Archive - Jan 2010

The Committee emphasized that it would continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. A few members noted that resource slack was expected to diminish only slowly and observed that it might become desirable at some point in the future to provide more policy stimulus by expanding the planned scale of the Committee’s large-scale asset purchases and continuing them beyond the first quarter, especially if the outlook for economic growth were to weaken or if mortgage market functioning were to deteriorate.

As part of the Barney Frank proposed Manager's Amendment, which will accompany HR4173, the "Wall Street Reform and Consumer Protection Act of 2009", are three little-noticed rules that, if adopted, will make shorting stocks if not impossible, then extremely problematic and difficult. It is obvious why these rules would end up in an amendment: the outcry from retail and institutional traders would have been huge had these proposals made the full text of the proper Bill, and into the full view of the Mainstream Media. So why bother with these - simple. As everyone is aware, Ponzi schemes only work when constantly growing, as otherwise they blow up, implode under their own weight, once price discovery is attempted by all. Case in point: when Madoff's securities was unable to find another greater fool in the face of collapsing asset values, the jig was up overnight, and the value of the pyramid went from $50+ billion to $0 instantaneously.

In this manner, Ponzies are like sharks - they need to swim to live: any deviation from the norm threatens their very survival. By comparison, shorting has always been the most traditional way to force price discovery: as idiot money pension funds tend to be long-only, selling only occurs in times when book gains have to be realized, and facilitates a rising market without any natural checks and balances. If this amendment passes, the entire equity market will have become Madoff securities to the dot. It will continue going up, until market values are a reflection of no underlying fundamentals, but simply the latest pension fund long-only dumb terminal willing to throw managed capital into the bonfire of an inevitable future stock market collapse. And, to borrow another page from the Madoff analogy, when the inevitable correction does occur, it would not be 10% or 20%: the entire worth of the Ponzi would be gutted.

"Foremost among the concerns of many is how to design a strategy that does not on the one hand raise interest rates prematurely, thereby prematurely nipping the economic recovery in the bud, while on the other hand does not keep rates too low for too long, thereby creating conditions that lead to a surge in inflation or inflation expectations. What’s needed is an effective policy to prevent the unprecedented monetary stimulus from becoming a destabilizing influence on price stability. Another key is accurately predicting inflation over the next few years.

Fed Chairman Ben Bernanke and other senior Fed officials are quite confident that they have the tools and the determination necessary to prevent an unwelcome acceleration in inflation or inflation expectations. Unlike previous episodes, though, the magnitude of the policy responses to the financial crisis and the Great Recession suggests that the FOMC’s margin of error seems much smaller than at any time in the Fed’s history." - Kevin Kliesen, St. Louis Fed

The key observation today is crude oil which is attempting to break out to new highs. A close above 82 would be resolutely bullish. Given recent price action and the lack of any resistance is seems the market is bound to break out to the upside. However it is worth noting that, until the spike that occurred around inventory releases, we had a possible evening star formation which would be validated if crude closes below 80.63. We therefore have a very tradable reversal/break-out market in place. A retracement should take us back to at least $75, while on the upside I see 96 as the next extension of the rally with intermediary resistance at $87.20 marked by the topside of the channel. - Nic Lenoir

That's right, the shiny yellow metal is front and center again.

One table, two markets. All you need to compare the present market with 1982, courtesy of David Rosenberg. The numbers, unlike TV stations, don't like.

The SEC, which had its Dell-Perot insider trading case handed to them by various blogs, has forced the disgorgement of $8.6 million in profits from the perpetrator Reza Saleh. And while this action is completely insufficient to warrant the continued abuse of taxpayer money by the SEC, and its ongoing worthless existence, we still demand that the SEC immediately initiate an investigation into the blatant insider trading, most likely facilitated by a person at the FDIC, in regard to the New York Community Bancorp taxpayer funded acquisition of recently defunct AmTrust Bank. We will keep reminding the Chairwoman of her grotesque failing as anything but a bureaucrat who managed to milk FINRA for so much more than she is worth ($3.3 million to be precise, and other insane pension benefits), and is currently merely a figurehead, whose sole responsibility is to let the Ken Lewises off the hook with nothing but a handslap.

RANsquawk 6th January US Morning Briefing - Stocks, Bonds, FX etc.

"Longer-term, I still think we are in a lot of trouble, a heap of trouble...I am still on the bearish bent. End of the year I think we will be here or a little lower. I am sorry." - Peter Costa

"The New York Fed continuously reviews the stress value estimates and recently identified and corrected a methodological error. The New York Fed has determined that as a result of this error, one legacy CMBS — CUSIP 059497AX5 — was accepted as collateral that would not have been accepted using the current methodology. However, the New York Fed continues to expect no losses on the loans backed by this CMBS because the stress value is based on extremely unlikely economic circumstances, and because the market value of this CMBS is well above the TALF loan amounts." - New York Fed

When you have your back against the wall, and the only thing at your disposal is the Fed's money printer on loan, what do you do? Well, if you are the Treasury, you let money rain. Literally. In December, according to the Financial Management Service, the US Treasury dispensed a stunning 69.5% more in Social Security Outlays and Unemployment Insurance on a year over year basis: the administration knew all too well it could not afford to let this holiday season go to waste. So, after averaging at $43.6 billion in monthly outlays, Social Security withdrawals from the UST surged by a unprecedented 48.6% in December to a whopping $69.5 billion. This is not a volatile or seasonal series.

• ECB Board member Juergen Stark says buck stops here, EU will not bail out Greece "The markets are deluding themselves when they think at a
  certain point the other member states will put their hands on
  their wallets to save Greece", comments whack euro (Bloomberg, FT)
• In the meantime, Greece, its head stuck deep up its...sand, says bailout not needed contrary to every indication to the opposite (Bloomberg)
• Iceland, and Iceman Mishkin, also thought so once, now country promises it won't default either, Dubai deja vu (Bloomberg)
• If Fed missed this bubble, will it see a new one (NYT)
• The rats are fleeing the global excess liquidity titanic en masse: first Dodd, now Japan Finance Minister - Naoto Kan named new fin minister (Bloomberg)
• Report from the "move your money" front (HuffPo and IRR)

Ontario Teachers' buys AIG's Canadian mortgage business and CPPIB makes some internal shifts in management.

RANsquawk 6th January Morning Briefing - Stocks, Bonds, FX etc.

2009 was an incredibly interesting year both politically and financially, as both arenas are inextricably intertwined, though on the surface, the leaders from these respective industries often bicker and admonish one another for public show, while smiling and shaking hands behind closed doors. Uncovering this complex and hidden connection almost always requires much deeper digging than is ever executed by mass media financial journalists, who often seem more intent on fawning to banking interests rather than revealing the smallest speck of truth to the public.