Archive - Oct 2009 - Story

When I wrote about the obvious "win-win situation" that was Cash for Clunkers this past summer, amid the fact that right now cars are back-logged, piled-up, unable to get recycled in an efficient, timely manner- South Carolina is offering $3.9 million, their share of some $300 million in federal stimulus funds from the American Recovery and Reinvestment Act being distributed as appliance rebates. Meet... "Cash for Appliances."

Suspicions that the Federal Reserve System might be engaging in the direct purchase of equities in an effort to complement its monetary policy in a near-zero short term rate environment are often met with scoffs and curt dismissal. In this context, it might surprise Zero Hedge readers to learn that in 2004 Chairman Bernanke himself advocated not only the expansion of the Fed's balance sheet generally, but also the direct purchase of equities by the Federal Reserve System. Then again, it may not.

It's game over for Capmark, which is expected to file for bankruptcy within 24 hours. The firm which was formerly GMAC's commercial real estate business (Or GMAC Commercial Holding Ccapital Markets Corp in short), and had originated over $10 billion in CRE loans (by the way, did we say that CRE REITs are undervalued? if you didn't buy at least 5 shares of some multi-apartment or hotel REIT yesterday with every share of Amazon you were covering you are a bubble uninflating traitor and have to be shot for not believing in a 100x P/E), was LBOed by KKR and Goldman in 2006. Needless to say, that particular investment won't be making the next Calpers pitch book.

As the Galleon inquiry expands, we have been fairly certain that the dominoes would start falling. Whether or not one of these dominoes would be the fund that single-handedly defined the term "information arbitrage" is still anyone's guess, although as the WSJ reports today, a former employer of Stevie Cohen's until the year 2004, Richard Grodin, has received a subpoena for his trading records as part of the Galleon case. It appears that upon learning of the Feds sniffing around his 500 Fifth Avenue office, Mr. Grodin promptly shut his current hedge fund and got out of dodge.

Those who follow the meandering permutations of the Fed's balance sheet must have observed with great irony the proclamation by the NY Fed on October 19th that it is prepared to commence tightening liquidity via reverse repo operations, even as 48 short hours later later the Fed announced a new all time high in bank reserves, which for the first time ever hit a level over $1 trillion. The glaring discrepancy between these two observations has left many wondering not only about the veracity of any statements coming out of the Fed, but to consider what the best trades to front-run the Federal Reserve may be for that time when, whether it likes it or not, the NY Fed is forced (politically or otherwise) to start extracting its pound of flesh from the banking system.

President Obama isn’t kidding in his weekly radio and Internet address made Saturday morning- banks should lend to more small businesses to help spur the economy and create jobs. Obama started the weekly address telling a story, painting a glorious picture of America, not “Running on Duncan,” no, but rather running to mom-and-pop stores and local neighborhood restaurants… “tiny startups with big ideas that could revolutionize an industry, maybe even transform our economy.” Not a bad way to start a sermon.

~$297.7356.7 million in giant sucking sounds from the DIF.

            Bank                  DIF Loss   Assets   Loss Ratio


PR-192-2009 First Dupage Bank        $59.0   $279.0       21.15%
PR-191-2009 Riverview Community Bank $20.0   $108.0       18.52%
PR-190-2009 Bank of Elmwood         $101.1   $327.4       30.88%
PR-189-2009 Flagship National Bank   $59.0   $190.0       31.05%
PR-188-2009 Hillcrest Bank           $45.0    $83.0       54.22%
PR-187-2009 American United Bank     $44.0   $111.0       39.64%
PR-186-2009 Partners Bank            $28.6    $65.5       43.66%


Ouch                                $356.7 $1,163.9       30.65%

Radio Zero: Bair... that is all.

Listen here: http://cdo.zerohedge.com:8000/listen.pls

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100: Partners Bank, Naples, FL
101: American United Bank, Lawrenceville, GA
102: Hillcrest Bank Florida, Naples, FL
103: Flagship National Bank, Bradenton, FL

UPDATE:

104: Bank of Elmwood, Racine, WI
105: Riverview Community Bank, Otsego, MN

As you watch the bobbing metronome of Sheila C. Bair's head during this video ("...but as I said [left tick] we have the ability to immediately access [right tock] up to $500 billion from our Treasury line [left tick]...") wonder to yourself quietly:

• How is the FDIC going to slurp down another $500 billion without some roof rasing action on the debt ceiling?
• How can ANYONE promise that no insured depositor will ever (until the heat death of the universe) lose a dime?

Meanwhile, if anyone is spreading evil rumors about the FDIC, make sure to email flag@fdic.gov immediately.

Try not to get motion sick and vomit.  Also, try not to vomit.

Not to degrade a Johnny Cash classic- but you just can't help but recall the lyric as the FDIC closes bank number 101... American United Bank in Georgia.

Interest by foreign central banks to increase their gold holdings begs a more fundamental question. Have they lost confidence in the dollar? Probably not, at least not yet. As noted above, foreign central banks have purchased $53 billion worth of Treasury securities over the past 12 months. Although the pace of purchases has slowed from its rate of a year or so ago, we think foreign central banks would have become outright net sellers of Treasury securities if they had “lost confidence” in the greenback. Foreign central banks are not dumping dollars, but they appear to be diversifying away from the greenback on a flow basis.

Partners Bank in Naples, Florida is the 100th caller!

Bank of America is really unable to catch a break. The latest kick in the groin comes courtesy of the Chairman of the House Oversight Committee Edolphus Towns, who has announced he will launch a subpoena into whether Countrywide gave "favored terms to lawmakers and other VIPs." Concurrently, a panel is evaluating predatory lending practices at a variety of different banks. Some of the firms that will be told to provide information include Wells Fargo, JP Morgan, Citigroup, US Bank and GMAC.

Most of us are gathered at the station, watching for the Inflation Express to come rumbling in. But we've been waiting for a while now. Just when should we expect the big locomotive to arrive and start pushing the prices of most things uphill? We’d all like to know the exact date, of course, but no one can know for sure. Not even a careful reading of the Mayan calendar will help. What we can do is estimate a time range for price inflation to show up, and that alone should have some important implications for investment decisions.

Today's market action has been essentially one-way wholesale selling of every dollar-denominated asset class (except allegedly Kindles, which are now accepted as Fed discount window collateral (until HR 1207 passes we won't really know), and are rumored to soon have a direct brokerage feed allowing readers to buy (but not sell) Amazon stock). Stocks and bonds (entire curve affected, not just the far end) are both getting pounded, with the VIX climbing almost 10%, as the dollar has been rising all day. Either this is another headfake, this time without a Dick Bove scapegoat, or a dollar renaissance could finally be in the making, with a subsequent drubbing of all dollar-denominated assets. Once again the question is does the world, in its ongoing duel against the US federal reserve, finally feel lucky?