Archive - Nov 12, 2009

The lord works in mysterious ways. Goldman, when you read between the lines, not so much. The question, however, is why does not one regulator observe what Goldman is doing by flagrantly upgrading the stock of a firm for which it is the lead underwriter and is still in the process of soliciting participation interest, and smite the timid, highly "efficient" good Samaritan like a vengeful, Old Testament god. The answer: divine capture.

Developing story - just a headline for now: FHA Weighs Raising Borrower Premiums, Minimum Downpayment. What a novel idea: to not feed another round of the same housing bubble that nearly destroyed the financial world. Someone in D.C. is really earning their salary.

The hedge fund industry, which for the most part is still markedly below its average high water mark, tracked the market closely in October, returning -0.36% for the month. More details on hedge fund performance from Hedgefund.net:

Hedge fund performance was slightly negative in October halting the industry’s seven month positive performance streak.

The HFN Hedge Fund Aggregate Index was -0.36% in October and +16.25% YTD.

The industry remains on pace to return nearly 20% in 2009 which would be the best since 2003 and second best in 10 years.

"As I’ve said before, the significance of the government’s actions last fall cannot be overstated, and we are grateful. We believe those efforts were critical to protecting the financial system and ensuring the continued viability of the American economy." - Lloyd Blankfein, Goldman Sachs

Thank you government indeed, because without you the "continued viability" of Goldman employees' bank accounts, who from 2000 to 2008, had an average compensation of $196,004, 145% more than the $79,962 peer average, may have well been in jeopardy. As it stands, 2009 will be the greatest pay year on record for Goldmanites, at an average $770,000 all in comp each

Goldman Sachs, Morgan Stanley, BP, TOT, Shell, DB and Societe General founded the Intercontinental Exchange in 2000. ICE is an online commodities and futures marketplace. It is outside the US and operates free from the constraints of US laws. The exchange was set up to facilitate "dark pool" trading in the commodities markets. Billions of dollars are being placed on oil futures contracts at the ICE and the beauty of this scam is that they NEVER take delivery, per se. They just ratchet up the price with leveraged speculation using your TARP money. This year alone they ratcheted up the global cost of oil from $40 to $80 per barrel.

“Three consecutive monthly declines is unprecedented for our report, and on first blush an indication that the foreclosure tide may be turning,” said James J. Saccacio, chief executive officer of RealtyTrac. “However, the fundamental forces driving foreclosure activity in this housing downturn — high-risk mortgages, negative equity, and unemployment — continue to loom over any nascent recovery. And despite all the efforts and resources directed at helping homeowners avoid foreclosure, we continue to see foreclosure activity levels that are substantially higher than a year ago in most states.

• The net expands: SAC Capital, Balyasny ex-analyst under probe in insider case (WSJ, Bloomberg)
• Weil: Blankfein invokes god and man at Goldman Sachs (Bloomberg)
• How do you know the Treasury Secretary is lying? Geithner stresses strong dollar's global role (Reuters)
• And the final nail in the coffin's dollar: under pressure from a lying Geithner, China sets plan to let currency move higher (Globe and Mail, h/t Geoff)
• KKR values Dollar General at 30x P/E in upcoming IPO, double Wal-Mart (Bloomberg)
• IEA warns oil rise could derail recovery (BBC)

The FDIC will announce today its final plans on how to bridge a $45 billion shortfall in its accounts. Our pals, the bankers, have submitted letters on this matter to the FDIC. Some make interesting reading. Guess what? They all want to get paid for bailing out the FDIC. They will get paid and this will be all off balance sheet. Presto, the problem no longer exists.

• Gold hits record high of $1,121.90/oz, driven by speculation of dollar weakness.
• Asia stocks, currencies gain after Australian jobs report; gold at record.
• Australian employers unexpectedly hire 24,500; currency jumps on rate bets.
• Brazil economy to grow 9 percent in 4th quarter as domestic demand surges, top official says.
• Brazil government defends reliability of power grid after blackout leaves 60M in dark.
• Dollar falls to 15-month low on bets Fed rate to stay near zero.
• Euro up to $1.500 in European morning trade, Asian equity gains slow.

Recently, the Pragmatic Capitalist questioned who the mysterious large buyer of eMini S&P 500 futures (ES) was, when there has not been a corresponding large buyer of SPY ETF shares over the same short periods. We decided this warranted a further investigation to assess whether it is SPY or the ES that has historically had the greatest impact on the S&P 500 cash index. The results were surprising.

In developing my REIT short thesis, I am being forced to spend more time than anticipated quantifying the effect of explicit sell side manipulation combined with purposeful opacity in the CRE mortgage holdings as endorsed by our dear government. I am actually entertaining a direct head to head analysis competition with an entity such as Goldman Sachs that ends up explicitly detailing which properties of which REITs are underwater and by how much, which may end up in a "run on the REITs", by the banks (at least those with common sense), who don't want to be left with the least edible scraps at the table.

"Military Keynesianism" - the idea that war is the best economic stimulus - is false.

How else does one explain his rambling, otherwise totally off-topic "farewell" address on CNN tonight?  We never bought the whole "Lou Dobbs is going to Fox" story.  What, because he had some fiery comments about immigration at one point suddenly he's got the kind of right-wing credentials to be on Fox?  We think not (but we've been befuddled by stupidity before).  How absolutely apropos would it be to have a candidate for high office in the United States from the pinnacle of a toothless media establishment?