Archive - 2010

...And Bloomberg breaks the news...

It was a four short months ago that the Clearing House Association, in a court filing, threatened with untold destruction if the Fed was ordered to submit to an audit that would expose all their dirty laundry in the form of undervalued assets used as collateral by the Federal Reserve.

It is fitting that as attempts to expose the Fed's shady practices accelerate on all fronts, and include direct legal approaches as well as subpoena demands by various politicians, that a Fed President would once again come out today, and recap the good old Mutual Assured Destruction treatise that both Wall and Main Street have gotten used to since the beginning of the bailouts. Somehow financial M.A.D. makes an appearance every time the bankers demand something and have no other rational justifications. So why not just feed the stupid plebs something about the Apocalypse that is certain to transpire should the financial oligarchs not get their way. Today was no exception.

An absolutely horrid day for the semiconductors (aka "Supermodels") from Silcon Valley, as the INTC blowout earnings were sold with force. Consequently, investors of very race, stripe, color, and ethnic origin immediately dumped all "risk assets" and immediately piled into bond funds. Setting up yet another opportunity for our foreign debt enablers to swallow another pile of freshly printed Treasuries next week.

Earlier we presented a very bearish piece on Emerging Markets from UBS. Now we present a somewhat opposite view from Hermitage Capital Management, which does not share quite the bearish sentiment on EM's but rather is very bullish on "frontier" markets: Kazakhstan, Saudi Arabia, Abu Dhabi, Lebanon and Nigeria. One interesting observation from Hermitage when asked which currency to own: "The answer is none of the developed market currencies...If the supply of fiat currencies is changeable at the whim of government policy, while the supply of gold or oil is fixed by the physical limitations on new production, which would you rather own as a store of value? The answer seems pretty clear to us. You want to own the commodities because they are insulated from the actions of vote-seeking politicians and their amenable central bankers who in our view will carry on in debasing their currencies." Can we get a Gold, B#@$&*s?

From the rumor bag: Todd Kaplan, who joined Citadel less than a year ago from Merrill to build the firm's investment banking business, has quit. Wonder if that means the hedge fund's attempt to become a direct competitor to Goldman in the underwriting/advisory business has been scrapped? Perhaps an analysis of how many deals Citadel underwrote in the past year should be sufficient to answer this question.

Update: It appears the plane is a C/O ConocoPhillips. Now that makes MUCH more sense.

Hat tip to reader Anynomous who points out a Bank of America jet on arrival from Moscow. This brings up some questions:

1. Did Hank Paulson just host another secret bash for Goldman Board members in his Kremlin pad, and decide to open it up to the ex-Lewis boys?
2. Is Bank of America preparing its Rakoff defense, and is so terrified of being spied upon it has decided to go to the only place deemed safe from flies on the wall?
3. Dare we say it... Bank of USSR?

2009 reacquainted the investment profession with the alphabet, as it was the year of the V, U, L, and W. Every economist tried to get recognition for predicting the most appropriate letter to describe the US economy’s expected path. Sadly, very few of those letters made investors any significant amount of money during the year, and now the debate about the economy rages on as to whether it will double-dip, or continue to climb. However, there was one letter that was very profitable to investors for most of 2009 – Beta.

An original piece by Wired magazine presents some amazing visualizations of the various traffic routes by different airplanes over the United States. The distinction in the long-hauls versus the puddle jumpers is quite notable. Also, air traffic controllers are very likely underpaid.

"Now is definitely not the time to live in the moment, to start hyperventilating and to begin to chase this market to a bubble peak; now is the time to think about what the economy is going to look like in a post-stimulus world because the only thing we know is that the Fed and the government, at this juncture, intend to start pulling back on their support for the housing market at the very least at the end of March. At that time, we will see what the emperor — the U.S. economy in other words — looks like disrobed. And think of how ugly that picture is likely to be if the Beige Book can, at best, describe the current macro backdrop as being “at a low level economic activity” in view of all the government stimulus out there in support of a boom." - David Rosenberg

Must read: UBS Macro Sales (note, this is likely not the UBS house view) calls for a peak in Emerging Markets. "To me this is our Bhutan Dry Docks moment. The economic argument supporting EM investment is valid -as I pointed out earlier, you can't create a bubble without something that initially supports investment flows - but its gone too far. When I read market commentary that suggest that
the Shanghai composite share index (see below) is now better value because price earnings ratios have come down from 100 to 50 its like déjà vu all over again. I wrote stuff like that back in 94 - just before the peak - just before the crash - just before the US rate cycle turned. I'm calling a top in emerging markets. Q1 2010 will still see massive money flow into the asset class as portfolio decisions are driven by last year's stellar performance and developed market pessimism, but starting in Q2 as Paul's setting change comes closer, it is time to call a top to the twin liquidity bubble of this cycle - traded commodities and emerging markets."

RANsquawk 15th January US Morning Briefing - Stocks, Bonds, FX etc.

Some more macro observations from Joe Saluzzi: Last "Friday's stock market was the biggest tell: when you saw an unemployment number come out like that, that tells you what an absolute joke the stock market is, and how it's a lagging indicator, not a leading indicator of what's going on... When you're in the basement you can't stay in the basement, you have to walk up the stairs to get out. We aren't walking up the stairs, we just stopped walking down the stairs... a $77 Estimate on the S&P, you are looking at a 15x forward multiple on that earnings, yet you are in an economy which is closer to the 80's which deserves a 10x P/E. Why do you give it a 15x P/E?... If California was a public corporation they would be the next Lehman Brothers: that's how bad this thing is. The government is saying 'We're not going to bail you outCalifornia.' We're they going to come out with the $9 billion that they owe?"

So let's get this straight: you are a CapitalOne borrower, and you have filed Chapter 7 bankruptcy protection. In other words, you are dunzo with paying off credit cards, revolving loans, non-revolving loans, yacht and country club payments, fired the butler, got rid of the underage nanny, cut up the Centurion, and are waiting for the repo men to come and take your outhouse and two donkeys, even as the third wife and kids are garnishing your wages, and the IRS is doing a full-blown tax audit. Yet because of some fluke the check to COF was in the mail, and while the bank was fully aware your FICO score was essentially 0, they still would not count you as a "charge off"...WTF!!!???

Earlier Goldman issued a new report on the homebuilders (found here). Not much in terms of overall macro perspective change, however notable was that Goldman downgraded TOL as the firm "believes that outperformance will be limited in the first half of 2010." However, before TOL management decides it will no longer pick up phone calls by Goldman's Joshua Pollard, GS hedges with: "That said, we still believe that there is significant value in Toll shares for patient investors as Toll has one of the best franchises in homebuilding." So sleep confident dear hedge funds managers - Goldman should still be able to arrange private one on ones with the CEO at your leisure. As for the true reason for the downgrade, whether this is due to most shorts having cleared out of the stock already, much in line with keeping with Goldman's strategy of upgrading stocks that have a substantial short interest (ref. MGM), is unclear.

University of Michigan January Consumer Confidence came in at 72.8, below expectations of 74, which would have been an increase from unrevised December of 73.4. Instead December was revised down to 72.5 to make January seem like an improvement. The Sentiment number was driven higher by better than expected Current Conditions, which came in at 81 (prelim), up from 78 in December, while Expectations dropped to 67.5 from a revised 68.9 in December (69.7 unrevised).Inflation expectations for 1 Year increased from a final December read of 2.5 to 2.8 (which incidentally is the expectation for the 5 Year inflation expectations as well).