Archive - Nov 2009

• Fed Independence: RIP? (Cumberland Advisors)
• Evans-Pritchard: It is Japan we should be worrying about, not America (Telegraph)
• Pandit's "near-death" cash hoard signals lower US bank profits (Bloomberg)
• Goldman looks to buy Fannie tax credits (WSJ)
• BNY Mellon CEO Kelly tells BofA: No, thanks (WSJ)
• Galleon and the trouble with insider trading (WSJ)

• Asian stocks fell, extending MSCI APAC Index’s first monthly decline since Feb'09.
• China manufacturing grows at fastest pace in 18 months on stimulus, loans.
• China's Chen warns of world slump if economic stimulus withdrawn too early.
• Euro rises against Yen as signs of global recovery spur demand for yield.
• AEP sees 2010 ongoing EPS of $2.80-$3.20, forms Transmission company.
• CF Industries adds cash for Terra Industries offer, hikes bid price by $200M to $4.1B.
• Chevron Corp. reported a 51% drop in Q3 profit at $3.83B on lower oil, natural gas prices.

A scheduled rate decision by the RBA tomorrow has the potential to demolish AUD/USD carry.

We thought it is as good a time as ever to turn our attention back towards the hedge fund hot potato that is Freeport-McMoRan (FCX). Unfortunately, for longs, the technical picture appears to be rapidly deteriorating, developing an increasingly bearish profile ... this powder keg becomes especially apparent when viewed alongside an extremely high institutional sponsorship ratio of 79.8% ...

Nouriel has a great op-ed in the FT, discussing the imminent reversal of the dollar carry trade, a topic Zero Hedge has been harping on for quite some time: not because we believe that in the long run America will stabilize its economy (on the contrary), but because in a globalized economy (yes, a sad side effect of $1.4 quadrillion in derivatives is the fungibility of declining asset leverage) economies are relative, not absolute concepts. While our biggest pet peeve has to do with the lack of contrarian thought in whatever the groupthink trade de jour is (when everyone is on the same side of the boat, it always inevitably capsizes), Nouriel is similarly unimpressed with what he sees is doomed to end badly for so many institutional and retail traders who are part of the herd mentality. Never one to mince words, Roubini's conclusion is scary.

As the Fed is taking proactive measure to address the upcoming CRE cataclysm (as defined by WL Ross and George Soros) via gratuitous policy changes, it is useful to observe the recent market of CMBX 1-5 (2005-2007) AAA-rated trances mid-spreads. As the chart below indicates, the CMBX market may have jumped the shark on risk perceptions. CMBX 1 has dropped to sub 200 bps levels, back to pre-Lehman levels. Yet analysts are finally shifting their attention to both cumulative loss and loss severity estimates in CRE. While one may never be able to recreate the Paulson ABX trade, the current spread on CMBX may provide enough of a buffer to give the most profitable trade of the new millennium a second parallel life, based on the assumption that kicking the can down the road is not a prudent approach by the Fed and the FDIC.

Check out this report on the Obama Administration's latest gift: free golf cart! This is from the Wall Street Journal. I really can't add much to this. Other than: Get one!

Who wants to bet how many of these are marked to market?

As expected, Bankruptcy Case 09-16565, Southern District of New York, is the latest addition to the Bowling Green testament of the collapsing consumer class. $71 Billion in Total Assets, $64.9 Billion in Total Liabilities listed, as well as a metric ton of various bond issues. Common stock holders getting hosed include recently downgraded FMR (9.9%), Brandes (9.7%) and Franklin Mutual (5.7%). Bank of America listed a primary creditor (as administrative and collateral agent) at $7.5 billion. The Goldman Sachs Swap agreement is listed as having a notional value of $1.934 billion.

A candid look at the burgeoning US T-Bill holdings, the ever-worsening asset-liability duration and funding mismatch, and the implications for "moderating credit conditions", money on the sidelines, and US monetary policy, at a time when 2009 Treasury interest expense is set to surpass half a trillion dollars for the first time in history.

I'm following chatter of media and friends about the imminent doom that may come from Fed Funds rates increases, and that the market perceives a higher chance that the Fed pull away from zero interest rate policy soon. First, 2 Fed Funds charts showing no evidence the market perceives a risk that the Fed changes its policy near term. In fact, quite the opposite, bets are being put on that support extension of zero interest rates. The past 2 weeks have most definitely seen increased expectations for lengthening of current policy.

The sudden surge of optimism regarding the global economy resulted in the massive reduction in the costs of sovereign debt insurance. While the drop is not a surprise, the reasoning and the actions behind it surely are.

So, it looks like Lloyds and RBS are going to get broken up into smaller, more manageable pieces by the Brits. I think it is clear that something similar is needed in the US to dismantle the banking oligarchy. Could it happen here? Well, maybe the follow the leader dynamic that occurred during the misguided attempt to ban short sales will play out in this case as well.

An interesting report coming from McClatchy, concerning Goldman Sachs bets on the housing crash.

Last week I wrote an “op-ed” on the Chinese, and their increasing involvement in the world automobile business; and as a car guy, I wish them well, much success, I do. Volvo too, after all, I was brought home from the hospital as a newborn in a 1975 China Red 164 E.

While some of the readers here at Zero Hedge may or may not have agreed with some of the things I had to say, I took note of an upright, registered ZH commenter (who shall remain nameless as I’m not calling him or out or anything bad… I’m thanking him actually) who said “Great Britain has some of the best mechanical minds in Auto racing and this technical talent could have help fine tune new engine and chassis designs…”