Archive - Nov 16, 2009 - Story

First Mauritius decides to politely put the endless lies coming out of the lips of the Geithner-Bernanke duo on mute, and now the Swiss Central Bank is rumored to be intervening. Someone is actively selling copious amount of CHF and buying USD. Hopefully no suitcases full of fake Obama dollar bills ($100,000,000,000 denomination) will be found on the Italy-Switzerland border tomorrow.

Courtesy of the SIGTARP's latest report, the events on November 6 and 7th, when Wall Street lackey extraordinaire Tim Geithner decided to pay $27.1 billion to make all of AIG's counterparties whole, have attained even more granularity. The main thing disclosed is just how willing Geithner was to extract absolutely no concessions from AIG's counterparties, and how after putting in a token effort, the best he could do was to just get UBS to agree to a contingent 2% haircut, which would only be effective if all the other counterparties agreed to the same. Of course, this approach failed, and the final "make whole" bailout was a foregone conclusion from the beginning. That Tim Geithner approached his duty of "preserving" taxpayer capital with such disdain, would be grounds for immediately termination for cause in any normal, non-banana society. Alas, America has long ceased being representative of one.

The latest development in the gold bubble saga, and one which will likely cause the precious metal's price to spike even higher, comes from the tiny island of Mauritius which according to Dow Jones has purchased 2 metric tons of Gold from the IMF for $71.7 million. The price works out to approximately $1,115 per ounce. More as we get it. (and yes, this is a picture of Mauritius not some CNBC anchor hangout).

"The now familiar argument from Government officials about the dire consequences of basic transparency, as advocated by the Federal Reserve in connection with Maiden Lane III once again simply does not withstand scrutiny. Federal Reserve officials initially refused to disclose the identities of the counterparties or the details of the payments, warning that disclosure of the names would undermine AIG's stability, the privacy and business interests of the counterparties, and the stability of the markets. After public and Congressional pressure, AIG disclosed the identities. Notwithstanding the Federal Reserve warnings, the sky did not fall; there is no indication that AIG's disclosure undermined the stability of AIG or the market or damaged legitimate interested of the counterparties. The lesson that should be learned - one that has been made apparent time after time in the Government's response to the financial crisis - is that the default position, whenever Government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with Government funds. While SIGTARP acknowledges that there might be circumstances in which the public's right to know what its Government is doing should be circumscribed, those instances should be very few and very far between."

- Neil Barofsky

While many Western investors remain fixated on somehow acquiring a slice of Turkmenistan’s natural gas riches, despite a recent scandal over the country’s actual reserves, there is another country further east whose energy and mineralogical reserves have been overlooked – Uzbekistan.

And you thought the government was not out to screw you. According to a research report released by the Treasury Department's Inspector General for Tax Administration, over 15 million people may own $250 (and in same cases more than $400) on the tax "credit" received earlier in the year, purely as a function of how the tax break was set up by the IRS. The payment will come as either a smaller tax refund or larger tax bill. As a reminder, Obama's tax break earlier in 2009 (first of many) provided individuals up to $400 and couples up to $800 in one-time benefits. It turns out that money may now have to be repaid. And as the credit impacted 95% of all wage earners, the number of people impacted is estimated at about 15.4 million. But at least it got these 15.4 million soon to be angry taxpayers to consumer a little more than they otherwise would in Q2. And now, it is time for another "one-time" jolt to the system.

So many future bailouts to look forward to, so little time. So many cans do kick down the road via accounting adjustments, so few feet do keep doing the kicking. While I read this piece I was struck by my own reaction... not even $30 billion in deficit? This is peanuts! We've become so numb to bailouts that anything less than hundreds of billions seems like a normal part of Bailout Nation. Yet just over a decade ago the world was in a panic over hedge fund Long Term Capital and its gaping hole of $3.6 billion. How quickly we've adjusted to brushing off our shoulders handouts and bailouts 10 times that size. The cost for one of the smallest handouts, Cash for Clunkers was more than the bailout of LTCM in 1998. Need to manipulate housing prices higher? It's worth it! Only costs $16 billion; or with Cash for Cul de Sacs v 2.0 - $30B+. Peanuts.

Developing story: It was just a matter of time, as previously expected.

Ironically, on September 18th 2008 Lehman would undergo millennia of Chinese water torture just to get the sale done. How everything changes in one short year.

The stench from the feces behind the scenes is getting unbearable. At least it is to those who have direct nasal exposure to the reality floating in the financial sewers, ungrated by the fecal filters of CNBC. The latest casualty of eating from the apple of toxic asset knowledge is GMAC CEO Al de Molina, who is being replaced with a man truly perfect for the job: a director of failed CIT and a former executive of the soon-to-fail toxic cesspool known as GE Capital, Mike Carpenter. From Al de Molina's professional obit: "As a GMAC board member, [Mike] has first-hand knowledge of GMAC and the challenges and opportunities the company faces in its drive to return to sustained profitability and to repay taxpayers." One would think the current CEO would know the challenges and opportunities of GMAC better in its "drive to return to sustained profitability ." At this point we taxpayers will be happy with GMAC not gobbling up another $5 billion next month in Obama-blessed rescue attempt #4.

M-Dub on the imminent double dip (absent Stimulus 293,495 in under 2 years) and overvalued financials, so basically saying nothing new, yet somehow managing to generate headlines that spook the 2 i7's that are still trading into a brief game of pass the potato. We almost miss Dick Bove.

Equity markets were greatly helped by our dear leader and chairman Bernanke who could not have stated more clearly that he is not going to change anything to the rhetoric in December. It not only sent stocks higher, it also sent bonds higher. Any asset yielding more than 0.15% please stand up! The speech on the USD was met by a brief spike in the dollar index, but whoever panicked at the mention of a "strong dollar" only made sellers richer on the day. I still think Dollar weakness experienced since last December will come to an end much sooner than the market thinks as risk gets re-priced to the upside, and risky assets to the downside with it, but there was clearly nothing to fear from the chairman. 10Y Treasury futures broke through the 200-dma on the upside and celebrated in force with a big rally. From here especially with the holiday week coming up it is to be expected that Fixed Income could well grind higher.

As lobbying attempts to eliminate or at least delay the implementation of FAS 166 and FAS 167 (as a reminder, these are the accounting rules that will force banks to onboard a lot of off-balance sheet assets) seem to have stalled, the next question becomes what the cost to banks will be as a result of this new change starting January 1. A research piece from Barclays attempts to do just that, and while presenting slightly improved results versus previous estimates, still provides a glimpse into why it has been so critical to pump up the stock prices of some of the most "at risk" financial companies. In a nutshell - the pain for the banks will be significant, to the tune of half a trillion dollars, with the usual suspects expected to take the bulk of the hit: Citi at $154 billion, followed by BAC $121 billion, JPM $100 billion and WFC at $48 billion.

That's right, we have a patent pending on that particular term. In other alpha news... oh who are we kidding. Ride the beta to DXY 0. There are trillions of deflation threats to take head on, courtesy of several Fed-favored prop trading desks. China is giddy that its $2.3 trillion in dollar denominated assets are worth another $10 billion less just today.

Yet another strategic upgrade of U.S. Steel and other issues sent the short sellers reeling and backpedaling. At the same time, hundreds of fund managers desperate to "make their year" piled into whatever was moving the fastest. Currency gaming has resumed its one-way trade, as the FX Megadroid and Forex GridBot players are now "watching the money roll in" for once.

In a blow to ongoing plans by Murdoch (and others) to capitalize on premium content, a new study from Forrester shows that 80% of consumers would not be willing to pay for online news content. As readers are able to move from one content aggregator to another with greater facility than the Fed prints another billion dollars, Rupert's approach will likely entail a massive "game theoretical" strategy whereby either all move to a premium model or none do: if even one "defector" remains, it will render the "premium-paid" plan DOA.