Archive - Sep 2009

In 10 days auto companies will announce their September auto sales. If auto specialist Edmunds.com is right, expect to see an unprecedented decline in the September SAAR number: from 13.7 million in August to a 28 year low of 8.8 million!

As everyone is focused on such trivial matters as how much money Lloyd Blankfein and Jamie Dimon will make this year, or how many quadrillion in Treasuries the Fed will monetize in the next year or two, Wall Street's two behemoths, Goldman and JP Morgan, have been pursuing a stealthy roll up of the media industry, preparing to exercise full equity control over an unprecedented amount of TV, radio, newspaper and magazine companies. Whether their alleged motto "Propaganda or bust" is true, only time will tell.

The degree of intermediation by the Federal Reserve in the issuance of US Treasuries hit a record in Q2, accounting for just under 50% of all net UST issuance absorption. This is a startling number, as the Fed's $164 billion in Q2 Treasury purchasesdwarfs the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. In fact, the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases.

• California's financial depression: unemployment and underemployment rate at Great Depression levels. 23 percent unemployment for biggest state in the nation. California will not see housing peak until 2030 (Dr Housing Bubble)
• Jim Grant: Ringing the bell at the top (Financial Armageddon)
• Peter Schiff: Lehman Brothers revisited (TheStreet)
• FHA faces money squeeze after insisting it needs no new money (AP)
• 2 Nobel economists confirm that credit is not credted out of excess reserves (Washington's Blog)

We are in uncharted territory, so now more than ever, pension fund managers, board of directors and plan sponsors need to review their asset allocation more frequently, making all necessary adjustments as the environment evolves. Complacency and following the herd is highly irresponsible, ensuring mediocre performance over the long-term.

To attach any significance to the market's current strength is wrong.

Is a major political scandal brewing in New York? A year and a half after taking over for a disgraced Spitzer, Paterson is now at war with everyone, but most notable the New York State Budget, and now, the President. The motive, one can speculate, is to get Cuomo into the governor's post immediately if not sooner, so the AG never files any criminal charges against Ken Lewis.

FHA announced last week that they were having some problem with their reserve levels. Making 100% loans in Puerto Rico might be part of the problem. Ski resorts may be another issue for the folks at FHA to worry about.

We'll be taking the service offline for a little while in the near future so I can do some maintenance. It shouldn't take long, but we'll miss you. Promise.



UPDATE 9:35



We're back online, and everything is working smoothly.

The most recent weapon in the Fed's arsenal to pump liquidity into the market, which has for weeks now been groaning higher on liquidity fumes and on algorithmic speculation, is presented in the calendar below. Market bears would be well advised to familiarize themselves with it, because if history is any indication, these are the days when Primary Dealers will go berserk, funneling generous Fed liquidity from one asset class (70 Days CMB T-Bills) into another (equities).

After spending much time in the Middle East I have come to appreciate the politics of the region as well as its geography. I am taking some analysis done by Project Mayhem a bit further to offer my interpretation of the events to come as I believe we have only scratched the surface of what I believe is coming. I would also like to include ZH’s ship report as further evidence that my analysis may not be too far off.

Trying to sell this market has been a recipe for disaster, but one of my favorite indicators does not believe the creep up in stocks. Here comes the VIX again.

On September 25, 2007, the President's Working Group on Financial Markets, better known as the Plunge Protection Team, announced the formation of two private sector committees, one comprising of Asset Managers and the other, of Investors. It is the first one that is more interesting, as the committee is chaired by one Eric Mindich, best known for his Goldman Sachs wunderkind status, who at 27, was the youngest Goldmanite ever to be promoted to partner. In 2004, Eric split off from Goldman, nonetheless maintaining a favorable relationship with the mothership through its "Fund of Funds" division (we jest), and its various Prime Brokerage client platforms, by starting Eton Park, which with its starting capital of $3 billion, is still likely a record of highest AUM at a fund's inception.

According to the BBC, the issue of the Tobin Tax, which as we reported previously, had garnered some vocal proponents recently, but was never expected to be anything than mere discussion points, has gotten a firm G-20 supporter in the face of French president Nicolas Sasrkozy. And while the opposition of the US is a certainty, the recent overtures by FSA Chairman Adair Turner in which he announced he would consider a Tobin tax implementation, means the US could be all alone in its disapproval of this form of taxation.

The Fed now has $15 billion in purchasing power left under the Treasury component of QE. Of the $1,250 billion in MBS projected to be bought by the end of the year, the Fed was already purchased $840 billion, leaving $410 billion in budgeted purchases over the next three and a half months: about $125 billion per month.