Archive - Feb 18, 2010
More Than Just Fluff!
Submitted by Leo Kolivakis on 02/18/2010 23:40 -0500For all you skeptics out there, let there be no doubt that the U.S. recovery is more than just fluff. Strength in manufacturing is picking up steam and services (66% of the economy) are expanding. And even after the Fed's latest move, policy remains far too accommodating...
William Black On Why "Recurrent Crises Will Get Bigger And More Disastrous" And Why All Talk Of Change By The Administration Is Just Posturing
Submitted by Tyler Durden on 02/18/2010 22:30 -0500
The ever insightful William Black sits down with PBS' Paul Solman to note that most of the too big to fail banks are currently insolvent, that mortgage fraud is pervasive and lender complicit, and that unlike in previous systemic crashes, not only person has been indicted for the trillions in mortgage fraud perpetrated. "At this stage we have zero convictions, we have zero indictments." But the most damning indictment from Black: that Congress managed to extort FASB to change their rules just so that the big banks would continue to appear healthy and solvent, even as unworthy execs made tens of billions in bonuses.
Federal Reserve Balance Sheet Update: Week Of February 18 - New Records In Total Assets And Excess Reserves
Submitted by Tyler Durden on 02/18/2010 22:02 -0500
The Federal Reserve's balance just hit another record high, at $2.29 trillion, jumping by a whopping $54 billion sequentially (the biggest weekly increase since mid-November). Securities held outright: $1,967 billion (an increase of $60.9 billion MoM, resulting from $56 billion increase in MBS and $5 nillion in Agency Debt), or a huge $53.6 billion increase sequentially. The fed is now 95% complete with its purchases of MBS, and 96% complete with purchases of Agencies. The Fed has completed $167.2 billion of its $175 billion agency debt purchase program through February 17. The Fed's MBS total is now $1.188 trillion, and by the end of the first quarter of 2010, the Fed will have purchased $1.25 trillion.
Guest Post: Libya Courting Oil & Gas Investors But Faces A Tough Sell Following Recent Government Fiascos
Submitted by Tyler Durden on 02/18/2010 21:09 -0500The Libyan government has been sounding off lately about boosting the profile of its oil and gas market, but it’s questionable whether international companies will ignore the government’s missteps in the industry - not to mention the recent lackluster energy finds - and keep injecting money into the North African country. The head of Libya’s National Oil Corp., Shokri Ghanem, has his eye on expanding gas exploration and production in a bid to raise exports to Europe, as well as privatizing oil refineries and the petrochemical sector, according to an interview he gave this month to the Oxford Business Group. Once an international outcast for its penchant for terrorism and weapons of mass destruction, Libya now wants foreigners to take a greater stake in the oil market and in turn encourage local firms to play a larger role as well.
Guest Post: Strategies That Avoid Financial Extinction
Submitted by Tyler Durden on 02/18/2010 20:19 -0500Survival is the name of all games. Investing is a rather serious game with a twofold objective: 1) the portfolio must avoid extinction, and 2) the portfolio must increase in value. Because of the nature of the nature of the universe, these two objectives often come into collision. To survive, allocations must avoid, hedge or exploit unpredictable, often catastrophic events. To grow, capital must long risk to some degree. There are better ways to insure portfolios and limit risk than naked shorts and longing ATM puts. Given enough time, these are money losers. Worse, you get exposure to anti-meltups, before you profit from any meltdown. Presented are some extinction proof strategies for how to do it. Also are some implementation strategies I tried to work through.
Heat On Fed Picks Up As Darrell Issa Demands Full Production Of All AIG-Related Records
Submitted by Tyler Durden on 02/18/2010 18:54 -0500In a letter to Edolphus Towns, Darrell Issa says: "it is imperative that the Committee obtain all information in the possession of the Federal Reserve Board of Governors and the Treasury Department related to the AIG bailout, including the decision to pay AIG's counterparties at par and subsequent efforts to prevent disclosure of information related to the payments. Senator Jim Bunning, who is familiar with documents in the possession of the Board of Governors, publicly stated that the Board of Governors is in possession of documents that show troubling details about Chairman Bernanke's role in the AIG bailout. As I wrote to you on January 26, 2010, my office has received information from a whistleblower that confirms Senator Bunning's public statements. We now know from several sources that both the Federal Reserve and the Treasury Department are in possession of documents that are essential to inform the Committee's investigation."
Fed Damage Control Courtesy Of Elizabeth Duke (Update: And Dennis "Have My Cake And Eat It Too" Lockhart)
Submitted by Tyler Durden on 02/18/2010 18:31 -0500Apparently what the Fed thought was sufficiently well "telegraphed" to the market, was "telegraphed" only to Goldman, and maybe a few others. Here is how the Fed is now doing some serious late day damage control before Asia opens, with backtracking courtesy of Fed Board member Elizabeth Duke.
DUKE: DON'T EXPECT THURS DECISN TO LEAD TO TIGHTER FIN CONDTNS
DUKE: DISC WINDOW CHANGES ONLY A REVERSAL OF SPREAD REDUCTN
DUKE: EXPECT BNKS TO USE PRIV SOURCES FOR NORML FUNDNG
DUKE: CONTINUE TO EXPECT NO LOSS ON CREDIT TO BEAR STEARNS, AIG
DUKE: IF HAD TO REDO, WOULD VOTE AGAIN TO MAKE LOAN TO AIG
Rosenberg's Take On The Discount Rate Hike
Submitted by Tyler Durden on 02/18/2010 17:52 -0500
David Rosenberg, and several other economists, as well as Steve Liesman, share their first perspectives on the sudden (yet oh so "telegraphed") discount rate hike. David can not be too happy as a tightening policy will likely not be very beneficial to a dated-Treasury long position. The question that everyone is grappling with: if this is a first step to "normalization", with every aspect of the market being abnormal, just how far will the Fed really go?
"Only 21% Say U.S. Government Has Consent of the Governed ... Those with the Lowest Incomes are the Most Skeptical"
Submitted by George Washington on 02/18/2010 17:52 -0500Scott Rasmussen [President of Rasmussen Reports] observes that the American people are “united in the belief that our political system is broken, that politicians are corrupt, and that neither major political party has the answers.” He adds that “the gap between Americans who want to govern themselves and the politicians who want to rule over them may be as big today as the gap between the colonies and England during the 18th century.”
Me Still Love You Yuan Time
Submitted by Chris Pavese on 02/18/2010 17:40 -0500China recently raised the Reserve Requirement Ratio by 50 bps to 16.5% for its domestic banks. This is the second hike in the past month and certainly not the last as China’s economy is still sprinting ahead. While equity markets have begun to price in the risk of “global exit strategies,” currency markets have yet to consider the implications of continued strong underlying growth in China. It is likely that additional Chinese monetary tightening will be accompanied by pressure to revalue the yuan.
DXY: 81+
Submitted by Tyler Durden on 02/18/2010 17:34 -0500

The dollar funded carry trade is now over.
The Fed's New Plan to Drain the Pond
Submitted by Econophile on 02/18/2010 17:26 -0500Ben Bernanke knows that the Fed's exit strategy is flawed, so he keeps thinking up new schemes to sop up "excess reserves" from the banking system. The latest is to allow money market funds by Treasuries directly from the Fed. Will this idea work? Will it positively impact the dollar? Will the Fed start draining the pond soon?
"Telegraphed" Discount Rate Hike: Goldman's Take
Submitted by Tyler Durden on 02/18/2010 17:23 -0500BOTTOM LINE: The Federal Reserve Board has voted to increase the discount rate by 1/4 percentage point, to 3/4%, effective tomorrow. It has also decided to shorten the typical maximum maturity for primary credit under this facility to overnight, from 28 days, effective March 18, increased the minimum bid rate on the Term Auction Facility to 1/2% from 1/4%, and confirmed plans to phase this facility out. In its announcement, the Board has stressed that all of these are normalizations of its discount liquidity facility and not to be taken as a sign of impending tightening in monetary policy more generally. - Goldman Sachs
And Some More Horrible News: Lipper FMI Reports $916 Million In High Yield Bond Outflows, Following $1 Billion Outflow In Prior Week
Submitted by Tyler Durden on 02/18/2010 17:17 -0500![]()
And just what HY investors did not want to hear after the Fed shocker: Lipper FMI just reported that High Yield bond funds saw $915.77 million in outflows for the week ended February 17, while bank loan mutual funds saw $160.9 million in inflows. Keep in mind last week was one of the largest outflows in HY in recent history at just under $1 billion. The high beta dumpage is officially on.
Fed Begins Tightening Process: Discount Rate Raised To 0.75% From 0.5%, Futures Plunge, Dollar Surges, Curve Pancakes
Submitted by Tyler Durden on 02/18/2010 16:44 -0500

Will the Steepener/Carry Trade/Long Stock bandwagon please proceed calmly in single file through the exit of the burning theater. Tightening starts:
"The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19." - Federal Reserve






