Archive - Jan 20, 2010

Looks like private equity is staging a comeback but will it last?

It appears that prop trading could soon be on its way out. Luckily, it only accounted for "just over" 10% of Goldman's revenue: it will therefore likely not be missed. Bloomberg writes: "President Barack Obama tomorrow will offer new proposals on limiting the size and complexity of proprietary trading systems as a way to reduce risk-taking, a senior administration official said." While this is not yet the formal end of prop trading which may or may not be a legal way to take advantage of the commingling between flow and prop trading, thus scalping clients in a perfectly acceptable manner (define the word "acceptable"), it has all the makings of the beginning of the end. And, much more importantly, this marks the long-awaited beginning of Glass-Steagall's return.

Chinese GDP is officially in the redzone: at 10.7% YoY, while Q3 was revised to 9.1%. For all of 2009, Chinese GDP rose at 9.7% (2008 came in at 9.6%): China's mystical printing machine helped the country avoid any aspect of the global recession, and these are not the droids we are looking for. At the same time the country announced a 1.9% CPI increase YoY in December, even as 2009 saw a -0.7% decline in CPI, compared to a 5.9% increase in 2008. Retail sales in 2009 surged at 15.5% nominal and 17.5% real.

Rep. Darrell Issa comes out guns blazing once again, alleging that the Fed provided a selective response to the subpoena to provide all documents relating to the AIG bailout, and asks Edolphus Towns, Chairman of the House Committee on Oversight and Government Reform, to hold Fed officials responsible for this act, in contempt. While we are confident that the Fed will promptly respond to this request for incremental disclosure, we would like to propose some additional very material and non-public information that Congressman Issa should request from the Fed...

Summary and my thoughts on a trio of Dr. Marc Faber's latest interview where he discussed his 2010 outlook on China bubble, sovereign default risk, stocks and commodities.

Well, if yesterday did not seal the Democrats' fate ahead of the mid-term election, this proposal, if passed, certainly should.

Update from reader Steak (via Politico): President Barack Obama is expected to appoint a special deficit reduction commission as part of a tentative agreement between Democrats and the White House—each trying to find the votes to raise the federal debt ceiling in the coming weeks.

From Mary Schapiro's speech at the 37th Annual Securities Regulation Institute at the Hotel del Coronado, California, surely a very much deserved, and taxpayer sponsored boondoggle, on the changing landscape in financial markets. Presented without expletive filled commentary.

Developing story. Too much other fallout to deal with than to promote the bubble blower for another term? Only 11 days left... Better hurry

In his latest weekly commentary, Inflation Myth and Reality, Dr. John Hussman makes the argument that changes-in federal government spending dictate the future path of inflation. As shown below, his data set covers the period from 1951 through 2008 and there appears to be a decent correlation.

Has it been a whole 24 hours since we last heard about Mutual Assured Destruction if bankers don't get their way? It must be, because according to Dow Jones the Treasury market is presumably considering how to exclude the $5 trillion repo market from any "banker" taxation after "market participants" implicitly threatened with failed bank auctions unless this exemption is granted.

Another horrific reversal of the "risk-on" / "risk-off" trade today, as investors were spooked over the possible financial implosion of Greece. And in today's "mouseclick" world, hedge fund managers hit the "eject" button and sold anything and everything related to emerging markets and piled into safety assets.

Regime changes are fun: last year it was California that the "smart money" was betting on for secession, earthquakes, default and a wholesale apocalypse. Over the past 3 months, attention has shifted to California's much smaller cousin in Europe - Greece, whose CDS, having been dormant during most of the credit crisis, has recently overtaken California by a substantial amount. Yet what in Greece's staggering budget deficit and untenable debt load was unknown 6 months ago that is known today? Absolutely nothing, as none of the recent developments should be construed as "news", yet with everyone talking about it, CDS traders are more than happy to capitalize on the hoopla and crush the bulls. The point here being that if traders think Greek default risk is material, how should the world's 7th largest economy feel? Yes, they legalized grass, but somehow we doubt that is a viable model to bridge the gap from here to insolvency. And with the Massachusetts referendum now shutting the door on any future bailouts, those of states most certainly included, we wonder: shouldn't the entity with the $10 billion deficit be trading just a little wider of little old Greece? California CDS have been on a tear, and after hitting a low of 160 bps, are now back to 273. Their high was 400 in the depths of the post-Lehman shitstorm. And while the Federal picture since then has improved only thanks to the Fed's wanton destruction of the middle class, for states it has only been an increasingly bumpy downhill ride.

A week ago we speculated that the mysterious "direct auction bidder" may be China, purchasing Treasuries indirectly though offshore money centers. Yesterday's Treasury International Capital data confirms that there is something strange happening with China treasury purchasing, and adds more fuel to the speculative fire that China is in fact acquiring Govvies through less than overt pathways.

McKinsey has released a very detailed report which focuses on the "final frontier" of the global credit bubble: the migration of private sector leverage over to the sovereign balance sheet, and the viability and sustainability of this process. This is not a new topic on Zero Hedge, and as Greece just experienced today, unless a country is well equipped with the dynamic duo of a reserve currency and a printing press, surging sovereign debt usually ends with just one outcome...

A look inside the correlations between short-term borrowing access for financials abroad and the dollar's value reveals striking implications, should the dollar reverse to the upside.