Archive - Oct 2009

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.

I have found evidence that this bank has $32 billion of naked (as in apparently unhedged) swaps on its books - just like AIG. The difference is this bank is bigger, probably has more exposure, and has already been bailed out - several times. Oh, did I mention the insured collateral is nearly half BBB rated or lower??? How about extreme management issues at the top, and I mean all the way to the top. A trunk full of junk, surrounded by drama! It should be an interesting conference call tomorrow when they report, that is if anybody decides to ask the right questions...

The bell ringed a little louder today at 4PM with a nice 5-digit print for the Dow. People were no doubt clapping and smiling on the floor of the NYSE, far detached from the emails going around pointing out how much higher most commodities are compared to the last time we crossed 10,000, or how the dollar lost 25% in the meantime. Why wouldn't they clap? It's working! Printing cash in the end will make almost every asset go up. The only asset class that should not be going up is Treasury Bonds, but since part of the printing scheme consists of supporting that market... well everything is up other than the USD!

Heads up!

For my Zero Hedge debut, I decided to introduce myself to readers by making an admission. Yes, I am a value investor. This means that I refuse to chase liquidity driven rallies and to buy stocks that are discounting operating margins and earnings that may not be realized for years. Sorry if this makes me an investing lunatic. But, if that is the case, I assume I will fit in quite well here at Zero Hedge. Welcome to my world.

The FDIC is proposing new rules that will allow banks to lower underwriting standards and capital requirements in order to encourage them to rewrite commercial real estate loans. This will cause more deflation, stagnation, and tightening of credit and will lengthen the recession/depression.

With everyone cheering the US economy finally completing its first lost decade, and likely the first of many, it is worthwhile to compare the top ten Dow Jones stocks by market cap today and ten years ago. What is notable is the rotation out of pharma companies, with both Merck and Pfizer dropping out of the ranking, and their replacement with taxpayer capital proxies, in the face of JP Morgan (#4) and Bank of America (#9). As both of these companies have achieved phenomenal profitability (and a resulting stock price appreciation) almost exclusively courtesy of the inverted yield curve and numerous other boons from the Fed, their market cap contribution should be carefully considered for whether it is sustainable or is one-time item (assuming the QE 1.0-xxxx.0 liquidity pump ever runs out). Also notable is CNBC parent GE's fall from grace, and its over $200 billion loss in market capitalization.

Anyone remember the classic movie "Rollerball" from 1975?? Reminds me of today's financial markets, where "Inflation" vs. "Deflation" oriented teams roll around in a circle annihalating each other until all the players are dead. Meanwhile, Lloyd Blankfein sits in the executive box, relishing in the action.

A year after the government applied many extraordinary measures to resuscitate the banking industry, the bleeding has slowed, but it hasn't stopped. Meanwhile, bank stocks have rallied off their winter lows, driven primarily by nonbanking businesses such as fixed-income trading and investment banking. There are several factors behind the big banks seeminly impressive performance....