Archive - 2010

RANsquawk 13th January Morning Briefing - Stocks, Bonds, FX etc.

Dumping the world’s most overvalued asset. America’s debt service to double. Hey buddy, can you spare $2.5 trillion? Short a few JGB’s while you’re at it. The fourth in a series of seven on The Mad Hedge Fund Trader’s Annual Asset Allocation Review. (TBT), (JGB)

If governments do not nip this bonus bonanza in the bud, then the next financial meltdown is only a matter of time. How long will we allow the rest of the economy to be subservient to the reckless arrogance and greed of a financial sector gone rogue?

Since the 1991 collapse of the USSR, foreign investors have looked at the former Soviet space as a land rich in underdeveloped resources waiting for Western technology and finance to bring to the world market. Gold from Kyrgyzstan, uranium and oil from Kazakhstan, oil and natural gas from Azerbaijan – all have begun to make their way to the global market, generating rich profits for both their owners and developers.

In the five former Soviet countries stretching eastwards from the Caspian to the western Chinese border – Turkmenistan, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan there is a resource both more limited and valuable than even the region’s fabled hydrocarbon resources, water. The arid region has a surfeit of it, what there is is unevenly distributed, and more than 70 years of Soviet industrialization have left an ecological wasteland facing increased demands on its limited hydrological resources.

The ABC Consumer Confidence index plummeted last week, falling from -41 to -47, sustaining "one of its steepest one-week drops in the last quarter century, following last week’s troubling jobs report with an all-hands retreat from what had been a tentative positive trend in consumer attitudes." At -47 the index is essentially at the average 2009 level of -48, and far below the average since 1985 of -12. As far as the US consumer is concerned, this recession is far from over.

Is the government going to force 401k and IRA money into treasuries?

Or is that just a wild rumor?

As a muni trader, my bonus is derived directly from my P/L which is accrued over the quarter and kept in a separate account. It does not go into the firms bottom line and then back out to me. Also, like most traders, I accrue 2% of my gains in a loss provision account in case I have a major write-down in the year. My bonus is 10% of my profit for the year. If I make $50mm for the year my bonus is $5mm

What does my bonus have to do with the MBS trader who's sitting on losses? Did I or did I not show a profit of $40mm to the firm’s bottom line?

A summary rundown of some quick thoughts

One of our favorite strategists, SocGen's Dylan Grice is out with a masterful in its simplicity analysis, looking at the possibility of a funding crisis enveloping the governments of the developed world, and originating in the place where ever more people see brewing trouble: Japan. The full presentation can be found here, and while we recommend a full read, for those strapped on time, here are the cliff notes.

A central feature buttressing myriad defenses to the more opaque practices implicit in Federal Reserve secrecy has always been the importance of maintaining "the independence of the Federal Reserve". Recent developments, with respect to the Federal Reserve's "clandestine service directorate" now give us cause to respond to this rationale with a resounding: "Shenanigans!"

Update: Would it surprise you to discover that the Fed is resisting additional disclosures? Probably not. The method of their concealment is quite interesting, however.

A terrific list of questions that the FCIC should ask banker executives, conceived by the trio of Eliot Spitzer, William Black and Frank Portnoy.

Matt Goldstein at Reuters is on a roll: after pointing out the SEC's complicit role in the AIG disclosure fiasco, today he highlights the list and details of securities that was purposefully and willfully redacted by the same SEC that today filed a second lawsuit against BofA, after Rakoff yesterday told the queen of corrupt and incompetent regulators to shove it. The list of redacted CUSIPs contained in the Schedule A to the AIG Shortfall Agreement with the Fed's Maiden Lane III (aka Taxpayer-to-Goldman Money Transfer Special Purpose Vehicle) indicates all the underlying securities which ended up being repaid to the nationalized insurers' counterparties at 100 cents on a dollar, when in fact their market value was well over 50% lower.

Leading groups were slammed hard. Typical and usual Options Expiration Racketeering. Anything in an uptrend where massive call buying was taking place was smoked. Tomorrow, they will probably vaporize some puts.

As I have stated throughout all of last year, the macro, fundamental and
political headwinds facing banks make them good shorts and risky
investments. They faced a good run in this recent bear market rally,
but the spirits have cursed them for the medium term. In addition,
these guys act as if they have never heard of PR and strategy, ex. this
bonus thing.

Last month, acting on behalf of institutional investors of some note, Grant & Eisenhofer filed suit challenging Goldman's bonus policy. Now, it seems, suits like this might say something about what is in store for Goldman (and its stock price) in the years to come.