Archive - Mar 2010

As the House gets ready to pass a "historic" bill on health care reform, let me introduce you to the real crisis in health care...

Even as the Lehman scapegoating campaign is on in full force, there is little doubt that the man who somehow was in the middle of virtually everything, was not Dick Fuld, or any of the bevy of rotating Lehman CFOs, but Lehman's very much under the radar Global Product Controller, Gerard Reilly. Reilly was the point man on Repo 105, the point person for E&Y's "investigation" into the Matthew Lee whistleblower campaign, Lehman's Level 2 and Level 3 asset valuation, the brain behind the idea to spin off Lehman's commercial real estate business, Lehman's Archstone investment, and likely so much more. Reilly stayed on at Lehman, solid as a rock, even as the CFO's above him rotated one after another. Tragically, on December 29, 2008, a 44-year old Gerald [sic] Reilly died while skiing alone on New York's Whiteface mountain, while on a trip with his wife, 4 small children, and two other families.

My take on views expressed by Jim Rogers at a BBN interview on Mar. 18 about the recent currency and trade confrontation between the US and China, the Canadian loonie and the U.S. bond market.

Crony Capitalist tendencies do not discriminate with respect to "side of the aisle."  The left has been as busily handing out delicious treats to its favored students as the right.  Tacking on a reverse bill of attainder cleverly (or not so cleverly) disguised in prose designed to deter key word searches and in order to slip cash to a friend of a friend is as American as reality shows.  Accordingly, the somber faces of Zero Hedge readers should register exactly no surprise whatsoever on learning that the Health Care Swill harbors a series of such glory hole surprises.

"Given the volatile sideways nature of the marketplace, the S&P 500 has the
potential to be above 1,400 points and below 900 points at least one more time
over the next 3 to 6 years. To date we have witnessed two bear markets with
gyrations of approximately 47% and 56%, and would expect at least one more bear
market to arrive before it may be safe to fully venture out unprotected in the woods
again." - Sprott Opportunities Hedge Fund

Bernanke's ludicrous monetary policy has forced financial companies to relever to mid-2000 levels. A recent CLO has broken the 12 month quiet period in the structured finance universe, and finally made it all too clear that bankers and asset managers have no idea what to do with all the free extra money lying around, earning nothing on the short end of the curve. Furthermore, with rampant M&A rumors every day (of which 90% are patently false) private equity must be getting nervous. As we all know, with great free money comes great irresponsibility to do really dumb things, better known as LBOs. We analyze the imminent tidal wave of going private deals, which, if Bernanke keeps ZIRP for another year as is widely expected, is just around the corner, and that the record TXU LBO of 2007 will be promptly surpassed, in both size and idiocy. Oh well, if you can't beat them, join them. We present some of the most profitable ways to play the LBO wave of 2010, and no, it does not mean tracking down Moody's Deep Shah and buying stocks 24 hours ahead of the announcement, in expectation of a 20% pop.

All the pretty charts to summarize last week's action and highlight Goldman's optimistic view on the economy.

Phinance's phavorite political prisoner, Martin Armstrong, cautions that "the EU is in dire position", on the precipice of shattering. Since "debts will never be paid and interest expenditures are the greatest transfer of wealth in history ... Western society is falling apart ... If we do not act, civil unrest will explode. The current choice is DEFAULT or HIGHER TAXES & CIVIL UNREST ... Someone has to step forward to save us or we may be doomed. It's time to wake up for this is the future of our children and their children at stake. "

As promised, here is the complete article, "China's Fragile Economy, Its Housing Bubble, and What It Means To Us," in a downloadable PDF. You can download it, print it out, and read the entire piece at your leisure. The conclusions aren't encouraging, for them or us.

The current system and the global imbalancing act is going to change. The nature of that change is unclear. Comparing similar pasts to the present and extrapolating future effects is one approach. However, such mean reversion doesn’t work along an established time frame. What can be counted on is that unsustainable phenomenon like current account imbalances, negative savings rates, seeming infinite asset price appreciation will change. One way or another, falling savings rates and rising deficits become rising savings and falling deficits.

Brief summary of this week's main news.

Europe faces a commercial property debt timebomb with almost €1 trillion (£896bn) outstanding from the sector and a quarter of that potentially distressed. The UK accounts for 34% of the €970bn total, with Germany second with 24%. Not to worry, global pension funds are busy snapping up properties but do they really know how long it will be before this crisis blows over? And what if it gets a lot worse before it gets better? Are pensions prepared to deal with those losses?

Goldman's Chief European strategist is starting to sound less and less confident that all shall be well. The same can not be said for his ebullient (and still employed) colleague Jim O'Neill, whose answer to everything is "BRIC." Anyway, here are Erik Nielsen's latest (and increasingly more skeptical) summary views on the Greek bailout. By the way, the IMF shotgun approach to "helping" any and every member country is to peg its currency to something and establishing a currency board. The IMF simply does not know how to do anything else. So how the hell can the IMF operate in the context of a monetary union?

Easy as 1-2-3 ...

"We must work tirelessly to reduce the incidence of financial fraud in order to restore trust and confidence in the financial markets. A task force investigation and taking appropriate Federal actions in these matters will contribute to these goals."

Sincerely Christopher J. Dodd Chairman