Archive - 2009

Developing story and developing sovereign debt collapse.

So Citi buying Wells' follow on, Wells buying BofA's, and BofA about to buy Citi's? The $50 billion circle jerk in full glory. Looks like the CEOless fbank is about to get the best deal of all (while everyone else bails). Offering to follow shortly.

Paul "We need a housing bubble" Krugman reaches new heights in objective, hypocrisy-free self-assessment. In his latest blog entry analyzes the destructive effects of the magazine cover effect. He should know...

Every FOMC day is the same. Stocks flatline in the morning doing nothing, then suddenly wild gyrations as traders frantically try to parse the "words" spewed forth from The Beard. Billions of eyeballs watching the 1-min. chart of the Euro, and billions of anxious fingers rattling the F11 and F12 keys. Meanwhile, other individual stocks getting dunked or skyrocketed on OpEx plays exaggerates the action. Kind of like being on a date with some psycho chick on crack.

The only real action after the FOMC statement so far has been on the long-end of the curve both in USTs and mortgages. Kneejerk sell off in the Fannie 30 Year, is matched only by the puke in treasuries, where the spread is now much tighter, wait, wider, no, no, tighter.

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

While all of this is short term noise, it is absolutely amazing that there would be this much commitment to the market after a 60% plus run in the S&P500.

No sooner did Jeff Merkley announce his opposition to Bernanke ahead of tomorrow's reconfirmation farce/hearing, than key Republican Senator John McCain said that he was leaning against voting for the the Chairman. McCain said he would favor either former Fed Chief (and apparently only sane economist in the Administration) Paul Volcker, or ex-Treasury official, and creator of negative implied interest rates, John Taylor.

“Tomorrow, I will vote against confirming Ben Bernanke as Chairman of the Federal Reserve. The reason, in short, is that as Chairman, Dr. Bernanke failed to recognize or remedy the factors that paved the road to this dark and difficult recession. Following our economic collapse, it is also apparent that he has not changed his overall approach to prioritizing Wall Street over American families." - Senator Jeff Merkley

Regulatory capture has allowed what was just a bunch of stinky bank balance sheets to literally threaten the economy. Here is another shining (or stinking, depending on your perspective) example.

More bad news for a troubled Greece. More bad news for a troubled Greece. And all this happening even as finance minister George Papaconstantinou says that Greece "is not banking and not operating under the assumption" that the Hellenic country will be bailed out by its Eurozone neighbors. He has certainly studied the Dick Fuld script well.

One of the numerous adverse side-effects of the horrendous policy decision to start bailing out each and every risky bank, and thus allowing no more risk in any investment (for the time being), has been the very simple observation that massively mispriced risk has gotten concentrated to an unparalleled degree among very few players. The population of Big Banks has been massively trimmed (Goldman thanks everyone for allowing them to have massive Fixed Income bid/ask spreads) and now a mere five banks account for the bulk of loans, deposits, and derivative exposure. When the economy is faced with another Lehman event at some point in the future, when bailing one of the Big 5 is no longer feasible, the delayed consequences which have so far been successfully swept under the rug, will come back in time and bury any positive legacy that the Man Of The Year may have created. One indication that this time may be sooner than most think comes out of the St. Louis Fed itself, which has released a paper titled "The evolving size distribution of banks" in which it highlights the expected: big banks are getting bigger, and are holding a record share of all rosky assets. When the asset repricing moment occurs, absent an apriori renewal of Glass-Stagall, look for the inevitable moment of complete House Of Cards collapse.

RANsquawk 16th December US Morning Briefing - Stocks, Bonds, FX etc.

Recently, an extended analysis by Shadow Stats' John Williams evaluated the risk of a hyperinflationary episode as one which has the potential to come as soon as next year. Somewhat in support of this theory yesterday's read of PPI came in above consensus, indicating that inflation may indeed be coming. Yet today's CPI data, whose core read came in at 0.0%, may have just poured a whole lot of cold water over Williams' thesis. Nonetheless, at the end of the day Williams may be right: the question remains - if and when the excess reserves start hitting the broader currency (as the Fed is scared shitless to withdraw liquidity on its own), we may experience a transition from deflation to inflation so rapid, that is has no historic analog. At the end of the day deflation will likely be the name of the game for quite some time, until such point as "Man of the Year" Bernanke finally flips (the turbo print switch on), and any pretence of prudent monetary policy is thrown out of the window. At that point, look for the stock market to promptly go to 36,000 followed by an even faster drop to 0, all the while the dollar gets hyperdeflated (Zimbabwe redux). With the Administration set on not losing the midterm elections by a landslide, don't expect much in terms of economic experimentation at least until 2011. At that point, all bets will be off as the Fed will likely have at most 2 more years of shelf life before both its, and thus Wall Street's, life support are forcefully yanked out.

Citigroup: “Today we announced a series of transactions to repay the $20B of TARP outstanding and terminate the asset guarantee we received from the U.S. Government.”

Translation: I am sick of working for $1 per year.