Archive - Nov 5, 2009 - Story

The premier of The One Hundred Trillion Dollar Pyramid Show!

Finally we are starting to hear more and more chatter about short JGB trades, long USDJPY, and concerns being voiced about the Japanese deficit. It is dramatic that the US is going to end up getting from 65% to 80% debt to GDP ratio in a matter of months, but before the gold bugs and short-USD carry traders get too excited, maybe they should think whether it is indeed time to increase the use of the USD for the financing of their trading positions. Japan is flirting with 200% debt to GDP ratio. Granted the consumer in Japan has the advantage of a strong savings compared to its US counterpart. However, a ballooning debt and a shrinking population is the kind of leverage economic disaster is made of. Throughout the 90s Japan has enjoyed a strong net positive trade balance, though it hasn't really materialized in much growth. However the crisis in 2008 inverted that, and even though Japan's trade balance has made a comeback to positive since, we are still at the low end of the what was the range for the past 15 years. Meanwhile the US trade balance deficit has shrunk by half. If the G-20 intends to make good on its commitment to reduce trade imbalances, then certainly that is one advantage Japan loses over the US.

"Goldman needs competent regulation and more of it. Among other things, Goldman’s credit
derivatives should be cleared on the exchanges. Citadel’s CEO Kenneth Griffin commented
recently in the Financial Times that Lehman’s collapse caused little disruption in the exchange traded markets. But unregulated credit default swaps and non?cleared interest rate swaps “triggered chaos in the market.” I join Mr. Griffin in saying “regulators must implement central clearing and put the integrity of the capital markets ahead of the profits of a self?interested few.” - Janet Tavakoli

Same drill over and over. Any time the market violently sells off after the FOMC, and at a particularly politically sensitive time, the jack booted thugs at GS are ordered to sky stocks immediately.

Can you blame them? Who wants to suffer the humiliation and embarrassment or another crashing stock market while the O-Team is bumbling and struggling?

One of the more useful information items in Goldman's periodic filings is granular disclosure on the firm's CDS holdings, and specifically segregated data by maturity bucket and by spread as pertains to "maximum payout and notional amount of written credit derivatives." In essence, due to the firm's monopoly in CDS inventory and, therefore, trading, this is the squid's beating heart: between buying and selling (hopefully offsetting positions) CDS in billions of dollars worth of notional daily, and being able to capitalize on wide spreads, courtesy of the extinction of such traditional competitors as Bear and Lehman, the firm will continue to make hundreds of millions in profits every day, month and quarter, due to its newly found monopolist exposure when it comes to trading CDS, both as principal and as agent.

Standards have slipped....

From Business Wire

DB Commodity Services LLC today announced it has filed a registration
statement with the US Securities and Exchange Commission (SEC) to register
100,000,000 additional shares of PowerShares DB US Dollar Index Bullish Fund
(NYSE Arca: UUP) in order to meet investor demand. Creations of new shares in
the fund are temporarily suspended pending clearance of the registration
statement by the SEC, the Financial Industry Regulatory Authority and the
National Futures Association and declaration of the effectiveness of the
registration statement.

Someone please explain how Larry Kudlow looks at October same-store sales numbers and concludes that this batch of data is a tremendous improvement. Out of the core 9 companies, only three (Costco, Gap and Nordstrom's) met or beat analyst estimates, while 6 missed consensus: JCPenney, Kohl's, Limited, Macy's, Target and TJ Maxx. And this is on the foreground of October of 2008, when people were afraid to leave their homes, let along shop for alligator skin purses (or murses).

The situation in housing is taking a turn for the surreal. As of tomorrow, bankrupt Fannie Mae will offer deadbeat housing speculators, aka homeowners who bought at the market peak and now can't pay their mortgage, the option to live in their foreclosed upon home while renting it out on a month-to-month basis from the government. As the WSJ reports, "borrowers-turned-tenants will be able to sign leases of up to 12 months and will pay market rents, which in most cases are lower than the cost of mortgage payments." The catch: Fannie will be able to hold the home as not listed for sale. In essence the shadow inventory of millions of zombie houses will skyrocket overnight, further complicating any objective analyses of how many houses are available on the market (the answer: many, many more than you think, but the exact number escapes us). And with housing still collapsing, and jobs still non-existent, more and more people are likely to take advantage of this latest taxpayer subsidized boondoggle. It is clear now that the Fed will do everything in its power to attempt a reflation of the previous housing bubble, instead of wiping the slate clean. Taxpayer losses be damned: there are investment banks with horrendous balance sheets that need bailing out.

"I think we will look back in 10 years' time and say we should not have [passed the Gramm Leach Bliley Bill] but we did because we forgot the lessons of the past, and that which is true in the 1930's is true in 2010" - Byron Dorgan, 1999

"One can almost see the stirrings of cyclical discontent within the market. Risk trades are
looking increasingly vulnerable and correlations are beginning to break down. Investors
should focus on the nominal quantities, which continue to wither on the vine." - Albert Edwards, SocGen

Among the names listed are Zvi Goffer, Arthur Cutillo, Jason Goldfarb, Craig Drimal, Emanuel Goffer, Michael Kimelman and David Plate. Full complaint enclosed. Some of the illegal actions highlighted include the purchase of 710,000 shares of 3-Com by the seven. Also, the Hilton LBO once again is prominently featured as one of the misdeeds. In other news, Moody's just can't catch a break: although if they are set on sucking as a rating agency, at least they can be terrific as an information leak.

One of the key departures by the FOMC yesterday in comparison to prior rate statements, was providing a glimpse into what the specific economic conditions are that warrant continued "exceptionally" low rates. Among these the Fed outlined "low rates of resource utilization, subdued inflation trends, and stable inflation expectations"- so long as there is no perceived change to any of these, expect rates to persist in the 0-25 bps zone. Goldman provides some valuable insight on how to interpret these three key considerations by the Fed.

New stocks implicated in insider trading scheme include 3-Com and Avaya. More to come. Attached is an overview of Rick Schottenfeld's hedge fund.

• This is just the beginning: Bank of England extends Quantitative Easing by 25 billion pounds to 200 billion, holds rates steady, wishes it could push rates to -50% (Reuters)
• ECB holds rates, clues on withdrawal sought (Reuters)
• No Solitaire was played in Q3 - worker productivity jumps 9.5% in Q3, while unit labor costs fall 5.2%, in other news, this year your bonus is your job, like last year (Bloomberg, AP)
• From the wrist slap department: UBS fined 8 million pounds by UK regulator for unauthorized trades (Bloomberg)
• Professor Colander tells Congress economic models are flawed (Wall St. Cheat Sheet)
• John Crudele: Obama's gibberish on jobs makes my job easy (NY Post)