Archive - Oct 2009

While it is improbable that Eminem will be battling to this song any time soon, digesting the anti-Central Bank message for broader consumption is likely not something that will hurt Ron Paul's cause.

Yet more dusty footprints of High Frequency Trading's shadow domination of markets emerges, courtesy of Matt Goldstein's latest column "The victims of high-frequency trading." Matt focuses on the blatant example of a self-perpetuating myth, driven exclusively by reinforcing algorithms in the April 27 collapse of Dendreon stock, which dropped by 70% in 70 seconds. Bloomberg did a good summary of the events that cost many DNDN investors hundreds of thousands in losses, and which now, five months after the event, the regulators have still not disclosed any additional data to bring this presumably aberrant event to closure.

With everyone lately focused on China's foreign reserve position, analysts have forgotten that America also has an International Reserve account consisting of foreign currency positions, as well as gold reserves and equivalents. And while the total combined holdings as of the most recently reported period are a joke compared to China's $2+ trillion, the most recent number of $133.6 billion does raise red flags, particularly when one traces this number's level throughout the year.

Since we are already in a deflation, the argument over inflation or deflation is moot. The real question is: how long will we remain in a deflation? And, if deflation ends, will we then see inflation, hyperinflation, or real growth?

Many deflationists assume that since we are following the Japanese path that we will have the same economic results as Japan. That is, a stagnant economy with generally falling prices as has been seen for the last 19 years in Japan.

While it depends mostly on what the government's responses will be, our experience will more likely be stagnation with long-term inflation rather than long-term deflation. The economic differences are significant.

Think you know what aspects of America's banking system need to be changed?

Are you sure you're not missing anything?

Zero Hedge has compiled a list of the 8 worst/best [take your pick] stocks of 2009. The selection criteria include Russell 2000 stocks which have returned over 1,000% from their 52 week low, and which have a 10% or higher short interest. The last criteria is a function of our ongoing belief that this entire rally has been built on the backs of forced short covering action, in which those experiencing a squeeze are happy to lift any offers as long as they can get respective repo desks/margin call repo men off their backs. Another interesting observation is the 1 year growth in revenue and EBITDA. We use the term growth loosely as the median growth Year over Year for the universe of 8 has been -20% and -25% respectively: not exactly the stuff 1,000%+ rallies are made of. Lastly, of the eight companies, four have negative unlevered LTM free cash flows, which in this day and age of Fed sponsored moral hazard may in fact be a good thing.

Sorry, boring tape today, not much is going to happen until we get some of these earnings later this week. In the meantime, nothing else to do but watch Michelle Caruso-Cabrera puff her chest out with that cable knit sweater, and observe the various bottle rockets and shanks perpetrated by the GS Prop Desk on a low volume day.

As more and more traditional newspapers wake up to the threat posed by the new commoditized information paradigm, the generic response spearheaded by Rupert Murdoch has been to make information a premium product once again. The problem with that approach is that it implicitly takes head on instantaneous data dissemination and distribution platforms like Google and Twitter. Whether this is a fight that is sustainable is very much open to debate. One person who does not think so is Russian billionaire Alexander Lebedev who is taking a diametrically opposite route, and plans on cutting the price of his London Evening Standard newspaper to zero, coupled with an increase in circulation from 250,000 to 600,000.

The fallout from the recent investigations by the Attorney General into the New York Pension Fund system will be the likely topic of numerous analyses for months to come as details of more impropriety are uncovered. In the meantime, we would like to highlight to our readers some of the more recent recipients of New York State's generosity, which in acting as a Fund of Funds for New Yorkers, continues investing capital in numerous Private Equity and Hedge Fund firms, as well as directing real estate investments.

As part of its proposed 2010 budget, the CTA is preparing more pain for Chicago residents, which include transit fare hikes across the board. Transit authorities throughout the country (most notably New York's MTA) are doing all their best to pretend they do not need to file for bankruptcy, even as all signs point to the contrary. As ChicagoBreakingNews reports, the list of increases would be comprehensive and impact virtually every transportation category.

Developing story: The Chicago baseball team is the first to file for bankruptcy since 1970. The filing will facilitate the team's sale to Incapital's Tom Ricketts for $900 million. This development has been expected for a while, and follows on the Tribune's Chapter 11 filing earlier this year.

Topics covered include: 1. Mortgage servicing rights; 2. Early stage delinquencies; 3. Credit card chargeoffs (5.5%-6% at Citi would require a new capital raise, CapitalOne hitting 10%); 4. Fed subsidies to banks that expire into 2010; 5. The Commercial Real Estate "mirage"; 6. Trillions of dollars in off-balance sheet vehicles (what happens to these securitizations eventually); 7. JPM's downward management of expectations; 8. BofA's provisions and chargeoffs

Latvia, Sweden, the Netherlands, and now EU-member country Romania: the European periphery is ablaze, even as the Euro is at 52 week highs. It would be joke if it really wasn't so sad. Clariden Leu reports that "Romania's parliament looks set to topple the minority government on Tuesday in a no-confidence vote ahead of a November presidential election and raises fresh concerns over the country's IMF aid." For a country, whose financial future is closely tield with IMF goodwill, this could well be a catalyst event: "Economists warn about the impact of political standoff on fiscal reforms and budget cuts needed to ensure the International Monetary Fund continues to disburse aid from its 20 billion euro anti-crisis package."

Some marginal and long overdue divergence between bonds and loans, with the Sealy negative basis again being the most notable event. Loans tightened by 10 bps to 391 bps, while bonds widened by the same amount to 716 bps. Looking at the weekly comparison chart demonstrates that the bulk of activity is due to general noise, resulting from equity market carryover, while the two actual movers were Cenveo loans wide by 245 and Mediacom, which tightened by 372 bps. At this point expect the credit complex to continue being a derivative of the algo trading dominated equity market which grinds higher on imaginary volume breadth.

And you thought the FDIC had its hand full in the US (even though the ominous "lack" of failures this past Friday prompted many to ask whether or not the FDIC has any funds left to even take over the hundreds of upcoming bank failures). As of this morning, well-known Dutch bank DSB Bank, which gives loan to lower-income people, has been put into "curatorship" (another words for taken over by its respective central bank), after its clients staged a full-blown bank run. This is probably not good news for the former secretary of finance Gerrit Zalm, who was previously CFO of DSB and is currently CEO of ABN/AMRO.