Archive - Nov 2009

Billionaire investor John Paulson, who recently announced that he is willing to invest $200 million to purchase up to 45% of the post-reorg new common stock in bankrupt telephone directory maker Idearc. Even though Paulson previously owned a substantial portion of prepetition debt which converts into roughly 13% of pro forma equity per the Plan of Reorg, his holdings would be capped at 45% (so essentially a net flow of $142 million for the 32% which would be acquired). Yet was was supposed to be a simple hunt in the back pocket for loose change for a transaction that leaves a few people puzzled as to what value the billionaire contrarian sees in a business model that is rapidly eaten away by Google at both the national, and more and more, the regional and city levels, just got a little more complicated. Yesterday Bennett Management Corp decided to outbid Paulson , by notifying the debtor that it was "willing to pay a significantly higher price" of $220 million for the same equity stake, and that also the estate would end up getting a much greater actual cash inflow as BMC would own only 1% of post-reorg equity.

The war hawks claim that getting us into some more wars will pull us out of the economic crisis.

But several studies show that more jobs would be created by other types of spending.

Simon Johnson says Bernanke is killing the dollar to help bail out the too big to fails ...

Senator Dorgan calls it like he sees it ...

Just when you thought the US auto industry is doomed, the Mullaly brain trust comes up with this idea of unsurpassed brilliance. Even Steve Rattner can't help but applaud in uncharaceteristic profanity-free silence.

"This month I will attempt to answer the entrance examination for the Chinese civil service. That is to say, I will attempt to tell you everything that I know. In doing so, I will argue that this year's rally in inflationary assets, from emerging stock markets to industrial commodities to the fall in the US dollar, could be a FAKE. Let me explain why." - Hugh Hendry

Needless to say, a must read.

It is very important to put the situation in the US and Europe in perspective. Other than creating a huge bubble in emerging markets, the numbers don't add up at all: emerging markets and China cannot be the motor of the world economy yet, and while we need them to pick up consumption and save less as we start saving, sending our wealth into their stock market which cannot absorb liquidity of this magnitude is pure madness. It will go up fast and down faster leaving more damage than it brought good. This is partly why China has been protective of its domestic equity markets and worried about foreign investments after learning from mistakes of the 1997 Asian crisis. Same holds for overly confident economic prospects: unwinding a credit mess of this magnitude, and rebalancing our economy towards more domestic production and less imports will take a long time and there is no easy miracle.

A fantastic history of the reasons for, and the creation of, the Federal Reserve, courtesy of Murray Rothbard and our friends at Mises Institute, with the article originally appearing in Quarterly Journal of Austrian Economics, Vol. 2, No. 3 (Fall 1999), pp. 3–51. It is also reprinted in A History of Money and Banking in the United States and as a monograph. This is a must read for anyone who is curious why the Federal Reserve (with or without Goldman) is the sole organization responsible for not only perpetuating the interests of a select few of financial oligarchs, but in essence shaping monetary, fiscal, financial and political policy in the entire developed world. If after reading this, one is not convinced that the Fed screams a need for at least some supervision or accountability, one is likely a borderline-corrupt Senator who is on the payroll of Citi, Bank of America and/or Goldman Sachs (or, what may be worse, infinitely naive).

Another indication of how banana equities represent the inverse of the fundamentals they are supposed to track, is today's action in Sovereign CDS: Virtually all the big names are wider between 5 and 10%, with the UK and US moving wider by 10.1% and 8% overnight. What is odd is that EUR denominated US protection is also wider: traditionally this tightens when it moves purely as a function of dollar moves. This means investors are finally approaching the sovereign derisking trade once again. With the US at 27 bps (and 20 bps a few weeks ago when we speculated about this as an attractive hedge entry point), the recent melt up in gold may just be moving over to sovereigns next. In that case, investors will need to reevaluate just how solid US "guarantees" on all asset classes really are. a 20% move in a little over a week does not send a message of reassurance that the Obama admin knows what it is doing any longer.

Update: Belgium 8 bps wider to 44 on Dexia news.

Fridays seem to have become the day to dump bad news as a consequence of the lazy tendency of some members of the Fourth Estate to head out early to start their weekends.  (There is a reason it isn't FDIC Failure Tuesday- part of it involves the ease of moving retail deposits to their new home, but reporting plays a role as well).  For those who are, instead, actually looking for the sort of things that might encourage concealment, Friday has become like a recurring birthday 52 times a year.  There are always a few presents bouncing around on the same day.  The FDIC is an especially active user of the Fourth Estate Friday gambit.  Today is no exception, even before the bank failure list hits the wire.  Witness the vaguely titled: Agencies Issue Final Rule for Mortgage Loans Modified Under the Home Affordable Mortgage Program.

HUD's Shaun Donovan delivered a report to Congress. Some of the information provided does not jive with the default performance of some Ginnie Mae portfolios. A representative portfolio from 2008 is suffering defaults of 27%. Exactly the same as the sub prime loans.

No bailout for FHA? Don't count on it.

It is now beyond question that not only Bernanke, but now Obama, will do anything and everything they can to accelerate the disembowelment of the US currency (Tiny Tim in the bathroom withnose-hair trimmers) and America's middle class, for the benefit of the 2 or 3 Wall Street banks that have over $10 trillion in roll risk in the next 5 years, and the 5 algos which are still trading the occasional oddlot of SPY here and there, thus creating the perception that America still has a functioning capital market (another one for Tim Geithner's Sesame Street media whirlwind tour).

The dollar is plunging like a rock: Geithner must be on Sesame Street convincing Big Bird that the US has a "strong like bull dollar policy." The man has a busy media propaganda day: The Muppet Show is next, followed by a brief appearance on Space Ghost Coast To Coast. Soon to be Philadelphia-based CNBC is still tentative (CNBC - The first in Pat's and Geno's Propaganda worldwide - mmm mmm, Velveeta).

Too bad America can't be more like China and just determine what the GDP for any given period should be. Of course, it merely needs to become a fully vetted and Comintern recognized communist country (no more of this half-asses sutff) and then it could easily proceed to fully manipulate any and all data releases (even more effectively than it does now). Until then, things are tricky. Like today for example, with the trade numbers coming out and painting an ugly picture for not just import prices but for the "blockbuster" Q3 GDP. Maybe Goldman was wrong in their first GDP estimate. Something tells us Jan Hatzius will be much more correct in his downward GDP revision this time (to 3% from 3.5%), when the next estimate of Q3 GDP comes out, substantially lower than previously thought.

"We should look into the matter of whether we should have fractional reserve banking. Yes you have the Fed creating money out of thin air, but then this is magnified by fractional reserve banking which is really fraudulent, all it does is build financial bubbles guaranteeing the business cycle and the collapses and as long as you patch it together, the biggest the bubble." - Ron Paul