Archive - Nov 6, 2009

A few weeks ago we speculated that the Federal Reserve's attempt to conduct a reverse repo test as part of a liquidity drainage failed. In a stunning piece of news, Zero Hedge friend Jim Bianco sent us the following. Little commentary is necessary: the banks are about to unleash the massive leverage ploy all over again, this time with the pretext that they are happy to soak up liquidity, yet in the same time, their stupidity and inability to gauge risk will blow up the financial system once again when Tier One ratios for dealers are allowed to go back to 100:1. Zero Hedge will forward this information to all of our correspondents in Washington as what the Primary Dealer community is doing is extortion, pure and simple, and it is likely to be endorsed by their cronies at the Federal Reserve (which, in turn, has already received a carte blanche to do so by its purported master, Goldman Sachs).

Total consumer credit has dropped for the 8th straight month as consumers refuse to buy stocks while maxing out their credit cards, contrary to what GE, Bernstein and Bernanke want them to do. 4 more months and the US consumer will have given the administration the reflation finger for one straight year. Excess reserves to hit $2 trillion shortly.

Total credit came in at $2.456 trillion, consisting of $889 billion ($10 billion lower than August) and $1,5667billion ($5 billion lower than August). The later category is primarily related to auto purchases thus so much for the Cash for Clunkers attempt at releveraging.

The most gratuitous government bailout program, in the face of the "Temporary" [Because temporary sounds just a little better than 'Permanent for Ever and Ever'] Liquidity Guarantee Program is now officially over as of October 30 (not so unofficially). Yet even as banks are now forced to wean off zero-interest government subsidies, the FDIC announced on October 20 an emergency guarantee facility, which would only be accessible on an application basis by banks that become unable to issue non-guaranteed debt "because of market disruptions or other circumstances beyond their control" so in essence the taxpayer is still on the hook and likely will be so over the next century as the government complex rolls up every bank, company and industry in America to prove that Marx was, in fact, absolutely right. Yet even those perpetual taxpayer moochers (aka banks) will now have to settle with debt that is likely going to be significantly more expensive. How will this impact banking operations in general, and credit card revenue in particular?

Wherein we present one of our favorite recurring charts.

Focus on the downside on 1,026/29 for the S&P future, the 100-dma for the Dax, and a close below 1,650 on the Nasdaq. A break below this level would confirm our favored scenario at the moment of further downside. We see 10% to 12% before the next support from here if the move is confirmed, which would mean for the Nasdaq to test the 1,510/1,565 zone at the minimum.

The push to extend maturities begins: next week we are seeing 3, 10 and 30 year coupons. No 5 and 7's, which should make the bond bulls nervous.

• November 9, $40 Billion 3 Year
• November 10, $25 Billion 10 Year
• November 12, $16 Billion 30 Year

Get your damn dollar destroying house in order Ben (at least you got that invisible bid on the worst employment day in recent, and not so recent history, down pat). At least for now stocks are acting as if they haven't realized DXY is almost flat, and the JPY-EUR trade is diverging aggressively from whatever passes for a stock market these days.

Answer: Negative One Hundred Billion Dollars.

Turnberry and Tepper are toastin' while Horseman, and, of course, Jimbo Simons, are getting their teeth kicked in.

After the dollar is down 20%, suddenly the administration is worried about the middle class. Look for them to be even more worried when it hits 0. The answer: quadrillions more in artificial, one-time (yet perpetual) stimuli, to keep reflating the housing bubble, funded by Chinese purchases of infinite amounts of US debt as America slowly but surely approaches its terminal debt-for-equity swap.

Also, won't somebody please think of the Goldman?

Just deserts for everyone, when even the giant squid will finally join the ghosts of Lehman and Bear... But not yet... Not yet.

After digging around and sifting through the things both said and not said, I have come to the conclusion that what we are seeing are the likely effects of a rescue operation.

By this I mean a large injection of stabilizing cash to one or more parties, possibly related to the recent large bankruptcies. Two of my friends who have been actively trading for more than 20 years between them threw in the towel this week as their patterns and methods are no longer working.

Their conclusion is the same as mine; this market is not trading like it used to. It is trading chaotically, counter intuitively, and as if there's some sort of distorting influence involved.

First we might just wonder if this isn't the impact of a rogue firm with entirely too much power moving the market for its own benefit.

When we examine the results of Goldman's latest quarterly trading results, obviously we have a strong suspect.

Courtesy of "sales strategists" at the real Octopussy (the one marinating in brine at One New York Plaza). As always quadruple reverse cephalopod psychology is critical to survive these salty waters

As more and more tentacles of the insider trading octopus get exposed, thanks to an SEC seeking to make up for decades if not centuries of miserable inactivity, many more firms are sure to feel the wrath of the Feds. The latest one is Jefferies, whose former money manager for its Paragon Fund Joseph Contortinis is the most recent person snagged in the insider trader scandal, after he was indicted earlier by a grand jury for orchestrating a $7.2 million insider trading ring.

In this interview with CNBC on Nov. 4, 2009, Dr. Nouriel Roubini, professor of economics at the Stern School of Business, New York University and chairman of RGE Monitor, cautions investors of the coming asset bubble and crash caused by the dollar carry trade, and at the same time shared his views on the economy and housing.

This is the second time in many weeks that Dr. Roubini warned of a growing dollar carry trade and threatening to cause a global implosion. The following is a summary of his CNBC interview along with my comments.