Archive - Dec 23, 2009
Sprott Calls The Fed "A Ponzi Scheme" As Half A Trillion In Treasury Purchasers Are Unaccounted For
Submitted by Tyler Durden on 12/23/2009 20:07 -0500"As we have seen so illustriously over the past year, all Ponzi schemes eventually fail under their own weight. The US debt scheme is no different. 2009 has been witness to spectacular government intervention in almost all levels of the economy. This support requires outside capital to facilitate, and relies heavily on the US government’s ability to raise money in the debt market. The fact that the Federal Reserve and US Treasury cannot identify the second largest buyer of treasury securities this year proves that the traditional buyers are not keeping pace with the US government’s deficit spending. It makes us wonder if it’s all just a Ponzi scheme." Eric Sprott
The Fed Has Officially "Spread" Itself Too Thin
Submitted by Tyler Durden on 12/23/2009 17:13 -0500
Recently there has been much speculation that the US government will do anything, anything, to rekindle the housing bubble. Even if that means providing Option ARMs at blue light special prices and hiring Angelo Mozillo as Mortgage Czar (we hope we are kidding about the latter). Yes, those very same Option ARMs which banks' balance sheets are still expecting to be neutron bombed by, courtesy of the long gone days when there was private sector mortgage origination risk. Now that all the mortgage exposure is borne by taxpayers, we decided to analyze how the ARM spread to the traditional 30 Year Mortgage has moved throughout the year. Somehow we were not surprised that the 30 Yr - 1 Yr ARM spread for Freddie Mac just hit a record wide this past week. The government is presumably actively encouraging borrowers to approach the GSEs, and using the same NINJA protocols, to ask, nay, demand, an Adjustable Rate Mortgage. Who cares what happens one year down the line? Certainly not the US government which has $3 trillion in T-Bills to roll by this time next year.
Mirror Mirror on the Wall. Who's the Most Materialistic of Them All? China?
Submitted by Travis on 12/23/2009 16:52 -0500There’s an article published in the WSJ Online noting how luxury goods manufacturers are hoping the holiday shopping sprees will regain some exclusive tastes in self-indulgence, particularly the luxury watch markets- which have traditionally looked to Wall Street’s bonus pools to mark their sales horizon “uptick” for the year; but with this year’s bonus season either hit or miss, depending on who you talk to, what’s the luxury maker to do? Look to China, of course- because they consume a quarter of the world’s luxury goods. Right?
Was Debate Ever Properly Closed?
Submitted by Marla Singer on 12/23/2009 16:42 -0500Of course, we do not intend that Zero Hedge should become a center of excellence for the review of obscure Senate rules, but, as a consequence of the full-court-press-rush to pass the health care bill, this was too interesting not to reprint.
Madoff Transferred To a Medical Facility Within Prison... Hmmm...
Submitted by Travis on 12/23/2009 15:31 -0500Why should we care anyway? Oh please, we know he's not going to get through all 150 years of incarceration...
Slippery Sands
Submitted by Marla Singer on 12/23/2009 15:17 -0500In the annals of bailout history, commitments don't get a lot more slippery than this.
Updated: "Inflation" and "Risk Trades" Again...
Submitted by RobotTrader on 12/23/2009 14:10 -0500Another harried day where the dollar sells off and the robots immediately start buying anything and everything associated with "risk". Anxiety is building. Many hedge fund managers have already cashed out having "made their year", and are now sitting on a Caribbean beach somewhere. Other more enterprising, hungrier gamers are hunkered down in snowstorms staring bug-eyed at the screens trying to get a jump on the "hot trade" for 2010.
A Three-Month Flat Market? Yes...If You Exclude The Constant After Hours Manipulation
Submitted by Tyler Durden on 12/23/2009 12:57 -0500
Anyone looking at their 401(k) portfolio performance since the end of August will undoubtedly be very happy (and extremely surprised), as the market has climbed steadily higher despite i) increasingly declining trading volume and ii)consistent and material withdrawals from domestic equity mutual funds. Furthermore, if anyone was merely looking at the trading action in regular hours, one would think there was absolutely no profit made since early September. The reason for that: all the upside since September 14th has come exclusively from after hours action. The chart below demonstrates the relative performance of regular hour trading in the SPY as well as that in the extended session. The notable observations: gaps, gaps, gaps. Every single day, minimal volume pushes the futures index higher. Good news, bad news, it don't matter to the Goldman S&P and Russell 1000 futures desk: they just lift every micro offer, giving the impression that the market is unstoppable, often leapfrogging each other as the latest viagra'ed GDP or unemployment rumor is spread. Come morning, it is time for the HFT brigade to come in and scalp their trillions of pennies while leaving the market unchanged, then at 4pm handing it off again to leveraged futures manipulation and dark pools. In a nutshell, this is the secret of the past quarter's phenomenal market performance.
He is All Seeing
Submitted by Zero Hedge on 12/23/2009 11:42 -0500
Greetings from our supreme ruler Lloyd.
Santa Claus Tells All in a No Holds Barred Interview
Submitted by madhedgefundtrader on 12/23/2009 11:25 -0500This job is a bitch, but somebody's got to do it.
California Dreamin' (On Such a Winter's Day)
Submitted by Marla Singer on 12/23/2009 11:23 -0500
The Los Angeles Times reports that the Governator is expected to appeal to Washington for some $8 billion in bailout funds, and is holding hostage CalWORKS, the mainstay of California's welfare program (and a long standing and favored catamite to the country's progressives) in the unlikely event he doesn't get it. Arnie also seems poised to select this as an opportune time to re-open the question of drilling for oil off the Santa Barbara coast.
Frontrunning: December 23
Submitted by Marla Singer on 12/23/2009 10:10 -0500- In Former Soviet Republics, Dollar trades you on black market [gallup]
- Congress: sucks; Obama: starting to suck; Economy: sucks; Life: sucks. (Thank god we have experts to tell us these things) [gallup]
- BankAmerrilwide starts Dollar General coverage with a "Buy." (Target price under a dollar?) [dow jones]
- Blackberry outtage slows U.S. messaging to crawl (Inlaws celebrate renewed interest in pre-christmas stories by young guests) [reuters]
- Bernanke enjoys 3-1 "in favor" ratio in Senate. (Senate also enjoys 3-1 "in favor" ratio in Senate) [bloomberg]
The End of Sovereign AAA?
Submitted by Marla Singer on 12/23/2009 09:20 -0500Fitch "ups the rhetoric" in the continuing assault on sovereign AAA. Today Spain, the United Kingdom and France are on the chopping block. Though the report, "Unpleasant Fiscal Arithmetic for Sovereigns in '10" addresses some of the most looming issues for the sovereigns, it is hard to see any of the ratings agencies as more than reporting entities, rather than predictive ones.
The Fed's $27 Billion (And Counting) Call Provision
Submitted by Tyler Durden on 12/23/2009 07:09 -0500Much has been written about the Fed's Permanent Open Market Operations, or the technical name for Quantitative Easing's Bond Repurchase, aka Monetization, program. What has been largely left out is the true cost in the form of a call premium that the Fed has paid out due to what amounts to an early redemption of $300 billion in par securities. From a basic bond standpoint, the Fed's buybacks of Treasuries at market prices simply represent premium redemptions as a substantial amount of the bonds bought back had been issued (at par) when interest rates were materially higher. Therefore the differential from par to market has to be considered when evaluating the actual cost to US taxpayers, and by implication, early paydown benefit to bondholders. The surprising result: after $300 billion in par repurchases (or $295 billion ex-TIPS to be precise), a whopping $27 billion has been paid by the Fed over par to account for declining interest rates over the past three decades. As the actual price paid by the Fed is known only to the Fed itself, despite claims to transparency and openness, this is at best an exercise in extended bond math. Only when the Fed is truly audited will we get a full glimpse into just how much the Treasury portion of QE has truly cost US taxpayers in order to provide a quick and lucrative "out" to all those bondholders , especially the ones who purchased bonds at lofty interest levels (and thus very discounted prices) in the early to mid 80's. In sum, even though the Fed has purchased a nominal $300 billion in assorted government securities, its actual cash outlay has likely been in the $325 billion+ ballpark. Keep in mind this analysis excludes the roughly $1.4 trillion in MBS and Agencies that Bernanke is still actively gobbling up to prevent the housing market from collapsing. A comparable exercise performed in that part of the POMO market would likely yield even more distributing results.






