Archive - Oct 2012

One-year "money" is offered at .9750. The .9700 bid is vulnerable. I don't get it.

The last time a Primary Dealer decided to go all in on the Italian "recovery", MF Global went bankrupt. This time around the bank that apparently can't get enough of Italy (and to a smaller extent Spain) and its glorious taxpayer funded, bailed out future is none other than JPM, which according to its earnings presentation has seen its net exposure to Europe double from $6,3 billion to $11.7 billion, following a surge in Italian trading exposure. Surely this will end very well for the bank that only 5 months ago had to reshuffle every executive in its internal $300 billion hedge fund for massive IG9 CDX losses.

What does one say when the prize honoriing peace is awarded to those whose principle achievement has been to build a giant bazooka?

• OECD: Japan Public Debt in 'Uncharted Territory' (WSJ)
• Germany holds firm on Greece as IMF pressure mounts (Reuters)
• Schäuble and Lagarde clash over austerity (FT) - it would be great if someone actually implemented austerity...
• Merkel hints at tax cuts for growth boost (FT)
• Hollande Robbed of Growth Engine as Companies Cut Investment (BBG)
• Romney Narrows Gap With Obama in Swing State Polling (BBG)
• Sluggish Growth Seen Into Next Year (WSJ)
• Softbank Founder Has 300-Year Plan in Wooing Sprint Nextel (BBG)
• Singapore Forgoes Currency Stimulus on Inflation Risk (Bloomberg) - as does China day after day
• Sharp Jabs Dominate Combative Vice-Presidential Debate (WSJ)
• Japan and China Agree to Hold Talks on Rift After Noda Call (Bloomberg)

There is a lot of verbiage in the official JPM Q3 Earnings press release which directs to a bottom line number of $1.40, or $5.7 billion on expectations of $1.24, with revenue of $25.9 billion on expectations of $24.53 billion. The primary reason for the lack of disappointment: no major losses in Corporate from CIO, with corporate generating $221 million in Q3, up from a loss of $(1.777) billion in Q2. And then come the adjustments:  $900 million pretax benefit ($0.14 per share after-tax increase in earnings) from reduced mortgage loan loss reserves in Real Estate Portfolios; $825 million pretax incremental charge-offs ($0.13 per share after-tax decrease in earnings) due to regulatory guidance on certain residential loans in Real Estate Portfolios; $888 million pretax benefit ($0.14 per share after-tax increase in earnings) due to extinguishment gains on redeemed trust preferred capital debt securities in Corporate; $684 million pretax expense ($0.11 per share after-tax decrease in earnings) for additional litigation reserves in Corporate; Then there is a DVA loss of $211 MM in banking. Net-net, after taking into account all one-off adjustments, the Q3EPS was really $1.26. But for all the data fudging, and attempts to make the reported EPS non-comparable to the expected one, following an avalanche of one-time adjustments, the bottom line is this: revenues from trading dropped both sequentially and Q/Q while banking expenses rose, Net Interest Margin dropped to a new record low, even as the firm too a major $967 million loan loss reserve release on its loans to $22.8 billion, even as its total Non-Performing Loans rose by a whopping $1.3 billion to $11.370 billion, the largest quarterly jump in years! Just how JPM can justify such a major contribution to earnings coming from loan losses when NPLs have soared is unclear to anyone with a frontal lobe.

Ladies and gentlemen, we bring you EUtopia (and an early case of Friday humor). " The European Union has been awarded the 2012 Nobel Peace Prize in a nod to the 27-member bloc's "advancement of peace and reconciliation," and to applaud its solidarity as it continues to work to contain the debt crisis hanging over the euro zone. The head of the Norwegian committee, Thorbørn Jagland, said the committee gave the award in an effort to encourage Europe to back away from the "extremism and nationalism" that led to major conflict in years past. "This is, in a way, a message to Europe to secure everything we have achieved and move forward," he said while addressing a packed crowd at the Nobel Norwegian Institute in Oslo on Friday. "Mr. Jagland said it is "up to the European Union" to decide what to do with the approximately $1.2 million in prize money that comes with the award. He also said the EU should decide how the award is ceremonially received." Some other news: Bernard Madoff Investment Securities has not won the Nobel prize in economics yet.

Reports that the housing sector is recovering has generated more than a little irrational exuberance among investors regarding financials. 

We always said that the presidential race in a country in which 40% of spending on wars, entitlements, interest on said debt, etc. is funded by debt (purchased mostly by foreigners and monetized by the Fed), is moot, and is merely one big tragicomedy designed to evoke nothing but laughter (especially since it is the creditors who call the shots). Today, we see that at least Joe Biden got the memo.

We are now five years into the Great Fiat Money Endgame and our freedom is increasingly under attack from the state, liberty’s eternal enemy. It is true that by any realistic measure most states today are heading for bankruptcy. But it would be wrong to assume that ‘austerity’ policies must now lead to a diminishing of government influence and a shrinking of state power. The opposite is true: the state asserts itself more forcefully in the economy, and the political class feels licensed by the crisis to abandon whatever restraint it may have adhered to in the past. Ever more prices in financial markets are manipulated by the central banks, either directly or indirectly; and through legislation, regulation, and taxation the state takes more control of the employment of scarce means. An anti-wealth rhetoric is seeping back into political discourse everywhere and is setting the stage for more confiscation of wealth and income in the future. This will end badly.

And so another disingenuous display of avoiding saying anything definitive about anything specific is complete. Without doubt the winner of this evening's 'round-table' is Martha Raddatz. Despite the incessant interruption and grinning/laughing/anger/frustration of Biden (and Ryan bringing up a 'car-crash' - awkward), the two candidates had relatively equal talking time (via CNN Biden Won 41:32 vs Ryan 40:12) but Ryan pipped Biden by 7,434 words to 7,425! Picking a winner is tough - so we won't - but Obama's odds rose from a pre-debate dump to 61% to over 64% (this morning's levels) - but stopped rising once the candidates began to discuss Afghanistan and Syria and when Ryan 'summed-up', Obama's odds crashed back to unchanged at 61.2%. Ryan won the drinking game 32 to 26.

At 9pm Eastern, the debate that we suspect will go down in infamy begins. As the two Vice-Presidential candidates square off in a David-and-Goliath, young-and-the-restless, Palin-vs-Couric, 'Marquez-Pacquiao 3'-style debate-a-thon. The critical question remains - will Ryan ask if he can call Biden 'Joe'? Pick up your drinking-game cheat-sheet and grab the popcorn as the battle for of the ages begins...

After incumbent Barack 'barrel-o'-bitter" Obama narrowly defeated challenger Mitt "make-mine-a-Virgin-Daiquiri" Romney in last week's Presidential debate drinking game, the chaps at DebateDrinking.com have risen to the challenge as Joe "Wino" Biden takes on the young upstart Paul 'Shandy' Ryan. The new rules are here and if you lose count - the live stream scored event is embedded below...

Just how much havoc does living within one’s means wreak?

Education plays a fundamental role in American Society. This ultimate infographic from Census.gov provides the ultimate visualization of what all you tax dollars ($602.6bn on elementary and secondary education) and student loan debt (57.6mm people over 25 have at least a Bachelor's degree) has created - for instance: only 7% of <34-year-olds had gone to college in 1970, as opposed to 18.9% currently!