Archive - Nov 17, 2010

Now I don't mean to be overly cynical or anything...

Following the roughly two-year overdue rout of municipal securities, which somehow has caught market "professionals" by surprise, there are increasing calls that the Socialist States of America should bail out all the insolvent cities and states that back these securities post haste. Judging by the approach to risk (or lack thereof) so far by supreme chancellor Bernanke and his impotent fiscal policy determining brethren, this will certainly happen within the next 12 months. But the government may be smart to leave some money on the sidelines: another far more prominent bankruptcy is coming - that of the US Postal Service itself, which in tried and true fashion, continues to raise compensation even as net income plummets, and the organization can no longer be deemed to be long-term viable. John Lohman explains.

Bernanke is like the Sorcerer's Apprentice: Given the magic hat - he commands his broom army to fetch buckets of dollars to inflate the economy the easy way but his lazy solution quickly turns into disaster as the waters start rising and he finds he has no way to stem the rising tide

Once upon a time, making partner at Goldman was the pre-transsubstantiated equivalent of admission to paradise on earth: no more worries about money, caviar, cristal, hookers, coke, lawsuits, or any of the other things that mere peasants have to bother with on a daily basis. Goldman's pronouncement: "These appointments recognise some of the firm's most valued senior professionals and acknowledge their leadership and contribution to the firm's culture of excellence." Translation: congratulations, you are now all social pariahs, and will forever be perceived as those who rape and pillage their fellow man only so the firm can create a (monopoly) market in any and every weapon of mass financial destruction, and conspire with its biggest clients to rape those other clients who do not quite generate $100MM+ in commissions per year. Which is why it gives us great pleasure to post the list of the 110 brand new appointed Goldman partners for 2010. It is unclear as of yet how many Goldmanites may have suffered the ultimate indignity - being de-partnered, also known as growing a conscience.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 17/11/10

The WGC has released its complete Third Quarter gold market outlook. To summarize: major demand is seen out of China and India, whose surging populations will buy ever more PM due to "rising income levels, high savings rates and strong economic growth." Demand is seen coming from the jewelry sector, as well as from institutions, including central banks, and a jump in industrial demand "on the back of renewed growth in the electronics industry, due to the majority of semi-conductors being wired by gold." Nonetheless, even as demand continues growing, supply is rising as well: "On the supply side, we reiterate our projection that total mine supply is likely to trend higher. This is due to mine project expansions, a ramping up of production to meet the recovery in gold demand and the diminishing scope for producer de-hedging in 2010. Higher supply is also expected to come from China, Australia and US, although this may be partially offset by lower output from countries such as South Africa and Peru due to declining ore grades and rising costs." Ultimately, the only important question is whether QE will ever end. Anything less than a Yes answer, means there is virtually no upside limit to gold, absent an occasional correction.

As we reported earlier, today's $10 billion (lack of) Revenue Anticipation Notes to be issued by California has been delayed. It turns out there is more than meets the eye: namely a lawsuit, which has been disclosed only post-facto. From Dow Jones: "Lockyer issued a notice for the deal's preliminary official statement on Wednesday that said a taxpayer lawsuit was filed in state court on Tuesday seeking to block the sale of 11 state building. If the sale is not completed by June 30, fiscal year 2011 state revenue would be reduced by $1.2 billion, the notice said." In other words, there will be much less revenue to be "anticipated." As for the actual auction, unlike GM which according to Government Motors star employee of the millennium Phil Lebeau is oversubscribed so many times one needs an abacus to figure it out, only 59% of the Cali RAN was presold. In the meantime, the muni mauling continues with extra vigor and finding bid pockets has become tougher than discovering an honest banker.

Possibly the most incendiary moment of yesterday's fraudclosure hearing in which Bank of America and JP Morgan representatives saw no evil and heard no evil, even as Chris Dodd wanted it over so he can buy no evil with the years of accumulated lobby booty from said banks after his long overdue reign of corruption finally ends, was when the CEO of the Neighborhood Assistance Corporation of America, Bruce Marks, realized he has had enough of the endless lies and goes postal at the appropriately named JPM henchman David Lowman, CEO of Chase Home Lending. After Lowman says that "Chase strongly prefers to work with borrowers to reach a solution that lets them keep their homes" Lowman flips out. Watch the hilarious results here. This video is merely a harbinger of what happens when pent up anger at banker lies overflows. Luckily, this time everything ended peacefully, and to the banks' credit, the voice was promptly silenced. Next time, it won't be so easy...

I give up on Sheila..

Another day, another POMO. Today Brian Sack bought up $8.2 billion in various CUSIPs maturing between 2018 and 2020, with the issue accepted the most ($2.3 billion) being 10Y LJ7, issued last September. As all of the recently auctioned off 10 Years are now trading at lower prices than where auctioned, not surprisingly neither the NT3 nor the ND8 had any buyback submissions as PDs would be underwater on the buyback. The total submitted to accepted ratio was 3.7x, lower than median and generally indicative of spare dry powder at the primary dealers. And so the PDs make another few hundred million courtesy of commissions and par-market differentials. Aside from that, nothing else to see. Market focused on closing tick to see if POMO has now become a curse instead of a blessing.

Over the past day, some have gotten concerned that the reappearance of HR3808 on the floor of the House may be another shadow attempt to override the president's veto which could, if passed, ameliorate the fraudclosure situation (yet which if Diana Olick's report about an imminent settlement is correct, may be moot as is). Courtesy of a highly ranked political advisor, we present an alternative view, stating that HR3808 is not about enforcing banker interests, but more about delineating the separation of powers between the president and congress. Either way, the bill's attempted passage can be watched live here.

In this week's Straight Talk with Chris Martenson, contributor is James Howard Kunstler, author and social critic. His better-known works include The Long Emergency, in which he argues that declining oil production will result in the decline of modern industrialized society and compel Americans to return to smaller-scale, localized, semi-agrarian communities; World Made By Hand and its sequel, The Witch of Hebron, all published by The Atlantic Monthly Press. He writes a weekly blog is also a leading proponent of the movement known as "New Urbanism."

It appears the market still is unable to fully grasp that QE3 - the Municipal edition, is just around the corner. From Dow Jones: "Institutional pricing of California's $10 billion of revenue anticipation notes, which had been scheduled for Wednesday, has been delayed until Thursday, a market source said on Wednesday. The reason for the delay was unclear and there was no immediate comment from J.P. Morgan, the deal's senior manager. Retail investors snapped up $5.89 billion or nearly 59 percent of the offering during a two-day presale period on Monday and Tuesday, according to the state treasurer's office." Here's the reason: all the free capital out there has been sequestered in what will be not only the world's biggest IPO tomorrow, but more importantly, the world's biggest flop soon thereafter.

First city of Hamtramck filing bankruptcy, now this... From Moody's: "The downgrade to A2 reflects continued weakness of the city's finances, which had improved from 2005 to 2007, but deteriorated in fiscal 2008 and 2009, and improved in 2010, but continue to face challenges in the coming few years. Although fiscal 2010 results are favorable, General Fund balance remains negative, both on a budgetary and GAAP basis, and we believe the city has little budgetary margin over its five-year plan which includes significant repayment of deferred pension contributions in 2013 and 2014. In response to the significant financial stresses that began in fiscal 2008, city officials created a fiscal recovery plan that included a temporary sales tax increase and the pension deferral in fiscal 2010 and 2011; the plan gained the required approval from the Commonwealth of Pennsylvania legislature at the end of September 2009, allowing for the sales tax increase to begin at the beginning of October. Additional revenue and expenditure reductions in fiscal 2010 resulted in surplus operations, although these were diminished from previous forecasts due to a late state aid payment of approximately $70 million; much of that revenue has since been received."

UPDATE: "Mr. Ellison asked unanimous consent that debate on PASSING H.R. 3808, the objections of the President to the contrary notwithstanding, be limited to 10 minutes. The House resumes today at 10am." Watch it live here...