Archive - Sep 2009

As you have all read by now, Corus Bancshares went belly up on Friday adding yet another failed institution to the growing hall of shame. What makes Corus unique, however, is that they may have been the first failure with little to no delinquencies in their major loan portfolios.

I still think the best course of action is not to fight the tape, and of course, don't become fodder for the bulls.

The financial sector's oligopoly and consolidation through acquisitions and taxpayer guarantees is choking off regional banks and their stock internals and recent options activity suggest substantial downside risk.

In response to many inquiries about the process of UST purchases, and the simplification of the key actors, it is usually best to get the information straight from the horse's mouth. I present a paper from the New York Fed highlighting statistical data of Treasury purchases by purchaser, which also lays out the basics needed to understand what in theory happens when an auction occurs.

• Must read: The trade war is on: China looking at US auto, chicken dumping (Bloomberg) - time for our President to bring back Smoot Hawley
• Must read: Henry Paulson's longest night: an insider's look at Hank's tenure together with much embargoed information (Vanity Fair, h/t Deadhead)
• Must read: The deal of the century (Esquire)
• Must read: A story about the imminent decline of New York in four parts, from Der Spiegel
  • New York faces dramatic consequences of crisis (Part 1)
  • A bubble develops every ten years (Part 2)
  • Everyone around here was on welfare or drugs (Part 3)
  • We're at a watershed, everyone knows that (Part 4)

The main question here is whether the relative Tender points of focus are indicative of where treasury market participants expect key inflation inflection points. And, furthermore, the record Tender amounts in the 3, 5 and 7 more recent auctions, could also be explained as a wholesale fleeing from the tender loving care (no pun intended) of the equity market. Cumulatively, between all tenors, as of their last respective auctions, practically half a trillion ($496 billion) was tendered, of which just $185 billion was accepted. There is thus another $310 billion that will likely continue getting tendered in future Treasury auctions (absent a dramatic change in economic climate), and probably flee equities, at least in a non-bizarro world.

Extrapolation exercises are fun, even if mostly futile and usually ending in tears. Nonetheless, as the VIX continues collapsing compliments of the dollar carry trade, we provide some observations from the latest bullish converts. It would appear the memo David Bianco received has made its way around the BofA vacuum tube network to the Merrill Lynch Credit Strategy team, headed by Jeffrey Rosenberg, which has thrown in the glove on cautiousness.

Just because every economic collapse has one...

“The economic fallout of the recession continued to push commercial and multifamily delinquency rates higher during the second quarter. Lower levels of employment, the pullback by consumers and other aspects of the slowdown translated into a difficult operating environment for many income-producing properties. That in turn has led to increased stress on the loans those properties support.” Jamie Woodwell, Mortgage Bankers Association

The banking/ hedge fund/ private equity/ commercial real estate bubble is the Mother of All bubbles, but this is endemic to a culture that promotes excessive risk taking and rewards it with excessive compensation.

The stock market values companies based on earnings. Residential real estate is no different these days. So what's your home worth? Based on this simple calculation it may be lower than you think.

Grandma Janet sounds like an insane and/or senile bureaucrat who does not want to admit that she was one of the select cabal of monetary druids whose mistakes essentially destroyed the financial world a year ago... and their reaction to this destruction has made sure that the US economic system is now promptly heading either toward hyperdeflation or hyperinflation (likely both).

Could this be a sign of things to come? The Obama administration will impose stiff tariffs on imports of Chinese-made tires finding that a surge of Chinese imports has disrupted the U.S. market. Gee, ya think?

Radio Zero Returns. A bit of cautious Friday celebration? Definitely in order. URL here at 8:30 ET.

Meanwhile, chat up the DJ (send your .mp3 files) here: radiozh or EFNet #radiozh

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The last domino of the big three has fallen: Corus Bank has been seized by the OCC. The bank, with $7 billion in assets and deposits, will transfer $3 billion of its assets to MB Financial Bank and all of its deposits. How nice of the FDIC to stick taxpayers with $4 billion in "assets" and no deposits against them. "The FDIC will retain the remaining assets for later disposition. The FDIC plans to sell substantially all of the remaining assets of Corus Bank in the next 30 days in a private placement transaction." The cost to the FDIC, pulled straight out of the rose-colored kaleidoscope, will be $1.7 billion.