Archive - 2009

With a charactersitic [sic] bout of nerve over wisdom, let me offer just one more reply:

What exactly are you arguing about here? Whether I'm a jerk or a tool? Is that even worthy of a single reply? Ok, don't answer that.

What would seem to be worth everyone's time is the focus on the issue raised by the essential disagrement between Rick and myself: are the jobs numbers improving or not and what is the right investment play relative to the direction of jobs and the economy?

-Steve Liesman

Just like football, life is a game of inches. As world leaders gather in Copenhagen this week to discuss measures to protect our climate, is there enough political will to do what's right for the environment and the global financial system?

Earlier today the general public got one of its first public disclosures of what Goldman believes its prop trading operation contributes to the firm's top and bottom line. For those uninitiated with banker lingo, prop trading is basically the profit that Goldman makes by transacting exclusively as a hedge fund: this is not agency or facilitation revenue, but merely principal positions that represent balance sheet risk for the firm. Of course, with the Fed having made clear that America would fail before Goldman does, the definition of risk as it applies to Goldman is laughable. Yet considering that Goldman must disclose a trading VaR , or value at risk on a quarterly basis, which over the past year has averaged over $200 million, one can back into what the actual prop capital and revenue generated by prop strategies is (VaR is simply a statistical calculation of how much Goldman would stand to lose if a "one in twenty" event occurred. It is not the maximum loss risk that Goldman has exposure to - a good example of a terminal event, i.e., one which would leave the firm bankrupt overnight, or aVaR of infinity with a narrower confidence range, would be something like the recently notorious "what if" of an aborted AIG bankruptcy, courtesy of Tim Geithner). Goldman's head of PR claims the Goldman's prop trading accounts for only 12% of net revenue. Zero Hedge disagrees, and we would like to pose a question to Mr. van Praag which we hope Goldman will answer for us in order to refute our observation that Goldman may be disingenuous in its public statements.

Any day that has Roubini making waves, means Rogers (of R'n'R dynamic duo fame) can't be far behind. Which is precisely the case today: as per the interview below, Jim is still bullish not only on dollars (a contrarian play) but on gold, which he seems to value just a tad more than spam, expecting the precious/worthless metal to hit "several thousand dollars an ounce some time in the next decade." Roubini: ball is in your court. Or maybe it is just time to let this one die.

If the recent $750 million Clear Channel deal was not indication enough that the high yield market is now back to 2007 market top levels, the sudden resurgence of dividend recap deals should be a sufficient and necessary condition that company boards are now willing to throw any debt leverage caution to the wind and extract as much proceeds as possible during the current HY offering megaspree before the window closes with a bang. And with investors no longer even demanding any negative covenants, the rush to relever and cash out existing equity-holders will definitely end in tears. Of course, the Fed is there to backstop each and every balance sheet. If Goldman is too big to fail, bond investors will claims, so is 10x leveraged port-a-potty maker UnitedSiteServices (or so PE sponsor DLJ Merchant Banking would hope). And if there is one entity that is ecstatic with the current HY mania (in addition, of course, to equity sponsors who a year ago were staring bankruptcy in the face and are now extracting hundreds of millions on the back of gullible and potentially semi-retarded "long-onlies"), it is Wall Street banks, which have perfected the art of finding retarded idiot investors (in exchange for a meager 3% fee) who are happy to ignore the whited-out "Use Of Proceeds - dividend payment to existing equity" and throw their LPs' money down said port-a-potty.

Something to think about this weekend if you are freezing your ass off, or getting soaked. Is it global warming or global cooling? What have we done to change climate? What happens if we do nothing? What happens if we do something as outlined in Copenhagen? Here's a great summary of the science from Cato. Illarionov was Putin's chief economic advisor.

In a headline piece on roubini.com, Nouriel Roubini writes an extended article slamming both gold bugs, and the so-called gold bubble, which he believes is far too volatile, and which, contrary to ever increasing claims to the opposite, will likely not get to the mythical price of $2000/ounce, and instead will head lower. The argument presented, as is widely the case, boils down to the trifecta of i)gold having no industrial utility, ii) no intrinsic value (no associated cash flow streams) and iii) costing an arm and a leg to store. While Roubini's thesis is attractive on the surface (if somewhat Keynesian and thus often reiterated by mainstream Economists), we present some counter arguments to Roubini's thesis.

Some real estate insight at one of America's nicest addresses. Some other thoughts as well.

When I hear people at the Caisse whining, I tell them to shut up and deliver the goods. Period. The Caisse isn't a charity. It's one of the largest pension funds in North America. The money managers and analysts there are treated like royalty, often spoon-fed by sell-side brokers (what they are fed, that's another matter).

A chart of the past two days' cumulative trading volume speaks...well, volumes. At this point it is safe to say that even machines no longer derive any binary pleasure in scalping humans, and are off to spend the spoils of having run up markets to such heights that nobody will either buy or sell any longer, but merely stare with disbelief.

Capturing energy from the earth’s heat is pretty easy pickin’s for geologically-active areas of the world like Iceland, Indonesia, and Chile. In some locations, hot fluids are so near the earth’s surface that heat from naturally-occurring hot fluids can be directly circulated through buildings for heating. Iceland, in particular, takes advantage of this low-hanging energy fruit. However, in most areas of the world where geothermal energy is captured, the heat is used to generate electricity.

the dichotomy between how investors look at China and the rest of the world

Dark pool operators, who have quietly been redirecting shady order flow via dark pools of "liquidity" with minimal supervision and below the radar for many years, are getting spooked by a proposed SEC rule which would have these same dark pools identifying their trades in real time, thus removing the benefits associated with what is effectively an OTC equities market. Their response: blame it all on the HFT guys, who use the information that would leak to front-run the crap out of the "long-onlies." Yet weren't these same HFTs claiming just yesterday that all they do is provide liquidity and tighten spreads? ... Someone is lying.

We've won round 1!

When is a stock exchange a criminal syndicate? Here's one in Somalia that takes a unique financing approach to a dynamic growth industry: piracy.