Archive - Jan 2010

As you recall, my take on the deflation vs inflation debate is much less crystal ball-ish than many other pundits on the web. I never was very much into fortune telling or forecasting the future. From what I observed and researched, if I had to make a call that call would be stagflation.

On that note, here is an interesting note from one of my site's subscribers on how China is exporting to what is amounting to stagflation to the United States, now!

JP Morgan's Q4 results show that banks are not only still in hot water yet, but the pot hasn't even really started to boil. Why is it that I look at the info and get such a different impression than much of the media and the sell side who proclaim "blow out results"? Yeah, the results "blow" alright...

Let’s Try Chinese Style Securities Regulation. Just execute the bastards! Great for the human organ business, but not so good for crime prevention, or getting your money back. The urban legend about a vast secret complex of government concentration camps is true. The next kidney up for sale may be yours.

According to the C.D. Howe Institute and the British-North American Committee, the governments of the UK, US and Canada are understating the true cost of public sector pension plans. If true, then you got the seeds to the next debt time bomb. The hard road ahead is looking harder when you sit back and analyze the implications of all these pension liabilities, especially if you consider the possibility that they're grossly understated.

With $13,636 million in total 2009 inflows, we present... Gold

There has been much discussion about the possibility of a dollar carry trade. Although I’ve resisted it, it seems pretty clear at this point I was wrong, and there is full-on dollar carry trade. This is bad, bad news for everything else, and I’ve nick-named it The Unwind.

It is the Unwind because the dollar shouldn’t be a carry currency: it is volatile anyway, and that combined with its reserve currency status makes it like playing with gasoline and matches. Wild swings in exchange rates followed by asset markets are often the result of an incremental leveraging and then a violent unwinding carry trade. Get ready for some dollar love that will burst many bubbles and illusions.

The Unwind will initiate the next iteration of debt-deflation. Don’t let the current optimism and propaganda dull your wits: optimism prevailed from 1929 to the spring of 1931.

Much hope had initially been placed in Obama's Home Affordable Modification Plan (HAMP) whose purpose was to keep millions of homeowners out of foreclosure. Yet a recent analysis by Moody's senior director Celia Chen demonstrates that out of the 3 to 4 million loans that the administration had hoped would benefit from HAMP, at most 1 million will experience a foreclosure benefit, and more realistically, this number would be a mere 400,000, less than 1% of all U.S. first mortgages.

Complacency reigns as they don't ring a bell at the top.

Just because the regular US market is closed doesn't mean the ever vigilant futures traders are not HiFTing the living daylight out of the any and all nanopoint trends they can find. And already the market, in the complete absence (literal, not metaphoric) of any volume, has managed to recoup a major portion of Friday's "sell the JPM and INTC news" losses.

All the latest news about the accelerating deterioration in CMBS, courtesy of Barclays' Aaron Bryson.

The World Gold Council has released the latest sovereign gold reserve holdings data. In December, total gold holdings climbed by 132.7 tonnes to 30,117 tonnes. This is the equivalent of 965 million troy ounce equivalents, which at $1,135/Tr Oz comes out to $1.095 trillion. In the grand scheme of things, it seems like a relatively insignificant insurance amount in case the great fractional reserve banking experiment comes to a premature end. The biggest changes in holdings in the September-December period were for the IMF, which sold 212 tonnes of gold, while India (200 tonnes added), Russia (39.3), Sri Lanka (10) and Mauritius (2) all saw an increase in their gold holdings. The top 5 holders of gold continue to be the U.S., Germany, the IMF, Italy and France. China did not adjust its gold holdings in the last three months of 2009.

Poor Greece, and poor Europe: the two are now caught in such an unwinnable tug of war, that the EU is considering unwinding the very fabric of its union (an action, which some say, may not be the worse idea in the here United States) and set the struggling Mediterranean country loose. And if and when that starts, it is game over European Union. Yet posturing will do nothing to change the fact that even as Greek CDS hit an all time high last week, the economic catastrophe in the Ouzo-loving country is accelerating. The latest to join the Greek bashing goon squad is Deutsche Bank, with a note released on Friday, which highlights the key dangers to the country: the ability to finance deficits, capital flights, and an outright default if money does not turn up from under the mattress.

Valuehuntr.com is offering extra incentive to help the victims of the earthquake in Haiti. Please take advantage of this opportunity and contribute to the Red Cross through his site. A donation won't make up for past sins but will represent a charitable start to the new decade.

A summary recap of the bullish groupthink gripping the Barron's Roundtable. As David notes: "The emerging consensus is that everything is just going to be fine and that we should expect nothing more than a second-half economic slowdown, and that if there is a sharper turndown the monetary and fiscal spigots will be turned on even harder. The market is seen no worse than fair-value. Treasuries remain the enemy."

The age old question rises: with everyone bullish, who is selling?

Amusingly, of the top 10 large hedge fund winners in 2010, only 6 are above their high water mark. And if what we are hearing about some of the other "winners" is true, make that less than 50%. Curiously, Jim Simons who is currently enjoying his retirement in some country with no collocation facilities whatsoever, lost out to the robot onslaught: Medallion was up a mere 38%, roughly the same as RIEF's S&P underperformance in 2009. And speaking of, we will have some interesting things to say about Medallion/RIEF in a few days.