Archive - Jan 2010

Is the government going to force 401k and IRA money into treasuries?

Or is that just a wild rumor?

As a muni trader, my bonus is derived directly from my P/L which is accrued over the quarter and kept in a separate account. It does not go into the firms bottom line and then back out to me. Also, like most traders, I accrue 2% of my gains in a loss provision account in case I have a major write-down in the year. My bonus is 10% of my profit for the year. If I make $50mm for the year my bonus is $5mm

What does my bonus have to do with the MBS trader who's sitting on losses? Did I or did I not show a profit of $40mm to the firm’s bottom line?

A summary rundown of some quick thoughts

One of our favorite strategists, SocGen's Dylan Grice is out with a masterful in its simplicity analysis, looking at the possibility of a funding crisis enveloping the governments of the developed world, and originating in the place where ever more people see brewing trouble: Japan. The full presentation can be found here, and while we recommend a full read, for those strapped on time, here are the cliff notes.

A central feature buttressing myriad defenses to the more opaque practices implicit in Federal Reserve secrecy has always been the importance of maintaining "the independence of the Federal Reserve". Recent developments, with respect to the Federal Reserve's "clandestine service directorate" now give us cause to respond to this rationale with a resounding: "Shenanigans!"

Update: Would it surprise you to discover that the Fed is resisting additional disclosures? Probably not. The method of their concealment is quite interesting, however.

A terrific list of questions that the FCIC should ask banker executives, conceived by the trio of Eliot Spitzer, William Black and Frank Portnoy.

Matt Goldstein at Reuters is on a roll: after pointing out the SEC's complicit role in the AIG disclosure fiasco, today he highlights the list and details of securities that was purposefully and willfully redacted by the same SEC that today filed a second lawsuit against BofA, after Rakoff yesterday told the queen of corrupt and incompetent regulators to shove it. The list of redacted CUSIPs contained in the Schedule A to the AIG Shortfall Agreement with the Fed's Maiden Lane III (aka Taxpayer-to-Goldman Money Transfer Special Purpose Vehicle) indicates all the underlying securities which ended up being repaid to the nationalized insurers' counterparties at 100 cents on a dollar, when in fact their market value was well over 50% lower.

Leading groups were slammed hard. Typical and usual Options Expiration Racketeering. Anything in an uptrend where massive call buying was taking place was smoked. Tomorrow, they will probably vaporize some puts.

As I have stated throughout all of last year, the macro, fundamental and
political headwinds facing banks make them good shorts and risky
investments. They faced a good run in this recent bear market rally,
but the spirits have cursed them for the medium term. In addition,
these guys act as if they have never heard of PR and strategy, ex. this
bonus thing.

Last month, acting on behalf of institutional investors of some note, Grant & Eisenhofer filed suit challenging Goldman's bonus policy. Now, it seems, suits like this might say something about what is in store for Goldman (and its stock price) in the years to come.

And so it escalates: first the head of the Argentine Central Bank was demonstratively sacked by the president, and now Argentina funds held at the Federal Reserve have been "embargoed" by US District Judge Thomas Griesa. We are doing a thesaurus check to see if embargoed is a synonym for confiscated. Wily old Ben - always coming up with new and improved ways to create funding crises thousands of miles away (as long as they are not at the Marriner Eccles building). We are confused how gold has so far managed to escape the same "embargo" fate as the South American country.

Yesterday we suggested the Fed's recent cosmetic changes to Primary Dealer application requirements were merely a front for what we (and the Fed) expected would be an onslaught of new Primary Dealer applications. We were right. Dow Jones reports that less than 24 hours after the NY Fed press release, Societe General, infamous for almost singlehandedly causing the Fed to lower interest rates by 50 bps in 2008 when Jerome Kerviel went apeshit and killed the market in January of that year courtesy of a few billion futures dumped overnight, Scotia Capital and TD Securities are already lining up to become primary dealers. Allowing foreign banks to become Primary Dealers is nothing but a back-alley way to provide bailouts to international financial institutions and bypass the respective central banks completely. The Fed is priming itself to be global financial lender of first and last resort once again. We wonder why the urgency, and what is it that the Fed, but not the broader market, is seeing.

Can you say "Massive Debt Overhang", Kids?

• Yields 1.490% vs. Exp. 1.513%
• Bid To Cover 2.98 vs. Avg. 2.99 (Prev. 2.98)
• Indirects 38% vs. Avg. 59.02% (Prev. 60.9%)
• Indirect Bid To Cover at 1.37
  
• Alloted at high 79.20%
• Direct bid surges from 2.9% in December to 23%

Indirect bid plunges to 38%, from 60.9% in December, 68.5% in November and a 59.02% average. Direct Bidders jump to a record 23% compared to 2.9% in December. This is a very material development in change of the traditional purchasers of govvies.

It appears the shit in housing is about to re-hit the fan. While in December, the Mortgage Brokers Association anticipated an already staggering 24% drop in mortgage originations, a mere month later they now see the drop to be 40%. And all this occurring with Q.E.'s MBS purchases set to expire in less than 3 months. With mid-term elections coming, someone better line up more bailouts, stimuli and subsidies pronto. The American dream of middle-class homeowner debt slavery must continue.