Archive - Mar 4, 2010

Surveys by U.S. staffing and payroll companies suggest businesses are cautiously rebuilding staff, especially in professional areas such as finance and accounting, information technology, and legal. Another poll finds increased optimism about small-business employers.

The government can always rescue the markets or interfere with contract law whenever it deems convenient with little or no apparent cost. (Investors believe this now and, worse still, the government believes it as well. We are probably doomed to a lasting legacy of government tampering with financial markets and the economy, which is likely to create the mother of all moral hazards. The government is blissfully unaware of the wisdom of Friedrich Hayek: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”) - Seth Klarman

In the end, are foreign leaders right to scare their people with tales of Japan? Certainly, the hyperbole is overblown; the Chinese, especially, should be so lucky. But nor should apologists for deficits point to Japan as reason to be calm about outsized stimulus packages. Japan’s ability to trudge on in the face of huge adversity is admirable, but the risks of crisis ahead are surely greater than bond markets seem to recognize. - Ken Rogoff

At the start of today's Chinese National People's Congress, Chinese premier Wen Jiabao poured water over expectations that the renminbi may appreciate any time soon, and also indicated that China will "continue its expansionary fiscal policy" by maintaining appropriately loose monetary policy (translation: it is now next to impossible for the Chinese supertanker to steer off direct collision course with the bubble iceberg). He also noted that "The foundation for global economic recovery remains weak; financial risks have not been completely eliminated" and, most disturbingly, said that "trade protectionism is clearly reasserting itself." The ramification for US trade policy as a result of this admonition will likely continue to be made felt over the next 12 months. Yet in an odd moment of clarity, when discussing the domestic economy, Wen noted "latent risks in the banking and public finance sectors among the key challenges to economic growth, alongside now-standard warnings about industrial overcapacity and shortcomings in income distribution." As for the biggest question of how China will approach the USD-CNY relationship, Wen provided little clarity besides promising to "continue to improve the mechanism for setting the (yuan) exchange rate and keep it basically stable at a reasonable and balance level." As Market News notes, that wording, which is frequently trotted out in government statements, is identical to that contained in last year's report.

The fed has completed $169.1 billion of $175 billion in the agency MBS program: there is just 3% of Agency dry powder remaining (no new purchases in the week ending March 3). The Fed has completed $1.22 trillion of its $1.25 trillion MBS debt purchase program, or 98%, through March 3 (including the $10 billion announced today). There is now just $35 billion left in Quantitative Easing capacity.

From the unthinkable, to the possible, the unavoidable, the actual and finally, the patently obvious

"I kept thinking about prior sovereign events I lived and invested through, and how the “unthinkable” eventually became the “possible”, the “unavoidable”, the “actual” and finally, the “patently obvious”. This week's Sovereign Default Time Capsule shows what people were thinking and saying in real time as sovereign debt and currency crises played out. This is not meant to say that Greece is Argentina; there’s a big difference between Mercosur and the European Union, and it looks like the First Act of the EMU drama will be a bailout for Greece. But it’s instructive to remember how politicians, markets, investors and analysts can underestimate the depths of a problem". - Michael Cembalest, CIO, JP Morgan, Global Wealth Management

A few months ago, Dennis Santiago from Institutional Risk Analytics catapulted from financial tech wizard to media celebrity. Dennis was tapped by The Huffington Post team to mastermind an effort to help disgruntled bank customers move their money to local banks or credit unions. I caught up with Dennis to get an update on one of the most explosive grassroots movements of 2010 …

Lipper FMI has reported that bank loan mutual funds saw $179 million in inflows, while HY funds increased their capital by $314 million in the week ended March 3. This compares to inflows of $228 million and $470 million in the prior week, and HY outflows of $1 billion for two weeks running in the weeks prior to this. If HY bond and loan mutual fund flows track the market, one would have expected a more spirited appearance from HY investors this past week.

Today Greece priced €5 billion in 10 year bonds, and much was said about the resulting imminent renormalization of European debt capital markets. That's excellent, because as the following chart (which is a summary of bond issuance compilations demonstrated previously on Zero Hedge) demonstrates, Europe will need it- the continent is facing the highest net ($422 billion) and gross (€1 trillion) issuance in the past decade (and that excludes Greece). We wish Europe all the best.

Don't say the SEC doesn't work hard for its billion dollar budget. The syndicate endorsing corruption (and not even worthy of capitalization), has released a press release indicating it is now pursuing enforcement action against a "known" psychic "who fraudulently raised $6 million after telling investors he could predict stock market highs and lows." Uhm, so does that mean that the SEC is now after every single pundit on CNBC as well? To be sure, while there are many more egregious cases of market manipulation out there, this one will surely make the late night comedy circuit.

Must read interview by Kathryn Welling with James Rickards, former General Counsel of Long-Term Capital Management. His observation that the financial system is now as risky as it was back then is something that modern bankers will hear and thoroughly forget immediately, only to be reminded once everything collapses once again: "What strikes me now, looking back, is how nothing was changed: no lessons were applied. Even though the lessons were obvious, in 1998. LTCM used fatally flawed VaR risk models. LTCM used too much leverage. LTCM transacted in unregulated over-the-counter derivatives instead of exchange traded derivatives. So risk models needed to be changed, or abandoned. Leverage had to be slashed. Derivatives had to be traded on exchanges or cleared through clearinghouses. Regulatory oversight needed to be ramped up... The government did just the opposite. Glass-Steagall was repealed in 1999, so that banks could become hedge funds. The U.S., in effect stared near-catastrophe in the eye, with LTCM, and decided to double down."

Other than that how did you like the play, Mrs. Lincoln?

Zero Hedge has previously discussed the bifurcation in market performance when comparing regular hour trading with that of the afterhours session, noting that in the September through December 2009 period, the market would have been flat if one were to strip away the benefit of gains after the market closed. Today, we take a look at a different set of data, namely observing a very peculiar market phenomenon associated with the term coined as Mutual Fund Mondays, especially over the past 6 months. Whereas on a long-enough timeline, the market performance on any given Monday (or, more specifically on any given first day of the business week), has averaged to about a 50% win/loss ratio, this is certainly not the case in the September 2009 - March 2010 period. In fact, during this time period, when the broader market has risen by only 10%, the positive contribution from Mondays has been 20%, implying that on all other days of the week the market has, on average, lost 10% in the past 6 months. Furthermore, the win/loss ratio for the first trading day in the last 26 weeks has been 85%: a nearly 3 standard deviations from the norm outlier. Let's dig in.

There is no harm - and tremendous benefit - to outlawing extremely dangerous acts, even if no one is sure that they will be committed ...

Update: Nope. It's not what everyone expected. MSNBC reports this is the resignation of the director of communications. It appears Patterson is sticking until the bitter end.

Is this the end for troubled New York Governor David Paterson? The Wall Street Journal has just reported that "his top aide is convening an emergency meeting of the administration's entire staff Thursday afternoon. Larry Schwartz, the governor's chief of staff, alerted the staff about the 2:30 p.m. EST meeting by email on Thursday, but didn't specify what would be discussed." One thing is certain: the New York governor, presiding over a state which recently was declared to be out of cash as early as March (so, well, now), will likely be all to happy to hand over the baton to his replacement, most likely current AG Cuomo.