Archive - Nov 2009

With many companies operating in bankruptcy, and every breath they take studied under a microscope by every single hedge fund (somehow everyone now is a distressed specialist), every fund manager tries to get a step up in the "informational asymmetry " race. Yet if you have been blacklisted by Goldman Sachs and are unable to get that market moving data 24 hours ahead of everyone else what do you do? This is especially relevant in cases such as General Growth Properties, where the development of the case is supposed to determine the future of not only substantive consolidation in BRE case law but the fate of CRE in general. We present one of the more secret tricks in the bankruptcy book.

As we all live in the present, it is very hard to fully assess the future implications of decisions supported or made by political and business leaders. An extraordinary game of geo-strategy is under way to lock in long-term agreements, notably in the energy sector. At a global level, the transit routes of future oil & gas pipelines become the object of a power struggle involving not only the suppliers and end-users but also the transit countries. Intensive courtships are under way where a ménage à trois, or more, may be the best option to prevent any country from being in a dominating position to rule a region and exercise political or economic pressure. Let’s take a practical example and look at some of the dynamics behind the Nabucco pipeline and at the different interests involved.

The Federal Reserve's balance sheet hit a new all time record of $2.19 Trillion in assets, after an unprecedented spike of over $70 billion in MBS purchases pushed the number over the previous record from late April.

Comments From Alan Grayson after passing a historic vote on the Paul-Grayson amendment. And thank you Chairman Frank for truly showing whose side of the debate you are on. You almost had everyone fooled there for a second. Fear not - the American public will not forget those who holds its, and not Wall Street's interest, first in their heart.

CRE is possibly the single biggest experiment in "extend and pretend" currently evolving (aside from the US economy itself, which like a drug addict, is fed its daily methadone of fiat money by its enablers Bernanke and Geithner) in America. This is confirmed by the latest Korpacz Real Estate Q3 Investor Survey: far from pig lipsticking in tried and true CNBC fashion, the report tells it how it is. The biggest victim of the ultimate CRE unwind will be all those REITs which for whatever reason are trading at almost bubble levels (SPG at $74 makes about as much sense as AMZN at $130). Dear REITs: 2012 is approaching rapidly and you still have half a trillion in equity you need to raise. Simon Property, as much as it wishes to emulate Goldman's success in the real estate arena, can not bankrupt then acquire all REIT firesale prices. Of course, when the tide of sentiment on REITs turns, it will be short and sweet: straight to zero, do not pass go, do not collect TARP, due to the value burned by these companies by not being in bankruptcy already.

The full list of those most newly anointed. And with new salary and bonus increases, come more onerous firm departure terms. Not a bad way to make sure 272 people are not going to bail to a "soon to IPO" Citadel.

The full Meredith Whitney Bloomberg radio interview can be found here. MW is most worried about the termination of MBS purchases by the Fed in March 2010. She notes that the only natural buyer of "GSE" paper is the Fed, as Zero Hedge has been highlighting for months. This is worrisome for good reason: the Fed has skewed the natural market in MBS/agency (and in a parallel dimension, Treasury) paper to such a drastic degree that it is the only major market participant, which is why the Fed has no option but to extand and likely expand QE next year. We anticipate the announcement of QE 2.0 to be announced at some point in January/February 2010.

In what could be the biggest news of the day, with potentially historic consequences, Mel Watt's attempt to detour the Fed transparency process has been soundly denied. The vote on the final passage of the bill is delayed, but the critical amendment has passed. Congratulations to Messrs Paul and Grayson.

We present another datapoint for the ultimately futile debate of what the true value of gold is, this one coming from the IMF's International Financial Statistics data. On the attached chart you can see the gold holdings in tonnes of the top 10 holders of gold in the world. Not surprisingly, the US is #1 with over eight thousand tonnes of official holdings. Following the US are Germany, the IMF, Italy and France.

The amendment proposed by Alan Grayson and Ron Paul to require the written concurrence by the Treasury Secretary prior to engaging in any foreign currency swaps, has passed. No more will Mr. Geithner be able to wash his hands when he bails out the banks that hold trillion dollar short positions and keep crushing the dollar, until such time as the biggest groupthink trade de jour unwinds and the BOE, the ECB and SNB come crying to papa Tim asking for a few hundred billion. That, plus Mr. Bernanke will be forced to disclose and get the approval of the TurboTax expert when he feels like providing his fellow fiat money printers a helping hand as they continue to rape and pillage the dollar's purchasing power.

"A former Pequot Capital Management Inc. employee told his psychologist he was fired after he stopped supplying the hedge fund with insider information, according to a letter that two U.S. Senators sent to the Securities and Exchange Commission."

The last time Bill yields turned negative (in essence investors paying the Government to hold their money for them) was in the days after the Lehman bankruptcy, when the entire world was about to blow up. So why did Bill yield for January maturity just turn negative once again? In other words, why are investors suddenly running for the hills? As Dow Jones reports, January and February bills hit a yield of -0.03% earlier. Some explanations have to do with Bill scarcity, as nobody want to be exposed to anything beyond 1 year down the curve, let alone 3 months. However, the fact that bond investors may not be buying into the whole recovery BS (or just realize that there is nobody willing to roll near-dated treasurys into longer-tenor pieces of paper) and are once again running for the hills and willing to pay Ben Bernanke to hold their money for them should be very, very troubling. Additionally, could there be something more pressing and/or catalytic? We have not heard peep from any of the big banks in a while...

When I first came out with the PPD research (which I released for free as a public service, may I add), many were doubtful as the market was literally manipulated upward. I feel by blog's patrons were confusing the alleged "Ponzi scheme's" fundamental viability over time (and ability to avoid regulatory discipline) with the overall movement of the market and beta. As you can see below, things are not going well for this company. If one had faith in the research and rolled puts and protected shorts over, one should start seeing some decent gains. If I am right and this market is simply in a bubblicious bear market rally, any aggressive action by the SEC will drive this beta driven stock into the ground.

Even with a thoroughly discredited Tim Geithner repeatedly saying that a transaction tax is the worst thing since, well TurboTax, the topic is generating more and more traction, and earlier House Democrat leader Steny Hoyer noted that the topic is now a discussion item "on the table". With fervent voices on both side of the table, we would like to present the following paper by Dean Baker highlighting the benefits of a financial transaction tax.

"Financial transactions taxes have been a widely used source of revenue in the United States and
elsewhere in the world. A set of taxes applied to trading in a broad range of financial assets and
scaled to the level of the UK stamp tax on stock trades could raise close to $100 billion a year in
revenue in the United States. Such a tax is arguably efficiency-enhancing since it would substantially
reduce the resources used by the financial sector without reducing its effectiveness in allocating
capital." - Dean Baker

Catch every minute of the House Financial Services Committee deciding the fate of the Federal Reserve live now at the following link.