Archive - Oct 14, 2009 - Story

The bell ringed a little louder today at 4PM with a nice 5-digit print for the Dow. People were no doubt clapping and smiling on the floor of the NYSE, far detached from the emails going around pointing out how much higher most commodities are compared to the last time we crossed 10,000, or how the dollar lost 25% in the meantime. Why wouldn't they clap? It's working! Printing cash in the end will make almost every asset go up. The only asset class that should not be going up is Treasury Bonds, but since part of the printing scheme consists of supporting that market... well everything is up other than the USD!

With everyone cheering the US economy finally completing its first lost decade, and likely the first of many, it is worthwhile to compare the top ten Dow Jones stocks by market cap today and ten years ago. What is notable is the rotation out of pharma companies, with both Merck and Pfizer dropping out of the ranking, and their replacement with taxpayer capital proxies, in the face of JP Morgan (#4) and Bank of America (#9). As both of these companies have achieved phenomenal profitability (and a resulting stock price appreciation) almost exclusively courtesy of the inverted yield curve and numerous other boons from the Fed, their market cap contribution should be carefully considered for whether it is sustainable or is one-time item (assuming the QE 1.0-xxxx.0 liquidity pump ever runs out). Also notable is CNBC parent GE's fall from grace, and its over $200 billion loss in market capitalization.

Anyone remember the classic movie "Rollerball" from 1975?? Reminds me of today's financial markets, where "Inflation" vs. "Deflation" oriented teams roll around in a circle annihalating each other until all the players are dead. Meanwhile, Lloyd Blankfein sits in the executive box, relishing in the action.

Developing story per WSJ. LAZ halted. And yet again, questions for the SEC on companies reporting potentially misleading health information on key individuals.

Ever more investors are fleeing from not just the 30 year Treasury but the 10 year as well. Money is rapidly congregating in the whatever yields the sub 10 year space is providing. The fact thatthe upcoming QE 2.0 liquidity and housing stimulus does not contemplate UST purchases is definitely not helping.

"With respect to the large-scale asset purchase programs, some members thought that an increase in the maximum amount of the Committee's purchases of agency MBS could help to reduce economic slack more quickly than in the baseline outlook." - Fed on The Upcoming Quantitative Easing 2.0

Another great representation of the amazing loss of purchasing power by the US public are today's oblivious statements about the Dow at 10,000. While in absolute terms the Dow may cross whatever the Fed thinks is a necessary and sufficient mark before QE begins to taper off (Dow crosses 10k just as Treasury purchases expire), the truth is that over the past 10 years (the last time the DJIA was at 10,000) the dollar has lost 25% of its value. Therefore, we present the Dow over the last decade indexed for the DXY, which has dropped from 100 to about 75. On a real basis (not nominal) the Dow at 10,000 ten years ago is equivalent to 7,537 today! In other words, not only have we had a lost decade for all those who focus on the absolute flatness of the DJIA, but it is also a decade where the US Consumer has lost 25% of purchasing power from the perspective of stocks! You won't hear this fact on the MSM.

JPMorgan disclosed today that it has provisioned $8.785 billion for compensation for the 9 months ended September 30. Based on the 24,828 employees currently working for Jamie Dimon, this implies an accrual of $353,834 per employee (this excludes the accrual to be set aside in Q4). The number is a 34% increase over the prior year period, and represents 38% of revenues for the first nine months of the year. Run rated, the median JPM employee should expect to make $471,779.

A new study out of NYU Stern School of Business finds what many have known intuitively for years: namely that a material portion of hedge fund managers (over 20%) routinely misrepresent or outright lie about their funds and associated performance.

"We continue to feel that Holiday 2009 revenues will be modestly down, and profits will be up, from 2008s, with any surprises most likely to occur on the downside. There do not appear to be any macroeconomic forces at work that would lead us to conclude that the consumer will be better positioned to spend during the balance of 2009 than he/she was during the similar period of 2008. A key factor that we will focus on will be third quarter-ending inventory levels. Although they will most certainly be down from 2008 levels, they may not have fallen enough to avoid the rampant pre-Christmas discounting that took place in 2008." - Moody's

Amid a bankruptcy, massive restructuring, brand failures and division sales, General Motors aims to grow faster than China’s entire auto market in 2010, according to its China chief Kevin Wale. Having outperformed China’s overall market thus far, during the first three quarters of 2009- 2010 is bound to be a banner year? Right? Right.

"We believe you are seeing several hundred additional smaller regional based banks go-- you know, not make it..." - JPMorgan

Developing story per the WSJ: In what could become a repeat of the New York State pension fiasco, the fund's California brethren at Calpers are now launchinga "special review" of fees paid by money managers to placement agents. Usually where there is smoke... As Zero Hedge has disclosed previously, some of the most prominent private equity firms have for years been recipients of Calpers' generosity. It will be interesting if more kickbacks to and fro these entities is uncovered as a result of the review.

The media billionaire mogul, Sumner Redstone, through his holding company National Amusements Inc., plans to sell-down stakes in CBS and Viacom Inc. to pay-off debt. Alleviating concerns amid a $500 million debt payment coming later in the month.

With the New York's Stuy Town implosion getting picked up by the Wall Street Journal months after being written about on Zero Hedge, the question now is what the next landmark property to go bankrupt will be. According to Real Estate Alert, the iconic Union Square W Hotel may just be it. The hotel, which was acquired by Dubai's troubled sovereign wealth fund, Istithmar, for $285 million in 2006 (one of the few acquisitions of a hotel at a price of more than $1 million per room) has been bleeding cash lately after room rates have declined by 24%. The result has been an inability for the owner to even meet debt service obligations: a sure sign the current balance sheet is doomed, with an outright default just a matter of time.