as previously disclosed by the US attorney), tonight many other wannabe billionaires are not sleeping too well (and even considering checking out Expedia for some sweet one-way trip deals). Because if they are not, they will be after reading the most recent take on their upcoming plight. From Bloomberg: "Federal investigators are gearing up to file charges against a wider array of insider-trading networks, some linked to the criminal case against billionaire hedge-fund manager Raj Rajaratnam that shook Wall Street last week, people familiar with the matter said." If nothing else, this will hopefully force many of them to reevaluate the nomenclature of what funds to allocate the hundreds of billions of dollars that have emerged from the "sidelines" recently: it would appear The Insider Trading Rapid Value Appreciation Offshore Fund, most recently developed at Shady Pickins Asset Management, may not be the best appellation after all.

You know that the government and the giant banks are not being responsive to the needs of the economy and the American people when even PhD economists and economics professors are calling for protests.

The most convoluted monthly report issued by the US Treasury, that of Treasury International Capital (TIC) flows was released on Friday, and it disclosed some troubling data points. While foreigners overall continued purchasing domestic assets, their appetite continues to decline. In particular foreigners increased their purchases of Treasuries marginally, while they continued selling off corporate bonds and agencies, while buying corporate stocks. Yet, most troublingly, the Big 3 (China, Japan and the UK) purchased the least net total of Bonds and Billsyear to date: as the Fed now dominates the market for Treasuries, traditional buyers are becoming increasingly nervous.

Last Friday, U.S. crude oil futures finished above $78, the highest level in a year, even though the U.S. continues to sit on ample supply of petroleum. Some analysts said a sudden upward spike was still unlikely, while others are predicting an immanent correction down below $70. However, if you take a closer look, it is evident that the current crude oil market is almost entirely detached from fundamentals. Furthermore, there are several factors supporting oil rising to new levels, as fundamentals are out the window in the near to medium term.

A few years ago, if you wanted to get into a “green” or environmentally friendly car you had a limited lot to choose from and the premium you paid was considerable. And for what? To drive a lowly Prius? Or a heavy, clumsy Lexus 600h running in at well over six-figures? And was the premium really worth it? Meet the Mercedes-Benz of hybrids- the 2010 S400 BlueHybrid. This is not your typical green car. It’s a “blue” Mercedes-Benz- the first real production car in the world to use a lithium ion battery- a “mild hybrid” worthy of the Three-Pointed Star.

• The best unknown activist investment of 2009 (Greenbackd)
• Words from the wise (Financial Armageddon)
• CME in talks to buy CBOE for $5 billion (Bloomberg)
• UBS warned U.S. customers by registered mail their account details may be given to U.S. tax authorities (Reuters)
• Goldman can spare you a dime (NYT)
• The extinction of ethics in finance - The Fallout (Reality Arbiter)

A lone suicide bomber, on foot managing to catch unawares five "senior commanders" in Iraq where only the smartest and best organized insurgents are still alive to mount such action might be a three or four sigma event. A lone suicide bomber, on foot managing to catch unawares five "senior commanders" of Iran's Revolutionary Guard by waiting by the entrance of the complex where they were to meet local tribal leaders... that's a bit rarer still. Whisperings of Western involvement in the incident are... still just whisperings.

Yep, the yellow water has been falling on the floors of many of Wall Street's finest hedge funds. They're all glued to their toobs watching footage of the insider trading arrest of Raj Rajaratnam, founder of Galleon Group, a prominent New York-based fund firm that manages $3.7 billion. Raj, according to allegations published in the Wall Street Journal, played it fast and loose with insider trading rules by talking to prominent executives inside publicly traded companies and to executives who had specific information on pending deals and earnings at publics. Other hedges are probably not the only ones scared out of their minds. Other fearful parties likely include Gerson Lehrman Group, DeMatteo Monness, and the thousands of "consultants' who work for them. Who are these guys and why should they be afraid of what befell Raj?

There is probably greater risk of a market down draft now than in past weeks.

Documents, files, backs of napkins? Too much to bear. Take an audio loan from our Discount Window instead.

And, it so happens, Studio Zero may be hosting an A-List headliner this evening, in our tradition of pulling into our little afterparty the city's visiting talent.  We can't promise, but... WOW, the possibilities.

Join us, again, for Radio Zero.

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ZeroHedge recently highlighted the TPG raid on CDOs. This action puts into focus the alarming trend of the undermining of creditor rights. When even the Courts are in on the gang bang, what hope do we have?

Wikileaks has released the lawsuit filed by Nelnet former employee Rudy Vigil against Nelnet, JPMorgan and Citigroup, which alleges an extensive conspiracy between JPMorgan and Citi and the student servicer in order to steal millions of dollars from US taxpayers. In the lawsuit, Nelnet is accused of keeping "false records, statements and certifications of compliance with statutes, regulations and policies" as it was falsely stating the amount of US money Nelnet was entitled to receive from the US, on behalf of itself or the two other banks, it was administering FFELP loans not in compliance with HEA statutes, that it was providing wrong and misleading data, and other comparable reasons.

"Not only would use of the Reserve Banks for funding the BIF serve no apparent economic purpose, it could create potential problems of precedent and perception for the Federal Reserve. In particular, the proposal involves the Federal Reserve directly funding the government. The Congress has always severely limited and, more recently, has forbidden the direct placement ol Treasury debt with the Federal Reserve, apparently out of concern that such a practice could compromise the independent conduct of monetary policy and would allow the Treasury to escape the discipline of selling its debt directly to the market. Implementation of the proposal could create perceptions, both in the United States and abroad, that the nature or function of our central bank had been altered." - Alan Greenspan, 1991