Archive - Aug 2009

"Most of the forecasters out there can only see what's happening right now. That's why they are always so wrong. They could never connect the dots... Our phony economy is being propped up by the stimulus and artificially low interest rates, and all of that has to come to an end if we want to stop the dollar from collapsing."

Truer words have rarely been spoken.

We are certain that the unprecedented government policy response to avert a depression-era collapse of our financial system will go hand in hand with an unprecedented number of unintended consequences, perhaps manifested by loss of confidence in the dollar, inflation and possibly both.

"In response to recent media stories on High Frequency Trading, we wanted to clarify our position to clients."

The personal saving rate declined by over 1.6% in just a month. This is relevant as the consumer isn't levering up: savings exhaustion is likely coming at the expense of paper profits in Schwab and 401(k) accounts. Unless the Ponzi can be maintained in perpetuity, when the house of cards falls, the doulbe whammy from savings increase will have a dramatic adverse impact on the economy. Bottom line: another one-time plug to Q2 GDP.

For readers curious to Sheila Bair's perspectives that caused Geithner's Tourette's outbursts last Friday, the Senate Committee on Banking, Housing and Urban Affairs is holding a hearing live now in which the FDIC chairman presents her views.

Insightful commentary from Warren Pollock on how China is quietly getting the hell out of dodge.

The ripfest is unending. Only 6 HY indicative bonds are trading wider of a 1,000, and 6 loans are risky enough to merit 600 bps or more. A combined 4 bonds and loans were wider for the week out of 60. And in the absence of perma yoyo TRW going either 500bps wider or tighter, it was Neiman Marcus' turn to shine in the "ridiculous gyrations" corner.

• Personal spending rose 0.4% in June. Incomes fell 1.3%, biggest drop in four years. Max out those credit cards while you can. (Bloomberg)
• China has become a giant ponzi scheme - Chinese stocks are 50-100% overvalued (Andy Xie, via Ritholtz)
• Must read: from plasma physicist to Citadel's nemesis - profile of Misha Malyshev (Crains)
• Bernanke's exit dilemma (WSJ)
• Federal tax revenues plummeting (AP)

• Asian share markets were higher Tuesday with commodity-related stocks up.
• Construction spending unexpectedly rises on revival in home sales.
• Germany to champion Magna's Opel bid in Berlin talks.
• Dubai real estate prices down 50%from peak: Property Index.
• Anadarko Petroleum swung to a Q2 loss of $216M on lower prices, output up 12%.

SEC charges Bank of America with lying to investors to the tune of billions of dollars, but quickly realizes its mistake and settles for $33 million. Actual payment to be delayed until BofA teller in charge of petty cash drawer returns from vacation.

It seems the Secretary of the Treasury forgot to take his Xanax on Friday. The WSJ reports that "Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration's faltering plan to overhaul U.S. financial regulation." Presumably the source of Geithner's ire was Sheila Bair's (and probably Mary Schapiro's) unwillingness to yield power over to Bernanke.

So let's get this straight: the exchanges (NYSE, NASDAQ) are blaming the Flash guys (Direct Edge, NASDAQ... yeah that last one makes much sense)... and the Flash guys are blaming collocation (Exchanges, HFT)... At least we have full circular blamage. And Schumer and the SEC are somewhere in the middle, trying to figure out this Frankenstein. Good luck.

It was a short 5 days ago that we wrote about CNBC's misrepresentation of this earnings season as a stellar success for companies. Earnings and revenues were down 32.4% and 15.1% then. Since then the economic situation has deteriorated even more: as of today earnings were down 33.4% and sales have declined 17.4%, respectively, quarter over quarter. And while earnings are now supposed to increase by 114.9% in two quarters by inhaling green shoots and what not, more curious is out of what hat will revenues stage a dramatic 22% increase in just 6 months. If anyone held a gun to my head to indicate when disappointment with guidance/analyst expectations would finally set in, i would have to say middle of February 2010 when miss after miss, both top and bottom line, will demonstrate just what an unjustified joke this rally truly is.

"We may not directly respond to flashed order, but for the allotted time, which is milliseconds, that destination would be heavily weighted if we have an order on the opposite side of the flashed order." - Credit Suisse

Yet another day where underinvested fund managers were forced to buy stocks or risk being fired on September 30. Cannot underestimate the panic of a manager who has been reading Roubini, Schiff, Rosenberg about the sorry fundamentals and has been sitting on the sidelines.