Archive - Oct 2009 - Story

A part of today's BLS announcement that has not received much attention is the BLS' own disclosure that it "may" have lost an additional 824,000 jobs in LTM period ended March 2009, in addition to the already disclosed 4.8 million job losses.

"Long-term let's change the mission of the Federal Reserve: let's codify something that prevents it from running amok, like it did for the past ten years" - Paolo Pellegrini

The usual suspects did a great job at managing the market expectation yesterday, which is why we dipped ahead of the number, and shorts took profit following the release. Congress's Finance Committee get the numbers at 2PM the day prior, why shouldn't the right institutional traders get them too? Obviously this softened the blow delivered by the news. The key is that economic news has started to roll over a bit, and if this trend continues then it will be hard for the market to shrug it off. Most indications coming out of the credit markets show that the widening in CDSs is continuing for now. As this happens this will also put pressure on the stock market.

Just in case you thought Tim Geithner was telling the truth about desiring a strong dollar, here is an opinion by Jim Rickards on why the US is getting increasingly wrapped up in its stock market bubble, middle class and imports be damned, and why the dollar's value will get cut in half in the near future.

There are only two real precedents for the deleveraging cycle that the U.S. economy faces today: 1)
The Great Depression & 2) Japan in the 90’s (I am excluding Sweden from this exercise due to their
small size – “what’s wrong with a Swedish model” is always worth a read, however). I have said
that the current deleveraging cycle is actually not all that similar to the Great Depression –
primarily because our economy is much more mature and stable, and also because there are certain
safeguards in place that help prevent such an event from occurring again (the FDIC is a great
example). The similarities to Japan, however, are quite frightening. Goldman Sachs recently
wrote a piece noting the same thing with a few counterarguments. Just how similar to Japan is the
current deleveraging cycle in the United States? Let’s take a closer look.

CNBC is well aware that if you repeat a lie long enough, it becomes true. The argument: "buy on the dips" as the gobs of sidelined money just can't wait to rush in and lose whatever, well, money it may have left. Alas, it does not work like that. This proverbial money on the sidelines, while it may care about seeing an SPY downtick compliments of a blown fuse at JPM ETF HQ, it is even more concerned about what may happen tomorrow, and whether the risk/return on throwing money into a market that as recently as a year ago showed how it can go down by 50% in a very short amount of time, justifies the risk of being unemployed tomorrow.

It appears that even "conspiracy-minded, often-disjointed and harmful-only-to-themselves retail day-traders" are capable of not only participating in the content creation effort, but on occassion, making useful contributions to fact-finding. Or so thinks Reuters' Matt Goldstein in his latest piece "Sheila Bair and the black marker"

• Everyone buying HFT platforms: chip sales rise 5% in August (WSJ)
• Geithner says "Strong dollar is very important" to US (Bloomberg) too bad he is lying
• IMF chief renews call for currency reform (FT)
• Banks with 20% unpaid loans at 18 year high amid recovery doubt (Bloomberg)
• Glorious is fifth flop in Hong Kong IPO "Massacre" (Bloomberg)
• Wall Street wizardry reworks mortgages (WSJ, h/t Geoffrey)
• For sale, cheap: "Old GM" peddles a bankrupt empire's remains (WSJ)

Where to start here: A horrendous September NFP number coming in at -263,000 versus -175,000 consensus; numerous prior period revisions, demonstrating just how clueless the BLS is in this volatile environment; unemployment at a 25 year record 9.8%; a once again dropping work week (33 hours vs. 33.1 prior), slowing growth in average hourly earnings at 0.1% vs. 0.4% in August, or, most relevantly, how on Earth did Goldman know to increase its NFP estimates by 25% less than 24 hours ago, to a number so much more aligned with reality: does Jan Hatzius have a direct, unrecorded line to a BLS "janitor"? Or does he just like keeping his clients in suspense until the 11th hour on what the truth really is? Inquiring minds want to know.

And real unemployment (U-6%) has just hit 17%: now this is Non Farm Payroll change you can truly believe in.

• Asian stocks markets were sharply lower Friday, dragged by losses on Wall Street.
• Asia-Pacific bond risk jumps on concern US recovery faltering.
• Banks with 20% unpaid loans at 18-yr high as doubts over recovery deepen.
• Bernanke calls for higher insurance levies on big groups.
• EU regulators sent antitrust complaints to AMR Corp.’s American Airlines, British Airways Plc and Spain’s
• Iberia Lineas Aereas de Espana SA re. alliance.
• France plans to spend €1.5B on creating a battery-charging network for electric vehicles.

You may remember Daniel Hannan for his rather direct and brazenly eloquent critique of Gordon "The Devalued Prime Minister of a Devauled Government" Brown last spring.  If not, it is quite easy to get acquainted with Mr. Hannan's singular voice via his veracity-charged YouTube channel.  (We are particularly fond of the instant classics, Richard II on the EU constitution, The Brussels Racket, and The Germans Have Caught On).  I have personally been a Hannan-fan for quite some time so it should surprise no one to learn that I was thrilled when he accepted my invitation to write for Zero Hedge.  As a result, Zero Hedge is pleased to present our readers with the first of what we hope are many Hannan pieces at Zero Hedge.  Welcome, indeed, Mr. Hannan!

Reporters at the WSJ have uncovered something very intriguing while they were combing through the billing records of Jenner and Block, whose chairman, Anton Valukas is currently moonlighting as the examiner of the Lehman Bankruptcy Case. In J&B's August fee statement, the firm discloses information that as part of its estate recoupment process, it has been contemplating suing none other than the Federal Reserve.

What dollar speculation was in 1979, so HFT is today (Tobin tax seems to be the universal antidote). Yet, even 30 years ago, cooler heads prevailed and despite contrary desires to the opposite, no doubt spearheaded by the Federal Reserve, the dollar did recover after it got once again dangerously close to the precipice.

In a press release just issued, CIT has announced it is launching two parallel restructuring processes, spearheaded by company advisors Evercore (headed by former disgraced Deputy Secretary of the Treasury, Roger Altman), Morgan Stanley and FTI consulting. One of these will be a variety of exchange offers geared to provide a $5.7 billion (at least) reduction in the firm's debt load; in return tendering bondholders would receive a pro rata share of new 4 to 8 year secured notes, and/or shares of newly issued voting stock. We presume this means that any old/existing preferred/common stock become wiped out. In the second process CIT is soliciting bondholders to approve a pre-packaged plan of reorganization, so "the company can proceeds with a voluntary bankruptcy filing." Thus, the company has confirmed that, contrary to Jim Cramer's recommendations, its existing stock is now completely worthless. Dear Jim - you are now dishonorably inducted in the Dick Bove club of "advisors" who vociferously pitch companies merely days ahead of their bankruptcy filing. Welcome and enjoy your stay.

Total Federal Reserve balance sheet assets for the week of September 23 of $2,139 billion ($6.4 billion higher compared to the prior week's $2,133 bn), now just $35 billion shy of the all time high of $2,174 billion recorded on April 22.