Archive - Sep 2009

The September 30 statement print is right around the corner, so you have many managers chasing all kinds of assorted junk in order to "beat the index" and stay employed.

They just need about $100 billion in new equity for the stock to be worth anything (oh yeah, and a little more dilution). Let the mutual fund managers line up. They can still make their year.

So, Cramer says milliseconds don’t matter for the average retail investor. But those milliseconds have contributed to a multibillion dollar high frequency trading industry. This money is not created out of thin air (sorry, Ben Bernanke not in this part of the business). Somebody is losing here. And, the retail investor is one of the losers.

"Credit losses continue to put banks’ earnings and profitability under pressure, and the fact that banks’ debt profile is skewed towards short-term maturities makes them vulnerable to market volatility and swings in investor confidence...As we mentioned before, banks have not provisioned for the full amounts of loan and securities losses that they will incur over the coming year, which we expect to reach $470 billion in write-downs by the end of 2010. Approximately only half of this has been recognized to date and we expect earnings to be insufficient to offset these losses during that period, resulting in many banks being unprofitable. The risk premium on bank debt is unlikely to fall in such a context. If anything, it may actually increase, especially for long-term debt which already commands a significantly higher premium. This may, in fact, be the most vulnerable feature of the U.S. banking sector right now." - Moody's

"Most other investors, of course, remain enthralled at the prospect of a vigorous and sustained economic recovery. But with the follies of the financial sector now transformed into public sector debts, to be paid off by higher taxes and cuts to public expenditure, we fear that animal spirits outside the City are unlikely to prove so exuberant. History still suggests that such counter-trend price movements ultimately fail under the extravagance of their audaciousness. Time will tell."

Perspectives on health care reform courtesy of Dylan Ratigan

• Yields 1.034% vs. Exp. 1.0296%
• Bid-to-cover 3.23 vs. Avg. 2.85 (Prev. 2.68)
• Indireect 45.2% vs. Avg. 46.9% (Prev. 49.5%) 
• Allotted at high 27.16%

Noon is the new 1:30pm, is the new 2:30pm is the new 3:30pm. Pretty soon algorithms will gun the market starting before the market opens.

One of the pieces we highlights in today's frontrunning was commentary by Susan Antilla at Bloomberg, discussing the perfect world in which the SEC wasn't merely yet another tentacle of the Wall Street syndicate, slapping wrists and issuing statements now and then to remind of its worthless existence. One of Susan's points brilliantly Swiftian in its simplicity: "Considering the blinding evidence of dysfunction, it occurs to me that enough is enough. Why not just shut the place down?" Many would say this is such an obvious observation that it has escaped the thinking of the majority. Yet when this market bubble pops, which it eventually will, unless the Fed can somehow find a way to bring the value of the dollar to 0, a furious America will once again demand the heads of those who were supposed to oversee the irrational exuberance in progress. At that point Mary's tenure will be over, yet the travesty that is the SEC will likely continue in some form. However, there is a chance for an earlier resolution. Judge Rakoff, who so far has been the critical voice of sanity in a corrupt world, may cross paths with Mary even before her ultimate downfall. And he is not happy with the "regulators"

"For those of you who like conspiracy theories: The Fed is no longer publishing MEW (Mortgage Equity Withdrawal). This was one of the engines of the financial crisis - so much for an early warning on the next housing crisis. ISI will estimate the three main components of the Fed's report and like our estimate for some the old "M" statistics it will be there down the road when needed again." - Carrie Butler

It's supposed to work the other way around. A bank fails, and it's depositors are protected up to $250,000. But, times, they are-a-changin', and the FDIC may just seek help from big banks to replenish funds.

One story that has not made much headlines in the MSM is the sudden escalation in hostilities between Iraqi's Kurdistan Regional Government (KRG) and Norwegian E&P company DNO International ASA. The firm, whose trading on the Oslo exchange was suspended yesterday, and which likely will not trade for several days, has seen a forced halt to its key Iraq oil exploration over a dispute involving a potentially illegal stock sale. As Iraq operations account for a bulk of the company's enterprise value, many shareholders will be quite concerned when shares resume trading sometime on Wednesday.

The latest data out of the Association of American Railroads has been released. While a month ago the weekly YoY decline hit a very troublesome -17.1%, the last weekly decline added another almost 3% to the deterioration, and is now down -19.8% for Week 36. Cumulative traffic decline is flat at -18.4%. Including intermodal traffic or ton-miles in the calculation does nothing to improve the conclusion. Not a single "carload originated" category has improved, and in fact even the relatively stable ones from the prior update have slumped.

Michael Pettis provides an exhaustive overview of his in-depth China views in a three part interview series with FT's Beijing Bureau Chief, Geoff Dyer. Must watch.

This particular Cramer infomercial (just like all others) brought to CNBC courtesy of whoever, as usual, has provided the most in GE indulgences for any particular donation campaign. Pure comedy value, and if you act now, CNBC will throw in the 8 pm spot for free.