Archive - Nov 2009 - Story

One month ago, Zero Hedge did an exhaustive examination into the topic of over half a trillion of foreign FX liquidity swaps to central banks issued by the Fed, and how by administering this unprecedented incursion into international monetary policy, Ben Bernanke became the lender of last resort not only to US institutions on the brink, but to all those foreign central banks, and thousands of foreign financial institutions, who were massively short the dollar the last time the bubble popped (ring a bell?). Since we have ended up in the same boat promptly once again, and since the ponzi scheme can only continue so long before all those short the dollar scramble to cover shorts at some point in the future, as Roubini has predicted, it is merely a matter of time before the Fed will need to disburse another trillion or so of FX swaps to bail out all those who are shorting the US middle class into oblivion. We ignore the ethics of bailing out those who have done nothing but piggyback on the dollar carry trade, and in doing so, have decimated the purchasing power of America's working class, which is precisely what Ben Bernanke did. Buying stocks may be patriotic but bailing out those who want your dollar to purchase less tomorrow than it can today, sure does not pass the sniff test (Bernanke, of course, being at the top of that particular food chain).

Taking a card from the Private Equity deck, the Obama Administration has indicated that it wants to fast-track the Initial Public Offering of General Motors.

"Yesterday’s subprime is today’s FHA. It’s a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money." - Bob Toll

Saber rattling about seceding from the Union for this reason or that (we are looking at you, Texas) has heretofore been a cheap political maneuver often motivated by the desire to shine the dim witted light of the mainstream media on some states' rights issue long since stripped away by the Supreme Court. This fact has permitted us to mostly ignore these sorts of pronouncements as casual. That might be a luxury of the past given the emergence of a new and severe phenomenon: crushing state deficits and an already beleaguered lender of last resort. (Read: The Federal Government).

"one way to value gold, therefore, is to ask at what gold price the value of outstanding central bank paper would be completely backed by gold. The US owns nearly 263m troy ounces of gold (the world's biggest holder) while the Fed's monetary base is $1.7 trillion. So the price of gold at which the US dollars would be fully gold-backed is currently around $6,300." - Dylan Grice, SocGen

Developing story from the WSJ: John Paulson to make "big new bet on gold" and to personally invest $250 million in new gold fund on January 1.

The race to the economic/currency bottom today is entirely at the expense of the "burgeoning" European economy, and with Spain and Italy being on the verge of a depression, and France having its usual set of problems, it means that somehow Germany is now the greatest economy in the world. The AUD, GBP and JPY are all underperforming, with just the EUR being the beneficiary of the daily USD flaying.

The 500 companies making up the S&P have recently glutted themselves with excess cash. Indeed, a time analysis of the "cash and cash equivalents" line of S&P companies indicates a significant increase in cash holdings:total S&P500 cash holdings have grown from $1.1 trillion at Q4 2008, to just under $2 trillion as of September 30, 2009. Many, including Goldman Sachs, have used this as a strawman for massive stock repurchasing power, and as an excuse to anticipate the "money on the sidelines" reentering the market. Yet when analyzed side by side other key business metrics, the massive cash hoard may merely be an indication of a return to leverage normalcy as well as a secular shift to chronic business underinvestment, which, of course, leads to a significant decline in top line revenue potential.

The base case number one takes the view that high yield default rates are peaking and will start to drop from this level now. The rate of unemployment ranges from 10% to 11.5% with this given scenario. In the base case number two, I am using a composite of both peaks in 1991 and 2002 to suggest that default rates may carry upward one percent more. The resulting effect on unemployment targets will range from 11% to 13.5%. In our final analysis base case number three will use the peak at 13% in default rates established in 1991. Unemployment rates in this scenario show a range of 12.5% and 15% before possibly peaking.

The message the market is sending to Bernanke is melting up with each passing day.

You just have to love a document that begins by begging apology for brazenly ignoring what were once general legal principles.

"While there are Dollar-funded carry trades and certainly other cyclical factors behind the Dollar’s weakness, we do not think we are seeing a speculative ‘carry bubble’ for now. The difference being a 20% strengthening in the Dollar upon a reversal, over say 3 months as opposed to 3 days for the latter." - Goldman Sachs

• Housing starts plunge 10%; has been a while since CNBC uttered green shoots (Bloomberg)
• Consumer prices increase 0.3% (0.2%) core as Americans pay more for gas (Bloomberg)
• Private equity funding plunges 62% at Calpers amid fee review (Bloomberg)
• Low U.S. stock trading volume heralds more gains (Bloomberg) with momentum algos marginal buyers as market-economy decoupling accelerates
• The other side of the dollar: The truth behind currency devaluation (MarketWatch)
• Mexico, Colombia plan samurai bond issues to tap Japan investors (Bloomberg) [waiting for Mauritius to plan dollar bond issue to "tap US investors"]

• Asian stocks mixed amid caution regarding valuations; European shares higher.
• China faces dangers of asset bubbles as economy expands, PBOC Adviser.
• Chinese cities facing energy shortfalls as cold spell boosts demand.
• EU clears government help for ING and KBC after banks shed operations.
• Euro up to $1.4905 in European morning despite central bank calls for stronger dollar.
• Foreign demand for long-term U.S. financial assets grew to $31.7B in September.
• Golden era' could bring vaccines against AIDS, Alzheimer's and addictions in 5 years.

The blog of the Legal Times reports that the United States Securities and Exchange Commission, winner of last year's "prestigious" CEAR Award for Fiscal Responsibility and Accountability, "falls short" in its yearly audit.