Archive - Aug 19, 2009

Equities happy to track dollar down, not so happy when it roars right back up.

PIMCO happy, Bernanke happy, Dollar mauled, Stocks flying. All is good.

According to Reuters, the amended deal between the IRS and Switzerland to cut down the number of disclosures from 52,000 to 5,000 comes on the heels of the understanding by the US Treasury that after Goldman and CRE, it is now 52,000 tax cheats who hold the financial world hostage. Apparently if all the 52,000 tax evaders fled from UBS, it would spell the end of the world (once again).

Arthur Levitt on a crusade to prove just how innocuous HFT is, first in the WSJ yesterday, now on Bloomberg. This begs the question, if it really is so wonderful, why defend it so vociferously? Which, of Arthur's conflicted interests, has pushed so hard for this PR campaign?

"And while we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative. In combination with other factors, that likely means a continuing devaluing of the U.S. dollars versus other currencies, especially the EM currencies. Accordingly investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure."

Dear Mr Cuomo (or should I call you Andrew by now?):

In my last missive, in (re)introduced you to the potential for illegal and unethical harvesting of inside information as created by so-called "expert networks." I singled out the Gerson Lehrman Group in my last missive. Today, I'll keep my laser-like focus on GLG and a little phone company called Verizon (Ivan Seidman, please pick up the phone now.). Verizon is one of the two largest phone companies in the country right.

Call us old fashioned but financial engineering can only take you so far. For actual economic growth one sometimes needs such old-school components as trade, just ask David Ricardo, who had it right 200 years ago. Yet trade flows over the past 6 months have been collapsing, with both imports and exports taking major hits across the globe. However, for the best perspective on the sad state of affairs, one only needs to look at the "portal to the west", the (formerly) great ports of Los Angeles and Long Beach. And if current trends are any indication, a return to normalcy will not occur for at least 3 years, indicating that huge excess capacity will take much longer than expected to be swept out of the system, and the record inventory bounce which everyone is expecting to save future GDP will be much more questionable.

Here is my latest article explaining why the Chinese economy should not make us feel inadequate and explaining the consequences of what is taking place in China on the U.S. stocks.

• Developing: UBS to produce 4,450 names as part of settlement
• UK Government swaps rise after Cameron warns of default risk (Bloomberg)
• Warren Buffett: The Greenback Effect (NYT)
• Scholes, Merton call for better bank-asset data (Bloomberg)
• What drives market prices? The valuation vs momentum dichotomy (Value Expectations)
• California to get $1.5 billion loan from JP Morgan (LA Times), China to provide equity tranche to complete LBO

• Asia stock markets mixed on uncertain Chinese outlook, improving US economic state.
• Big retailers reported that American consumers are continuing to hunker down.
• Crude oil falls, reversing gains, as Chinese equities decline
• IMF has described a “nascent” global recovery, warns on ending fiscal stimulus.
• Natural-gas futures fell to a fresh 7-yr low as a glut of the fuel and tepid demand.

Inflation or deflation, the Chinese will lose most of the value of their USD-denominated holdings, and the USD will lose the confidence of the rest of the world. What then?

A scenario, probably far-fetched, that points to a stronger Russia over the next half century.

No, seriously.

You know the truth is glaringly obvious if the Onion finally got around to satirize it.