Archive - Oct 2009

Reporters at the WSJ have uncovered something very intriguing while they were combing through the billing records of Jenner and Block, whose chairman, Anton Valukas is currently moonlighting as the examiner of the Lehman Bankruptcy Case. In J&B's August fee statement, the firm discloses information that as part of its estate recoupment process, it has been contemplating suing none other than the Federal Reserve.

What dollar speculation was in 1979, so HFT is today (Tobin tax seems to be the universal antidote). Yet, even 30 years ago, cooler heads prevailed and despite contrary desires to the opposite, no doubt spearheaded by the Federal Reserve, the dollar did recover after it got once again dangerously close to the precipice.

In a press release just issued, CIT has announced it is launching two parallel restructuring processes, spearheaded by company advisors Evercore (headed by former disgraced Deputy Secretary of the Treasury, Roger Altman), Morgan Stanley and FTI consulting. One of these will be a variety of exchange offers geared to provide a $5.7 billion (at least) reduction in the firm's debt load; in return tendering bondholders would receive a pro rata share of new 4 to 8 year secured notes, and/or shares of newly issued voting stock. We presume this means that any old/existing preferred/common stock become wiped out. In the second process CIT is soliciting bondholders to approve a pre-packaged plan of reorganization, so "the company can proceeds with a voluntary bankruptcy filing." Thus, the company has confirmed that, contrary to Jim Cramer's recommendations, its existing stock is now completely worthless. Dear Jim - you are now dishonorably inducted in the Dick Bove club of "advisors" who vociferously pitch companies merely days ahead of their bankruptcy filing. Welcome and enjoy your stay.

Total Federal Reserve balance sheet assets for the week of September 23 of $2,139 billion ($6.4 billion higher compared to the prior week's $2,133 bn), now just $35 billion shy of the all time high of $2,174 billion recorded on April 22.

A year after the financial disaster of 2008, the search is on for investing’s winners and for its casualties. There are surprisingly few of either.

The latest Carload Traffic data from the Association of American Railroads is out. If one relies on one of Warren Buffett's traditional leading indicators, there is no respite in sight for the economy. Weekly decline was -17.1% for week 38, with material hits across virtually every carload category. Cumulative traffic decline was relatively flat over the past month at -18.2%.

Why do economists keep getting it wrong? How can we ever trust what they say again after their miserable performance before the crash? They see what they want to see. Sheep. If we've learned anything it's to ignore mainstream economists. Listen to the outliers because the mainstream never gets it right. Here's today's data brought to you by an outlier. Remember to be skeptical.

Sulfuric acid is a backbone commodity for the economy. If you think the Vol. on oil is high take a look at the price action for this stuff. What's next is the big question. The current price is at a five year low. Looking at history it could be 300% higher in a year.

"What is critical to recognize is that both California and the U.S., as well as numerous global lookalikes such as the U.K., Spain, and Eastern European invalids, are in a poor position to compete in a global economy where capitalism is morphing from its decades-long emphasis on finance and levered risk taking to a more conservative, regulated, production-oriented system advantaged by countries focusing on thrift and deferred gratification. The term “capitalism” itself speaks to “capital”—the accumulation of it and the eventual efficient employment of it—for growth in profits and real wages alike." - Bill Gross

All risky assets closed at their lows as the disappointing macro numbers today (following on from yesterday's green shoot withering headlines) were not helped later in the day by the weak auto sales numbers (which were in general in line to slight worse than expected but dramatically down from CfC summer-time fun and games). The unusual dollar questioning of Bernanke pushed some volatility into DXY (and ramping in EUR/JPY was unable to budge it much) as his 'other-than-fiscal issues' comment (which reminds us of Monty Python discussing the Romans) slammed DXY and then saw a run to quality as DXY closed at its highest since 09/08.

It was immensely refreshing to find an actual probing piece of investigative journalism coming out of Reuters, instead of the traditional regurgitated, opinion-based, fluff-filled, secondary source monologues (we prefer the British spelling) we have become accustomed to seeing out of the Thomson Reuters behemoth. In a rare example of how even the MSM gets it right sometimes, Matt Goldstein has done an admirable job of connecting the dots based on a FOIA request he had submitted to the FDIC, in which the insolvent (as of today) Deposit Insurer has provided Goldstein with a unique glimpse into the daily travails and activities of its boss, Sheila Bair, and how they may have a direct bearing on the future of none other, than a very troubled Chief Executive Officer.

Once again, the Program Robots have switched, now trading for the "Deflationary Bust", as portfolio strategists are bewildered and confused. At best, they are just trying to stay with the Wildebeest Herd and avoid getting run over by an apocalyptic collapse or Weimar/Zimbabwe hyperinflation.

With 64.8% of the industry now reporting, we are seeing a sales rate for September of 8.9 million units SAAR. This lower pace appears to be heavily influenced by the pay back from the cash-for-clunkers program as luxury brands do not appear to be having the same large drop as more utilitarian vehicle makers. - Citigroup

As prospects for an amicable resultion at Club CIT grow ever more blacklightish, the company is now alleged to be desperately seeking a $5-7 billion DIP loan (the kind you need when you file for Chapter 11, and when all your existing equity is wiped out). Our advice to CIT: approach investment advisory guru Jim Cramer: it was a long and arduous 48 hours ago (and 100% higher) that the soon to be Comcast employee was pronouncing how the stock was "primed for upside." If there is anyone who would put their money where their mouth is, Jim Cramer is your man. And to a former hedge fund manager of Jim's caliber, $7 billion is parking meter money.

Some more observations on the stock market bubble: Joe Saluzzi raising hell at Bloomberg even as his nemesis Irene Aldridge gets interviewed by a cow.