Archive - Mar 2010

" We have taken testimony from dozens of witnesses and reviewed tens of thousands of documents .... We have looked at the silver market like we never have before and I think there is a window of success that has been opened for understanding about what has been going on and why .... In 35 years, there has been only one successful prosecution for manipulation. So if you ask me if the manipulation standard in the law is working, I'd have to say no .... We need to be more like the police department and less like the fire department. We need to deter and prevent things from happening, rather than merely responding. "

RANsquawk 24th March Morning Briefing - Stocks, Bonds, FX etc.

I have a strong feeling that if you dig deep enough into the BofA innards, you will find some stinky stuff. Hey, it's just a feelin'.

The credit rating agencies have given both China and the U.S. credit warnings. How can the U.S. prevent a downgrading? Hint: it won't be from a reduction in spending.

But NO ...

Not like this wasn't telegraphed from a mile away: Reuters is reporting that Google users in Beijing have been reporting erratic service. This is most likely a preamble to a complete shutdown of all Google access to mainland China. "Users of Google Inc.'s search engines across Beijing reported erratic service on Wednesday, with the site sometimes failing to open, and some searches for even non-sensitive terms like "hello" returning error messages."

The velocity of money is collapsing. The end of a 50 year super cycle in lending. The government might as well be pushing on a wet noodle. The gold bugs have got it all wrong. The chances of the Fed being able to head off an inflationary burst are close to nil. But the bond vigilantes may have to wait a couple of years. Tax hikes of 3% of GDP next year will strangle the recovery in the crib. A wide ranging, in depth interview with John Mauldin on Hedge Fund Radio.

Recently the Congressional Budget Office (CBO) published its scoring of President Obama's budget for the next 10 years. It shows a budget deficit of $9.8 trillion. That is just shy of $4 trillion worse than the CBO’s baseline budget, a budget that includes only the laws as currently enacted, with no estimates of any new programs lawmakers may add that worsen future projections. That our budget is out of control is no surprise, but the charts I present here should provide some perspective of just how dangerous this set of budget estimates could turn out to be. - Bud Conrad, Casey Report

A day after the Lehman Repo 105 scandal erupted, one, just one bank stepped up and said it had never used Repo 105-type transactions. The bank was Goldman Sachs. Of course, Goldman's claim is completely useless without a context as the proper refusal would be for Goldman's counsel to say that the firm had not used anything "substantially similar" to a Repo 105. The difference between that and the verbatim phrasing is like night from day. But at least the soundbite chasers bought it, and the whole topic of Goldman and Repo 105 promptly died away. We'll let that be... for now. Yet one bank which not only has not provided voluntary disclosure, but which has now gotten itself bogged down in semantics, after recently speculation had emerged that BofA had used "substantially similar" devices to Repo 105. Today, BofA provided a response on the record as to whether it had (ab)used Repo 105s and it appears, that inasmuch the firm is unable to say no, the answer is a resounding yes.

Well, title is the teaser, read on and find out...

They're back! Facing severe funding shortfalls, public pension funds are popping a few blue pills, horny as ever for hedge funds and other alternative investments touting absolute returns. They should be careful or else they risk catching the next systemically transmitted disease...

In the aftermath of the credit crunch, the outlook for most developed economies appears pretty bleak. Households need to deleverage. Western governments will have to tighten their purse strings. Faced with such grim prospects at home, many investors are turning their attention toward China. It’s easy to see why they are excited. China combines size – 1.3 billion inhabitants – with tremendous growth prospects. Current income per capita is roughly one-tenth of U.S. levels.
The People’s Republic also has a great track record. Over the past thirty years, China’s Gross Domestic Product has
increased sixteen-fold. So what’s the catch? The trouble is that China today exhibits many of the characteristics of great speculative manias. The aim of this paper is to describe the common features of some of the great historical bubbles and outline China’s current vulnerability. - Edward Chancellor

The latest example of the Federal Reserve not learning from its past errors comes, amusingly enough, from the Federal Reserve. In a June 1938 bulletin (page 456) from the St. Louis Fed, the Fed provided some of the wisest words of caution on how to approach boom-bust cycles, when it was evaluating the lessons learned (and promptly forgotten) from the Great Depression.

The events of 1929 taught us that the absence of any rise in prices did not prove that no crisis was pending. 1937 has taught us that an abundant supply of gold and a cheap money policy do not prevent prices from falling - at least, temporarily and sharply.

This is, in its shortest and most concise form, the lesson that Ben Bernanke is apt to never learn, in his current pursuit of happiness and monetary bliss, based purely on free money and flawed economic assumptions.

He said nothing, but a lot was said. My thoughts.

First David Einhorn gets invited to Congress to teach lawmakers how to deal with the Lehman problem of fraudulent reporting (which it is certain was not confined to Lehman), and now the Greenlight founder slams the SEC for its crooked culture and lack of enforcement that allowed the Allied "wrongdoing" to persist for years. As was reported earlier by the Washington Post, the SEC's inspector general found that the agency had failed to properly investigate allegations of wrongdoing at the financial firm. Now Reuters reports that Einhorn is demanding Mary Schapiro release the full version of the Allied report. After the shame associated with the Madoff affair, we wonder just how much abuse can the SEC take before it is finally disbanded for being the most worthless regulator ever to grace capital markets.