Archive - 2010

While banks would be the last entities to reveal disclosure on bonuses during the current time filled with populist agita and froth (it certainly would "destabilize" the financial system if Joe Sixpack was aware that XYZ's main bond trader made $50 million simply by buying short and lending long), none other than Tim Geithner's treasury department provides a convenient way to track aggregate bonus dissemination data in the form of daily tax withholding data from the Financial Management Service. A historical analysis indicates that December and January are traditionally the high outlier months when it comes to tax withholdings, for the simple reason that these two months is when the majority of bonuses payments are disbursed, and being defined as "supplemental income" and taxed at a flat Federal rate per IRS publication 15, they provide the double whammy of increased income tax withholdings and a higher withholding rate. Zero Hedge has compiled daily data from the past three years' bonus seasons to determine whether there is any secular shift to bonus outlays, not just on Wall Street but Main Street as well (surprisingly for the Obama administration, the bulk of withholdings does not come from Wall Street). Our observations were somewhat unexpected.

1) Data Stream Waves, from Jim Sogi ~ 2) How Music 'Moves' Us: Listeners' Brains Second-Guess the Composer ~ 3) Scientists Map Brain Pathway for Vocal Learning ~ 4) New Computer Vision System for the Analysis of Human Behavior ~ 5) Neural Thermostat Keeps Brain Running Efficiently

President Obama used his bully pulpit on Thursday to chastise banks and bankers while announcing a punitive tax on them to assuage an angry populace. Is his rage valid? Should we be angry at banks for making lots of money and then paying out big bonuses?

Crude oil futures fell for five straight sessions as warmer weather in the U.S. dispelled forecasts of unusually low temperatures and allowed concerns about demand to come to the fore. The price for Nymex’s West Texas crude fell about 6% during the week, starting at nearly $83 and finishing at $78.

"An interesting article by Ambrose Evans-Pritchard came my way the other day. It’s worth a read, if for no other reason than that he paints an appropriately dark picture of the current state of the U.S. economy. You can read it here. While I very much share Mr. Evans-Pritchard’s view that the global economy is far from out of the woods, our views diverge in that he sees devastating deflation speeding our way down the tunnel. Casey Research readers of any duration know that we see devastating inflation.
While we could both be right, with deflation first and inflation later, I’m not so convinced." David Galland, Casey Report

And you thought JP Morgan was aggressive. Goldman just threw out the last trump card in its current sell-side arsenal by increasing Q4 GDP estimates from 4% to a paroxysmal attack inducing 5.8%. While Zero Hedge long ago gave up discussing corporate fundamentals due to our long-held tenet that currently the only relevant pieces of financial information are contained in the Fed's H.4.1, H.3 statements, and, when Ron Paul's attempt at Fed deobfuscation is finally successful, the Fed's daily Sources and Uses of Funds statement, it would appear even macro economic data now is essentially one big joke. We are confident that JPM and Goldman are right on the money, and that the government will present the economy as having grown by nearly 6% in Q4. What is troubling is that after having taken over the housing and treasury market, and according to some others, the equity market as well, the Treserve (thank you Marla) has also singlehandedly added several log scale orders of magnitude of volatility to the general economy itself. Too bad GETCO does not have some predatory algo floating around, and overextending GDP momentum in any one general direction, as at this rate we would not be in the least surprised if Obama's Disinformation Czar (TBD) were to announce that the US is now competing for 10% GDP growth with China. As the two countries' centrally-planned economic systems now differ, well, not at all, it is only a matter of time before the race to the bottom in currency devaluation is enjoined by a competition as to who can fabricate, manipulate, inflate, stimulate and other "-ates", the fastest.

It is difficult not to come away with the impression that the many officials and quasi-officials issuing forth from the Federal Reserve and the Treasury (hereinafter the "Treserve") to defend from all enemies, foreign and domestic, the current structures that define these institutions richly enjoy and leverage the complexity, opacity and inscrutability in which they have cloaked themselves. That the Treserve's cadre now traverse through a complex weave of dim shadows, crossing the dark tendrils of financial and regulatory obscurity with practiced ease is a function of... well... the great deal of practice they have had at it.

The L.A. Times reports that private investment funds paid more than $125 million to scores of intermediaries who helped them win business with that $205 billion cash cow called CalPERS....

Institutional Risk Analytics FTW ...

This week has been noticeably weak for credit markets as they underperformed equity markets, fitting with our aggregate capital-structure model perspective. IG-HY has decompressed rather well buy the intrinsics have decompressed considerably more as market breadth is dominated by wideners and steepeners.

We see a slightly different picture evolve as spreads remain slightly tighter from 12/31 close with FINLs still leading the way as non-financials are mostly wider on average. Breadth is negative around 4to3 as the indices have handily outperformed intrinsics in IG and ExHVOL but not so in HY. Credit has underperformed equity since the start of 2010 (once again fitting wit hour model perspective) and their is more room to go yet on this.

Let’s assume for a moment that Goldman Sachs is wrong. After all, at most points in time and space, predictions tend to fail—except the lucky ones. So it’s good to think through scenarios that one would consider extremely remote. Active risk management means low probability / high catastrophic outcome tail events must be hedged, and as importantly, gain exposure to those pesky Blacks Swans in ways that lead to advantage. To accomplish this, it helps to obtain a quantitative sense of their impact, to get a “feel for the cloth” as an wise former boss of mine used to say. So let’s try here.

What if the Fed more than succeeds in reflating and the end result is hyperinflation? As remote a possibility as I think this is, they really could print a way to another, completely different type of economic destruction. All they have to do is print proactively, not reactively.

Just another day at the office. Treasury, Fannie, Freddie and HUD have completed a sweet deal. Another $30b down a hole. But his time it won't cost us a cent. Honest, really, this time it'll be different. Lies.

Several observations out of Goldman's Investment Strategy Group which seek to allay fears that even if the Fed were to print another few trillion dollars, the greenback would still reign supreme, never mind that all the currency in circulation now (secondary Fed liability after excess reserves), one could argue, is more than 100% backed by MBS on the asset side of the equation (or in other words, diluted by more than half from solid, and real AAA-rated securities). Goldman is also taking a stab at gold-bugs, claiming that all reports of the dollar's demise are not only premature, but borne out undue fatalism, and in fact are deja vu. Yet is this time really not different?

As many readers have pointed out, CNBC's Diana Olick is out with some pretty damning news of a new form of pervasive homeowner fraud, this time conducted in complicity of the very banks that yesterday were swearing up and down the FCIC hearings that they hear, see and speak no evil. Maybe such hearings should become a weekly spectacle as they now represent the only expression of Main Street's excess and growing anger, yet pushed far enough and the imminent revolt will surely become a reality. A few more incidents like this, uncovered by America's unbought journalists, may be all the straws needed to break a few CEO's backs. At least the bankers will have a few hundred billion in bonuses and some Textron private jets to help with their head start to non-extradition treaty countries.

Soon coming to a daylight drama TV show near you: Ben Bernanke, Hank Paulson and Stephen Friedman, valiantly defending America from itself and the dumb peasants that inhabit it.