Archive - Oct 19, 2010

As the putback parade gets going, the question is not whether the banks can afford to buy back the mortgages. The question is “Can the Banks Afford the Instantaneous and Guaranteed HIT to CAPITAL?” What investors will lend money to see it instantly evaporate, and how much will they charge for those evaporation services? TARP 3.0 coming to a door step near you!!!

Well, that was quick: to all those who put the trade on, convergence accomplished.

Just because it may be time to rebrand the Recovery Fund. Don't be surprised to see some barbell cross-asset liquidations as the BofA bloodbath continues.

Putbacks, bitches! This headline that has just flashed, can not be right. Otherwise it would mean the New York Fed (and Bill Gross) is preparing to sink Bank of America with hundreds of billions of par MBS putbacks. It would however explain why PIMCO has been gobbling up MBS on margin in the past month as we highlighted. We will bring you more as we see it, because this could be a groundbreaking development.

Update: Blackrock joins too! The "soured mortgages" in question amount to $47 billion (to start). We are now just waiting for BofA to next demand TARP 2 and the circle jerk will be complete.

Update 2: Full Bloomberg story attached.

Reminder: Here is JPM's presentation on what the total putback risk is for the Big Banks. As the lawsuit seeks to putback $47 billion one wonders just how accurate JPM's estimate of a $55 billion max pain truly is...

Reminder 2: As our whistleblower pointed out earlier today, the issue of misrepresentation of all mortgage related items (not just titles) is precisely what would destroy the mortgage originators and servicers. Today, Countrywide, its former orange CEO, and Bank of America are the first to realize just how correct he or she was.

Now that DE Shaw and Citadel are pretty much without a stat arb desk, daily divergences are likely to become the norm. To wit: after we highlighted the complete breakdown in correlations earlier, this afternoon's sell off in the AUDJPY has left the S&P/ES roughly 7 points rich. For those who are still stupid enough to actually trade, a pair trade convergence may make some sense here: buy AUDJPY, sell ES. And use lots of leverage: after all, becoming TBTF is every schoolboy's dream. If going down, make sure you drag the entire system with you.

The war of words continues, this time with Dallas Fed's Fisher. More quotes from the fourth spoke in the Kocherlakota, Plosser, Hoenig, hawk sanity quadrangle. In his just released speech we read this stunner: "In my darkest moments,
I have begun to wonder if the monetary accommodation we have already
engineered might even be working in the wrong places." Aside from adding Fisher to the Shirakawa, Hildebrand suicide watch, it is notable that the Fed is finally doubting the actions of the Fed, and realizing it is creating neither employment, nor moderate inflation, but just bubbles, bubbles and more bubbles. And here is why Fisher may soon be looking to resign: "A great many baby boomers
or older cohorts who played by the rules, saved their money and
migrated over time, as prudent investment counselors advise, to short-
to intermediate-dated, fixed-income instruments are earning extremely
low nominal and real returns on their savings. Further reductions in
rates earned on savings will hardly endear the Fed to this portion of
the population." Hardly indeed. And next time it won't be the Pentagon.

The Democrats do the same nothing about this scam that the Republicans did while the American people pay tens of Billions of dollars every month to speculators like GS, JPM, C and other market manipulators who buy oil they have no need of and store it on tankers to fake demand and wait until the last minute to cancel contracts to make sure supplies are in a constant state of disarray - all in order to reach into the American consumer’s pocket and steal as much as they can from one of the few things you can’t do without.

One of the worst top tickers in the history of Wall Street, Goldman's FX team, has come out with a tactical short EURCHF call. Like every other time Goldman says to do something, the prudent thing to do is the opposite. Of course, this means more weakness for gold, as the Swiss Franc is simply the safest equivalent of gold in the monetary realm. Oh well - if better cost bases are to be had, than so be it. Of course, if Goldman is right, this means that today's short-term reversion in gold is just that, and nothing more. On the other hand, we wonder how Goldman reconciles this call with its bet from two weeks ago that the euro is going to $1.55 from the firm's previous target of $1.38, which incidentally was our indicator that the EUR has top ticked.

As always, some very entertaining and enlightening musings from Art Cashin, with an emphasis on Black Monday, modern-day Edgar Allan Poe remixes, and, last and certainly least, the Tepper Corollary.

Sheila shows a weak hand.

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RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 19/10/10

The Pentagon’s main building was struck by several bullets about 5 a.m. Washington time today and officials are looking for the shooter, a Defense Department spokesman said.

Increased Competition begets more pressure on margins. It's simple business 101. But "Apple's margin pressure came from growth so rapid that they couldn't source the components fast enough" you say. I say you should just take a closer look at that story before you go around repeating it... Maybe the Android will listen to it?

About a month ago, when discussing the debunking, for the latest time, the biggest lie in modern history, namely the massive exaggeration about the corporate cash on the sidelines, we noted: "Our advice to all those who like blind lemmings follow the advice and chase the "cash hoard" - think, and do your homework first. If indeed over a third of the record cash holdings are foreign, they are as good as useless to shareholders." The reason for this: a major portion of the billion or so dollars in cash is held abroad and "repatriating this cash to the good old USA would cost companies hundreds
of billions in US corporate taxes. That's right: even though companies
are taxed abroad, the issue of double taxation is resolved by
subtracting foreign taxes paid from the US tax liability. However,
because foreign corporate taxes are typically lower there is an adverse
tax consequence associated with remittance to the parent company.
In other words, of the $1.2 or however many trillions in total
corporate cash on balance sheets, a good 30% chunk of this belongs to
Uncle Sam if these companies wish to use it for domestic IRR purposes.
And yes, just so there is no confusion: using foreign cash to pay dividends or share repurchases is considered repatriation from the perspective of US tax regulations." And now that the cat is out of the bag that the huge cash hoard is really about 30% less, here come these very same multinationals begging Obama for tax amnesty so they can actually bring the cash home and, gasp, use it. Too bad this request will never fly, and why even CNBC may soon (with a few cartoons), understand just how stupid they sound in pumping the hollow cash on the sidelines argument day in and day out.