Archive - Feb 2010 - Blog entry

The 4th Quarter FDIC Bank Data has been updated at www.wlmlab.com. Each quarter I eagerly anticipate the numbers and keep thinking "it can't possibly be worse than last quarter, can it?" Well, never fear, it can. First off, the total amount of loans outstanding at U.S. Regulated Depository Banks has fallen to $7.296 Trillion from $7.425 at the end of Q3 2008.

I was clearly able to see the Greek bank downgrades coming, but there was one bank that was left out, as I expected it to be. If or when that bank gets downgraded, it is a strong chance that Greece will go down with it.

President Obama's Proposal on health care "reform" is a far reaching plan that will cause financial havoc to the health care system specifically and to the economy in general. It, along with the plans passed by the Senate and the House, are so invasive that we will be forever mired in bureaucratic control of this most important segment of our lives. Think of the movie "Brazil."

Deutsche Bank AG is to assume the longevity risks of nearly 3 billion pounds ($4.6 billion) of pension liabilities from BMW’s U.K. plan. This is the largest deal yet in corporate longevity insurance, effectively doubling the size of the market. Will longevity swaps become the new age pension solution or will they offer a false sense of security?

The economic advisor to libertarian Ron Paul’s 2008 presidential campaign gives his views in an exclusive Hedge Fund Radio interview. The Republicans of the last administration weren’t “real” Republicans. The US government is a “cancer on the economy.” The Fed “has managed the economy into the ground.” Interest rates will skyrocket, stock and bond markets will crash, and more financial institutions will fail. Civil unrest is coming. Gold, commodities, and emerging market stocks will be the only place to hide out. You won’t be able to buy “a stick of gum” with a dollar.

Bait and switch ...

A few weeks ago, we noted the potential for an oversold bounce despite what appeared to be a clear shift in the investment landscape. Now that most major equity indices have rallied for two consecutive weeks (with the S&P 500 stalling at a 50 DMA which looks to be rolling over), it is critical to assess the underlying strength of this move. Suffice it to say, that the evidence is mixed at best. Many of our immediate term commodity and commodity currency models have moved back into “buy” territory, but we view Dollar Strength as a BIG RED DEFLATIONARY FLAG.

We’re about to find out who has been swimming without a suit. TALF is expiring, sucking another $1.5 trillion out of the system. One of the steepest yield curves in history is about to become a lot steeper. The face of Half Dome comes to mind. A short in 30 year Treasury bonds will be THE great trade of 2010. Failed Treasury auction here we come.

We ran an interview with our friend Yves Smith of Naked Capitalism today. She has done an excellent job of describing how the intellectual ghetto that was once financial economics has helped to destroy the world of investing and involuntarily turn us all into day traders. The full text follows below. -- Chris

While anal-ytic 'debate' about whether Chinese real estate prices have reached nose-bleed territory continues in merry-go-round circle-jerk fashion, there is only one (very simple) question to ask:

is this the kickoff to a new bull market in Chinese RE or a terminal throw-over (cause there ain't anything in between) ?

In this installment of the Pan-European Sovereign Debt Crisis, I illustrate the potential contagion effects of the portion of Europe that is in a flat out Depression. Yes, Depression! There are quite a few strategic banks that have significant claims on this region, as well as Greece. Just imagine the potential consequences if all of the stars aren't aligned properly...

Some big governors on TV. What do they propose? Spend an additional $350b a year, that we don't happen to have. When will the bond market say no to all of this? Sooner than Ed and Arnie know.

The investor sentiment data is consistent with a market that is in bounce mode.

Gold typically has the strongest inverse correlation with the US Dollar. In the last month, however, the trend has broken with gold trending inversely with Euro and positively with Dollar. Will this new trend hold and for how long?

According to Pew, there's a $1 trillion gap between the $3.35 trillion in pension, health care and other retirement benefits states promised their current and retired workers as of fiscal year 2008 and the $2.35 trillion they have on hand to pay them. How dire is the pension problem in the US and what will ultimately shape the future of the pension crisis?