Archive - Nov 2009 - Story

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.

This report explains the method I use to interpret the financial markets, economics, and potential
investment opportunities. I have found this method to be very helpful. Please Note: The econometric
models used in this report are real. I created and tested them myself. If had to name my method, I would call it the Multiple Personality Financial Market Economic Investment Disorder, or simply (MPFMEID).

Someone should translate Bernanke's speech extolling the virtues of Goldman Sachs never having to worry about being broken up or giving up its prop trading operations, and that the American economy is sizzling, to the just announced record 35.1 million food-stamp recipients. That's right: a record number of Americans are now subsisting courtesy of foodstamps. One wonders at what point these people say enough and decide to start their own prop trading shops, as that is the only guaranteed way to make money these days. If these millions are allowed to simply replicate Goldman's trading feed, we are confident that the entire economy would recover practically overnight.

The foreign exchange value of the dollar has moved over a wide range during the past year or so. When financial stresses were most pronounced, a flight to the deepest and most liquid capital markets resulted in a marked increase in the dollar. More recently, as financial market functioning has improved and global economic activity has stabilized, these safe haven flows have abated, and the dollar has accordingly retraced its gains. The Federal Reserve will continue to monitor these developments closely. We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.

No mention of Gold

Bad news for Beazer's CEO, Ian McCarthy, courtesy of the angry and completely impotent hornet's nest that is the SEC.

"In 1982, Ronald Reagan was President (two consecutive terms as Governor of California), Don Regan was Treasury Secretary (35 years of financial sector experience), Martin Feldstein as the Chief Economic Advisor to President Reagan (the dean of business cycle determination), and Paul Volcker was Fed Chairman (9 years of prior financial sector experience). Compare and contrast to Barrack Obama (junior senator from Illinois for 3 years); Timothy Geithner (21 years experience in government, three years as a lobbyist); Larry Summers (no private sector experience; 27 years of academia and government) and Ben Bernanke (no private sector experience; 30 years of academia and government). Which team do you think deserved the higher multiple — the one with actual experience in the real world or the one immersed in academia and government?" David Rosenberg

The Service Employees International Union must not have gotten the revised scriptures. Which is the presumably why the SEIU is organizing a protest at noon in front of the Washington D.C. cephalopod cathedral: "Enough is enough. Join hundreds of taxpayers on November 16th, when we demand that Goldman Sachs give its $23 billion in bonuses to foreclosure prevention programs and press Congress to implement rules that would protect Americans from big bank greed."

Melt up occurring in every aspect of the markets as the dollar is in its last death throes. Helicopter Ben is now upgraded to Conviction C5 Galaxy Ben by Goldman Sachs.