Archive - Nov 2009 - Story

The SEC has no problem being all over what is handed to them on a silver platter. As to the pyramid scheme that the market now is, they'll just leave that one alone. " Bullish bets on 3Com Corp. options four hours before Hewlett-Packard Co.’s bid for the maker of computer-networking equipment are being investigated by regulators, according to a person familiar with the matter."

"I have been a big critic of the systemic risk posed by excessive leverage, problematic CDOs and the credit derivatives written against them. But I did not specifically criticize Goldman’s deals until it became an issue of public interest when AIG blew up. Goldman may not have to answer to sophisticated investors, but it should answer for its role in the systemic risk posed by AIG’s near collapse, its role in the way in which AIG was bailed out, and the fact that the U.S. taxpayer had to bail out the global financial system along with a number of Goldman’s trading partners." - Janet Tavakoli

Cash for Clunkers hangover is permeating everywhere, with the latest casualty being the Empire States Manufacturing Index General Business Conditions, which tumbled from 34.6 to 24.5 in October. Never one to leave on a sour note, the NY Fed's survey indicated that respondents are even more optimistic even as coincident data trends turn negative, curiously on expectations of deteriorating margins, and a hope that no additional cash will have to be spent as the "new normal" is attained.

We had discussed last week that even though the S&P future was back around the tops for the year, we did not have enough elements to think the turn was right upon us as the price action and its fractal nature did not have the makings of a complete bullish impulse. We are now starting to have some elements. Purists will realize we made the tops last week with only divergence on a 30-minute and 60-minute interval charts, which is historically only indicative of a short-term retracement. As can be seen on the 60-minute chart we had slight divergence on the 11th and we have been consolidating since in a wave 4. It is not clear whether wave 4 is completed just yet. Watch 1,095.50 for now. As long as this level is not violated we may be in the last leg up of the impulse started at 1,026, but if it violated expect a pull back towards 1,082/1,084 before we make new highs.

• Retail sales ex-autos at 0.2%, miss expectations of 0.4%, huge downward September revision (AP)
• Evans-Pritchard: China has now become the biggest risk to the world economy (Telegraph)
• Remember Europe? Greek bonds decline, spread with bunds widest in four months (Bloomberg)
• NY $10 billion budget gap looms as lawmakers returns to Albany (Bloomberg)
• Obama talks human rights, censorship with Chinese students but event is not broadcast nationally (ABC)
• GM reports $1.2 billion loss, generates $3.3 billion in cash
  courtesy of CfC and other subdisides that keep it out of liquidation,
  threatens to pay back government loan back with more government money (Bloomberg)

• APEC leaders back China's anti-protectionist stance, avoid currency debate.
• Asia stocks, currencies rise on APEC pledge to continue stimulus; Dollar drops.
• Euro gains a second day as recovery signs boost demand for risk.
• Japan’s GDP in Q3 rises 4.8% - higher than expectations, on rebound in domestic demand.

On September 30, 2008, the Treasury issued an edict innocuously titled "Notice 2008-83," published in the equally innocuously titled "Internal Revenue Bulletin 2008-42." Perhaps it is just our paranoid side, but we suspect you could return the country to the gold standard in "Internal Revenue Bulletin 2009-63" and no one would catch on for 6 months. Add to this the fact that Congress, and the rest of the planet, was already quite literally possessed by the upcoming vote on Emergency Economic Stabilization Act of 2008 (the underpinnings of what would later become the Troubled Assets Relief Program or "TARP") and it isn't hard to see why the "notice" went, ironically, somewhat unnoticed.

It shouldn't have.

"It wasn't a bow, exactly. But Mr. Clinton came close. He inclined his head and shoulders forward, he pressed his hands together. It lasted no longer than a snapshot, but the image on the South Lawn was indelible: an obsequent President, and the Emperor of Japan."

As one fellow blogger that I have the utmost respect for put it: "Did you catch the bit in boldface about 'tapping' federal retirement funds for short-term cash flow? Sounds so casual, so innocent, don't it? Think about it, though. Unlike private pension funds, whose trustees have a fiduciary duty under the ERISA Act to safeguard the interest of beneficiaries, fedgov pension funds are mere slush funds for politicians to grab at will. Under the sordid conflicts of interest which are tolerated within our imperial government, the managers of Social Security and federal retirement funds subserviently hand over their reserves to our insolvent government in ad hoc, 'we'll pay you back when we can afford to' transactions. In a private-sector pension fund, such malfeasance would land them straight in jail.

But then, government is all about granting itself the right to commit acts which are illegal for its subjects -- such as the Federal Reserve's 96-year-long currency counterfeiting operation. When the sovereign itself is dishonest, openly bilking its own pensioners, it is idle to talk of 'reform.' Organized crime is not amenable to reform. Either you end it, or you trust your security to the nebulous notion of 'honor among thieves.' Good luck with that!"

After the New York Times came out with a very ingenuous piece of "objective" fluffery, we have littel to add except to bring readers' attention to our initial thoughts on Mr. Cohen and his place in the Wall Street parthenon.

H. Rodgin Cohen's (Failed?) Quest To Backstop Every Bank... Ever (And Usurp Geithner's Throne)

Lately, Goldman has been extolling the virtues of its theological affiliations and humanistic aspirations to, well, high heaven. Curious to dig deeper through the firm's purported philanthropic efforts, we decided to take a detailed look at the 2007 and 2008 tax records of the charitable Goldman Sachs Foundation. We will not comment on the performance of the actual Foundation: to the chagrin of many needy children who look up to the St. Goldman cathedral in anticipation of a generous holiday season, the Goldman Sachs Foundation has lost gobs of money in the past two years: the fund started off with $275 million in 2007, $269 million in 2008 and ended the year with $161 million. Of course, it is Goldman's prerogative to trade with its money as it desires: while this loss is deplorable, its only outcome will be that fewer Cap 'N' Trade propaganda initiatives will get the due "charitable funding" courtesy of Goldman. Yet what the foundation's tax record do provide, is a very unique and open glimpse in the myriad trading patterns of Goldman's proprietary trading operations... And boy does the firm trade.

"The Fed’s policy of maintaining low interest rates together with the weak dollar posed a threat to the global economic recovery. It is boosting speculative investment in stock and property markets and will pose new, real and insurmountable risks to the global recovery and particularly to the recovery in emerging markets. The situation has already encouraged a huge dollar carry trade and had a massive impact on global asset prices." Liu Mingkang, China Chief Banking Regulator

"Resisting – and thereby achieving success as a contrarian – isn’t easy. Things combine to make
it difficult, including natural herd tendencies and the pain imposed by being out of step, since
momentum invariably makes pro-cyclical actions look correct for a while. (That’s why it’s
essential to remember that “being too far ahead of your time is indistinguishable from being
wrong.”) Given the uncertain nature of the future, and thus the difficulty of being confident your
position is the right one – especially as price moves against you – it’s challenging to be a lonely
contrarian." Howard Marks, Oaktree

The biggest topic in the upcoming week will undoubtedly be the escalating debate over whether the People's Bank of China (PBoC) will relent to Obama's persistent pleading, and in addition to de-pegging, allow the renminbi to appreciate against the dollar. The debate is simple: the US needs the dollar to hit the bottom of the currency stack post haste, and for that to happen, China's currency needs to appreciate. This is merely in keeping with the Fed's current strategy of inflating assets at all costs via monetary manipulation as both fiscal and "consumer" based attempts to increase prices have largely failed (record unemployment may be a lagging economic indicator but it is a very much coincident wage-deflation indicator). It is in this environment that the PBoC has been sending mixed signals, with a variation of the "party line" language in its Thursday release being read as a prompt that China is willing to play Russian Roulette with over 1 billion increasingly unhappy citizens in the biggest communism-capitalism experiment in history. Yet as the Telegraph pointed out today, there is absolutely no risk (so far) of any accelerating renminbi appreciation becoming the policy course for China. So for a slightly more than "soundbite" level evaluation of the pros and cons of "de-pegging", we present the following curious piece of fiction from none other than paperback experts Morgan Stanley, and specifically its Chief Asia strategist, the mellifluously named Qing Wang.

Zero Hedge's Inkmaster John Redmann contemplates the question of "National Prowess."