Archive - Jul 2010

Nothing like the US government bailing one out for the stupidity of investing in a ponzi kabal. Earlier today, the FDIC decreed that it would increase deposit insurance for depositors in banks that failed in 2008 in the states of MO, AR, CA, FL, KS and NV. As a result of this action, 9,500 depositors would end up receiving between ten and hundred and fifty thousand dollars, courtesy of a retroactive increase in the "maximum deposit insurance amount to $250,000." The rule was made retroactive beginning January 1, 2008. Pretty soon, all money ever lost, be it in bankrupt banks, or in bed investment will be recoupable, as the administration does everything it can to get some cash - any cash - in the hands of Joe Sixpack.

Both CalPERS and CalSTRS bounced back from the disaster of 2008, but they're not out of the woods and still face considerable challenges ahead.

D'oh!

Wonderful...

It is hot. And it is hazy. This is a different Hazy. One who may, or may not, be hot.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 21/07/10

A year ago, Associated Press reporter Larry Margasak got caught
in a lie. He manufactured a false lede by concealing critical
information:

Despite their denials, influential Democratic Sens. Kent
Conrad and Chris Dodd were told from the start they were getting VIP
mortgage discounts from one of the nation's largest lenders, the
official who handled their loans has told Congress in secret testimony.

The witness also recanted his statement. When asked a second time
if he told Dodd that he was getting special treatment, he said, "I don't
remember... but, you know, it was conveyed in some way, shape or form."
No honest journalist would report that Dodd was "told from the start,"
about a mortgage discount.

Last night we referenced an article by the WSJ which essentially confirmed that the death knell for the rating agencies is being rung. Today, China proves that the best time to kick a body (or a rating agency) is just after it has been shot in the back of the head and before it is begins stinking up the place. And in doing so, it has officially put a stake in for the role of primary global credit rater, citing China's unique role as the world's primary creditor. Of course, if that were to occur, the US rating may promptly be impacted just a tad more than the record 2 Years and just below record 10 Years would suggest is agreeable. As was posted previously, Dagong already issued a rating grid in which China, not at all surprisingly, came on top of both the US and UK, neither of which has any possibility of paying back the trillions and trillions of debt accumulated over the years. Now whether China would be willing to suicide itself and junk the US, is a different question.

Matt Simmons shares some startling revelations in his latest Bloomberg TV interview, in which he says none of the propaganda matters on TV 24/7 (photoshopped or not) as the ultimate clean up cost will likely be well over $1 trillion, and a result he is unconcerned about his BP short. He ultimately see the stock going down to $1. What Simmons alleges however is far more startling and audacious: that this is a joint cover up effort between the administration and BP, in which both entities keep throwing sand in the eyes of observers while distracting everyone from the matter at hand: "What we don’t know anything about is the open hole which is caused by
the drill bit when it tossed the blow-out preventer way out of the
hole…and 120,000/day minimum of toxic poison has now covered the floor of
the Gulf of Mexico. So what they’re talking about is the biggest
environmental cover-up ever. And they knew that that well, that riser,
would finally deplete. And then they could say it’s over." On blaming the catastrophe on Transocean: "For two days they kept saying it’s a rig fire. When the rig sank they
could no longer call it a rig fire. It’s a riser leak…Because if they
said the truth they would all go to jail." The conclusion: "Unfortunately, we now have killed the Gulf of Mexico."

If you closely read the commercial bank Q2 reports, their loan activity continues to decline which shows that out in the trenches, credit continues to contract.

Once again stocks refuse to deal with reality, as the 10 Year has plunged to a shocking 2.88%. The treasury-bond convergence trade beckons again as stocks are about 10 points rich, with an ES fair value of about 1,055. Sell stocks, and sell the 10 Year.

Those interested in the latest compendium of mendacious vomitus emanating from the primary orifice of the Fed chairman for about 4 hours can do so here (C-Span) or here (Closed Circuit senate camera where the interns whisper off to the side).Oh, and that rumor about the Excess Reserve interest rate cut was total premeditated BS as expected.

Bill Miller says: "U.S. large capitalization stocks represent a once in a lifetime opportunity in my opinion to buy the best quality companies in the world at bargain prices. The last time they were this cheap relative to bonds was 1951." That's funny, because according to our regression analysis (recreated below), the fair value of stocks is 750. But who needs facts when you have propaganda and a massively underwater stock position to offload. Bill Miller's desperation letter to sucker mom and pops in buying his dangling tech holdings can be found below, but here is a quick refutation of his point, which we discussed as recently as three weeks ago. And just in case there is any confusion, the dividend yield on the S&P compared to that of 10 Year Bonds, implies a fair value for the S&P of... 655! Perhaps Bill was experiencing a "Warren Buffett" moment and actually meant stocks are a once in a lifetime opportunity to short?

A week ago we published a guest post from David Galland of Casey's Daily Dispatch in which Galland presented his view on what the consequences of the upcoming introduction of a 1099-filing requirement for gold transactions over $600 would be. "Can’t a person just keep their gold purchases under $600? With the price
of gold heading higher, that will increasingly require buying
smaller-denomination bullion coins – which typically carry a higher
premium. More importantly, a large body of case law gives the government
license to charge people for “structuring” – i.e., taking active
measures to get around a particular law. Thus, two $500 gold purchases
could be construed as active evasion and carry additional penalties." The topic is suddenly red hot once again, this time with ABC finally getting on the bandwagon.