Archive - Oct 2009 - Story

Major DXY component trade EUR-JPY collapsing as the DXY is flying, crushing the momo equity/commodity correlation complex.

Kudos to The Wall Street Journal, which scooped the rest of the Big Media last night by reporting that GMAC Inc. is asking for yet another $3 billion bailout from the US Treasury. If Citigroup (NYSE:C) is the Queen of the Zombie Dance Party and AIG (NYSE:AIG) the King, then GMAC is certainly one of the children. In relative terms, GMAC has received far more subsidies than any other zombie and seemingly has no access to the private markets in terms of raising new equity. Of the 19 banks subject to the Fed's stress tests earlier this year, GMAC is the only bank that has not raised the required private capital.

With the vast majority of analysts focusing on American monetary expansion, few if any seem to be looking at what the monetary situation is in the Eurozone. Alternatively, looking at relative strength of the dollar vs the euro, one may suggest that aggressive monetary expansion is the only factor that needs to be addressed. Some highlights of European monetary aggregates confirms just that (especially when juxtaposed with American counterparts), and present several questions: i) when will Europe catch up with the US in expanding various monetary bases, and ii) what will happen to the EUR once the ECB realizes that it needs to recreate the Bernanke Moral Hazard Doctrine and start expanding monetary circulation to the same extent as the Federal Reserve already has?

So is it denial or confidence? The Treasury and GMAC are in talks for billions more in aid. Denial, confidence or outright desperation- maybe the third time's a charm? What's another few billion? The American car business is at stake!

The overhang of the Cash For Clunkers effect is starting to shift to all sectors of the economy, with New Home Sales being the latest victim: sales decreased 3.6% to a 402,000 annual pace, lower than the median forecast of economists, which was 440,000. The actual number came in below even the lowest expectations of 412,000. Additionally, the median price of a new home dropped 9.1 percent from September 2008. When is the last time anyone heard a CNBC anchor talk about green shoots again?

The United States Senate Committee on Banking, Housing & Urban Affairs is currently holding an extended hearing on Market Structure Issues, where Senator Kaufman is presenting currently. Link to live webcast can be found here

Jan Hatzius, who was recently rated "most accurate economist" for good reason, after exhibiting phenomenal precognitive abilities to revise payroll numbers within 24 hours of actual number release to within 0.0001% (roughly) of the actual final number, has just decided to become a shoe-in for the next year's award nomination by announcing that tomorrow's GDP number, to be released at 8:30 am and expected to be 3.0%, will now be 2.7%. Now, we tend to joke about leaks and such, especially when it comes to Goldman (one would think Goldman's PR department has their hands full as is), but if tomorrow's GDP really is a surprise miss, which this client note seems to indicate, things will get just plain silly.

I remember quite clearly walking home in 1990 after seeing “GoodFellas” and wondering why such obviously clever people as the gangsters portrayed in the movie would resort to crime to get ahead. Why not just apply that cunning to legitimate work, and make a legitimate living—even a legitimate profit. Now I know where all the gangsters went: They went to Wall Street.

The Liar's Poker author shares some insights on Wall Street life, its shift from private partnerships to public corporations, the treatment of risk, sexism, and cussin'. Always insightful.

• K1 hedge fund snared in probe as Barclays, JPMorgan face losses (Bloomberg)
• 48596th time's the charm- after all it's only some paper and ink...GMAC may receive third bailout package from US government (Bloomberg)
• Real homes of genius: Culver City and the housing Stockholm Syndrome. Approximately 5 percent of current home price is related to government bailouts (Dr. Housing Bubble)
• Last benefits of stimulus felt as durable goods rise 1%, 0.9% ex transportation (AP, Census Bureau)
• "Jobs created or saved" is White House fantasy (Bloomberg)
• More OutrAIGe (The Nation)

• Asian stocks drop on National Australia loss, Canon earnings; Yen advances.
• Consumer Confidence in US unexpectedly fell in October on job concerns.
• Euro up slightly to $1.4830 in European morning trade amid US consumers' worries.
• Oil falls to near $79 a barrel in Asia amid mixed signals about strength of US recovery.
• France announces €1.65B plan to prop up the country's agricultural companies.
• Home Prices in 20 US cities rise for third straight month: S&P/Case-Shiller.

In a surprising outcome, Securities Industry News reports that according to a research survey conducted by Greenwich Associates, 55% of investors think high-frequency trading does not have a negative impact on their trading operations, "viewing the phenomenon as the latest development in a constantly evolving market," while 46% think that their institutions are placed at a disadvantage by traders who employ such strategies. Basically, the conclusion, before we disclose more of the study's observations, is that practically nobody has any idea what is really under the HFT surface. With an equal number of advocates and critics, confusion is rampant (and for some of the more vocal HFTsupporters who believe the NBBO is never crossed and displayed liquidity is always protected, we have three words: you are wrong... More on that and "qualified contingent orders" tomorrow).

"Goldman was not a disinterested party in AIG’s bailout. AIG’s bailout—and the way the payouts were handled for its trading counterparties—hugely benefited Goldman Sachs. Goldman received a cash payment worth more than $10 billion from the U.S. Treasury—via AIG—during a system?wide liquidity crunch. Under the circumstances, I cannot think of any scenario that would have provided a more certain and stable outcome for Goldman Sachs." Janet Tavakoli

"In terms of purchasing power parity, the dollar seems a tad undervalued these days, but that does not mean it will soon appreciate...Using a real exchange rate to judge whether the dollar is overvalued or undervalued, however, requires some reference point at which purchasing power parity holds. Such a point should also be consistent with a global balance-of-payments configuration that is sustainable. Good luck finding that!...Let’s hope the exchange market does not see something that the rest of us are missing." - Cleveland Fed

It was interesting to see the bears all come out of their caves today after the move yesterday. What's even more interesting is that non-bears joined the negative talk, with Bill Gross calling basically for a 30% sell-off in equities and arguing housing was overvalued by 50% from 2007 highs (by the way if the latter is true, the stock market should then correct by a lot more than 30%, more like 75%), and GS and BOAML came out with bearish outlooks on housing. Given upbeat equity predictions by the latter two firms (helps to have replaced Rosenberg with a bull!) it's all the more intriguing.