Archive - 2010

For this edition of Join My Fantasy Accounting League, how about a brief thought experiment for the early morning Zero Hedge Reader?

According to the SEC’s complaint against Gen Re, filed in U.S. District Court for the Southern District of New York, a foreign subsidiary of Gen Re entered into two sham “reinsurance” transactions with AIG in 2000 to improperly allow AIG to reverse the declining reserve trend and falsely report additions to both loss reserves and premiums written. Senior officials at Gen Re helped AIG structure the two sham transactions. The contracts show reinsurance transactions that appeared to transfer risk to AIG, but the transactions did not transfer risk.

Here is a glimpse at an internal debate between BoomBustBlog analysts on the merits of the China bubble short, and its comparison on the merits to a short in the EU and CEE contries. It appears as if the China bubble thing is about to heat up.

Forget the Isle of Man, Cayman Islands, Nauru, Liechtenstein, and like havens. The World Securities, Exchanges, and Financial Rules Commission is being planned by the Europeans and the Obama Administration. This is the theme of the World Economic Forum Annual Meeting in Davos.

A tidal wave of fiat paper currencies is now flooding the world financial system at an increasingly alarming rate. Pull a dollar bill out of your wallet and it’s as limp as ever. Linear growth in supply will get overwhelmed by a Malthusian, exponential growth in demand. The seventh in a series of seven on The Mad Hedge Fund Trader’s Annual Asset Allocation Review. (GLD), (DGP),(ABX), (SLV), (PALL)

Looks like private equity is staging a comeback but will it last?

It appears that prop trading could soon be on its way out. Luckily, it only accounted for "just over" 10% of Goldman's revenue: it will therefore likely not be missed. Bloomberg writes: "President Barack Obama tomorrow will offer new proposals on limiting the size and complexity of proprietary trading systems as a way to reduce risk-taking, a senior administration official said." While this is not yet the formal end of prop trading which may or may not be a legal way to take advantage of the commingling between flow and prop trading, thus scalping clients in a perfectly acceptable manner (define the word "acceptable"), it has all the makings of the beginning of the end. And, much more importantly, this marks the long-awaited beginning of Glass-Steagall's return.

Chinese GDP is officially in the redzone: at 10.7% YoY, while Q3 was revised to 9.1%. For all of 2009, Chinese GDP rose at 9.7% (2008 came in at 9.6%): China's mystical printing machine helped the country avoid any aspect of the global recession, and these are not the droids we are looking for. At the same time the country announced a 1.9% CPI increase YoY in December, even as 2009 saw a -0.7% decline in CPI, compared to a 5.9% increase in 2008. Retail sales in 2009 surged at 15.5% nominal and 17.5% real.

Rep. Darrell Issa comes out guns blazing once again, alleging that the Fed provided a selective response to the subpoena to provide all documents relating to the AIG bailout, and asks Edolphus Towns, Chairman of the House Committee on Oversight and Government Reform, to hold Fed officials responsible for this act, in contempt. While we are confident that the Fed will promptly respond to this request for incremental disclosure, we would like to propose some additional very material and non-public information that Congressman Issa should request from the Fed...

Summary and my thoughts on a trio of Dr. Marc Faber's latest interview where he discussed his 2010 outlook on China bubble, sovereign default risk, stocks and commodities.

Well, if yesterday did not seal the Democrats' fate ahead of the mid-term election, this proposal, if passed, certainly should.

Update from reader Steak (via Politico): President Barack Obama is expected to appoint a special deficit reduction commission as part of a tentative agreement between Democrats and the White House—each trying to find the votes to raise the federal debt ceiling in the coming weeks.

From Mary Schapiro's speech at the 37th Annual Securities Regulation Institute at the Hotel del Coronado, California, surely a very much deserved, and taxpayer sponsored boondoggle, on the changing landscape in financial markets. Presented without expletive filled commentary.

Developing story. Too much other fallout to deal with than to promote the bubble blower for another term? Only 11 days left... Better hurry

In his latest weekly commentary, Inflation Myth and Reality, Dr. John Hussman makes the argument that changes-in federal government spending dictate the future path of inflation. As shown below, his data set covers the period from 1951 through 2008 and there appears to be a decent correlation.

Has it been a whole 24 hours since we last heard about Mutual Assured Destruction if bankers don't get their way? It must be, because according to Dow Jones the Treasury market is presumably considering how to exclude the $5 trillion repo market from any "banker" taxation after "market participants" implicitly threatened with failed bank auctions unless this exemption is granted.