Archive - Nov 13, 2009

Another indication of how banana equities represent the inverse of the fundamentals they are supposed to track, is today's action in Sovereign CDS: Virtually all the big names are wider between 5 and 10%, with the UK and US moving wider by 10.1% and 8% overnight. What is odd is that EUR denominated US protection is also wider: traditionally this tightens when it moves purely as a function of dollar moves. This means investors are finally approaching the sovereign derisking trade once again. With the US at 27 bps (and 20 bps a few weeks ago when we speculated about this as an attractive hedge entry point), the recent melt up in gold may just be moving over to sovereigns next. In that case, investors will need to reevaluate just how solid US "guarantees" on all asset classes really are. a 20% move in a little over a week does not send a message of reassurance that the Obama admin knows what it is doing any longer.

Update: Belgium 8 bps wider to 44 on Dexia news.

Fridays seem to have become the day to dump bad news as a consequence of the lazy tendency of some members of the Fourth Estate to head out early to start their weekends.  (There is a reason it isn't FDIC Failure Tuesday- part of it involves the ease of moving retail deposits to their new home, but reporting plays a role as well).  For those who are, instead, actually looking for the sort of things that might encourage concealment, Friday has become like a recurring birthday 52 times a year.  There are always a few presents bouncing around on the same day.  The FDIC is an especially active user of the Fourth Estate Friday gambit.  Today is no exception, even before the bank failure list hits the wire.  Witness the vaguely titled: Agencies Issue Final Rule for Mortgage Loans Modified Under the Home Affordable Mortgage Program.

HUD's Shaun Donovan delivered a report to Congress. Some of the information provided does not jive with the default performance of some Ginnie Mae portfolios. A representative portfolio from 2008 is suffering defaults of 27%. Exactly the same as the sub prime loans.

No bailout for FHA? Don't count on it.

It is now beyond question that not only Bernanke, but now Obama, will do anything and everything they can to accelerate the disembowelment of the US currency (Tiny Tim in the bathroom withnose-hair trimmers) and America's middle class, for the benefit of the 2 or 3 Wall Street banks that have over $10 trillion in roll risk in the next 5 years, and the 5 algos which are still trading the occasional oddlot of SPY here and there, thus creating the perception that America still has a functioning capital market (another one for Tim Geithner's Sesame Street media whirlwind tour).

The dollar is plunging like a rock: Geithner must be on Sesame Street convincing Big Bird that the US has a "strong like bull dollar policy." The man has a busy media propaganda day: The Muppet Show is next, followed by a brief appearance on Space Ghost Coast To Coast. Soon to be Philadelphia-based CNBC is still tentative (CNBC - The first in Pat's and Geno's Propaganda worldwide - mmm mmm, Velveeta).

Too bad America can't be more like China and just determine what the GDP for any given period should be. Of course, it merely needs to become a fully vetted and Comintern recognized communist country (no more of this half-asses sutff) and then it could easily proceed to fully manipulate any and all data releases (even more effectively than it does now). Until then, things are tricky. Like today for example, with the trade numbers coming out and painting an ugly picture for not just import prices but for the "blockbuster" Q3 GDP. Maybe Goldman was wrong in their first GDP estimate. Something tells us Jan Hatzius will be much more correct in his downward GDP revision this time (to 3% from 3.5%), when the next estimate of Q3 GDP comes out, substantially lower than previously thought.

"We should look into the matter of whether we should have fractional reserve banking. Yes you have the Fed creating money out of thin air, but then this is magnified by fractional reserve banking which is really fraudulent, all it does is build financial bubbles guaranteeing the business cycle and the collapses and as long as you patch it together, the biggest the bubble." - Ron Paul

Market volatile (on low volume of course, the norm) after consumers no longer confident that stock market bubble will be sufficient to offset the lack of jobs. U Michgian reported consumer confidence dropped to 66 from 70.6 prior and 5 points lower than expectations of 71.

According to AMG Data Services the abandonment of moral hazard concerns and the pursuit of risk in every form has resulted in an all time record inflow into taxable bond funds (IG and HY). The January through October total amount of inflows of $315 billion dwarfs the $60 billion for the comparable period in the prior year and is double the prior full-year record of $153 billion from 2007. The High Yield bond subset has also been on fire clocking in at $32 billion YTD versus $2.6 billion in HY outflows during the first 10 months of 2008. At the credit crisis peak, money outflows surged to -$45 billion, however for the past three months have inverted into consistent $40 billion + inflows every month since August.

Let’s hope that Barofsky did not rely upon Blackrock for uncovering problems. Blackrock was involved in disturbing activity as a CDO manager. Among other things, Blackrock Financial Management was CDO manager in some horrific 2007 vintage CDOs such as Pacific Pinnacle CDO ($1 billion; closed 1/1/07; Event of Default 2/4/08); Pinnacle Point Funding ($2B closed 6/7/07; acceleration 12/13/07); Tenorite CDO I ($1 B closed 5/11/07; liquidation 2/7/08); or Tourmaline CDO III ($1.5 billion closed 4/5/07; Event of Default 3/31/08).

• Jamie Dimon Op-Ed: No more "Too big to fail" (WaPo)... riiiiight
• Big business tells Congress: "Frightening" new proposal could "destroy" Wall Street (The Hill)
• Yuan "straightjacket" risks inflating China bubbles (Bloomberg)
• Hedge funds can't mess up worse than Bob Rubin (Bloomberg)
• U.S. states sell $9.5 billion of bonds; Connecticut boosts deal (Bloomberg)
• Barofsky says TARP "almost certainly" will bring loses to U.S. (Bloomberg)

• Asian stocks fall, government bonds rally as oil drops; Yuan forwards rise.
• China this year rejected requests to build 47 projects worth 200B to curb excessive capacity.
• Copper prices falls as dollar gains for second day, stockpiles at six-month high.
• Dollar falls versus Krone, Aussie; Europe GDP growth optimism spurs yield demand.
• European Stocks Advance; Richemont, British Airways, Iberia Shares climb
• Eurozone out of recession after 0.4% growth
• FHA reserves fall below legal limit

It is easy to forget that the United States Government and its citizens have distinctly different relationships with the law. While citizens and corporations look at statutes to see what they are prohibited from doing, governments must look to statutes to see what they are specifically authorized to do. In effect, the United States must ask for permission rather than beg for forgiveness when undertaking action. As one might imagine, this has a very particular effect on how the lawyers that work for the general counsel's office of various government agencies and departments go about doing their job.

I just received this email and thought my readers may find this of interest. DDR is the company that was featured in the "bailout" post (Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!), a must read if you haven't done so already.

Friedrich von Hayek might have thought so. Hayek worried that during times of crisis the government would assume so much control that it would eventually have a negative impact on the economy and eventually turn all the people into serfs. My hope it that through sites like Zero Hedge we can help wake people up and avoid such an undesirable fate.