Archive - 2010

We all knew it would happen, and now the Fed is implicitly confirming it - Quantitative Easing 2.0 is on the docket, with a sole purpose of purchasing of MBS, reports Market News. As the private MBS market is dead and buried, much more on this coming in a post later today, the Fed can not afford to abandon MBS and the GSEs in March. If it does, it is game over for interest rates, mortgages, and the stock market. Period.

In a report "Predicting Sovereign Debt Crises: 2010 Update" RBS' Timothy Ash is the latest one to chime in on the sovereign risk theme, a topic that has been prevalent ever since Bernanke did the great private-to-public risk bait and switch, which in turn was followed to a great extent by all the countries in the world. Soon, in addition to a risk to the bottom in carry trades, and inflation expectations, we will see a risk acceleration, once countries realize the fringe benefits arising from being the first defaulting sovereign in a global moral hazard climate.

Right. Accurate economic reporting is literally guaranteed to come out of China! Goldman says so!

• Hussman - Tim Geithner meets Vladimir Lenin (Hussman Funds)
• Oil nears $82 as commodity bubble roars back; watch the gas pump next (Bloomberg)
• Is Japan the correct analogy? (Grey Owl Capital Management)
• Global bear rally will deflate as Japan leads world in sovereign bond sales (Telegraph)
• Emerging markets to lose 20% as IPOs backfire according to Mark Mobius (Bloomberg)
• Optimist? Or pessimist? Test your 2010 strategy (MarketWatch)

Stocks hit all time highs, the dollar soars, and precious metals and commodities crash. Hedge Fund Traders left scratching their heads.

The Mad Hedge Fund Trader’s Top Ten Surprises for 2010

• Asian stocks advance to 16-month high on US manufacturing, commodities.
• Brazilian stocks closed at a 20-mt high on a raft of positive economic data at home.
• Crude-oil futures jumped to a 15-mt high on colder weather, economic optimism.
• Euro zone's mfg sector purchasing managers' index rose to a 21-mt high in Dec.
• US manufacturing expanded in December at the fastest pace in more than 3 years.
• US Treasury plans to sell $16 billion in four-week bills on Tuesday.
• Agricultural Bank of China plans to raise $22B via dual listing in Shanghai, Hong Kong.

TrimTabs' Charles Biderman discusses the flow of funds, and the interest rate outlook for 2010: nothing too outlandish - the Treasury bubble thesis revisited, as well as the biggest issue of all - the roll (much more on this from Marla soon). Also some observations on the interplay of money markets and alternative funds, extensively discussed here. Also, according to TCW's Chief Global Strategist the treasury bubble will burst in a few months, coupled with a collapse of the dollar. What this means is that rates will surge. What this also means is that once rates surge, equity values will be whacked as the cost of capital will no longer be zero (sorry Zimbabwe Ben, but you are completely wrong - a cost of capital of zero is the number one reason for pretty much all bubbles). So what do futures do? Up, up, up. The stocks-bonds divergence trade is alive, schizophrenic, utterly insane and well.

Morgan Stanley, appears to have reacquired the title of the "Riskiest Bank on the Street" with increasing VaR and declining risk adjusted returns that reflect growing risk in its investment portfolio, which is rife with assets that I am quite bearish on.

RANsquawk 5th January Morning Briefing - Stocks, Bonds, FX etc.

I will be the first to admit that 2009 was a disappointing year for my investment results. Although the first quarter of the year was the strongest that I ever had during the Asset Securitization Crisis, and I clearly saw the trend reversal coming at the end of the quarter, I significantly underestimated the length, breadth and depth of the trend reversal. With that being said, I do want to put things into perspective...

A peek into what the top hedge funds and institutional funds are buying for 2010...

"As you know I strongly believe in respecting market price-action, and I will update market scenarios and price targets across asset classes as trading unfolds and supports or resistances are met or broken. Let’s brace for a choppy 2010 as I think it is our greatest certitude: volumes will remain relatively low and the markets will therefore be chaotic. The only case where we see volumes picking up actively is a strong rebalancing towards risk aversion as the world economy relapses, so I guess we should welcome ranging choppy price action for now as we cannot hope for much better given none of the fundamental problems with the world economy have been resolved." Nic Lenoir, ICAP, 2010 Outlook

Greenspan’s error in judgment, conceived from his Ayn Rand based view of the World, was not that people would act in their own self-interest (they do), but rather that removing all the rules was a required pre-condition for this to occur. It is not a mutually exclusive situation where you can only have personal freedom/responsibility with no rules. On the contrary, real freedom is the ability to act on your own within the confines of the rules. Without a set of rules, there cannot be a game, only chaos. Hopefully, the new Financial regulations being discussed will focus upon creating rules that motivate behavior that benefits the public good as opposed to focusing on micro-managing the actions of the individual. This concept is certainly the basis for the old saying: “Good fences make good neighbors”. - Harley Bassman, ML RateLab

Zero Hedge readers will miss out if they fail to carefully study Matt Taibbi's piece on Fannie, Freddie, and the mortgage bubble (as well as a number of other tangential but critically important topics).  Mr. Taibbi makes much of being delicate with me over what he sees as our disagreement on the issues, but I think he mistakes a few (and generally minor) differences in our conclusions for a real divide on the facts.  We are, as near as I can tell, in pretty violent agreement on the substance of the argument: The present exploding bubble is the result of mis and malfeasance on all sides.

The 2009 calendar year numbers for the Social Security Trust Fund are in. These numbers confirm that the Fund is badly off track. Is there a fix to this systemic problem?