Archive - Oct 2009 - Story

UBS' Art Cashin shares deep perspectives on the economy, China, investor psychology, markets, the bubble, the Federal Reserve and more. Must watch.

• Rampant buying of Kindles did not help UK's GDP, which posted a "surprising" drop of -0.4% in Q3 (Bloomberg)
• Allan Meltzer: Banks are holding prices down because they can buy Treasurys with free money from the Fed (WSJ)
• UK GDP reaction: sterling tumbles, Gilts rally, but FTSE fine (FT Alphaville)
• New Jersey pays Goldman for swaps on non-existant bonds (Bloomberg)
• Dollar's doom puts a face on new $1 million bill (Bloomberg)
• China's 8.9% growth? No way - Beijing has spent its way to a sugar high (Forbes)

• Asian stocks rise as earnings boost outlook for recovery.
• China says employment is “stable” and will add 2 million more urban jobs this year.
• EU approved the proposed tie-up of Merck & Co. and Schering-Plough.
• Oil prices held above $81 a barrel Friday in Asia.
• Treasuries fall a third day as Asia stocks gain, US homes sales to rise.
• 3M Co.'s Q3 net fell 3.4%, beats est., raised its full-year EPS view now to $4.50-4.55.
• Amazon.com reported a 69% gain in Q3 profit and forecast healthy holiday gains.

The saving grace of declining liquidty swaps and CPFF could only go on for so long. In the past week, the balance sheet of the Federal Reserve exploded, hitting an all time high of $2,174 billion. Furthermore, total reserves of banks with the Fed also hit an all time high of $1,047 billion. So muchfor the whole "banks lending newly printed money out" theory.

...and didn't know that Goldman would be willing to trade for you (for a modest fee).

In case you don't get enough of it as is...Courtesy of Bird and Fortune.

Every day we hear about proposed caps on CEO pay, and new regulations to make sure companies are not rewarded for failure. Nowhere is failure being more greatly rewarded than in the United States bankruptcy system. R.H. Donnelley, one of the largest yellow page companies in America, declared bankruptcy earlier this year. The Company had over $500,000,000 of cash on hand when it declared bankruptcy and has generated positive cash from operations every month since declaring bankruptcy. R.H. Donnelley had no debt coming due in 2009, and received an unqualified opinion, a clean bill of health, from KPMG during its audit. The Company is projected to make hundreds of millions of dollars in cash from operations in 2009 and will have an estimated EBITDA of $1 billion dollars. This information is all publicly available in R.H. Donnelley’s SEC and bankruptcy filings.

CNBC has been trying hard to make everyone forget last year ever happened, and that the global financial system is one big ponzi scheme. And by the look of luxury home sales in the Hamptons they have finally succeeded. Bloomberg reports that "home sales in the Hamptons, the Long Island beach retreats favored by Hollywood celebrities and Wall Street financiers, surged 32 percent in the third quarter as deal seekers landed discounted properties."

It appears that the race to the bottom by commoditized reading platforms such as the Kindle and what not has left at least one party rather angry: the American Booksellers Association. In a letter to Christine Varney (who we hope is busy looking at comparable complaints against certain Hedge Funds/Bank Holding Companies), the ABA presents the following concern: "We would find these practices questionable were they taking place in the market for widgets. That they are taking place in the market for books is catastrophic. If left unchecked, these predatory pricing policies will devastate not only the book industry, but our collective ability to maintain a society where the widest range of ideas are always made available to the public, and will allow the few remaining mega booksellers to raise prices to consumers unchecked."

Spreads were tighter in the US as all the indices improved (moving credit back just wider than Tuesday's close while stocks are just higher than Tuesday's close). Today's prices action in credit saw narrow range inside days in both IG and HY suggesting short-term underperformance (reversals from the tightening trend), and while over the last two days equity and credit are close to unch, TSYs are notably higher/steeper in yield, the dollar a lot lower and gold and oil up as the vol term structure continues to steepen up with short-dated buy-writers seemingly ruling stock risk.

The mere fact that "special masters" are even labeled "Czars" by the administration should be warning enough.  One might guess either that the leaders of the administration have a very poor grasp of the historical import and meaning of the term, or they have the unabashed arrogance to wield it notwithstanding its many negative and authoritarian connotations.  Not that the Obama administration is alone in its use of the term, but it has now exceeded the high water mark for Czar populations set by the Bush Administration. That we now have one in the process of dictating executive pay, indeed any compensation structure at all, is deeply concerning.  So when Obama administration’s "Special Master for Executive Compensation" out and dictates that his Papal Bull on pay cuts for executives of banks receiving government assistance should become the model for Wall Street and for the United States generally, well:

1. Despite the protestations nearly since January that no one in the Obama administration would be meddling with compensation in private enterprise, you should have seen this coming months ago.

2. We told you so.

Recovery.org has some useful data to track the efficacy of the administration's stimulus program. Not only can the 5.93 people (not in millions, thousands, hundreds or even tens) in Rhode Island whose jobs the Federal Government managed to "save" send personal thank you letters to American taxpayers, but they can read all about the happy response on Amazon's Kindle, which apparently every single human being in the world is a proud owner of, which seems sufficient to justify the retailer's 60x forward P/E (once the short squeeze is finished after hours, that's roughly where the stock should be trading; in other news at least Americans can finally get edumacated with everyone finally reading just to look cool).

Well, today for once played out like we expected at least. Upon failure of breaking forcefully through 1,070/1,075 early in the session, we did have one of those lightening fast no volume rally. However we were positioned for itfollowing the early morning game plan. Only surprise is almost that we did not go all the way challenge the highs at 1,098. I guess we had to leave a little bit of work for the Asian session.

Yet another day where Goldman scored huge once again. Where is Dick Bove today? No doubt, he must be luxuriating in an Opium Den and Massage Parlor somewhere in Chinatown, cavorting with 17-year old Asian Exotica, after receiving a hefty payout from the Prop Desk boys at Goldman..

A $286 million loan BWIC is being marketed, with a 10:00 am deadline tomorrow for bid submissions. The lineup of holdings is not too remarkable so it is not immediately possible to determine who the unlucky imploder may be. However, as it has been over a month since the last BWIC hit the market, there are rumors that this could be a Galleon-related unwind. The largest names in the BWIC include Hertz, ServiceMaster, Windstream, QVC and Sungard loans, at $15, $11.2, $9.7, $9.5 and $9.1 million respectively.