Archive - Nov 2009 - Story

Courtesy of "sales strategists" at the real Octopussy (the one marinating in brine at One New York Plaza). As always quadruple reverse cephalopod psychology is critical to survive these salty waters

As more and more tentacles of the insider trading octopus get exposed, thanks to an SEC seeking to make up for decades if not centuries of miserable inactivity, many more firms are sure to feel the wrath of the Feds. The latest one is Jefferies, whose former money manager for its Paragon Fund Joseph Contortinis is the most recent person snagged in the insider trader scandal, after he was indicted earlier by a grand jury for orchestrating a $7.2 million insider trading ring.

Mixed CDS action yesterday, with credit predominantly flat even as equities melted (molted?)-up. Discussions with fixed income traders indicate a predominantly bearish posture yet nobody is willing to stand against the Fed and the Druckmaschinen imports. Where is a man with Soros-size balls when you need him? Alas, that "man" just may end up being China, which would either buy the balance of the IMF gold package (and damn soon) or leave the indirect bid hanging.

The melt up in stocks on no volume was fully expected after the worst possible employment news to come in over 20 years: the market-economy disconnect is now complete, and all stocks are freeriding purely on Bernanke's printing press. At least gold vigilantes are beginning to whisper in Bernanke's ear he can go fornicate himself and his dollar destruction deathwish: let's see what happens when gold melts up ala the S&P to 1,200, 1,300 and maybe 1,500 in a few weeks. Look for some old-fashioned massive panic at the Federal Reserve.

Another credit fund has given up the ghost and the fight over the spoils begins. Oddly, with leveraged loans returning over 40% YTD, and these guys obviously believe that diversification away from Term Loan B's is a waste of time, somehow they managed to still shoot themselves in the foot. Well, we wish them well on their way to padding the BLS' U-6 number, and in the meantime here is a listing of their holdings: top five holdings consist of Regal Cinemas, Penn National, Neiman Marcus, CHS and Dollarama. By their holdings it seems that this was a rather diversified loan fund with holdings in virtually every sector, implying that the PMs would buy whatever their prime broker/sales coverage would pitch them: always a very sound and stable money management strategy.

Remember this? No?

• RBS posts $3 billion Q3 loss as its trading desk in Stamford looks like a ghost town (AP)
• US stock futures drop after unemployment hits highest since 1983: mid-term election outcomes you can't really believe in (Bloomberg)
• Credit-card countdown: Higher rates abound (MarketWatch)
• El-Erian: How to fill the gaps left by the dollar decline (FT)
• Reilly: Bondholders extract revenge on fee-hungry bankers (Bloomberg)
• As expected, the SAC-insider trading scandal connection grows stronger (Reuters)

The ever increasing unemployed are buying Kindles to read all about their predicament.

Major deterioration in both categories, worse than estimates. Market not shooting up for some reason.

• Asian markets rise after Wall Street rallies on positive economic data; HK up nearly 2 pct.
• Australia's central bank raises growth forecast, strongly hints at more rate hikes.
• China blasts US anti-dumping tariffs on steel pipe imports ahead of Obama visit.
• China criticizes US over pipe duties, launches auto probe ahead of first Obama visit.
• China shares rise for sixth day on better corporate earnings, ending week up 5.6 percent.
• Congress passes economic package helping jobless, homebuyers.

With the inexplicable recent reorientation by a traditionally very erudite, pragmatic and realistic Jim Grant (well, not that inexplicable) into what can only be described as pulling some serious wool over his readers' eyes, we decided to fall back to our other favorite newsletter writer: the inimitable Fred Hickey who writes The High-Tech Strategist. While we can not find enough praise for his work, it bears pointing out that whereas one may accuse Grant of selling out, such an accusation will be impossible of Mr. Hickey, who is a florid, objective and insightful as always, and maybe more so now than ever. His latest letter, Fighting the Fed, is a must read for all, and while we wish we had the copyright latitude to repost it in whole, we would like to at least share Fred's thoughts on gold (among many other things, some of which have made his readers serious money over the years).

The Fed's monetary base has exploded, and is now at precisely $1,997 billion: an all time high. Even as the Fed's balance sheet declined this week courtesy of collapsing Commercial Paper holdings by the Fed, which were at just $15.6 billion, and Fed assets "declined" to $2,147 billion. The ratio of Fed assets to Monetary Base is now down to the lowest ratio since the Lehman collapse, at 1.08x, after historically hanging around 1.0x, as the chart attached demonstrates.

Time to start loading up on those sovereign CDS. Today Michael Milken provided some insight into what the five key reasons for our current predicament are, which, courtesy of absolutely no real reform, double as even greater future risks for the global financial system. These include: i) that corporate credit is not the same as leverage,especially not 100x debt/EBITDA, ii) mortgages in real estate are never an investment-grade asset, iii) interest rates are volatile and unpredictable [the JPM-GS IR swap complex will not be too happy to hear this], iv) The US AAA rating is misleading and, and most important, v) sovereign debt is a big, if not the biggest, risk.

"The system depends on the control of money. This is not new-this is historic. The kings in the old days always had control of the money. They did it in different ways: they clipped coins, diluted the metal, printed money. Now it is more sophisticated"[but not much] - Ron Paul

First we had the Walking Dead. Now we have the Walking Dead for Lease, courtesy of the biggest zombie of them all: Fannie Mae