Archive - Oct 2009

We will provide a much more in depth analysis of Treasury TIC data, after today's monthly update, although a preliminary view provided by Jay Bryson at Wells Fargo has a conclusion that is not surprising at all: "there are not enough inflows to support the dollar." Yes, that pesky trade deficit continues wreaking havoc with the currency-stock market imbalance, and the sad conclusion is that as America becomes increasingly isolated from a trade standpoint, and the dollar keeps its downward trajectory, the stock market will rise. How that can be indicative of a stable economic turnaround is open for debate.

While one may or may not have feelings about Goldman's tentacled capture of various regulatory agencies, the most recent news out of the SEC that it would be hiring a 29 year old former Goldman Vice President Adam Storch as its COO, questions the rationale behind this move. First, and not being ageist here, but a 29 year old to run what is arguably the most critical post at the SEC - that in charge of operations? Keeping up to date with market developments, the one area where the SEC has been an utter disaster (along with all other areas actually), is a core responsibility: at least the SEC could have hired someone with actual market/broker experience. Based on his record, Mr. Storch is not even a licensed (Series 7/63) broker: would it not be logical to hire someone who has at least had some market experience?

Art Cashin shares some of his as always pragmatic market views this morning: "Yesterday was a good day for bulls and a great day for hat makers." And on the 10,000 cross: "there was some artificially induced euphoria... It's only about the 29th time we've crossed 10,000 so it's not that significant - we did it 10 years ago." And on the most important issue: "The economy is just not living up to these numbers."

As for Joe Kernan's question on "who is trying to talk the market up" - we didn't know CNBC also did slapstick comedy.

We have a big earnings and options week coming to an end today. S&P futures are off quite a bit following BoA earnings. Maybe Ken Lewis did not feel like cooking the books much since he is leaving anyways, and there is no bonus coming up his way!

• As expected, GE Capital whacks GE revenue; NBC Universal sale is just a matter of time (Bloomberg, NYT)
• Bank of America posts loss amid consumer credit woes (WSJ, AP)
• Dollar hits 3-week high against yen (Reuters)
• Interactive job chart: fast forward to 2008 for the fun stuff (Tip Strategies, h/t Jay)
• Harrods sells gold bars to devaluation-weary clients (HuffPo, h/t CarolineB)
• Endorse our favorite podcaster: Andrew Horowitz (The Disciplined Investor)
• Distressed real estate continues to be a growth industry (RealPropertyAlpha)

• Greenspan says US should consider breaking up banks that get too large.
• Most Asian stocks rise as Yen weakens, oil gains; Sony climbs on upgrade.
• Euro down to $1.4900 in European morning trade as equity markets trade lower.
• European markets buoyed by Dow's further rise above 10,000 mark; all eyes on US earnings again.
• Oil extends rally, jumps above $78 in Asia, as US gasoline supplies drop.
• US 30-year mortgage rates climb to 4.92% in first increase since August.
• US state tax collections in Q2 falls record 16.6% - the most in almost half a century.
• Yen drops versus Euro, Dollar on prospect Asian stocks will extend rally.

I said it in 2007. I said it in 2008, and I'll say it again, the banking system is INSOLVENT!!!

Blackrock's Trillion Dollar Man Bob Doll claims that the impacts of current cyclical positives on the US economy are outweighing those of secular headwinds. Therefore, according to him we should all be plowing into US equties. But is he right or is he just talking his book? And if he is right, should he be making what is nothing more than a trading call on the ability of government stimulus and Fed money printing to prop up the economy? I say no.

Securities held outright: $1,608 billion
(an increase of $75.3 billion MoM, resulting from $13 billion in new
Treasury purchases, $52 billion increase in MBS and $11 billion in Agency Debt), or $13 billion increase sequentially

Net borrowings: unchanged at $289 billion, as no update in the current week.

Float, liquidity swaps, Maiden Lane and other assets: $231.8 billion, a $4 billion decrease based on a $252 million reduction in CPFF and a $6.2 billion reduction in FX liquidity swaps, bringing these to a fresh 52 week low. At $43 billion in liquidity swaps, there is little room left for the Fed to force foreign CB to keep pressing on the dollar. Keep an eye out on this datapoint as it is probably one of the better leading indicators of when foreign CBs start covering their dollar shorts (and are in need of dollar funding by the Fed).

All U.S., Canadian and global public pension plans should disclose dealings with placement agents on their websites. Moreover, regulators should ban firms from using middlemen. For every one good placement agent, there are a hundred corrupt fools looking to line their pockets.

Joe Saluzzi of Themis Trading shares another set of valuable market insights, and suggests what everyone knows but is unwilling to act on, for fear of taking the US Central Bank head on: that the entire market is now just another bubble. In brief - "markets are not efficient" and investor psychology, sentiment and technicals are the only thing that matters. Saluzzi explains why he is most worried about unemployment, housing and the rising debt. He is not the only one. Joe concludes with a jab at all overoptimistic hollow teleprompter repeaters, better known as CNBC anchors: "You can't tell me everything is getting better when I point to all these negatives and all these problems that still exist and they haven't been addressed yet."

Spreads were broadly wider in the US as all the indices deteriorated (once again underperforming a relentless equity market). For the first day this year, IG4-13 all had upward sloping curves in 3s5s7s10s (notably IG8-11) as HY underperformed IG and rolls decompressed modestly. IG trades 4.3bps tight (rich) to its 50d moving average, which is a Z-Score of -0.7s.d.. At 97.5bps, IG (adjusted) has closed tighter on only 13 days so far this year (206 trading days). The last five days have seen IG diverging from its 50d moving average.

Insult was just added to Ken Lewis' terminal injury (and it might get much worse).

Hot on the heels of realizing that the money you have now is getting close to worthless in order to bail out the Wall Street oligarchy, courtesy of the Chairman, Alan Grayson is taking his initiative to delay Bernanke's nomination direct to the people, and here is your chance to be heard. A new website Unmask the Fed is soliciting Americans' endorsement in getting to the bottom of the following question:

Chairman of the Federal Reserve, Ben Bernanke, is up for confirmation
to his second term, but he has still refused to disclose where he sent
$2 trillion in taxpayers' money. Send a message to your Senators and ask them to make Bernanke come clean before his confirmation moves forward!

In August, the U.S. dollar celebrated its 38th anniversary as a fiat currency.
When Roosevelt issued his infamous 1933 presidential diktat, forcing delivery (confiscation) of gold owned by private citizens to the government in exchange for compensation, gold was $20.67/oz. In January 1934, the price was raised to $35/oz and the U.S. government pocketed the difference – and essentially devalued the dollar by 69%. Yet the dollar remained convertible, and foreign central banks could redeem their dollar reserves for gold. This presented no problem when the U.S. was running trade surpluses and foreigners didn't have many dollars to exchange for gold. But in 1965, France’s President Charles de Gaulle started aggressively exchanging his country’s dollars for gold and loudly encouraged other countries to do likewise. That year U.S. gold holdings fell to a 26-year low.