Archive - Jan 2010

To: Lloyd Blankfein

Re: Winning the Public Relations War

Six months ago, with what I mistakenly took to be your tacit approval, I attempted to address ordinary Americans, almost as equals.

They envied and resented our firm; I sought merely to correct their misunderstandings about Goldman Sachs and send them on their way, so that they might more briskly resume their quest for gainful employment.

In hindsight, I misjudged their ability to see the reality of their situation, and of ours. At the time I accepted your strong suggestion that I never again try to speak directly to mortals -- or, as you referred to them, “The Morts.”

How to win the war against terrorism. Predator drones are turning the tide. It may all come down to the price of wheat. Afghanistan is a different story. Is this where our zero stock return is coming from?

This is how the cold war will look like in the post-Lehman era (when all the debt risk is held on the public balance sheet): one country urging another to sell a third's bonds. According to Hank Paulson's soon to be released memoir, Russia had urged China to sell its GSE holdings in August 2008 "in a bid to force a bailout of the largest U.S. mortgage-finance companies." China refused... That time. Of course, what has transpired since is that China, through the Fed custodial account, has rotated a vast majority of its GSE holdings into Treasuries, in essence doing just what Pimco's Bill Gross has been doing since the beginning of 2009: offloading hundreds of billions of Fannie and Freddie bonds straight to the Federal Reserve. Alas, the Fed is 93% done with MBS QE... What happens when residual selling of bonds finally hits the public market, and the bottom falls out?

• Goldman not only monopolizes FICC, now has best (read fastest) equity desk; And this is why prop can never be seperated from flow at Goldman (Bloomberg)
• Conflicting Greek stories: EU has no Greek "plan B", Finance Chief pledges cuts (Bloomberg), EU reluctantly plans Greece bail out (FT)
• Funds flee Greece as Germany warns warns "fatal" eurozone crisis (Telegraph)
• Geithner's AIG bailout (The Nation)
• Fed chief on shaky footing after confirmation fight; Tough calls ahead on rates (WSJ)
• Stiglitz: Obama's banking proposals are a good first step (LA Times)

RANsquawk 29th January US Morning Briefing - Stocks, Bonds, FX etc.

The increase in real GDP in the fourth quarter primarily reflected positive contributions from
private inventory investment, exports, and personal consumption expenditures (PCE). Imports, which
are a subtraction in the calculation of GDP, increased...
The acceleration in real GDP in the fourth quarter primarily reflected an acceleration in private
inventory investment, a deceleration in imports, and an upturn in nonresidential fixed investment that
were partly offset by decelerations in federal government spending and in PCE...
Current-dollar GDP -- the market value of the nation's output of goods and services -- increased
6.4 percent, or $221.3 billion, in the fourth quarter to a level of $14,463.4 billion. In the third quarter,
current-dollar GDP increased 2.6 percent, or $90.9 billion.

• Asian stock markets were trading sharply lower Friday after Wall Street's losses.
• Bernanke confirmed by Senate for second term as Fed Chairman in 70-30 vote.
• China's economic planning agency sees crude oil at average $80 a barrel this year.
• Euro trades at almost 9-mt low versus Yen on Greece's budget turmoil.
• European January inflation accelerates to fastest in 11 months
• India raises bank reserve rate by 75 bps, more than expected; Keeps key interest rates.
• Japan Consumer Prices fall 1.3% in December - the 10th monthly decline.

The lead story this morning of ZH is "The Only Thing Better Than A Zero Hedge? Wells Fargo's "Never Lose" Economic Hedge", explaining more accounting shenanigans (if you read the links below, you will see that I have caught Wells in a few rather aggressive interpretations) related to MSR's. One thing that was noted was the inputs for valuing MSRs using interest rates as was extolled by management. Well...

The US Gov't can show 'profits' ad infinitum by endlessly EFT'ing money from the Treasury's savings account (at JPM) to the Fed's brokerage account (at GSCO) and vice versa. Or better yet, the Fed can pay the Treasury several times more by printing trillions of US dollars, buying companies on Wall Street, and achieving small dividends.

Thus, the so-called "profits" are NOT evidence that the US economy is doing well. Far from it, these profits are proof that the printers are working long hours. Moreover, the state's Dept. of Moral Hazard has taken upon itself Robert Wadlow-sized liabilities, which call into question the solvency of the entire American financial system.

RANsquawk 29th January Morning Briefing - Stocks, Bonds, FX etc.

We mean, if you simply had to pick....

Frustrated with hedge funds and private-equity investments, public pension funds are turning to one of the oldest investment strategies—using borrowed money to boost performance...

The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all. - David Reilly

Long-time readers know that I am keenly sensitive to lows set in the equity markets on
consumer confidence reports. In short, if the SP500 is above a significant Consumer Confidence report low
(some Consumer Confidence (CC) lows are more important than others, and this week’s CC low was quite
important as it came just prior to the confluence of several significant events following it), investor
confidence is greater than consumer confidence. If the SP500 is below a consumer confidence low, then
investor confidence is worse than consumer confidence. That in a nutshell explains why it is imperative
stock market traders pay close attention to the Jan 26 CC low was set at 1081-1086. Most important is 1086
pit session low (not the 1081 electronic low) which dovetails much better with the December low anchored
at 1085. - John Bougearel

Another reason for markets to puke. The GDP report. There are very high expectations. Hang on if reality falls short.