Archive - Sep 2010

Alan "Taz" Grayson is back again, and asks some very relevant questions of Fannie's CEO Michael Williams:"Why is Fannie Mae using lawyers that are accused of regularly engaging in fraud to kick people out of their homes? Given that Fannie Mae is at this point a government entity, and it is the policy of the government that foreclosures are a costly situation best avoided if there are any lower cost alternatives, what steps is Fannie Mae taking to avoid the use of foreclosure mills? What additional steps is Fannie Mae going to take to ensure that foreclosures are done only when necessary and only in accordance with recognized law? How do your servicer guidelines take into account the incentives for fraud in the fee structure of foreclosure attorneys and others engage in the foreclosure process? What mechanisms do you employ to monitor legal outsourcing?" He almost asks the correct one: "Is Fannie (and Freddie) a shell operation to willfully and illegally transfer non-existent deeds to servicer banks so they can collect subsequent cash flows associated with misappropriated properties, while receiving tens of billions in taxpayer funding each and every quarter."

All I can say is that Naoto Kan must be fuming. Ben Bernanke accomplished with three words what it took Mr. Kan $24 billion to do and Ben doesn’t even look like the bad guy. In fact, Ben Bernanke is looking pretty brilliant right now, in my view. By doing the only thing he can do in these “unusually uncertain” times which is to assure investors that the Fed will step in and “provide additional accommodation” if the outlook should deteriorate, Mr. Bernanke has convinced investors he’s holding a royal flush. And because investors are choosing to believe his bluff and that another round of quantitative easing will be launched to stimulate a slow economy if needed, investors are doing Mr. Bernanke’s bidding for him. In just a few days, Treasury yields are down dramatically and the dollar has declined by as much as 1.5% since the Fed’s statement. If the Fed really plays this hand right, it may even help with its inflation mandate, stimulate economic growth, and push investors toward risk.

A few months ago we penned an article titled: "Bond Yields Imply The Fair Value Of The S&P Is 750" and this was when the 10 Year was still above 3.00%. It is now around 40 bps tighter, meaning the fair value of stocks is even lower based on the historical regression pattern we indicated back in June. Today, David Rosenberg also chimes in on this ridiculous divergence between the S&P and bonds, and in graphic form shows that should the gap ever close, it would lead the stock market to its fair value, which ironically, is just around the March 2009 lows of 666 based purely on bond yields.

"the system remained at risk because it is subject to future 'judgments' of individual regulators, who [Volcker] said would be relentlessly lobbied by banks and politicians to soften the rules."

You know times are bad in the housing industry when home builders hang up the hard hat and take to running leveraged hedge funds. Hell, they don't even have to be any good at it, because they are using 0%, non-recourse loans with very little of their own capital (bubble style leverage), thanks to YOU, Mr. and Mrs. Taxpayer bitching about unemployment and higher taxes. I hope this doesn't piss anybody off,,, again!

Presenting the chart of AAPL: the stock, which has surged from $240 to $292 in less than a month, has done so without violating the 2std dev upward channel once! In other words, nobody but programs which are designed to trade within the traditional technical upward channel of +/- 2 Std Devs are doing the trading in AAPL. And now that your confidence in a rational, non-binary market has returned, please buy, buy, buy. And pray none of these machines has a short circuit, and/or nobody decides to use the Stuxnet virus on the NYSE.

A hilarious little detour that will likely get no press attention and will be promptly covered up with another taxpayer sponsored settlement. Apparently the Norway Wealth Fund has decided to sue Citi "over alleged misstatements about the company's financial condition, which it claims caused it to buy Citi shares at inflated prices." The purchases resulted in over $835 million of losses in Citi stocks, bonds and preferred. And the cherry on top is that this is coming from the same fiduciarily irresponsible people who are now buying up Greek debt on the assumption that on a Yield to Infinity it is all "money good." Has the collective IQ of investors in the world over the past 30 years just correlated inversely with the amount of cheap (and now free) liquidity out there? Just how dumb do you have to be before you realize that everything is rigged?

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 24/09/10

The Fed just completed today's POMO. The result: $3.9 billion in debt monetized, and swiftly used by the PDs to force the Ponzi ramp to new ludicrous heights. This brings the weekly high beta stock liquidity injection courtesy of Brian Sack to just under $12 billion. After all gotta get the sheeple in: otherwise what greater fool will the HFTs and insiders sell their holdings at ever higher cost bases to? Also, the Fed is just oh so generous: the submitted to accepted ratio was the lowest during the entire QE Lite episode so far. Even banks are not all that confident they can convert the "sure money" from USTs into risk free return in a 1,000,000 PE Amazon, of course assuming the Kindle expert does not begin selling crack cocaine on its website (at margins that may for once be positive).

Last night the New York Federal Reserve reported its custody account holdings of agencies (red line, bottom panel) dropped $45.972 billion, or -5.8%, in the week ending Wednesday, September 22. Both measures are a weekly record decline. At the same time, custody holdings of Treasuries (blue line, top panel) increased by $49.657 billion, or 2.06%. This is a nominal record and the largest percentage increase in two years (since Oct 8, 2008). We have heard/read no explanation or color about this decline. So we cannot say whether this massive shift out of agencies and into Treasuries means foreigners are “running scared” from agencies or if this is simply some kind of technical adjustment.

Right on schedule, the Fed will put in about $3-4 billion in new indirect Amazon purchase orders via the 18 primary dealers. Vacuum tubes everywhere rejoice. Results at 11:00 unless SkyNet has not taken over the internet by then.

The USDCHD just printed at 0.9780, the lowest ever in history. The dollar obliteration, and the rush to safety away from the psychopaths of the Federal Reserve continues. Surely the destruction that the Fed is reaping everywhere will get investors to regain their confidence in what is now nothing more than a battlefield where the central bankers of the world can conduct their own little pissing contest while the HFT algos watch in awe and buy shit.

New home sales print at 288,000, missing expectations of 295,000, and coming at the third lowest number in history. The previous read of 276K was revised to 288K. New home inventory is now at 8.6 month supply. Add the roughly 12 months in supply at existing home sales in inventory and you can easily see why the stock market is up almost 2.0%. The median home price of $204,700 is now the lowest since December 2003.

Live individual currency strength meter.

Earlier today David Tepper confirmed that virtually everyone is now hypnotized by the biggest fallacy in the history of capital markets: that stocks determine the economy, and not vice versa. Incidentally, this is precisely what the Fed banks on, as confirmed previously by Alan Greenspan, who said on TV that the Fed is far more interested in keeping the stock market artificially high than actually caring about its mandate of keeping unemployment and inflation low. Of course, Tepper couldn't resist but talk his book, and providing the most childish and discredited validation for his bullishness: the Fed will do QE in perpetuity. "Either the economy is going to get better by itself in the next three months...What assets are going to do well? Stocks are going to do well, bonds won't do so well, gold won't do as well. Or the economy is not going to pick up in the next three months and the Fed is going to come in with QE. Then what's going to do well? Everything, in the near term though not bonds...So let's see what I got—I got two different situations: One, the economy gets better by itself, stocks are better, bonds are worse, gold is probably worse. The other situation is the fed comes in with money." We are too lazy to do it, because we have done it about one hundred times in the past, but we suggest Mr. Tepper pull up a chart of the Nikkei and superimpose on it all the times Japan launched ever more impotent episodes of QE and FX intervention. How did that work out? Yes, you can devalue currencies infinitely via QE, but that only destroys the real value of assets. And as we pointed out after the latest FOMC meeting, we are now in a new regime, where gold benefits more than stocks on further currency devaluation. Period.