Archive - Feb 2011

As regular readers know too well, one topic Zero Hedge enjoys ridiculing with the disdain it deserves is groupthink of any form. The phenomenon, which is nothing but transference of laziness by those who manage other people's money with complete disregard for the consequences of their actions, was among the main reasons for the Great Financial Crash.  As nobody was willing to engage in any form of critical thought, and with the market "only" going up, any investment thesis was predicated solely on what the "other guy" was doing. Of course when it all blew up, it was time to blame the evil rating agencies. After all, heaven forbid someone actually think about the logic behind the credit ratings of hundreds of billions in synthetic CDOs, or worse still, take responsibility for their own stupidity and laziness. We are now precisely in the same place we were when the market peaked last time around, with groupthink rampant, with any attempt at opposing thought squashed for fears it will end the party early, with sellside analyst optimism at all time highs, and with the administration actively encouraging rampant lies and perpetuation of the myths that take hold in the market with no factual footing whatsoever. The "conspiracy of optimism", as dubbed once by James Montier, has once again fully taken hold. As SocGen's Albert Edwards points out "despite another post mortem on forecasting failure, nothing has or will change": this is true... until the next crash. Then the finger pointing will begin anew, theatrics about the change in the Status Quo will resume, and once again the Fed will attempt to reflate the latest bubble crash. Only this time there will be no reflation, as the central planning committee's reign of terror will be over, and the fiat monetary system will have ended. Below we present Edwards' most recent solemn and very troubling thoughts on the latest break out of the great groputhink malaise, which will only last as long as the great chairsatan has some control over events. Luckily, with the amplitude from a stable market equilibrium shifting ever greater in either direction, and as the Fed's very existence (remember: the whole point of the central bank is to contain price stability) is repudiated, the time until the reset is now shorter than ever before in history.

Once again, another week rolls by, and the market is hanging by a thread. Thousands of hedge fund traders are anxious to "make a killing" by being fully invested on the short side and catch the next big bear market selloff so they can call it quits in a couple of months and spend the summer luxuriating out in the Hamptons after "making their year". Bernanke has his back up against the wall. He either needs to let the market fall so he can get a rally in the Treasuries going, or he needs to turn on the Infinite Fiat Firehose and send the U.S. Economy into full blown Zimbabwe mode.

Following the departure of Gadaffi's private jet pilot, Odd Birger Johansen, who quietly left the country two days ago, the latest to flee the sinking ship is none other than the dictator's favorite Ukrainian nurse Galyna Kolotnytska, who has taken her leave from Tripoli permanently. The approximately 38 year old nurse was first exposed in WikiLeaks cables which Zero Hedge referenced previously here. The fact that Galyna was so close to the dictator and was a potential "love interest" apparently in no way increased her resolve to pull an Eva Braun and join Gaddafi when he finally realizes the end is nigh. And while Gaddafi will be able to do without sponge baths for a day or two, it may prove to replace the pilot of a jet already supposedly loaded up with gold and ready to go, on such short notice.

For those who care what the man whose corporate existence is intimately tied to the government's bailout of the financial system, has to say, below we present Buffett's 2010 letter to shareholders.

$50 billion lost a year. Wonder why we're broke?

When the stuff hits the fan this time around, the Fed will be powerless to do anything. Bernanke’s already shot every bullet he’s got. So when he loses control this time around, not only will the market crater, but the belief that has kept the financial system afloat through every Crisis of the last 30 years (namely that the Fed can always save the day) will shatter.

A new report from the Little Hoover Commission says that many state and local government employees have been promised pensions that the public couldn't have afforded even had there been no housing and financial crash. The report doesn't mince words: "pension costs will crush government".

As if adding insult to injury each and every day with wave after wave of POMO, even as the criminals on Wall Street continue to go about their business, collecting record bonuses, without even the remotest threat of prosecution, wasn't enough the US Mint is now openly micturating in the face of what little is left of US middle class with the issuance of the "Peregrine" Paulson (3 inches) bronze medal. That's right: starting today, everyone can own a tiny 3 inch piece of Hank: the same man who in October 2008 barged into congress with a three page proposal demanding Congress give him supreme dictatorial powers over this country, and to dispense an uncapped amount of money in rescuing his former company and anyone else he saw fit. The description of the reverse: " The image of the peregrine falcon represents Secretary Paulson’s commitment to conservation and his long-time interest in birds of prey." Wouldn't it be more fitting to find a creature celebrating Hank's commitment to fraud, communism, bail outs, and the Goldman way? We eagerly await William Banzai's take on the Silver Vampire Squid Paulson coin which, if we find an appropriate dealer, we would be happy to sell directly to readers (if there is any physical silver remaining of course). Failing that a coin showing Blythe Masters on the front and Gary Gensler on the back would be a perfect substitute...

While reading Bank of America's 631 page 10K (oh yes, someone will read it cover to cover), the first thing we spotted was the followingL "On February 24, 2011, the company and Brian T. Moynihan, President and Chief Executive Officer, entered into a non−exclusive aircraft time sharing agreement (the “Agreement”), which will permit Mr. Moynihan to lease the company’s aircraft for his use." And just why did Mr. Moynihan not simply get a NetJets timeshare lease instead we wonder? We are confident that the terms of the arrangement will be promptly made public for everyone interested to remove any doubt there is any preferential behind the scenes dealing in allowing the former GC to fly anywhere he chooses on a taxpayer's dime (speaking of, BofA, how is that TLGP repayment coming? Ahead of schedule? Behind?). But far more important than the CEO's private jet arrangements, is the following blurb hidden deep inside the bowels of the paperweight:"our agreements with the GSEs and their first mortgage seller/servicer guides provide for timelines to resolve delinquent loans through workout efforts or liquidation, if necessary. In the fourth quarter of 2010, we recorded an expense of $230 million for compensatory fees that we expect to be assessed by the GSEs as a result of foreclosure delays." Keep that statement in mind as we wonder out loud whether or not the CEO actively lied to investors during the company's November 2010 financials conference, not to mention the bank's Q3 conference call.

There was a time when everyone thought CDOs are perfectly safe. That ended up being a tad incorrect. It resulted in AIG blowing up, recording hundreds of billions in losses and almost taking the rest of the financial world with it, leading ultimately to the first iteration of quantitative easing. A few years thereafter, several blogs and fringe elements suggested that munis are the next major cataclysm and will likely require Fed bail outs (some time before Meredith Whitney came on the public scene with her apocalyptic call). It would be only fitting that the same AIG that blew up the world the first time around, end up being the same company that does so in 2011, and with an instrument that just like back then only an occasional voice warned is a weapon of mass destruction: municipal bonds. AIG dropped over 6% today following some very unpleasasnt disclosures about its muni outlook, and corporate liquidity implications arising therefrom: "American International Group Inc., the bailed-out insurer, said it faces increased risk of losses on its $46.6 billion municipal bond portfolio and that defaults could pressure the company’s liquidity." So how long before we discover that Goldman has been lifting every AIG CDS for the past quarter? And how much longer after that until someone leaks a document that the company's muni strategy was orchestrated by one Joe Cassano?

There was a time when everyone thought CDOs are perfectly safe. That ended up being a tad incorrect. It resulted in AIG blowing up, recording hundreds of billions in losses and almost taking the rest of the financial world with it, leading ultimately to the first iteration of quantitative easing. A few years thereafter, several blogs and fringe elements suggested that munis are the next major cataclysm and will likely require Fed bail outs (some time before Meredith Whitney came on the public scene with her apocalyptic call). It would be only fitting that the same AIG that blew up the world the first time around, end up being the same company that does so in 2011, and with an instrument that just like back then only an occasional voice warned is a weapon of mass destruction: municipal bonds. AIG dropped over 6% today following some very unpleasasnt disclosures about its muni outlook, and corporate liquidity implications arising therefrom: "American International Group Inc., the bailed-out insurer, said it faces increased risk of losses on its $46.6 billion municipal bond portfolio and that defaults could pressure the company’s liquidity." So how long before we discover that Goldman has been lifting every AIG CDS for the past quarter? And how much longer after that until someone leaks a document that the company's muni strategy was orchestrated by one Joe Cassano?

With must-see Dan Rather news clip ...

Who said the xtranormal cottage industry's only expertise is the Ben Bernank, the Tim Jeethner, the Goldman Sack, the JP Morgue, QE, BTFD, bond trading, gold and silver manipulation, the Chinese trade surplus and other typically incomprehensible by the lay person concepts. Sometimes they also tackle Charlie Sheen. Here is the result.

As of yesterday we need to immediately open up ANWR and the shallow off-shore regions to exploration and drilling. I love caribou as much as the next person, but this must be done. Even the most conservative estimates tell us that by 2018 if development were green-lighted today, ANWR could be producing as much as 780,000 and then slowing to 710,000 barrels a day by 2030. Also it is estimated that 18 billion barrels of crude oil are contained in areas currently off-limits to drilling for environmental reasons. No nation has denied itself so much abundance of its own domestic natural resources as has the USA.

Fairly quiet day, next week to round out February's issuance, early in the week we have a couple of bill auctions.