Archive - Nov 2009

They're TALKING a good game, but talk is cheap...

Developing story from the WSJ: John Paulson to make "big new bet on gold" and to personally invest $250 million in new gold fund on January 1.

The race to the economic/currency bottom today is entirely at the expense of the "burgeoning" European economy, and with Spain and Italy being on the verge of a depression, and France having its usual set of problems, it means that somehow Germany is now the greatest economy in the world. The AUD, GBP and JPY are all underperforming, with just the EUR being the beneficiary of the daily USD flaying.

The 500 companies making up the S&P have recently glutted themselves with excess cash. Indeed, a time analysis of the "cash and cash equivalents" line of S&P companies indicates a significant increase in cash holdings:total S&P500 cash holdings have grown from $1.1 trillion at Q4 2008, to just under $2 trillion as of September 30, 2009. Many, including Goldman Sachs, have used this as a strawman for massive stock repurchasing power, and as an excuse to anticipate the "money on the sidelines" reentering the market. Yet when analyzed side by side other key business metrics, the massive cash hoard may merely be an indication of a return to leverage normalcy as well as a secular shift to chronic business underinvestment, which, of course, leads to a significant decline in top line revenue potential.

The base case number one takes the view that high yield default rates are peaking and will start to drop from this level now. The rate of unemployment ranges from 10% to 11.5% with this given scenario. In the base case number two, I am using a composite of both peaks in 1991 and 2002 to suggest that default rates may carry upward one percent more. The resulting effect on unemployment targets will range from 11% to 13.5%. In our final analysis base case number three will use the peak at 13% in default rates established in 1991. Unemployment rates in this scenario show a range of 12.5% and 15% before possibly peaking.

The message the market is sending to Bernanke is melting up with each passing day.

You just have to love a document that begins by begging apology for brazenly ignoring what were once general legal principles.

"While there are Dollar-funded carry trades and certainly other cyclical factors behind the Dollar’s weakness, we do not think we are seeing a speculative ‘carry bubble’ for now. The difference being a 20% strengthening in the Dollar upon a reversal, over say 3 months as opposed to 3 days for the latter." - Goldman Sachs

October was another loser for the SSTF. We have crossed another critical milestone on the Fund's performance. This problem is at hand, not 20 years into the future. Will it have a market impact at some point? It is only a question of when, not if.

• Housing starts plunge 10%; has been a while since CNBC uttered green shoots (Bloomberg)
• Consumer prices increase 0.3% (0.2%) core as Americans pay more for gas (Bloomberg)
• Private equity funding plunges 62% at Calpers amid fee review (Bloomberg)
• Low U.S. stock trading volume heralds more gains (Bloomberg) with momentum algos marginal buyers as market-economy decoupling accelerates
• The other side of the dollar: The truth behind currency devaluation (MarketWatch)
• Mexico, Colombia plan samurai bond issues to tap Japan investors (Bloomberg) [waiting for Mauritius to plan dollar bond issue to "tap US investors"]

• Asian stocks mixed amid caution regarding valuations; European shares higher.
• China faces dangers of asset bubbles as economy expands, PBOC Adviser.
• Chinese cities facing energy shortfalls as cold spell boosts demand.
• EU clears government help for ING and KBC after banks shed operations.
• Euro up to $1.4905 in European morning despite central bank calls for stronger dollar.
• Foreign demand for long-term U.S. financial assets grew to $31.7B in September.
• Golden era' could bring vaccines against AIDS, Alzheimer's and addictions in 5 years.

The world's most handsome and charismatic blogger stands outside his beloved friends at Goldman Sachs headquarters at 85 Broad (see pic) to congratulate them on the outstanding CMBS offering made through TALF government leveraging for Developers Diversified Realty (notice the funny looks that I am getting from the women in the background, haven't they seen a handsome and charismatic blogger before???). A few questions still linger, though...

The blog of the Legal Times reports that the United States Securities and Exchange Commission, winner of last year's "prestigious" CEAR Award for Fiscal Responsibility and Accountability, "falls short" in its yearly audit.

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.