Archive - Sep 2009

• China local governments may risk insolvency in investment drive (Bloomberg): Editorial alert - apparently this headline was too risky, so Bloomberg promptly changed it to "China Investment Drive May Imperil Local Governments"
• Crudele: What did Paulson know and when did he know it? (Post)
• What the SEC might look like if it did its job (Bloomberg, h/t Kevin)
  
• The government ponzi comes full circle: FDIC may borrow funds from banks (NYT)
• Fed effort to stoke growth may be undermined by "tight" credit (Bloomberg)
• Laffer: Taxes, depression and our current troubles (WSJ)

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

• ADB revised its GDP for developing Asia for this year to 3.9% from 3.4%.
• Asia will expand faster than expected through 2010 on stimulus: ADB.
• Asian shares were mixed Tuesday with investors cautious after Wall Street's pullback overnight.
• August passenger revenue taken in by U.S. airlines slid 21% from the year-ago month.
• China stops issuing new licenses to institutions seeking to join bidding for initial public offerings.
• China's auto exports fell 57% to 191,000 in first seven months this year.
• China's stimulus delays restructuring of economy to consumption, ADB says.
• Dollar falls as Asia-Pacific region's economic recovery spurs yield demand.

"One year ago, almost to the day, the U.S. economy had a financial heart attack, from which it is still recovering. That heart attack, like all heart attacks, was a shock, and it has caused much discussion about who is to blame, and how can we avoid such heart attacks in the future. In my view much of that discussion has been off point. To make an analogy to a physical heart attack, the US had a heart attack because it is the equivalent of a 450-pound man with serious ailments too numerous to list, who is trying to live as if he were still a 20 year old who can party 24-7. It doesn't take a rocket economist to know that that will likely lead to trouble. The questions I address in my testimony are: Why didn't rocket economists recognize that, and warn society about it? And: What changes can be made to see that it doesn't happen in the future?" - David Colander

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When the Fed spends the time and money to provide an "in depth" analysis of whether the asset bubbles it itself creates over and over are predictable, you know you have reached escape velocity.

A few brave economists believe fiscal and monetary stimulus, as well as improved productivity, will help the United States bounce back stronger than anticipated, helping it to leap hurdles such as high unemployment, a soaring budget deficit and a beleaguered consumer.

If the budget deficit is $1 trillion per year, how much do we have to borrow? The answer is closer to $2 Trillion. The existing debt has to be refinanced too. Can this be sustained? Forever?

In other news, soon to be skyrocketing Udmurtia unemployment from released Kalashnikov assembly-line workers, will be well below worst-case expectations, resulting in a dramatic pop in the regional stock market, where three Atari 2600 machines trade 10 shares of the one listed stock. Next steps: UAW to start a local branch to assimilate the work pool, and all secured debt in the semiautomatic gun maker will shortly be wiped out courtesy of a Steve Rattner, who seems to have disappeared completely from the face of the earth (but not so sure about 998 Fifth). Lastly, Goldman will somehow end up with full equity control over the legendary maker of AK-47s.

"We understand investors are not supposed to fight the cash, but this is starting to become a bit ridiculous. It seems buyers of the market cannot be satiated and are vociferously purchasing the lowest of credit quality without restraint. With the high yield priced at roughly 770bp over Treasuries, it can be argued the market is still historically cheap – because it is. The visceral reaction to the 80bp tightening of the last two weeks has been, “too much, too soon,” and that sentiment is probably correct too. Unfortunately, these are the kind of dynamics that cause strategists to wake up in the middle of the night and go for a long run. Short-term technical concerns are running at odds with our longer-term fundamental view." - John Fenn, HY Strategy, Citigroup

Vicis Capital, a $2.9 billion hedge fund started by Lehman trader John Succo has halt client withdrawals after it received $550 million in September redemption request. The firm has already paid down $2.7 billion in comparable redemptions since October. The asset manager's Vicis Capital Fund, a $2.5 billion volatility fund, has been the primary culprit for LP dissatisfaction after losing 12% YTD, having returned 14% in the last year.

Developing story: The trap is closing, Ken Lewis is sweating, Hank Paulson is evaluating one way ticket costs to non-extradition treaty countries.

Following up on our call for a reversal in USD weakness, here is what we see in the very short-term: USDJPY has broken its downtrend channel as expected. 91.65 is now support and upon retest we would expect the market to follow through and go higher after this break.

Headlines, as always, from the highly entertaining News From 1930 blog. And all, very appropriate for our blow by blow recreation of the Great Depression, courtesy of the historically predisposed Chairman.

Bank of America has just over $8 billion in 90+ days past due compared to a little over $14 billion in Non-Accrual. So for every $1.00 they have on Non-Accrual they have $0.57 in potentially near-term charge offs. Naturally, not every...