Archive - Sep 2009

"The enormity of the current financial collapse raises the question whether the crisis could
have been predicted. This is the second of two Economic Letters on the topic. This Letter
examines research suggesting that early warning models would not have accurately
predicted the relative severity of the current crisis across countries, casting doubt on the
ability of such models to forecast similar crises in the future." - San Francisco Federal Reserve

The Financial Times recently reported on the Fed’s latest exit strategy to eventually contain the inflation zombie...TD touched on this last Thursday, and we will expand upon it here as it is particularly relevant to our ongoing theory that it is the proceeds from permanent open market operations (POMOs) and their close cousins that are driving equities. Though this may be received wisdom to ZH readers, the Fed has done us the favor of providing additional evidence through the FT story. A bit of background, as we are new contributors to this forum:

Goldman Sachs, which disagrees with Edmunds' expectation for an 8.8 million September SAAR, has shared its own projection of 9.3 million. Even so, the drop from the 12.5 million in September 2008 and the 14.1 million in August, is dramatic. What is scary is that there is no indication October will be any better. The only new initiative launched by Detroit: 60 day money back guarantees. Will that stimulate car sales, or simply end up as a bureaucratic nightmare for dealers, is still unknown. Although rental companies, those Chinese rockets like Hertz and Avis whose stocks have gone up by about 10,000%, will very likely not be too happy that GM has now also entered the "rental" car business.

Very predictable to see the "DaBoyz" use the light volume session today to mark everything up for Quarter End, re-substantiate Bernanke, Geithner, LLP as the leader of the "G-String" (aka G20) oligarchy, and blow up some GridBot and Forex Megadroid players at the same time.

Rep. Paul Kanjorski is preparing to take the rating agencies head on with a bill on credit agency reform. Some key Bill highlights presented.

A chart showing the relative performance of the SPY and the UUP (dollar ETF, shown inverted). The no volume equity market no longer cares about either correlation or causation.

After a very weak start to the day, the dollar has regained all of its losses. Bonds are trading appropriately. However, don't tell that to the few computers who are pushing stocks to each other today: stocks are still at the days high supported literally by no volume.

“[Bank of America and Merrill Lynch] were concealing billions of dollars in losses with one hand and clearing the way for extravagant bonus payments with the other. This case gives the public pension funds and other shareholders a chance to stand up against Wall Street.” - Richard Cordray, Ohio Attorney General

A mere two hours into the holiday trading day, and the SPY is already 20 million below the average cumulative volume. With nobody trading, it is time for the straight line up autopilot.

Today seems the perfect day to remind readers about our piece: An Open Letter To The Financial Media.

If the American people want to get the US financial system under control, then the first areas of investigation, we submit, must be fiscal and monetary policies. And if Americans do not soon get control over the habit of borrow and spend practiced by the Congress and facilitated by the Fed, then end result must be a populist backlash against Washington and incumbents in politics and the corporate world. As Congressman Ron Paul (R-TX) writes in his latest book, End the Fed: "Nothing good can come from the Federal Reserve… It's immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty."

What better way to celebrate Goldman's recent Conviction Buy optimism on Top 20 Bankruptcy Candidate Textron, and the private jet industry in general, than by clamping down and preserving liquidity at all costs? That's precisely what Textron competitor (and Goldman Sachs portfolio company) Hawker Beechcraft did earlier today.

REIT stocks benefited mightily from Merrill Lynch's generosity earlier in the year, when the ML REIT team issued follow on equity offerings, followed by prompt upgrades to the stock, although not necessarily in that order. The bottom line - roughly 5% in underwriter fees on almost $20 billion worth of new equity issued. And while last week's REIT massively downsized IPOs were an indication that the top for REIT stocks has come, that has not prevented Ken Lewis' firm from continuing to profit handsomely from the next shoe to drop in real estate.

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

• World Bank chief to take shots at the Fed (WSJ)
• Taleb: "Bernanke, Geithner and Summers didn’t see the crisis
  coming so why are they still there?" (Bloomberg)
• More taxpayer funded bailouts coming up (Bloomberg)
• Andy Xie: When one bubble burst deserves another (Caijing)
• Obama's Too-Big-To-Fail is Too Dumb To Pass (Bloomberg)
• Federal Reserve reverse repurchases (Econbrowser)