Archive - Nov 2009

I read Diana Olick's Realty Check blog on CNBC.com
on occasion. I must admit that she is considerably more credible and
serious than the vast majority of personalities to be found over there.
In her latest piece she questions the validity of the sales bump seen
in the last three existing home sales reports. She queries Lawrence
Yun, NAR's chief economist. He volunteered,

According to David Dodge, the global financial crisis dealt a severe blow to government revenues and automatically increased some expenditures. Moreover, governments undertook stimulus spending. The combined Canadian federal and provincial deficit in 2009-10 rose to about 6% of GDP, with slightly more than half of this increase due to automatic stabilizers. The comparable deficit in the US was over 10% of GDP.

We aren't quite sure what it means when it takes close proximity to Suze Orman to make Shelia Bair look properly medicated on television.  Nor are we sure it was the best idea to put the manic "internationally acclaimed personal finance expert" in a series of FDIC confidence booster spots, but it does certainly make for outstanding entertainment during FDIC week here on Zero Hedge.  We highly recommend watching the following spots (or just relying on our adjacent Zero Hedge FDIC InstaSummaries™).

Bill Gross' PIMCO is selling mortgage securities like there is no tomorrow. In October, the Newport Beach firm's Total Return Fund held the lowest amount of mortgages in recent (or distant) history: at 16% of the total $193 billion in fund total net assets, securities backed by the housing bubble (v1 and/or v2) accounted for a record low $30.8 billion of all holdings. In January the same fund held $113 billion of these securities: the firm has now disposed over $80 billion of mortgage-backed toxic securities. And who is the buyer: you dear taxpayer, courtesy of Ben Bernanke and Wellington Asset Management, which has taught the Fed all it needs to know about conducting secret Bill Gross bailouts away from the public's eye. As to what price these transactions occurred at, well, that is one thing you will never know so long as Barney Frank and other idiots in the Congress and Senate refuse to provide the level of Fed transparency demanded by Ron Paul and Alan Grayson.

In the ongoing US bizarro economy, up is down, and economic weakness represents itself by an increase in the stock market, due to expectations of future liquidity injections and fiscal stimuli, further weakening the dollar. Yet as sovereign CDS has recently taken on more relevance once again, we present the relationship between U.S. 5 year CDS and the DXY index, which over the past 18 months have correlated surprisingly close. Observing the recent action in US CDS implies that it may be about time for the downward dollar trajectory to invert. However the question remains whether US CDS is more a reflection of the level of underlying US distress, or is indicative of the euro-denomination of US CDS. With investors seemingly willing to blast Central Bank policies on a daily basis via the gold market, which in turn drives the currency market, the chicken or the egg circularity of whether fundamentals or correlations drive corresponding risk metrics once again rears its ugly head.

We present an independent perspective on the 2009 holiday shopping season courtesy of Abacus Advisors. “The discounters and off-price chains will continue to do well,” Alan Cohen of Abacus Investors says. “People will be shopping this Christmas, but they will be very cost-conscious and trading down. Instead of buying five items, they will buy three. Instead of buying an expensive item, they will go with a moderately priced one.” When all is said and done after the holidays, filing for Chapter 11 bankruptcy protection may be the only option for many chains, Cohen added. Then again, maybe retailers can rely on Cramer's optimism that everyone is massively underestimating the unemployed consumer who has bet the house and the dog on those one hundred shares of Amazon.

The Office of Information and Regulatory Affairs was, in an irony that will quickly become apparent, created by the Paperwork Reduction Act of 1980. Last month, after some delay by meddling and petty Senators with the temerity to express concern over the nominee's political views, Cass R. Sunstein was confirmed by the Senate as OIRA's head making him the current administration's latest "Czar." 20 days later Mr. Sunstein's book, "On Rumors: How Falsehoods Spread, Why We Believe Them, What Can Be Done," hit the stands. Good timing probably. Sunstein probably wasn't expecting to receive a confirmable appointment when he first started work on the piece- though at 88 pages of grade-school level prose he may well have begun writing quite a bit after the Wall Street Journal leaked his appointment in January of this year. Perhaps as recently as last month, actually. One would expect that a more public airing of the prose in Sunstein's work, which seems almost singularly focused on shutting up "members of the Republican Party spread[ing] rumors about the appointee of a Democratic president," (have anyone in particular in mind?) without causing a constitutional crisis might have caused problems.

Gold is up big on the suggestion that POMO may be extended, "just a little". A market slap in the face to Ben and QE. Does he get it? Nah!

1. NT: 36.5 million, 18 trades
2. DISH: 34.4 million, 9 trades
3. RESCAP: 34.4 million, 8 trades
4. COOPER: 30.6 million, 17 trades
5. ECOPET: 28.9 million, 25 trades

Spreads tightened marginally today as stocks gapped higher at the open and followed through to new highs in early trading. Credit closed near the wides of the day as it leaked weaker for much of the afternoon with HY just edging IG on the day. Breadth was positive in credit as financials outperformed non-financials and while single-name activity was better than average, the moves were far less positive in both IG and HY than in the 'correctly framed' equity markets. Credit's beta (especially HY) to stocks (and the dollar) are becoming more and more muted as risk asset classes are becoming more discriminated between in our view with equities in a world of their own.

The recent revelations of a International Energy Administration whistleblower that the IEA may have distorted key oil projections under intense U.S. pressure is, if true (and whistleblowers rarely come forward to advance their careers), a slow-burning thermonuclear explosion on future global oil production. The Bush administration’s actions in pressuring the IEA to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves have the potential to throw governments’ long-term planning into chaos.

Whatever the reality, rising long term global demands seem certain to outstrip production in the next decade, especially given the high and rising costs of developing new super-fields such as Kazakhstan’s offshore Kashagan and Brazil’s southern Atlantic Jupiter and Carioca fields, which will require billions in investments before their first barrels of oil are produced.

We hate saying we told you so but... Ex-CNN anchor Lou Dobbs is considering running for president in 2012.

As we pointed out previously, a Fitch downgrade of Mexico was only a matter of days (S&P - not so much, as the agency is back to its operational sweet spot in the middle of a Fed-enforced bubble). Sure enough, earlier today Fitch dropped Mexico's rating to BBB, citing “The global economic and financial crisis and falling oil
production have accentuated weaknesses in the sovereign’s fiscal
profile. These weaknesses
limit Mexico’s fiscal maneuverability in the face of future oil
income shocks." Yet the hilarious response to this somewhat prudent action came out of scandal-ridden Goldman Sachs, which openly derided Fitch for its action: "We differ from Fitch, because while far from ideal, the 2010 revenue
budget delivered a non-trivial fiscal adjustment amounting to just
under 2.0% of GDP. To be sure, the tax hikes and expenditure cuts could
have been deeper and structurally stronger. However, given the
magnitude of the contraction experienced by Mexico in 2009, few to no
countries adjusted fiscally this year. On the contrary." Subsequent to his report, attached in its entirety, Goldman analyst Paulo Leme continued the Chuck Norris routine: "Everyone else in the
region is experiencing deterioration in the fiscal accounts.
Mexico adjusted. Were the efforts Nobel Prize-winning public
finance? No. But they did a lot."

So there you have it: not only is the NY Fed openly encouraging rating shopping for TALF, but now rating agencies have to be concerned about angering a sleeping octopus, which as we all know, has every right to be morally indignant when others dare to promote an objective reality that may or may not align with Goldman's prop trading interests.

Yet another miracle "stick save" pulled off by Geithner. Another multi-billion bond issue floated off without a hitch, while stocks remain pinned at 52-week highs, led by retail and REIT stocks. Its called a "flagpole day".

Deficits don't matter . . . do they?