Archive - Nov 12, 2009

Technical Profiles of 8 Key Stocks: AIG, BIDU, CAT, CELG, DRYS, IBM, GS, SKF

Total Federal Reserve balance sheet assets for the week of November 11 of $2,146 billion ($1 billion lower compared to the prior week's $2,147 billion).

With an asset allocation of 45% in public equities and 11% in private equities - by far one of the more aggressive asset mixes among the large pension funds - it's all about beta. If equity markets tank next quarter, so will CPPIB's performance.

The owners of this Las Vegas staple probably invested all the club earnings one day into daytrading LVS or WYNN, and by the looks of things, busted out. In other news, Las Vegas is thriving and business is doing really hot.

Economic observations courtesy of Fed Fund futures, and the Taylor Rule, imply that not only is the economy now worse than it was before the Fed embarked on the colossal monetization ploy that is QE, but that rampant deflation courtesy of a much worse economic picture than presented by the government, will force the Fed to launch QE 2.0 imminently. The probability of a Fed Fund increase for a long, long time is zero.

This is aimed at those banking execs that believe that they will be better off hiding losses than taking them now and preempting the guaranteed higher losses to come in the future. Yes, the US is Japan - the "19 year" lost decade, redux!

Yesterday was pretty uneventful in the CDS world: all the black coloring indicates no material change from the prior day, with a few spots of red indicative some modest widening (notably in MET, XL, JCI, MAR, R and LUV) and a few blue names (AXP, BXP, GE, AIG). Today's data will be quite a bit redder as per the earlier Credit Market Update.

Following yesterday's modest rally in European credit, US opened tighter and rallied to the week's tightest levels on jobless headlines and the 'Job Summit'. Equities failed again at 1100 and helped by FHA comments, weak MBA apps data, and an outstanding effort on the deficit, slid gently lower. Credit wavered all but unch from Tuesday's close for much of the day (covering yesterday's small gains overseas) until a late day test of Tuesday's lows in stocks and 100bps in IG13. HY broke $93.75 and underperformed IG but the sell-off was orderly and volume only picked up as we edged lower.

Many of those who have spent late hours playing SimCity 3000 and never understood why the damn thing would never get any people to move into it, will derive a deranged pleasure from the following clip. In China, where 8% GDP is guaranteed and has to be "goal seeked" by any and every increasingly more deranged economic project, the authorities have taken the game of SimCity and applied it to real life. Alas, they started out on "difficult" level.

Ordos is a hyper modern city, full of brand new glass walled residential and commercial buildings, yet devoid of inhabitants. In its attempt to present a "growing" economy, and to "invest" its $585 billion stimulus into anything and everything, courtesy of comparable idiocy on the other side of the Pacific, China's communist party is now ruling over ghost towns. One wonders just how many such "efficient" projects sustain China's magical 8% growth.

Not a good day for PIMCO as Calpers continues scapegoating for its deplorable performance, and today the California Pension manager decided to trim its exposure to PIMCO. In doing so, Calpers slammed the Newport Beach firm for being too risk averse (watch out Bill, you know what happened to John Mack for being too timid): "While PIMCO managed to return 35.06% [from January to September 2009], PIMCO's aversion to risk resulted in underperforming the benchmark return of 47.45% by 1,238 bp." The result: Calpers is pulling $100 million from PIMCO, however it is not firing the manager altogether and instead will consider "allocating more assets to PIMCO in the future when risk aversion is expected to produce alpha in the high yield market."

There are a few interesting developments today. On Tuesday we pointed out that there was not enough short-term divergence in S&P or Nasdaq futures to consider shorting them. But a no volume spike on the holiday yesterday took care of that. We need to see a little bit of follow through on today's sell-off to confirm we are going back down to test 1,025. Here are a few solid elements to look at which point in that direction.

If it were only up to the US, our currency would by now have been completely Mugabe'd, with the opportunity cost of quintillionaire bankers (with pristine, debt free balance sheets courtesy of the brand new $100 trillion bill) being the four remaining members of the US middle class having to lug a metric ton of dollar bills to the nearest Starbucks to buy a latte. However, it may not be so simple in the end, courtesy precisely of the other 6 complicit nations which make up the G-7 and which have as much a vested interest in killing the dollar as Bernanke, subsequent to which they can proceed to hyperinflate their own currencies.

The Plutocrats at Bernanke, Geithner, LLP have this "Wash, Rinse, Repeat" cycle down to a science. Sell stocks, report huge increases in crude inventory, buy dollar contracts, short gold, and voila!!! Another huge round of debt offloaded with ease to our foreign debt enablers, 225% oversubscribed. No worries about an overheated economy, inflation, spiraling commodity costs, etc. Therefore, more Treasury debt is eagerly scarfed down faster than a hungry dog wolfing down a discarded Big Mac.

According to the latest Monthly Treasury Statement, the US economy continues melting away as receipts are nowhere near to funding outlays, meaning more and more debt has to be used (and more and more interest expense has to be paid as a result). The deficit last month of $176 billion was $20 billion worse than a year ago, and is the single worst October reading in US history. The number was a function of $312 billion in outlays and just $135 billion in receipts, an 18% decline YoY, and also the weakest reading for the month of October since 2002. The $176 billion deficit represents a new downward inflection point as it was worse than both the CBO's expectation ($175) and the consensus estimate of $165.9 billion. Most interesting is the amount of interest on US debt paid: in October the government paid out $17.93 billion of net interest expense, $1 billion lower than the $18.98 billion spent in October 2008. The question of what happens to this number once the Fed stops monetizing the debt and keeping rates artificially low stands open.

"We all know at this point that our banking system is being used as an unregulated bonus-seeking mechanism for bankers, now underwritten by taxpayers with $23.7 trillion worth of national wealth.
Bankers lent pretend money to home buyers to award themselves actual money in bonuses -- making home prices balloon and, in the process, bankrupting America's treasury, currency, the states, and many of its citizens. To simply let the housing market rapidly correct itself (or more likely over-correct) would result in massive societal disruption, possible violence and unnecessary suffering." - Dylan Ratigan