Archive - Nov 2009 - Story

Is Warren Buffett's pro-bailout, anti-public interest philosophy going to cost him one of his bigger fans:

"We must stop subsidizing speculators with cheap funding and tax breaks. We have to hold people accountable for malfeasance, break up large financial institutions, and allow them to fail instead of bailing them out. (Click here for my suggestions.) As for high pay and tax breaks for speculators, even Warren Buffett says: “Hell no!” But he won’t help us make changes. U.S. taxpayers will have to figure it out, or we will pay." Janet Tavakoli

For the low, low price of $0.00 you too can now prove your mettle as the world's most profligate helicopter pilot, in the comfort of your own iPhone. It is only fitting that countless hours of entertainment will cost you nothing, as even at infinity dollars (when will the Apple store finally convert its apps into ounce of gold equivalents?), there is no price one can put to recreating the unique experience of single-handedly destroying 200 years of history in the creation of what was once the world's most resilient and enduring middle class, all overnight, just so Goldman Sachs can pretend they collect garbage all the way to the bank. From Bailout Ben: "Bailout Ben (aka Helicopter Benny), the intrepid pilot of Bail Force
One, is on a mission to engineer the biggest bailout in the history of
the universe! Benny's helicopter is flying lower and lower, and if he doesn't bail out every single company he will crash & burn!"

A picture is worth a thousand Krugman essays, which is why we present a chart comparing the US Monetary Base (and by subtracting Reserve Balances with Fed Reserve Banks, Currency in Circulation), and the Fed's holdings of MBS and Agency paper (worthless GSE/FHA garbage). In summary: Currency in Circulation: $920 billion; MBS/Agency Holdings: $997 billion. The dollar in your pocket is now entirely backed only by worthless, rapidly devaluing and subsidized housing.

With the media finally waking up to the risk of recurring "systemic threats", aka Goldman not paying $20 billion in bonuses, courtesy of finding out just how much shit is really held by the Fed's discount window, everyone is suddenly interested in hearing it direct from the man at Ground Zero - Ron Paul... Even Steve Liesman, who no matter how hard he tries to spin "Audit the Fed" into "Control the Fed" will fail miserably every time he is not stuck in a patented blathering, factless monologue mode.

Oil at $1,170 should translate to about $50/gallon at the pump. Then again gold, oil, all the same to CNBC - just buy, buy, buy. In other news, bonuses set to top one quadrillion at Goldman Sachs' oil propaganda desk.

Dollar: 0, S&P (not Dow): 36,000, Gold: infinity. For an obit of the US middle class look at any streaming ticker. For everything else, there is the Fed Chairman.

Over the past two weeks, the highly leveraged fixed income market is stuck in a motionless void, with both bonds and loans barely budging. The trackable universe moved ever so slightly wider, with bonds 3 bps out to 668 bps, and loans 4 bps wider to 431. The spread is still at a record tight 237 bps, indicating that unlesssecurity priority ends up getting inverted courtesy of the Rattner doctrine, there is little if any additional convergence left. As we noted last week, positioning for a divergence trade may be one of the least risky postures as the credit bubble may be poised for popping. The problem of shorting loans (especially if one wishes to avoid JP Morgan's LCDS mindfuck) may be overcome if accounts merely call up Goldman Sachs and pull a Carl Icahn. Biggest loan mover wider was Sungard at about 125 bps, while West Corp tightened by almost 100 bps. In bonds the two notable names were First Data as a widener (seems tech has been getting pounded in debt), while MRI specialist Alliance Imaging and perpetual yoyo TRW Auto both ripped over 50 bps.

• Wave of debt payments facing U.S. government (NYT)
• Jamie Dimon seen as good fit for Treasury (NYPost)
• Goldman's response to questions about AIG (NYT)
• Deficits and loose money should lead to higher gold (MarketWatch)
• Gold hits record as dollar slips (Reuters)
• Geithner's crisis sleepwalk is reason he must go (Bloomberg)

• Asian stocks, Aussie gain on economy outlook; gold hits record.
• British Prime Minister Gordon Brown calls for Chinese investment.
• Consumer Spending, Home Sales probably rose as US recovery takes root.
• Crude rises from 1-wk low on speculation demand will increase as global economy recovers.
• Electricity sales remained weak in Q3, raising speculation of sluggishness persisting even after the U.S. economy rebounds.
• Europe’s services and manufacturing industries accelerate at the fastest pace in two years in November.
• For the first time in 7 decades, Treasury bills are paying no interest while stocks rise.

And somehow declaring that a bankrupt state is, gasp, bankrupt is expected to be surprising? At least that is the read of Bloomberg's piece highlighting that the idiots over at Moody's may cut New York's Aa3 rating. What next: a $10 trillion deficit financed exclusively with new debt may force an upgrade of America's AAA rating? Quote Moody's: "The next three months will be critical to the state's credit rating. The rating and outlook reflect the state's current-year projected gap of approximately $3 billion and the deteriorating liquidity in the state's General Fund, and also reflects our expectation that legislature will enact solutions to the budget gap and that revenue collections based on bonus payouts will exceed the state's conservative projections. If there is no action taken by the state to close the gap, or if action is taken but is largely-one-time in nature (therefore increasing the structural imbalance in the outyears), and revenue collections in January are close to or below state projections, the state's situation at that time would likely not be consistent with a Aa3 rating and stable outlook." Which is why NY State comptroller's earlier released report "New York State’s Cash Flow Crunch" will likely do little to improve Moody's skepticism that New York can escape the fiscal abyss so well shown by Arnold to be inescapable. "[B]borrowing to address the State’s deficit would be irresponsible, incurring additional costs and adding to the State’s already high debt burden. As more time goes by without meaningful effort to address the State’s budget problem, the cost of inaction will grow and the consequences will be significantly more severe." So sooner or later New York will also likely end up bankrupt, but at least Goldman et al. have massive NOL carryforwards that will prevent them from paying any state taxes for a considerable amount of time. That and one-way private jet tickets to any non-extradition venue of their choosing.

Early spot gold action indicates something is afoot in the gold market. Hitting an absolute record of $1,164 mere minutes ago, the momentum chasing algo funds are now in the picture, set to do to gold what they have been doing to the S&P futures and the SPY day after day for months now: if little volume will cause a move, look for the momentum chasers to crawl out of the woodwork. Yet the key factor determining today's gold price: Comex gold option expiration later today. Over the past several weeks, speculators have accumulated a 3 million ounce option position with a $1,200 strike. With gold flying on the tiniest gust of speculative mania, the possibility that we may see a 1,200 handle on gold seems less and less improbable.

A reader submits the following disclosure released by Ocean Reef Club, a country club, which very much unlike America's 35 million food-stamp recipients, has roughly a $35 million net worth cutoff for members, who enjoy such amenities as 100 foot yachts, a private airport, and two golf courses. It is precisely in connection with golf that we see these very needy multi-millionaires follow in Wall Street's footsteps and proceed to redistribute wealth away from those who actually work for their money, to those who merely use the dollar as a temporary (or otherwise) replacement for one-ply Cottonelle.

With volume in equities on collision course with singularity, courtesy of HFT's vol lim->0 series, Zero Hedge is launching a new daily segment which will indicate the volume and number of trades per any given issue according to TRACE. As we believe the vast majority of human traders have largely shunned equities, the impact of credit trading will only get larger and larger. And while CDS has yet to get the "TRACE" treatment, the availability of this data in cash bonds is the main reason why we will bring it to public scrutiny. Furthermore, we will commence correlating this data with which desk has the most active axes in any given name, and implicitly determining whose Fixed Income division is making the most money on the bid/ask spreads and on traded cash volumes.

In September, foreigners purchased $55.7 billion of domestic securities, offset by $15 billion of foreign purchases by US residents, for a net capital inflow of $40.7 billion. The bulk of foreign purchases was conducted by private investors ($44.8 billion) and the balance of $10.9 billion was by foreign official institutions. Segregated by product, foreigners purchased $44.7 billion in Treasurys ($19 billion official, 25.7 billion private), sold $1.7 billion in MBS/Agencies ($6.5 billion purchased by privates and $8.3 billion sold by banks), sold $2.9 billion in corporate bonds (entirely at the behest of private entities), and purchased $15.7 billion in stocks, once again almost entirely by private entities.

"In light of the SIGTARP report, I withdraw my earlier apology to Goldman. Public commitments to AIG are currently around $182 billion. If you wonder what Goldman CEO Lloyd Blankfein meant when he said: “[Goldman Sachs] participated in things that were clearly wrong and we have reason to regret and we apologize for them,” think of Goldman’s role in AIG’s crisis, Goldman’s bailout, and Goldman’s ongoing heavy taxpayer subsidies. That way, one of you will be genuinely sorry about it." - Janet Tavakoli