Archive - Dec 2009

In this 12.21.09 edition of the Fibozachi Technical Update (FTU), we present 12 technical profiles of the ES (S&P 500 Futures), the VIX, Gold Futures, Silver Futures, Crude Oil Futures and the US Dollar Index.

Adam Smith, Charles Darwin and George Washington are not only rolling in their graves, they are dancing the macarena. A new study by the UMich School of Business has found what everyone has known since the crisis began, if not centuries prior: that the biggest, crappiest banks were guaranteed to get more bailout funding the more political ties they had (and more kickbacks they had offered). Is this sufficient to claim that capitalism in its purest sense has been corrupted beyond repair, courtesy of political intervention and constant pandering? Probably not, but it sure makes a damn good argument. In any case, the data is sufficient for all bears to start keeping a track of which banks are increasing their lobbying efforts and funding: those are the ones where the greatest weakness is likely still to be uncovered (if it hasn't already). And while the political relationship probably is not a big surprise to any realistic readers, another finding of the study makes a solid case for abolition of the "apolitical" Federal Reserve:

A new study by Ross professors Ran Duchin and Denis Sosyura found that
banks with connections to members of congressional finance committees
and banks whose executives served on Federal Reserve boards were more
likely to receive funds from the Troubled Asset Relief Program, the
federal government's program to purchase assets and equity from
financial institutions to strengthen its financial sector.

The unsupervised Federal Reserve gets to make or break banks, presumably under the gun of its one and only master, Goldman Sachs, which has already destroyed its major historical competitors: Bear Stearns and Lehman Brothers. This is a sufficient condition to not only audit the central bank but to immediately seek its abolition, and also to commence anti-trust proceedings against Goldman Sachs which is not only a monopoly, but by extension has veto power over the very regulatory mechanism that is supposed to keep it "fair and honest." The system is truly broken.

After an initial bounce early in the am courtesy of a variety of undeserved and circly jerkular upgrades by the big banks, equities zombied out as the liquidity providers scalped their penny quota for the day. In the meantime the DXY hit another multimonth high, passing and closing above 78, creating massive losses for a whole range of FX trading and correlation desks which have yet to unwind underwater positions. If the dollar continues rallying into the New Year a few banks will start 2010 from a 6 feet under (the water surface) position. Another observation, as Nic Lenoir discussed earlier, Treasurys are getting spooked. The name of the game is, once again, starting the be supply, supply, supply, made ever more dreary courtesy of some "we don't get this whole M.A.D. thing" statement in China. The whole posturing about the trade deficit means that Obama will now do everything to make consumer stay true to their noun. If this means Cash for Chinese Crap, or even Cash for Cash, so be it. Summers is already on it, and Bernanke just ordered another 100 tons of ink.

"We have very convincing arguments for further selling off in US Fixed Income...We have a lot of supply next week in a relatively low year-end volume to support our technical analysis from a fundamental standpoint, and China and the US have been clashing over climate talks the past week. Now we have statements by Chinese officials saying that if the US does not blow its trade deficit back out to its widest levels they will stop buying treasuries. In an environment where people are trying to correct imbalances, China demands more imbalances, and intends growing at a 10% pace without developping demand from its middle class. Irrespectively of whether China will follow suit or not, these open discussions in the media are enough to add fuel to the firesale." - Nic Lenoir, ICAP

With the regional banks and small caps rocketing higher, and various commodity sectors ignoring the dollar strength, the poor "Money Manglers" who cashed out early are now scratching their heads wondering whether or not to jump back into the pool.

Elephant? What elephant?

Somewhere Julian Robertson is convulsing in a fit of lucre-driven epilepsy. The question for today: what is the bigger pain trade - an outright stock short, or a UST flattener? Everyone knows one shouldn't go against the Fed, however the Fed is behind both of these... So where will it crack first?

With sovereign CDS (and risk) finally becoming a heated topic of debate, Moody's has compiled its 2009 Review and 2010 Theme Review for sovereigns. The report opens with some rather stark and reasonable observations: "2010 may prove to be a tumultuous year for sovereign debt issuers given the uncertainties surrounding the likely pace and intensity of fiscal and monetary 'exit strategies' as governments start to unwind quantitative easing programs. Indeed, the only certainty is that the exit strategies will be fraught with a good deal of execution risk. In our view, the key policy challenge facing advanced economies is therefore to time the exit perfectly: not too quickly or too soon so as to prevent choking off growth; and not too slowly or too late so as not to unsettle financial markets." In short: 2010 will be the year when the experiment of offloading all private sector risk on the public balance sheet ends. Whether the conclusion will be a happy or sad one, remains to be seen.

"Now that the crisis is over, and given the special circumstances of the crisis, and Goldman’s contribution to value-destroying securitizations, it is in the public interest to claw back the money paid to Goldman Sachs. AIG did not need to settle for 100 cents on the dollar in November 2008, and in September 2008, a good negotiator would have refused to hand over more collateral, and should have clawed some back (or insisted it was a temporary loan). Money should be clawed back before Goldman pays out taxpayer subsidized bonuses." - Janet Tavakoli

In The Year Two Thousand....And Ten!!!

As predicted by Dougy Kass:

"Goldman Sachs goes private. Goldman Sachs (GS) stock drops back to $125 to $130 a share, within $15 of the warrant exercise price that Warren Buffett received in Berkshire Hathaway's (BRK.A) late 2008 investment in Goldman Sachs. Sick of the unrelenting compensation outcry, government jawboning and associated populist pressures, Warren Buffett teams up with Goldman Sachs to take the investment firm private. The deal is completed by year-end."

and 19 others...

12:56 (Dow Jones) Goldman Sachs' (GS) managing director Lucas van Praag responds to several questions the Zero Hedge blog posted last week related to Goldman's prop trading operations as well as how it defines market risk and if it has a risk policy. Prop investing activities represent about 12% of the firm's net revenue, fair value accounting is a "critically important" aspect of risk management and firm says it isn't managing its business as if it has some sort of government guarantee. But more telling is the fact that Goldman took time to respond to these questions and criticisms, perhaps proving firm realizes its image has taken a beating and needs to be repaired. (SMR)

The two specialists on using email as a key prosecutorial device (both from the pitching and catching end), discuss the validity of bringing up emails to the public domain in the AIG case. Why this hasn't been done already, especially with round after round of public outcry and various regulatory agencies involved, is a mystery which can only be solved if one realizes that those in charge have nothing to gain from uncovering the dirty truths at the heart of the crash that almost cost Goldman Sachs a bankruptcy, scratch that, a liquidation (of course, nothing could be further from the truth, sayeth His Holiness Viniar. We, on the other would point out that in this case (and incalculable others) Viniar himself would probably be the only exception to the prior statement, thus invoking a nightmarish analysis of non-exclusive Venn diagrams and other logical gibberish).

In our holiday abbreviated week, there is one piece of data we wanted to highlight not so much to our constant, non-Fed originating readers, but to our constant-Federal Reserve fan base, with the hope that they may point it out to their chairman, whose recent remarks indicate that he is unaware of any bubbles forming anywhere. For a distinguished historian of Bernanke's stature, we are confident that he has heard of the original stock bubble, and in particular, the South Sea Company. The chart below demonstrates the relative indexed performance of the South Street Company and of Buffett darling, BYD (1211.HK). The Buffett investment is not alone: there are hundreds if not thousands of companies whose fundamentals, no matter how hard one tries, can never be spun enough to justify their ludicrous valuations. We all know what happened to the South Street Company. The only question remaining is when will the very first market bubble pop experience its most recent reincarnation in the form of BYD and all its brethren, whose only purpose in life is to make the top ticker, and so many others, lose fortunes (with a little nudging from the all seeing prop, and otherwise trading, market makers).

But why worry. This time it is different (someone is probably about to publish a book under that title), and all those who keep chasing the momentum are certain to find buyers when everyone turns seller, thank to the infinite liquidity provided by High Frequency Traders.

Project Censored releases top censored news stories of 2009, Market Skeptics highlights catastrophic fall in global food production, gold bounces off $1100, Copenhagen succeeds in building global governance framework, Pakistan and Yemen sink further into chaos.

RANsquawk 21st December US Morning Briefing - Stocks, Bonds, FX etc.