Archive - Nov 2009 - Story

As a reminder, the hearing examining the BofA-Merrill Lynch merger before the House Oversight Committee is now streaming live, and can be seen here.

We have gotten to a point where each country is trying to talk down its own economy in a pursuit of having the worst (DXY constituent) currency. Yesterday it was Bernanke warning about future growth prospects, last night it was Japan, and today it is Goldman Sachs, which is claiming that the economy is really worse than expected. What is the point of all this rhetoric: simple. In the current stock market bubble where the only driving force is the strength, or rather, weakness, of any given underlying currency (read- dollar), and where inflation and deflation pressures are inverted, such that a weak dollar would cause a market melt up, and thus, inflation spillover from overpriced stocks into commodities and other products, the only way to stimulate inflation is to posture having the weakest economy. Whether that is in fact "weakest" or merely most debt-laden, with worthless CRE, housing and other 'assets' serving as collateral on bank balance sheets, we leave to much smarter analysts such as Dick Bove and Meredith Whitney.

"The Report addresses the value of transparency, which we share. We have taken a number of significant steps with the objective of increasing the information publicly available about the Federal Reserve and its lending programs so that the Congress and the public can more effectively assess our efforts in pursuit of [making Goldman Sachs the overlord of the Milky Way Galaxy, as the earth has long been taken over] financial stability and monetary policy objectives. Among these steps is regular publication on our website of comprehensive information about ML III and other Federal Reserve facilities. Altogether, we now provide more information about the operations of the Federal Reserve than ever before, and we continue to explore whether additional information can be provided without jeopardizing the effectiveness of our efforts." - Federal Reserve Board of New York

The following clip from Tabb Group (and accompanying report which we hope to post shortly), provides some much needed color on what has been the source of some serious head-scratching lately: completely irreconcilable action between spot and futures trading, especially in some core market ETF and corresponding futures (see PragCap's recent post on this). As Tabb's Adam Sussman points out "Automation is not just a way to capture alpha anymore, but in some cases is a source of alpha itself." In other words, if you can't join in, and you really cant, the best you can hope for is to ride the occasional beta wave here and there. Just make sure you fall off the board first when the wave is about to crash.

• Geithner singled out in TARP watchdog Neil Barofsky's scathing report on AIG bailout (HuffPo)
• Deflation ex fuel and energy pervasive (AP)
• Ken Jacobs chosen to replace Bruce Wasserstein, Caruso-Cabrera ex-boyfriend Gary Parr strikes out (Bloomberg)
• China questions cost of US healthcare reform (Reuters)
• Bankrupt CIT loss triples to $1.07 billion, provision for credit losses skyrockets from $210.3 million in Q3 2008 to $701.8 million currently (AP)
• High-frequency firms make inroads into US futures (FT, h/t Sean)

• Asian stocks fell, commodities declined after Fed voices concern over revival.
• Bernanke signals 'extended' low-rate period may become longer as joblessness rises.
• China shares rise for 3rd day to 14-week high on economic recovery outlook, led by banks.
• Corruption watchdog rules Somalia still worst; Singapore, Denmark, New Zealand best.
• IMF chief urges China to let yuan rise; says weak currency distorting Chinese economy.
• Mauritius buys 2 tons of gold from IMF, following India, as gold nears record as dollar slumps.

We understand that other government entangled entities have been losing money with such enthusiastic abandon and glee that a few billion a quarter from that traditional cash disposal unit, the United States Postal Service, seems a mere annoyance. Be this as it may, we cannot help but wonder what possible service the Postal Service serves any longer. Ironically, the Wall Street Journal penned a rather penetrating review two months ago noting, among other things, that even while pushing rates up at a pace that significantly outpaced the CPI, the Service has continued to clip routes, attenuate service and generally serve as a model of inefficient graft. All this in the face of a 20% reduction in mail volume since 2000.

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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.