Archive - Nov 2009

“Three consecutive monthly declines is unprecedented for our report, and on first blush an indication that the foreclosure tide may be turning,” said James J. Saccacio, chief executive officer of RealtyTrac. “However, the fundamental forces driving foreclosure activity in this housing downturn — high-risk mortgages, negative equity, and unemployment — continue to loom over any nascent recovery. And despite all the efforts and resources directed at helping homeowners avoid foreclosure, we continue to see foreclosure activity levels that are substantially higher than a year ago in most states.

• The net expands: SAC Capital, Balyasny ex-analyst under probe in insider case (WSJ, Bloomberg)
• Weil: Blankfein invokes god and man at Goldman Sachs (Bloomberg)
• How do you know the Treasury Secretary is lying? Geithner stresses strong dollar's global role (Reuters)
• And the final nail in the coffin's dollar: under pressure from a lying Geithner, China sets plan to let currency move higher (Globe and Mail, h/t Geoff)
• KKR values Dollar General at 30x P/E in upcoming IPO, double Wal-Mart (Bloomberg)
• IEA warns oil rise could derail recovery (BBC)

The FDIC will announce today its final plans on how to bridge a $45 billion shortfall in its accounts. Our pals, the bankers, have submitted letters on this matter to the FDIC. Some make interesting reading. Guess what? They all want to get paid for bailing out the FDIC. They will get paid and this will be all off balance sheet. Presto, the problem no longer exists.

• Gold hits record high of $1,121.90/oz, driven by speculation of dollar weakness.
• Asia stocks, currencies gain after Australian jobs report; gold at record.
• Australian employers unexpectedly hire 24,500; currency jumps on rate bets.
• Brazil economy to grow 9 percent in 4th quarter as domestic demand surges, top official says.
• Brazil government defends reliability of power grid after blackout leaves 60M in dark.
• Dollar falls to 15-month low on bets Fed rate to stay near zero.
• Euro up to $1.500 in European morning trade, Asian equity gains slow.

Recently, the Pragmatic Capitalist questioned who the mysterious large buyer of eMini S&P 500 futures (ES) was, when there has not been a corresponding large buyer of SPY ETF shares over the same short periods. We decided this warranted a further investigation to assess whether it is SPY or the ES that has historically had the greatest impact on the S&P 500 cash index. The results were surprising.

In developing my REIT short thesis, I am being forced to spend more time than anticipated quantifying the effect of explicit sell side manipulation combined with purposeful opacity in the CRE mortgage holdings as endorsed by our dear government. I am actually entertaining a direct head to head analysis competition with an entity such as Goldman Sachs that ends up explicitly detailing which properties of which REITs are underwater and by how much, which may end up in a "run on the REITs", by the banks (at least those with common sense), who don't want to be left with the least edible scraps at the table.

"Military Keynesianism" - the idea that war is the best economic stimulus - is false.

How else does one explain his rambling, otherwise totally off-topic "farewell" address on CNN tonight?  We never bought the whole "Lou Dobbs is going to Fox" story.  What, because he had some fiery comments about immigration at one point suddenly he's got the kind of right-wing credentials to be on Fox?  We think not (but we've been befuddled by stupidity before).  How absolutely apropos would it be to have a candidate for high office in the United States from the pinnacle of a toothless media establishment?

In my capacity as a casual comment viewer on Zero Hedge I have found myself of late issuing an unduly expansive number of warnings for bad behavior in print.  One hates to use the heavy hand of moderation on a site dedicated to transparency and throwing sunlight on the cipher-laden world of finance, but I need to make something absolutely clear:

Anyone directly advocating violence against any individual, group of individuals, institution or organization is going to feel the sting of the lash from here on out.

This kind of psychotic noise gives us a bad name (kill the messenger, you know), tends to attract the attention of authorities, particularly in the United States (which is already predisposed to wonder after our subversive criticism of The One and the National Security™ risk we present to Bailout Nation) and more importantly, is antithetical to the goals and purposes of Zero Hedge.

To be even more specific:

Zero Hedge and the legal team here will vigorously oppose thorough all the legal means at our disposal any attempt to obtain, coerce or outright steal data from our offshore servers.  This probably won't take much effort since we keep very sparse logs in the first place.  However, it is not impossible to imagine that we would entertain a very narrow exception if asked to cooperate with authorities.  To wit:

The credible threat of future violence.

There is no moral position we are willing to entertain that would permit us to stand idly by and ignore cases like these.

Let me provide some examples so there will be no misunderstanding:

• "Let's throw [all the bankers/banker x/that loser currently on trial] in jail."  [Stupid on a truly Henry VIesque level, even forgetting for the moment that you probably only know as much about any particular case as you have read that afternoon in the New York Post - but borderline - seems to suggest due process (of a sort) at least]
• "Let's kill all the bankers."  [Stupid on a truly Henry VIesque level, and also infringing - violence]
• "The next time you meet a Goldman employee, crack a fucking bottle over their skull."  [Beyond stupid.  Intensely infringing]
• "I'm going to slit [hedge fund manager's throat] when I next see her at L'escale in Greenwich."  [So mercifully free of the ravages of intelligence so as to be mistaken for a mineral.  Infringing to the level that causes serious and animated debate among the Senior Staff at Zero Hedge over the wisdom of proactively reporting this potential conduct to the authorities]

Hey.  How about you do yourself and all of us a favor?  Just because it's borderline and we appear to be tolerant, don't just defecate all over the whole of due process jurisprudence (due process IS in the Constitution of the United States, you know.  You don't hate the Constitution.  Do you, my outraged patriot friend?) as well as immediately brand yourself as a reactionary, populist tool who differs with Barney Frank only in the degree to which you tolerate violence by calling for hanging some random douchebag banker.

What's truly mediocre in Quebec is the media's pathetic coverage of the Caisse under Michael Sabia. If he isn't having second thoughts, it means he's ready to deliver on his promise and deal with his critics, which includes Quebec's media mafia.

Following up on our earlier disclosure about potential insider trading in 3Com stock, we have uncovered something interesting. Did Goldman (in)advertently tip off clients that 3Com was potentially in strategic negotiations? 3Com was previously supposed to present at Goldman's Data Center Techtonics Conference today at the Sheraton Hotel in New York (Agenda below). In a limited distribution note, Goldman yesterday advised selected clients that 3Com had withdrawn at the last minute from the Conference. As those in the industry are well aware, any last minute switches of this kind are indicative of imminent good or bad news dissemination, and more often than not are associated with some strategic announcement.

If we added up all the gold ever mined on the planet, its total value would equal no more than $5 trillion at today’s prices. Yet, look at how this compares to the debt and bailouts and other monetary mischief of current governments. The U.S. government has thrown over twice as much at the economy in the past 12 months. The U.S. debt is more than double this amount so far this year. Total global government bailouts are almost four times larger (and this is a conservative figure; one estimate puts it at $24 trillion). I intended to include annual gold production as one of the comparisons, but the chart isn’t big enough and neither is your monitor: 2008’s global gold production equaled about $73 billion, and to make that figure discernable on the chart would require the Global Bailouts bar to hit the ceiling above your head. That’s how small the gold market is.

With a half-day in credit yesterday, and the usual meltup in equities on no volume (free money, straight from the Fed, come get your free money: just buy a stock, any stock: since you can't get money anywhere else, buy, buy, buy into the stock bubble), yesterday CDS painted a gloomier picture. As the image below demonstrates, wideners outpaced tighteners. Asonly a few increasingly more powerless computers trade equities these days, we, as usually , warn readers to keep track of developments in the credit arena, and we are hopeful that the regulators will consider our proposition to gradually allow retail trading in CDS products (after the minimum notional is reduced substantially).

There was a report by the Guardian this Monday that a “whistleblower” from the International Energy Agency (IEA) claims that IEA has been, for years, over-reporting the estimates of oil reserves around the world under pressure from the U.S. government. This would certaily be a cause for celebration by many peak oil theorists such as Matt Simmons, since on the surface, the story is quite plausible.

3Com's acquisition by Hewlett Packard for $7.90/share after the close today came as a surprise to many, but not all. Because someone bought 3 times the open interest in November $5 calls and 15 times the open interest of the December calls. In summary: 3,961 Nov $5 calls were purchased today (964 open interest) for $0.65, as were 3,269 December $5 Calls (210 open interest) for $0.85. The profit, assuming the insider action was by one entity, is about $870,000 on the Novembers and $650,000 on the December strikes, for a not too shabby illegal daily P&L of $1.5 million. This is so blatant it is sufficiently stupid that even the SEC will presumably catch the perpetrator. Here's to hoping the trader ends up being Galleon's Raj Raj buying options from his E-Trade account while on bail. Of course, we fully expect any prosecution case against the perpetrator to fall apart at the seams courtesy of a completely inept legal team at the SEC and the Justice Department.