Archive - Mar 2010

An internationally known authority on Ponzi schemes gets cleaned out by Bernie. Believable modest returns and feigned exclusivity did the trick. Lessons for us all from Carlo. Better hire the "private dick"

Pension plans for state government employees today report they are underfunded by $450 billion, according to a recent report from the Pew Charitable Trusts. But according to one expert, this vastly underestimates the true shortfall, because public pension accounting wrongly assumes that plans can earn high investment returns without risk. His research indicates that overall underfunding tops $3 trillion. Will pension woes deepen the financial crisis?

We have officially moved from a Greek tragedy to a Greek surreal comedy. After nearly a month-long scapegoating campaign in which Greek PM G-Pap said he would spit in the faces and skullf#@* all those who dared to buy Greek CDS (because as we have all been lied to by everyone who doesn't know the first thing about CDS, it is CDS buying not bond selling that drives spreads), with the stupidity reaching as far and wide as the Spanish and German secret services, which said they would spy on CDS traders in London and New York, Greek daily Kathimerini has just uncovered that the biggest speculator, holding 15%, or $1.2 billion of the total $8 billion in Greek notional CDS, has been a firm that operates about 2 blocks away from the parliament building in Athens - the state-owned Hellenic Post Bank (TT)! Luckily poetic justice is about to be served, as every single media outlet tomorrow will apply the same circus monkey treatment to G-Pap and his clownshoes henchmen, not to mention the chorus of obese idiots over at the European Commission who fell for the ruse (speaking of EU idiots, has anyone heard of Jenny Craig relapse patient Joaquin Almunia in the past 2 months, with his "Greece will never demand a bailout" arrogance). While there had been speculation that Greek banks were selling Greek CDS to hedge funds, it had never crossed anyone's mind that a Greek bank could be betting on the collapse of its own sovereign host (especially one which does not own Bernanke's printing press), and that in such size! Frankly this beats even our very own AIG fiasco by orders of magnitude in stupidity.

Tim Geithner is supposed to discuss GSEs tomorrow before the House Committee on Financial Services: i.e., the government will tell the government all is good, and if it isn't, it can be promptly swept under the rug. In a 17-page speech, Tiny Tax-evading Tim provides the first insight into "fixing" the $6.4 trillion GSE problem. And yes, this is coming from the same government that on a congressional website does not know how to keep an embargoed speech under embargo until its required release time. Sigh... As the speech consists of the two funniest things in DC currently - Tim Geithner and GSE reform, it needs no introduction or commentary. Without having even read the paper, we are confident Geithner's presentation is replete with lies, innuendo, unbearable BS, scapegoating and fingerpointing to last a lifetime. We will provide a link to the congressional webcast tomorrow for the masochists among you. In the meantime, we expect the GSEs will implode spectacularly within the year once again, as neither Tim nor Congress end up doing anything whatsoever to "reform" the GSEs.

The silence out of E&Y over the past two weeks was very odd. Some speculated that just like corrupt Arthur Anderson, a disgraced E&Y was quietly folding its business now that the "independent auditor" is one only in name. Others believed that its was merely a smart media ploy to not touch the issue until everyone gets tired of discussing the endless criminality in our daily lives and be content with late night TV, as the middle class fights for whatever remaining scraps the Goldman bankers allow it to have, even as the kleptocracy knows all too well that behind the scenes, trillions of dollars are siphoned away from America's working class (because in ten years when the country is bankrupt, the only thing that matters is who has the biggest gun and can shoot the straightest). Anyway, E&Y surprised us all (and the holders of 5 Times Square paper: CMBX 4 deal WBCMT 07-C31 specifically, who were ecstatic they would be next in line for taxpayer bailouts) by releasing the following list of rebuttals on a point by point basis, first reported by our friends at re:The Auditors and followed up by Reuters.

Earlier today, John Mack was interviewed by Fox Business' latest addition Charlie Gasparino, as well as Brian Sullivan. And where we discussed in the prior post how absolutely nothing has changed between the days right before the credit bubble burst in 2006, as exemplified by the Bear Stearns Credit Conference notes, and today, John Mack is living proof that if left on their own, bankers would simply revert to the old failed model, keep getting paid tens of millions per year, and wait until the next taxpayer bailout some time in late 2010, early 2011 (we are now on an accelerated schedule - just as the bounce from the lows has been torrid, so the collapse will be amusingly fast), only to hit restart courtesy of whoever is Fed chairman at that point and do the rinse/repeat cycle one more time. In a nutshell, Mack sees no risk, not a hint of danger on the horizon. In fact, it was nobody's fault. And next time it will be nobody's fault all over again.

Ah, the halcyon days of 2006, when the bubble was cranking, rates were stable and rising, Bernanke was brand new and few realized he would was yet to become the destroyer of capitalism, when subprime was only known to a select few future billionaires, when Bear Stearns was alive and well and was organizing credit conference at the Waldorf Astoria (instead of arranging credit for itself in advance of going bankrupt in 2008) during which nobody said anything relevant (that includes Bear's then chief economist David Malpass) and where participants merely reinforced each other's fallacious groupthink, capped by Peyton Manning as keynote speaker of all people. Companies presenting were all the current and future LBO hits (which would soon undergo Chapter 22 and in some cases 33). We are only amazed that Bear hasn't risen from the dead to recreate the credit conference below, coupled with full bubble frothiness and all other bells and whistles.

A summary of two Jim Rogers interviews with Bloomberg & BNN regarding Greece, euro and how he would invest $100,000 now. Also included: a quick eruo technical analysis from yours truly.

Xinhua reports that Google has "violated its written promise" and is "totally wrong" by stopping censoring its Chinese language searching results and blaming China for alleged hacker attacks, a government official said early Tuesday morning. The official in charge of the Internet bureau under the State Council Information Office made the comments hours after the online search service provider announced it has stopped censoring its Chinese-language search engine Google.cn and is redirecting Chinese mainland users to a site in Hong Kong.

A must read presentation for the reflexive and reflective traders/investors in all of us. For the crux of the presentation please turn to slides 43-47 which provides a wonderful counterargument to why every time you hear some "expert" on CNBC say you should buy a stock because it is cheap, consider the following just as logical alternatives: 1) fraud, 2) value trap, and most relevantly for our current market situation 3) bubble market.At least $10 trillion in household wealth may have been saved if people followed these three simple observations at the peak of the last credit bubble in 2007. Of course, this time it is different.

It turns out that the massive credit spreads that Greece is currently experiencing (300+ bps over Germany and what not) have nothing to do with CDS speculators and other scapegoats, and all to do with the administration's complete avoidance of warnings issued a year earlier by the Bank Of Greece which previously said in its 2008-2009 Monetary Policy Report that it "warned about everything that is happening today – stressing,
in particular, the possibility of a rise in the cost of borrowing. As
that Report stated, 'a widening of the yield spread would increase the
future burden on taxpayers'." Furthermore, in the just released Monetary Policy Report for 2009-2010, the Bank of Greece is warning that things in Greece are about to get much worse once again, and is debunking the administration's still overly optimistic and rosy expectations. "In 2009, as the Bank of Greece had warned, the
general government deficit reached 12.9% of GDP and public debt stood
at 115% of GDP." Keep in mind that the G-Pap administration noted the deficit would be "just" 12.7% of GDP in 2009. Surely this is just another thing to blame the speculators for. What's worse, the BofG now says the GDP decline in 2010 will be -2%, also more dire than the government's rosy -1.7%. The conclusion which nobody will heed again until it is too late: "The Greek economy has fallen into a vicious circle with
only one way out: the drastic reduction of the deficit and
debt." Most damning is the proposed (lack of) way out: "Because of the low level of
private savings in Greece, the public debt cannot be financed from
domestic sources, resulting in a widening current account deficit and a
rising external debt." Oddly, blaming CDS speculators for the earth's roundness was nowhere in the Bank's report, and instead it notes that it is "most important, [that] Greece must
eradicate the patterns of behaviour, attitudes and policies that have
brought us to the present crisis situation." Once again, we hope that the BofG does not expect anyone to read this 2009-2010 100 page + report, once it is released, cause that would mean the government would have to do the right thing for once.

Ten days ago we penned "How Lehman, With The Fed's Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit Facility" in which we described in minute detail how the Fed agreed to collateralize borrowings in its Primary Dealer Credit Facility, basically lending facility of last resort, with paper that other rational parties, when engaged at arms-length negotiations, qualified as "bottom of the barrel" and "junk." Today, thanks to Ryan Grim, this topic finally gets a much broader mainstream exposure. As we have long argued, the collateral backing most if not every form of liquidity provisioning, not only by the Federal Reserve of the US, but by Central Banks globally, is likely totally and utterly worthless, which implies that the US taxpayer is on the hook for trillions of dollars should there be another risk flaring episode (which is an inevitability as the entire financial system is based on a house of corrupt cards), and all the collateral is exposed for the worthless garbage it is. In the meantime, the money the banks get by pledging worthless assets to the Fed is used to stage short squeezes in various equities, to gun the Dow to 36,000 in a straight line, and to keep the Treasury curve at its record steepness, thereby hoping to stimulate inflation so that bank balance sheets can be absolved of the 20% by some estimates of bad loans that still exist on bank books, and which make the entire US banking system insolvent in its current state. All this is happening with Ben Bernanke's blessing, which would be considered an act of treason... if only there was some way to confirm these virtual certainties. Which, of course, there isn't, as the Fed will first self-destruct before it opens up its book to the general public.

Moody's says that if the Dodd bill passes in the substantially proposed form, the rating agency will likely need to cut various banks due to the elimination of assumptions about systemic support as some from a resolution authority is introduced. The banks that would suffer the most are: Bank of America- 4 notches from the current HoldCo Sr rating of A2, Citigroup and Wells Fargo both at 3, from A3 and A1, respectively, Morgan Stanley two notches lower from A2, and one notch for each of the following: BoNY (Aa2), JPM (Aa3), Goldman (A1), SunTrust (Baa1), and Regions Financial (Baa3).

www.google.cn is now officially redirecting to http://www.google.com.hk/

Sure explains the rip in GOOG stock over the past few minutes: Goldman is still learning how to let a piece of bad news go without inciting a historic short squeeze in the process.

Update: Google advises this is merely a way to provide legal, uncensored data access. The company warns that China's government can now cut access to Google at any minute. Which should be, indeed, any minute.

Either we are going to get hyperinflation and all tangible assets will explode 100 pct or more to the upside, gold will be at $5000/oz and paper money is history. Or we are getting Japan in the ‘90s with no chance of inflation because consumers will save, not spend no matter what the politicians do and all markets will be down 50/80 pct from here. Pay your money and make your choice. - Ebullio Capital Management