Archive - Aug 2009

Since Obama started to talk about health care reform his approval has sunk real quickly. It is now up to a point that the consensus prefers no reform at all. I am of the opinion that such a grand task is ill-timed. After the financial fiasco of the credit bubble who’s to say that we are on solid footing. The same talking heads that claimed all was fine are out in force with the same rhetoric. Don’t believe it. A balance sheet recession will take a lot of time to unwind. People on Main Street are perhaps not as gullible the second time around.

The most recent quarterly data confirms the MBS->Treasury flight. In all reality, the Fed will likely have to expand the agency/MBS portion of QE even more than the Treasury monetization portion when it is time for QE 2.0, as foreigners want to have increasingly nothing to do with Fannie and Freddie. Yet their poison, is the eager involuntary meat of US taxpayers, or so Bernanke will like everyone to believe.

The secured-unsecured divergence continues, with leveraged universe loans tighter in the last week by 5 bps, back to unchanged with two weeks ago, while bonds continue drifting gradually wider, 11 bps wider over the last week and over 70 bps over the past two weeks.

Readers may have been curious what some of the things the OTS told Citadel to do, while it suspended the firm's application to dominate 97.5% of E-Trade's order flow. Well, one of them apparently was to stop the proposed 120 million share sale that Citadel was hoping to do and offload some of its toxic holdings in exchange for front-running a substantial portion of retail traffic flow.

June 2, Tim Geithner: "The Fed is absolutely not monetizing debt"

August 31, Bill Dudley: "I don't think [the Fed] is monetizing debt to any meaningful degree"

Nuf said.

A respected Swiss publication puts a number on the size of Black accounts. $1 Trillion. Far more than anyone has suggested so far. Where did all this dirty money come from? The recent resolution with UBS is just the tip of this iceberg.

"Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose." - Lou Jiwei, Head Of China Sovereign Wealth Fund

• Bernanke, Printing and Press LLC makes $14 billion profit on $X trillion in AUM: we have still not seen the investor letter (Reuters)
• Time to get tough with AIG (Reuters)
• Wall Street stealth lobby defends $35 billion derivatives haul (Bloomberg)
• The FDIC is so generous with our money - Raft of deals for failed banks puts U.S. on hook for billions (WSJ)

• Asian stocks decline on lower China earnings, strengthening yen.
• China's stock markets fell sharply as upcoming share offering spurred concerns over increased supply.
• Chinese govt to cut frequency of fuel price adjustments to support the economy.
• Democratic Party of Japan sweeps to power, ending LDP's half-century reign.
• Economists split over whether Fed's infusion of credit will spur inflation.
• Germany to offer businesses addln €10B in govt-backed loans to ease credit crunch.

Project Mayhem reviews the most important financial and geopolitical news of the past week and takes a look at the week ahead.

Was the invasion of Iraq intended to create a new pawn on the global chessboard, one that could be used to place the Chinese king in check? The Iraqi oil reserves were meant to be a means to an end, not an end in themselves.

POMO liquidity? Ending. Insider buying? Non-existent. Room for USD to fall? No. Bond outflows? Gone. Where are stocks headed as we enter the traditional season of gloom for equities? My guess isn't up.

• Japan democrats win landslide in historic election (Reuters)
• As Germany's Angela Merkel poised next on the chopping block (Bloomberg)
• Must read: REITs racing to bankruptcy (Contrarian Profits)
• Alan Abelson: Sometimes a great nation (Barron's)
• World stocks controlled by a select few (Global Research)
• Russia's perspective on America: The new bourbons (Pravda)

While the capital markets debate has recently shifted to a discussion of who is right: whether equities, surging higher in expectation of something close to Zimbabwean hyperinflation, or the bond market, where yields have been declining, indicating the much more rational credit world is seeing deflation as the norm for a long time, a different perspective of this divergence can be witnessed by comparing treasury curve flattening versus commodity price movements.

Tishman Speyer's 2006 acquisition of Stuyvesant Town for $5.4 billion apparently is about to turn terminally sour. The "biggest deal for a single American property in modern times" which never managed to be profitable from day one, is on the verge of completely exhausting reserve accounts tied to $3 billion of securitized accounts.The premise - take the 11,227 rent-stabilized units apartment complex and convert them to market-rate. Alas, the timing could not have been worse due to an implosion in the NY rent market, coupled with legal difficulties - to date only 4,350 of the units have been converted to market rate, while the remaining rent-controlled units will likely increase in number due to a recent court ruling.