Archive - Nov 17, 2009

The global affront on pensions continues. The rebound in stocks will offer a temporary reprieve, but the underlying structural problems remain and unless governments take this issue seriously, there will be many more pensions at risk.

If there is one sure sign of an impending apocalypse, it is listening to Kudlow and agreeing with (at least a few) of the things he is saying. The fact that David Malpass, Peter Navarro, Rick Santelli and the abovementioned are all on the same page, is 100% confirmation that an ELE is headed our way. Rick Santelli nails it as always: "watch what gold is doing because that is a no confidence vote in fiscal and dollar policy." Followed up by a critical observation from Navarro: "If China fixes their exchange rate, it makes it impossible for the trade imbalances to self correct. Isn't it the single greatest threat to free trade we have right now in the world? Ask the Brazilians, the Russians, the Taiwanese: it's killing the world economy because as the dollar goes down it is dragging the yuan with it because of the hard peg to the dollar." And lastly, this rhetorical pearl from a Dr Jekyll and Mr. Kudlow: it appears the CNBC anchor is a different person before and after 6pm: "When has a nation devalued themselves into prosperity?" We hope Mr. Bernanke will answer this at his next circlejerk peroration.

Hmmmm, that's funny....

Birds are singing, the sun is shining and life is beautiful again. On the surface, the vital signs of our economy are improving with every economic report. In some areas, like unemployment, the rate of decline is decelerating; in others, like GDP, decline is turning into growth. The stock market is behaving as if the history of the last twenty years is about to repeat itself: recession will turn into a robust expansion.

As the time to make or break the Fiat Money Overlords (no, not Chrysler), aka the Successor to the Second Bank of The United States which President Andrew Jackson managed to disassemble in 1832, yet which came back with a vengeance in 1913 under the guise of the Federal Reserve, approaches, two independent amendments emerged today: one drafted by Fed transparency proponents Ron Paul and Alan Grayson (found here) and one by Bank of America and Citigroup's favorite Congressman, North Carolina democrat Mel Watt (found here). As a reminder, here is a list of the Congressman's top contributors and sources of money in 2007-2008, which may explain some of his motivations: #1 Bank of America;#2 Wachovia Corp;#3 American Express;#4 American Bankers Assn.

Rather quiet day in credit yesterday (and today credit was wider even with equities completeing 9 out of the 10 past days higher): a few names that stoof out on the wider side: AIG, BXP, EQR, KMP, CAH, RAI, AA and a several utility names. Tighteners were HIG, MET, AXP, JCI, UNH, DOW and RRD. The rest were predominantly flat.

When we dissected the BIS OTC derivatives numbers two weeks ago, we were expecting the release of the updated semiannual report to be released shortly. Luckily the BIS did not make us wait too long: the latest data indicate that the progression toward wanton expansion of risk continues unabated. Total gross notional increased by 10% from the prior reading to $605 trillion, mostly as a function of an increase in Interest Rate derivatives. Yet courtesy of an artificially "stable" and undervolatile environment based on a unprecedented extra liquidity which drowns all secondary risk indicators, the net notional risk exposure (market values) declined by 21% to $25 trillion.

It may come as a surprise to many that even the dumbest of the dumb money, the New York State Common Retirement System, which according to its most recent 13F had about $44 billion in total equity assets (Calpers was a distant second at $29 billion) did not participate practically at all in the last quarter's run up, and in fact of its top 30 positions, except for one notable addition, the fund was a net seller. Ironically, and true to its definition of dumb money, the fund added 7 million shares of Bank Of America: probably the very same shares that John Paulson was selling to whoever was dumb enough to bid them at that price.

The market is dead, with only Cyborg algos trading amongst themselves, as is the norm lately. No reason to even comment on this. Nobody wants to sell courtesy of moral hazard, and nobody wants to buy courtesy of 100x P/E. Can we just call it a stalemate and all go home. This is getting really stupid. (oh and note the volume "accumulation" of days in which the market was up. Yeah, exactly).

Markets remain rangebound, pinned near the highs, the usual gamers buying and selling assorted risk assets based on the tiniest erratic movements in EUR/USD. In the meantime, expect to hear more jawboning and pie-holing from various officials attempting to support the U.S. Dollar. Get prepared to hear some words like "brutal", "unwelcome", "unnatural", "destabilizing", etc. inserted in these statements the next few days.

Japan has recovered . . . oh, wait . . .

Or like Smokey the Bear handing out matches ...

An interesting observation courtesy of Mint: of the 307,868,280 Americans out there, which compose 151,485,000 tax units, 46.9% will have zero federal income tax liability in 2009. Brilliant plan to keep the country happy: the poor pay no taxes, the rich get a massive stock market bubble to sell into, and the disappearing middle class...well, they can pay $20 for a hotdog and beer combo in Prague on that once-every-five-years vacation.

The latest plot by OCTOsquared (the Octopus and the Octogenarian, well, technically Buffett is still 79 years young, but give him a few hundred days until August 1, 2010) is to take advantage of CIT's bankruptcy by poaching thousands of small and medium business clients. The timing, of course, could not be more opportunistic. Bloomberg reports that "Goldman Sachs Group Inc., under fire in Washington for setting aside billions of dollars for bonuses a year after getting a taxpayer bailout, is preparing to team up with billionaire investor Warren Buffett to provide assistance to small businesses, said people familiar with the matter." This so-called "charitable effort", which is nothing but a vulture scheme to take advantage of yet more market dislocations and have the octopus grow a few more tentacles in its endless quest of financial monopolist supremacy, will of course be spun as indicative of the dynamic duo's endless humanism. That the squid will have the backing of the greatest US cheerleader in recent history (else those written index puts may rear their ugly head once again), biggest TARP beneficiary, and the largest Goldman shareholder, is also not all that surprising.

Yes, yes, everyone knows commercial real estate is a neutron bomb waiting to go off, and while many are yapping, nobody is doing jack. The Fed will deal with that implosion, the expectation goes, just as tidily as it dealt with the last bubble implosion. All, by the way, is good now - remember, every single Fed governor took turns yesterday to gang bang the concept of yet another bubble in process. Someone should familiarize the Fed members with the GOLDS COMDTY GP function in Bloomberg: remember the NY Fed has the biggest trading desk in the world: they should by now be familiar with more than just the BUY function on Bloomberg Tradebook.