Archive - Sep 18, 2009

Are Teachers and other pension funds flying off course? Only time will tell but they sure are putting lots of eggs in the infrastructure basket. As with any investment, the benchmark should reflect the beta, credit risk and liquidity risk of the underlying investments. Infrastructure is a long-term asset class but it isn't free of risks and the benchmark must reflect this.

Looks like Flash Orders are getting the ax.  We're looking forward to the sound of the blood splatter, in fact.  And the sound of Radio Zero.  So, after some mic checks, and general audio antics starting... oh... now, we'll go live around 10:00 ET.  Then... with a little luck... our special audio guest (who must remain nameless because his label- like most labels- frowns on the use of his name for performances they did not arrange and therefore are not getting a cut of) will join us after-hours. And I mean REAL after-hours.

Pick up our West Coast Mirror (with 1000 slots) here: http://216.218.252.88:8000/listen.pls thanks to the mind-blowing generosity of EGI Hosting.

Chat up the DJ (send your .mp3 files) here: radiozh.

Or... #radiozh on EFNet (for the real chat nerds).

Don't forget, Irene is merely the messenger... for very conflicted market participants who want nothing more than to perpetuate the current system. Yet her book is, presumably, her own product, in which, if one were to actually read it, one would likely find some discussion of Flash. Keep in mind this particular messenger was never heard or seen before Flash became the hot topic de jour. One wonders why this specialist on fair "computerized daytrading" never pointed out her misgivings about Flash before her suddenly numerous TV appearances. Do remember: keep your messengers closer.

The IMF's unprecedented sale of one eighth of its total gold holdings is sure to incite a moderate revolution among gold fans.

"One thing people completely missed is that last year's USD sharp rally was as much a function of flight to quality, as it was a function of the lack of liquidity. Everybody was short, many businesses or traders borrowed USD to fund their various activities, and when things froze the USD strength was exacerbated by those people scrambling to buy USD to cover their funding. If you need proof just wonder why the Fed established $600Bn worth of currency swaps with other central banks... Specifically to avoid all the USD shorts to go completely bust."

The stuff just got serious folks. "The FBI involvement opens up the possibility of criminal charges, although the scope and possible outcome of the probe remain unclear."

And this occurs even after he so correctly called the end of the recession... Life is so unfair. Yet it must go on. Our candidate for the new 8 pm spot: Amanda Drury, doing an overdub of the Porn Special. Over and over.

Frequent Zero Hedge readers are aware of our fascination by the ethically pure and intellectually honest legacy rating agencies (read S&P and Moody's), whose primary goal in life is to provide readers of its reports with unconflicted, unbiased research, without regard for the top and bottom line of key Wall Street firms, which purely by accident happen to be the biggest sources of revenue to these same NRSRO via structured products which are spun off from the banks' balance sheets and sold to highly sophisticated, erutide yet unfortunately bankrupt island nations (which luckily have a monopoly on geysers and 6 foot tall women to feed their GDP). The complete transparency that shrouds the work of these rating agencies, and the integrity of its professionals is beyond reproach, and where, contrary to litigation disclosure, the phrase "let's hope we are all wealthy and retired by the time this house of cards falters", was massively taken out of context and was simply referring to an intern's attempt at recreating the Sistine Chapel using nothing but 10 decks of Bicycle cards.

It is good that the long discussed on Zero Hedge topic of prop versus flow trading at Goldman is finally starting to gain some attention. Today, it comes courtesy of former CEA Chair and Nobel prize winner Joseph Stiglitz: "The main problem that Goldman raises is a question of size: 'too big to fail.' In some markets, they have a significant fraction of trades. Why is that important? They trade both on their proprietary desk and on behalf of customers. When you do that and you have a significant fraction of all trades, you have a lot of information. That raises the potential of conflicts of interest, problems of front-running, using that inside information for your proprietary desk... If you're going to trade on behalf of others, if you're going to be a commercial bank, you can't engage in certain kinds of risk-taking behavior."

"As the risk of catastrophic failure of the financial system has receded, the need for some of the emergency programs put in place during the most acute phase of the crisis has receded as well. The Guarantee Program for Money Market Funds served its purpose of adding stability to the money market mutual fund industry during market disruptions last fall and ultimately delivered a healthy return to taxpayers."

The Fed's scheme to destroy the dollar is taking the world by storm with everyone now taking advantage of the soon to be issued $100 trillion Federal Reserve Note, and issuing wallops of dollar denominated bonds. Robert Mugabe gets the memo last and launches an all out campaign to convert all Z$ based securities into US Dollars. And with that the wholesale debasement of all US dollar debt is off to the races.

"According to the US Federal Reserve’s latest Flow of Funds report released on Thursday, the market
value of corporate equity at the end of the second quarter was 0.78 times companies’ net worth at
replacement cost. We suspect the continued rise in share prices during the current quarter has since
pushed up this ratio – known as “equity Q” – to around 0.9. The geometric average of equity Q since
1900 is around 0.64. The stock market is therefore roughly 40% overvalued relative to historical
trends based on this yardstick. Our other favoured metric, the 10-year cyclically-adjusted P/E ratio
(CAPE) of the S&P 500, also suggests the market is overvalued. At a current level of more than 19, the
CAPE is about 30% above its long-run average of below 15." - John Higgins, Capital Economics

The unemployment rate in California has hit another record, at 12.2%, while the temporary reprieve in Michigan, which may have been due to a temporary pick up in labor as a result of CfC, is back to losing jobs: after hitting a record 15.2% in June, and dropping to 15% in July, the August unemployment rate is once again at the 15.2% high. Only 17 states reported declining unemployment rates in August, led by Indiana (-6.6%), Colorado (-6.4%) and Virginia (-5.8%). On the other end, the biggest labor losers were: New Mexico: 7.1%, Nevada: 5.6%, Louisiana: 5.4%, District of Columbia: 4.7%, and New York: 4.7%.

in short - nobody.

Yesterday Bob Toll sells 1.6 million shares of TOL. Today JP Morgan upgrades the stock, raising its recommendation from Neutral to Overweight, and stock price from $17 to $29.

What are the possible conclusions:

1. Bob Toll is a hopeless fool who knows nothing about his company's business prospects (unlikely)
2. Bob Toll does not have access to the JPM research reports huddle (likely)
3. A Rorschach test of JP Morgan analyst Michael Rehaut using the picture below reveals an answer of "a diamond in the rough" (near certainty)