Archive - Oct 2010

Is America a great country or what?

I don’t think commercial real estate is the big Achilles heel for these institutions right now because of the manipulations the federal government has undertaken. I think the real Achilles heel for all these banks, and for bond markets, is going to be the residential markets. Not to be overly dramatic, but this is a huge ticking time bomb. Things are getting worse, not better. - Andy Miller

For our non-Trekkie readers, Kahn was played by Ricardo Montalban (the boss from Fantasy Island fame) and he was the baddest dude in the universe. Fortunately for the Federation of Planets, Kahn also had one bad trait - stubbornness. You see, years earlier Captain Kirk defeated Kahn and banished him to a remote planet for the rest of his life. Year pass, and out of the blue Kahn emerges, more powerful than ever with one objective - get even with Kirk. Without making a long story longer, Kahn actually has the enterprise defeated but his preoccupation with destroying Kirk as well, blinded him to a counterattack. From his Captain's chair, watching Kahn on his 120 inch plasma TV (another early invention by Star Trek), the good Captain pulled the trigger on the biggest giant death ray known to mankind whispering "Here it cones" - and with that, Kahn was gone. Fast forward to October 2010. Ben Bernanke, the Chairman of the Federal Reserve (the most powerful financial institution on the planet) is also sitting in his captain's chair, watching a 120 inch plasma TV and he too is getting ready to pull the trigger on his own version of "Here it cones." What exactly is "it"? Well, "it" refers to a big helicopter filled to the blades with money - Helicopter Ben, you see, is about to drop the single biggest financial bomb ever: anywhere from $500 billion to $7 trillion onto America.

With QE2 now the functional equivalent of a reality show (for the financially semi-literate), here is a rundown of the key actors, the main cliques, and their public motives (their real motive, as those of any banker, is a simple, and green, one) ahead of the November 3 season finale of the FOMC follies, from Goldman's Andrew Tilton.

At this point what is there to say that has not been said already 23 times in a row? ICI reports the latest fund flow data: flows into everything are up... except domestic stocks. The only silver lining: the outflow is declining, and we may just see an inflow next week. Although at $81billion in redemptions YTD, even an uptick eventually would be too little to late. The only marginal buyers continue to be the primary dealers (using POMO cash), desperate pension funds (getting led to the slaughter), and algos which churn stocks a few million times per day, end on a loss, but then collect liquidity rebates from the exchanges and are happy. Aside from these three, there is nobody else.

A lot of economic reports have come out in the past several days but the data that caught my eye were industrial production, retail sales, and business inventories. There is evidence that retail sales have been improving but in light of a negative consumer sentiment, is that true?

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 20/10/10

While it will have no bearing on your trading today or probably tomorrow, the following story will drive the economic future for years. I have been warning for a while about currency wars, trade wars, and civil or outright good old fashion wars... in fact since 2008. 2 out of 3 so far: not bad, and the 3rd one is just about as likely to come as winter follows autumn. - Nic Lenoir

The tech trifecta reporting after hours. E-Bay beats across the board, Seagate misses, Netflix misses EPS, FCF plunges and has Q4 guidance below consensus, but new subscriber adds seem to be all that matters as computers lift every offer inciting a short covering rush.

After major gains were seen in the USD on Tuesday following the surprise decision by the PBOC to hike rates the greenback staged a swift reversal and retraced nearly the entire move as investor focus returned to the potential for the Fed to embark on additional quantitative easing (QE). Sources indicated on Wednesday that a major US think-tank believes the Fed maybe be siding on the opinion of purchasing USD 500bln of treasuries over the next 3 to 6 months with the possibility of extending the program over the next 12 to 18 months depending on economic data. Although the analysis would be logical in its proposed method it will likely fuel expectations in the near-term that the Fed will pull the 'QE trigger' in November so the weakening trend looks set to continue. In sympathy with the USD move the commodity linked currencies such as the AUD and CAD have also staged an impressive rebound with AUD/USD reclaiming the 98.00 handle midway through the US trading day, a gain of over 100 pips on the session. - Talking Forex

The good news: title insurers may be getting back into the game. The bad news: they will demand indemnity and warranties from the issuing bank assuring their paperwork is sound before backing sales of foreclosed homes. At least this is what the largest title insurer in the US, Fidelity National, will do going forward (which makes one wonder just what exactly FNF's job function is if the mortgage issuing bank, such as BofA, now caught in too numerous RoboSigning scandals to mention, essentially takes over the title guarantee process...) From Bloomberg: "An indemnity covering “incompetent or erroneous affidavit testimony or documentation” must be signed for all foreclosure sales closing on or after Nov. 1, the Jacksonville, Florida- based company said in a memorandum to employees today. The agreement was prepared in consultation with the American Land Title Association and mortgage finance companies Fannie Mae and Freddie Mac, Fidelity National said." And what happens if the bank is once again caught to be, gulp, lying? Who foots the bill then? Why the buyer of course. All this does is to remove the liability from companies like Fidelity National and puts it back to BofA, which is already so much underwater it has no chance of really getting out without TARP, contrarian Goldman propaganda notwithstanding.

Geithner’s strong dollar comments, China's surprise rate hike, and worries about the U.S. mortgage market led a flight by investors into U.S. Treasuries. Some analysts believe that there may be a currency accord right before the G20 meeting. However, from all indications, China and Geithner appear to be acting under totally separate agendas however “coordinated” they might seem.

And here come the US taxpayers to bail out the world's biggest and most toxic bank. Reuters reports that Bank of Countrywide Lynch has sued the FDIC, and is demanding $1.75 billion from US taxpayers to recoup investor losses over a rather interesting spin on foreclosure gate. Bank of America, as trustee for failed Taylor Bean's Ocala Funding Unit, is angry that the FDIC has denied claims by Ocala noteholders to recover from Colonial Bank and an
Illinois lender also in receivership, Platinum Community Bank. The FDIC had previously served as received for Alabama's Colonial BancGroup and Taylor Bean which Zero Hedge wrote about last year. In its lawsuit BofA said Ocala used proceeds from note sales to Deutsche Bank and BNP Paribas to buy Taylor Bean mortgages, but is no longer able to repay noteholders. Yet, as Reuters reports, here is the kicker: "Bank of America accused executives at Taylor Bean, Colonial and Platinum of having fraudulently schemed to "double- and triple-pledge mortgages and steal assets" to hide their faltering conditions as the housing market declined." Ironically, this is precisely what some are accusing BofA itself of having done. And to a much greater degree.

Last week I thought the dollar was bottoming and I stand by that as it’s an important time to stay flexible and take those BS long profits off the table before the market takes it for you!

A little reality about the job situation in this country is in order. The unemployment rate reported by the Bureau of Labor Statistics and parroted by the mainstream media is currently 9.6%. Once you stop counting people who have given up looking for jobs and “left the workforce”, discouraged workers, marginally attached workers and workers forced to work part-time, you magically get a 9.6% rate. Using the method of measuring unemployment used during the Great Depression and reproduced by www.shadowstats.com, the real unemployment rate is a depression-like 22.5%. The peak unemployment rate during the Great Depression was 25%. There is no doubt that we are in the midst of 2nd Great Depression, but where are the bread lines and the lines of unemployed winding around the corner? No need. This is the electronic Great Depression – iDepression 2.0. Your 99 weeks of unemployment and food stamps are direct deposited into your bank account so that you don’t have to leave the comfort of your McMansion that you haven’t made a mortgage payment on in the last 14 months. There were no credit cards in 1933. Without a job or a house, you needed to move to where there might be a job. Hence the mass migration from the Midwest to California – ala The Grapes of Wrath. Today, a neighbor in a matching McMansion down the street, with the perfectly manicured lawn, could be unemployed for three years and no one would ever know. They could sustain themselves on unemployment payments, food stamps, and credit cards. Welcome to the iDepression 2.0.