Archive - Nov 2009

Empirical data suggests that High Frequency Trading, and VWAP algos in particular, introduce numerous adverse selection and increased liquidity shortfalls relative to non-HFT trading strategies. The ultimate cost of currently existing HFT-mediated market tolling may far surpass any proposed transaction tax, implying trading costs may in fact be reduced as a Tobin variant removes the externality features associated with adverse HFT market-dominant algorithms.

Silver has its place. It’s an industrial metal, has a nice correlation to equities, and has been used as money for thousands of years, which gives it a kinky personality. But don’t think that silver currency (or gold standard) is an effective way to handcuff government theft. As long as there have been silver coins circulating, there was a crooked Mint debasing them to its advantage. The “Tungsten Effect” is the rule, not the exception. Historically, the most common metal in coinage was lead. This is simply the nature of things. Cash of any kind exhibits exponential decay, a half-life. Real safety is found in paying your taxes.

The strongest discipline imposed on a state is not connected to its currency. Iron discipline stems from credit. The government bond market is the crown jewel of any state. A state will torch its constitution before it lets its bond market get crushed. It’s like choosing to repair a ruptured jugular instead of getting a facelift. So Treasury paper credit risk shouldn’t be a worry to anyone right now. As long as the United States is around, there will be Treasuries paper earning income, however meager. Let me say this in another way: if the Treasury market goes, so the does the U.S., and pretty much everything else with it. Wait… did I just feed the beast?

To claim that our pension system is working is simply ridiculous. The bankers will defend their profits but they're not delivering the goods at a reasonable cost.

On a global scale, Dubai World's debt problem seems relatively minor, but it illustrates the impact from one tiny country in an increasingly interconnected world. The Dubai news also cast doubt over the strength of the U.S. economic recovery, and the prospects for a bottoming of property prices.

Five easy to digest CMBS narratives courtesy of the BarCap CMBS team, which highlight why "extend and pretend" in the commercial real estate arena is doomed to fail, and why the longer the pain is postponed, the greater the ultimate loss to all stakeholders involved. The administration and the Fed are rushing against the value evaporation/debt inflation clock, and losing. The five properties detailed:

Shutters on the Beach & Casa Del Mar

The Belnord

Columbia Center

Schron Industrial

Tustin Legacy

Your weekly recap of European and Chinese action in a few easy charts (and some token conflicts of interest)

This year's Thanksgiving turkey has arrived as a dud. While the U.S. markets were closed over the holiday, Dubai managed to pull the rug from under the global risk trade by announcing a 6 month moratorium on the debt of Dubai World. The state-sponsored Dubai World is an umbrella company that houses a portfolio of businesses, including Nakheel - the famous real estate developer of the Palm Islands.

Interestingly, though implicit and Fanniesque guarantees by Abu Dhabi have always colored the pricing of Dubai's debt (along with the image, apparently exaggerated both in will and ability, of the virtually unlimited backing of Abu Dhabi's "$600 billion" sovereign wealth fund) most stories covering the Reuters disclosure this morning focus on the (so far ethereal) assistance Abu Dhabi will be giving Dubai, and not that which it will not.

Background to, and fallout from, Dubai debt crisis.

I think Putin is onto something. Now, if only we can figure out a way to redistribute income from Wall Street crooks back into the pensions they keep plundering.

Mark Pittman, the Loeb Award-winning Bloomberg journalist, a personal friend, a legendary financial reporter and the first person to sue the Fed (in conjunction with Bloomberg News) and win, passed away on Wednesday. He was 52. Our thoughts are with his family.

The Federal Reserve's balance sheet hit a new all time record of $2.2 Trillion in assets, after an $11 billion spike in MBS and Agency purchases week over week.

A quick look at debts and creditors for today's most popular Bloomberg search term.

The history of the dollar is one marked by a dominance unrivaled in history. Following the Bretton Woods Agreement of 1944, which established the dollar as the global reserve currency, Americans have enjoyed an era of unprecedented wealth and prominence.

Ex-Paulson & Co. subprime trade brain Paolo Pellegrini hits it out of the ballpark with an 80.8% gross return year to date, and 176% from inception. Also, an amusing tidbit from Pellegrini's non-compete: "Please note that PSQR will not be open to investors in funds managed by Paulson & Co. Inc. until January 1, 2010."