Archive - Jan 2010

Now, it is time to see if fundamentals return to the market as the write down's start to roll in. This would have made a good "I told you so" accept for that damn bear rally that totally distorted the price of stocks in relation to their underlying fundamentals. We shall see what happens when the rubber hits the road.

The U.S. and Japan face similar economic problems and they are trying to solve them in the same way: fiscal and monetary stimulus. The comparison is eerily similar. It hasn't worked for Japan and it won't work for the U.S. Japan just received a downgrade warning from S&P over their credit rating and the U.S. is not far behind.

The big news on Tuesday was that the International Monetary Fund (IMF) revised up its global growth forecast to near 4% in 2010, with significant revisions to US and Canadian growth projections...

"The steps the government took to rescue AIG were motivated solely by what we believed to be in the best interests of the American people. We did not act because AIG asked for assistance. We did not act to protect the financial interests of individual institutions. We did not act to help foreign banks. We acted because the consequences of AIG failing at that time, in those circumstances, would have been catastrophic for our economy and for American families and businesses." Secretary of The Treasury, long-time TurboTax customer, and resume polisher extraordinaire, Timothy Franz Geithner

We are currently going through the recently released Special Report by Darrell Issa: "Public Disclosure As A Last Resort:
How the Federal Reserve Fought to Cover Up the Details of the AIG Counterparties Bailout From the American People," and a cursory perusal indicates that this could be proverbial end for Tim Geithner...and Sarah Dahlgren is, not surprisingly, mentioned rather prominently...as is Davis Polk. The report's conclusion bears repeating: "The fact that a quasi-government agency, unaccountable to the American people, likely wasted billions of taxpayer dollars and went to great lengths to prevent Congress and the American people from learning about these actions demonstrates the threat that the Federal Reserve poses to basic principles of American democracy."

Some intriguing details released by Senator Bunning and Congressman Issa earlier, indicate that the Fed has finally produced a whistleblower. What will be revealed? And how deep will the rabbit hole go? Or does Bunning already know something. Will Tim Geithner's number one fan pull something out of his sleeve to hopefully derail the destruction of America (aka Bernanke reconfirmation), or is it just more smoke and mirrors?

Talk about a market that breaks your heart when you trust it. This is so not 2010. It is a lot more like 2008 when the gains can't be held and those who buy high are obliterated by the end of the day.

And, like 2008, we don't even know what the silent killer is. New taxes? A new assault on capital by the president? More votes against Bernanke? A sense that the State of the Union will be about how rich people need to pay more? Robin Hood in Chief? Could Bob Prechter have done this with his bearish interview on CNBC? That would be amazing, since he has been bearish for ages.

What a difference two presumably unmanipulated data series show. Earlier, the Conference Board showed that its index had hit the highest since September 2008, based on "improved economic conditions" (god bless them, and here we were thinking that 17.3% unemployment is indicative of just slight deterioration). However, after the close, ABC Consumer Comfort came out, and, lo and behold, demonstrates that another index of so-called consumer confidence in the current "economic improvement" is at an all time low. So seriously, who should we believe anymore? And is it time the Census bureau released an index that keeps track of lies, manipulation and discrepancies between reality and "economic index indicators?"

As expected, Goldman did approach AIG about contract tear downs of its CDS contracts, and "Goldman would likely accept a small concession." This makes sense due to the draconian collateral margin demands that Goldman had previously extracted from AIG (12% positive haircut), and also due to spurious collateral demands made by Goldman ($1.3 billion more than BlackRock's estimated fair value). This is all as Zero Hedge reported yesterday. Yet another smoking gun emerges, this time not from Goldman, but from French bank Societe Generale...

You read it here first:

Hearing bank selloff fueled by a competitor 's bank analyst relaying details of his conversation w/ Volker- which had a very hawkish tone. Chatter of a block of citi to trade post close.

We started the year saying that without a catalyst equities would trade between 1014 and 1236 for the S&P future, knowing that we think there are a number of risks that could lead to much more aggressive downside scenarios. Our outlook has not changed. And we still feel that China is one of those catalysts that could create serious problems in the market. - Nic Lenoir

"With respect to these investigations, it is SIGTARP's policy not to comment publicly on non-public, ongoing criminal or civil investigations, and thus we cannot comment further at this time, other than to note that these assertions do not at this time constitute a factual finding by SIGTARP. At the conclusion of the investigations, however, we anticipate that the details of our findings will be reported to Congress, as appropriate, either through formal court filings or in the form of Investigative Reports." - Neil Barofsky

Dear Congressmen, please read this before your questioning of Tim Geithner tomorrow. A complete and thorough investigation by David Fiderer, into what is allegedly the greatest (Goldman-facilitated) taxpayer heist in history for the sole benefit of the self-proclaimed Masters of the Universe.

Also, Dear FRBNY general counsel Thomas Baxter - please tell us how the below is wrong? Because it would appear your proclamations of saving the world are not only self-serving, but flawed and hypocritical beyond measure:

"The party line, expressed in Too Big To Fail and elsewhere, is that an AIG bankruptcy posed a greater systemic risk than a Lehman bankruptcy, because AIG was so much bigger. But that analysis is highly superficial and very misleading. AIG itself was a holding company, which guaranteed the debt of its unregulated financial subsidiary, AIGFP. The lion's share of AIG's revenues and profits, and about 80% of its consolidated assets, were concentrated among its different insurance company subsidiaries. Those insurance companies were solvent. They did not pose any systemic risk. In fact, it's quite likely that they would have continued to operate outside of bankruptcy.

The only subsidiary with major problems was AIGFP, whose financial obligations were guaranteed by the parent. But AIGFP was only about one-third the size of Lehman. It's almost impossible to see how AIGFP ever posed a systemic risk, unless everyone's intention to provide a backdoor bailout to the banks. Put another way, it seems that the only reason that the government needed to step in for AIG was to provide a backdoor bailout to its banks."

• Yields 0.880% vs. Exp. 0.885%
• Bid To Cover 3.13 vs. Avg. 3.12 (Prev. 2.91)
• Indirects 43.1% vs. Avg. 43.70% (Prev. 34.86%)
• Indirect Bid To Cover: 1.71
• Alloted at high 88.79%
• Direct take down: very high at 10.8% - the "Direct Bid" presence continues to be a determining factor

The alternative to threatening with global thermonuclear warfare, should the Fed not get its way, is, of course, the Fed congratulating itself for its heroic activities that, in some interpretation of the quantum "multiple worlds hypothesis" theory, prevented certain [un]told destruction. Only problem is, of course, what the Fed prevented is merely wiping out the equity and subordinated bondholders in the GSE and the big banks, the preservation of whose perpetual bid for US Treasuries is and has always been the number one purpose of the Fed, so that the US can continue funding it ever increasing budget deficit. Yet a reminder of just how stunted logical thought is at the Fed, here is the Fed's Thomas Baxter, pulling a terrific Colonel Jessup, telling all that by bailing out AIG, the Fed should receive humanitarian of the century award, and a purple heart on top, for all the heat that Fed SVP Sarah Dahlgren should and will receive in Congressional testimony relatively soon.