Archive - Sep 2009 - Blog entry

You may recall that the crude spread gap opened just a few weeks after Lehman Brothers failed and AIG required a capital infusion. During the super contago phase of late 2008 and early 2009, the spread was so ridiculously wide that the rate of return was close to 70% at one point of time.
Those few who had a role in taking advantage of the super contango ended up boosting the spot oil price back to a more normal relationship to the outer months.

It's not just rating agencies that are at the crossroads, but pension funds are at the crossroads too. We need a governance overhaul that introduces more transparency and a compensation system that rewards risk-adjusted returns. The status quo at rating agencies and pension funds is totally unacceptable.

This comes from the Department of I Should Have Known.

Project Mayhem reviews the most important financial and geopolitical news of the past week and takes a look at the week ahead.

A few brave economists believe fiscal and monetary stimulus, as well as improved productivity, will help the United States bounce back stronger than anticipated, helping it to leap hurdles such as high unemployment, a soaring budget deficit and a beleaguered consumer.

If the budget deficit is $1 trillion per year, how much do we have to borrow? The answer is closer to $2 Trillion. The existing debt has to be refinanced too. Can this be sustained? Forever?

Bank of America has just over $8 billion in 90+ days past due compared to a little over $14 billion in Non-Accrual. So for every $1.00 they have on Non-Accrual they have $0.57 in potentially near-term charge offs. Naturally, not every...

We are in uncharted territory, so now more than ever, pension fund managers, board of directors and plan sponsors need to review their asset allocation more frequently, making all necessary adjustments as the environment evolves. Complacency and following the herd is highly irresponsible, ensuring mediocre performance over the long-term.

To attach any significance to the market's current strength is wrong.

FHA announced last week that they were having some problem with their reserve levels. Making 100% loans in Puerto Rico might be part of the problem. Ski resorts may be another issue for the folks at FHA to worry about.

Are Teachers and other pension funds flying off course? Only time will tell but they sure are putting lots of eggs in the infrastructure basket. As with any investment, the benchmark should reflect the beta, credit risk and liquidity risk of the underlying investments. Infrastructure is a long-term asset class but it isn't free of risks and the benchmark must reflect this.

In my last article, I discussed two of the major factors to this week’s run-up in natural gas - Operation Flow Orders (OFOs) and pre-configured stop orders being hit. Here, I’d like to take a look at some other concurrent distortions in the natural gas market.

I asked the Fed a question on what was QE. Their response surprised me. It also left me confused. Does this bring any clarity to this big question?

The news in commercial real estate keeps getting grimmer by the day. This crisis will have severe implications for pension funds that are carrying these properties on their books and banks that are exposed to commercial real estate loans. In other words, the commercial real estate crisis isn't over - not by a long shot.

It seems almost each week, if not each day we learn of yet another FAIL from our alleged watchdogs at the Securities & Exchange Commission, but there is only so much facepalm a pseudonymous blogger can take before he is compelled to do something about it.