Archive - Oct 2009

Brazilian stocks rallied, along with the nation's currency, as investment prospects brighten on the news that Rio de Janeiro will host the 2016 Summer Olympics, making the Bovespa the world's best-performing major index last Friday.
Rising commodity prices this year have led investors to buy emerging market assets where the economies tend to be more commodity-dependent. Both emerging markets and industrial metals group are outperforming U.S. equities so far this year.

A recurring theme on Zero Hedge over the past few months has been the inordinate (and seemingly inexplicable if one takes at face value the arguments for an improving economy) amount of insider selling of corporate shares, which has reached a staggering ratio of 30-1 of sales to buys (if not much more). A back of the envelope calculation indicates that insiders may have sold well over $10 billion worth of their own company's shares in the last quarter alone. Aside from what implications this activity has for claims of the recession being over, as those best familiar with their businesses can not wait to offload their holdings, a larger question is one of propriety, and whether insiders are abusing inside information loopholes, particularly if they are aware of material, non-public information when selling their stock. In this environment of unprecedented insider selling, it makes sense to refamiliarize readers with JP Morgan's confidential presentation, "Hedging and Monetization" from February 2007, first presented by Wikileaks, which focuses exclusively on providing company insiders with mechanisms to circumvent not just regulatory curbs on insider selling, but to obfuscate market signals typically associated (but definitely not in this market environment) with an insider dumping boatloads of his or her own stock.

The news hasn't changed, but maybe the reaction to the news has. In the end, it is the same story as "the trend is your friend until it ends".

• All you ever wanted to know about Paolo Pellegrini, and didn't realize you should ask (Bloomberg)
• Nakagawa, Japan's former finance minister, who resigned after drunk incident at G7, found dead (FT)
• Simon Johnson: A short question for senior officials of the New York Fed (Baseline Scenario, h/t Pete)
• Is the mortgage REIT IPO/follow on bubble finally over? (Bloomberg)
• Roubini says stocks have risen "too much, too soon, too fast" (Bloomberg and RGE)
• Stiglitz deflation threat pushes Fed to stay at zero (Bloomberg)
• From Black Scholes to Black Holes (Dharma Joint)

Keep an eye on what is going on in modern Greece, because I can assure you that it's a reflection of what is going on across the world. The level of angst is unprecedented and politicians better quit the rhetoric and start putting citizens first.

It's Sunday, and time to diversify. Have a read about the all-new four-door Porsche, the Panamera. Times are getting good again, right? We haven't seen something this exciting from Porsche since the 928. Will history repeat itself? You be the judge. It's Porsche's second, ever, sports sedan.

Experts say that the economy will not recover until trust is restored.

So how do we restore trust?

Declining long Tsy yields, credit market disruptions, drying up monetization POMO liquidity, worsening consumer credit and unemployment, and the dreaded fall season mean this correction in equities is the beginning of a reversal, not a pullback. And the reversal won't be pretty.

How well has the Federal Reserve performed?

Let's take a look...

Reports from FHFA show they are rolling over tons of dead mortgages. What's the objective? To buy some time.

Back in early March, Steve Leuthold told investors to "buy stocks now or you'll regret it". He was absolutely right then and I think he's right now. Forget retesting the March lows, the stock market is heading higher. He is now calling for the Standard & Poor’s 500 Index to jump to 1,350 next year as the economy recovers from the worst contraction since the Great Depression.

"I think we’ll get more of a “square root” shaped recovery, a “V” followed by sideways to a gradually upward sloping grind. We’ve already had the “V”. Markets are overpriced. I don’t see how we can have huge economic growth with capital-constrained banks, catatonic consumers, and commercial real estate troubles up the wazoo. One of the only positives is the weak dollar, which makes everything we sell to the rest of the world cheaper. This is good for our multi-national companies, good for our exporters. So far, the dollar is on a grinding, controlled move down, which is good. But if the dollar’s fall accelerates, it would not be good. A real dollar panic would lead to the widespread dumping of dollar assets, and commodity prices would explode. Then we’ll get to $2,000 for gold and $40 for silver very quickly." - Mad Hedge Fund Trader

The government reflation experiment has ensured that company costs cannot reach equilibrium with weak final goods markets. This is similar to the Great Depression except that artificial wage inflation has been replaced by artificial commodity inflation to create the disequlibrium. To cut rising costs, the only option is to reduce salaried employees, or shut down completely due to losses in core operations. Rising unemployment will create further weakness in final goods. This portends continued macroeconomic performance below trend for a length of time not seen since the Depression. Asset prices will eventually fall to the market solution, government intervention aimed at avoiding this harsh reality will only delay the inevitable and probably assure a more painful destination in the process.

One of the foremost experts on structured finance and derivatives presents a holistic overview of not only the current economic fiasco, and in 10 brief minutes with Max Keiser she provides more succinct, unbiased and relevant information that most pundits are able to convey in years on and off TV, but also highlights the bigger problem of how the administration keeps treating the US public as a bunch of stupid infants, throwing paper blankets over raging systematic fires that are anything but doused. And yet, the administration's ploy so far is successful, unfortunately speaking volumes about the intellectual rigor of the average American.

It looks like 1080 on the S&P is an intermediate-term high, with the potential to become a major multi-month—dare I say year—high. Sell the pigs that flew the highest in this rally now.