Archive - Dec 19, 2010

JPM Fraudclosure Whistleblower Emerges

The one main thing missing from the recent escalation in charges against the major banks in regard to the fraudclosure scandal has been an internal whistleblower who can corroborate that all the charges against the various illicit mortgage practices. After all, it is one thing to lay allegations, and totally different for a court of law to find that these are validated. So far it is precisely the latter that has been missing as no court is willing to escalate an issue that could potentially unwind decades of mortgage securitization. Yet all that may be about to change. Daily Finance's Abigail Field presents the case of one Linda Almonte, a former employee of JPM, who is not only suing the bank for wrongful termination, but has now also filed a whistleblower complaint with the SEC. Filed says: "The core allegations add context to her lawsuit, and they charge Chase with grotesque and illegal practices involving its credit card debt processes, including robo-signing." Sure enough, JP Morgan is denying everything. Yet a close look at the details presented by Almonte indicates that either she is blatantly lying, or JPM may be in water just as hot as Bank of America.

Yeonpyeong Island Residents Ordered To Move Into Air Raid Bunkers As North Korea Places Rocket Launchers Along Western Coast

The din out of North Korea was a little too quiet recently. Not so much anymore. Yonhap has just reported that the residents of the infamous Yeonpyeong island, which was recently shelled by North Korea in response to a South Korea drill, and other bordering islands. have been ordered to move into air raid bunkers. This is a very rapid escalation following the earlier announcement by The Chosunilbo that North Korea has deployed rocket launchers along its west coast, in response to a live fire artillery drill which South Korea announced earlier would proceed as planned. "The North also reportedly made coastal artillery ready to fire and put some fighter jets on the west coast on standby." Elsewhere, the USAF 36th Wing, which includes B-52a and B-2s, is being put on special alert in case thing get really out of hand...

Riots Erupt In Bangladesh After Stock Market Plunges 6.7%

For what may be the best look at the future of the world's most recent Banana republic entrant (the U.S.S. of A. for the confused) has to look forward to, we need to merely shift our attention at another one, which has had the privilege of experimenting with its Banana status for far longer: Bangladesh. After the stock market plunged on Sunday by 552 points or 6.72%, hundreds of angry investors took to the streets, "threw bricks at police, marched in the streets shouting slogans, and staged a sit-down protest." These very same "investors" which have and always will be better known as momo investors, which chase returns only to end up with the live grenades, "chanted slogans against the government and the regulators, and marched
through the busy roads in the Motijheel Commercial area, halting
traffic. They also staged a sit-in at the SEC building." The reason for the recent mass hysteria in chasing stocks: pretty much the same as what the Fed is trying to do right here in the US: "The rising value of the stocks in recent years has attracted hundreds
of thousands of small-scale or retail investors in Bangladesh, says the
BBC's Anbarasan Ethirajan in Dhaka. It became a popular investment for ordinary people, often providing higher returns than bank deposits and savings." Well, with the USA today posting an article with the following title on its cover page: "Experts agree: Get over your fear and get back into stocks ", and more incredulously, when one of these so-called experts is none other than David Bianco, the same utterly irresponsible creature who in October 2008 cut his 12 month S&P forecast from 1650 to 1500, well there is nothing much left to say: Bernanke has succeeded in converting America into a third-world subcontinent country.

Sean Corrigan On Six Sigma Events In The Bond Curve, "Inexorably Rising Risk", And Other Observations

Diapason Securities' Sean Corrigan is rapidly emerging as one of our favorite macro commentators. With his dose of weekly skepticism, he has quickly assumed the position vacated by Goldman Sachs' Jan Hatzius when it comes to the 3Ms: market, monetary and macroeconomic commentary (courtesy of the now well-known and very infamous flipping by the German strategist on his outlook on the economy). In his latest outlook piece, Corrigan dissects recent moves in the bond market, noticing a 6 sigma, three-decade statistical aberration when it comes to the 2s5s30s butterfly, and continuing through the implications of increasing bond vol on other risk assets (a topic which we believe will receive much more focus in the coming weeks and months), on fund flows (his views on the implications of the December Z.1 statement are worth the price of admission alone), on the cooling off of the European "economic miracle", and lastly, on what China's refusal to attempt a soft landing means for global risk. His conclusion is as always absolutely spot on: "in short, that risk assets can continue to rise, pro tem, it also means that RISK itself will be climbing inexorably up the scale and on into the danger zone."

The Next Stop In Obama's Political Suicide Tour: Announcing Social Security Cuts During State Of The Union Address

Obama's latest quid-pro-quo with the republican party over a doubling down on fiscal stimulus in the form of mutual back scratching, funding by yet another trillion in debt, may have well be the start of his toxic spiral to the the bottom of political insignificance. According to Politico, "The tax deal negotiated by President Barack Obama and Senate Republican leader Mitch McConnell of Kentucky is just the first part of a multistage drama that is likely to further divide and weaken Democrats." Next up on the path of what many see as the terminal alienation of the president from his liberal constituency, will occur during the next State of the Union Address, when the teleprompter in chief is expected to announce cuts in Social Security, according to Politico which quotes "well-placed sources." Why will the president pretend to espouse even an ounce of fiscal prudence? Because, around that time the discussion over the US debt ceiling will be in full heat: we expect total US debt to be about $14.1 trillion by the end of January: just a $200 billion buffer from the debt ceiling breach. Therefore, as Robert Kuttner of politico speculates: "The idea is to pre-empt an even more draconian set of budget cuts likely to be proposed by the incoming House Budget Committee chairman, Rep. Paul Ryan (R-Wis.), as a condition of extending the debt ceiling. This is expected to hit in April." And as Kuttner once again phrases it best: "How to put this politely? For a Democratic president, this approach is bad economics and worse politics."

Review Of Europe In 2010, And The 2011 Continental Outlook From The Rosy Prism Of Erik Nielsen; Is A New European Brady Plan Coming?

Reading Goldman's economic thoughts as recently as 1 month ago used to be insightful, and in many ways educational (this included its trading recommendations as well: after all, as the saying goes, someone who bats 0.000 - with perfect consistency - is just as valuable as someone who does 1.000). Unfortunately, ever since the firm, buckling under the demands of someone or something, or merely as an expression of its latest counter-agenda, flipped by 180 degrees, we are sad to say that it is nothing less than a complete chore to go through what is now an endless stream of Kool Aid, which while at least trying to be somewhat objective previously, is now like sitting through a Third Reich propaganda movie circa 1940. Which is why we scanned Erik Nielsen's latest "thoughts" on what happened in Europe in 2010 and what he expects to happen in 2011 with only a cursory focus. We present them here for those who care to know what the greater fools will be influenced by (to a little or greater extent). The key topics covered are: "Some thoughts on 2010, what we got right and what we got wrong; Will early 2011 be as bad as everyone seems to expect?; Reiterating my views on rescue or no rescue for Spain and Portugal; And the two key conditions for the longer term." The only really interesting observation is Nielsen's take on the European Plan B should all other measures fail: a Brady type of debt buyback. To wit: "The only real suggestion I have seen so far on this issue was the suggestions by the ECB’s Bini Smaghi, who pointed to a Brady style buyback of debt in the secondary market using loans from the official sector.  I like that.  As some of you know, I worked on the Brady plan at the World Bank years back, and this venue worked well in several cases." The bottom line is that even according to Nielsen, Europe has to become increasing more entrenched as not only a monetary but also fiscal union, with perpetual backstops at every stop. And since the dollar funding shortfall in the world amounts to over $6 trillion per last year's BIS analysis, said backstop will ultimately have to be funded by the Fed (with the respective consequences to the dollar as the Fed is engaged in printing nearly double digit trillion amounts of US currency). That said, Nielsen is certainly right about one thing: there will be some "amazingly interesting" events in 2011...

Guest Post: For How Much Longer Can China Resist Raising Rates?

The main focus of QE2 is not domestic but international, exporting inflation and forcing BIC's hands. This is highlighted by Brazil's immediate and very public, very undiplomatic response as well as Bernanke's very undiplomatic jab at China shortly after QE2 announcement. In this it's been very successful. BIC have been trying very hard to resist. Although India has given in and raised rates, Brazil and China (along with other export economies such as Japan and South Korea) have been resorting to other means. But for how much longer can they resist?