Archive - Dec 2009 - Story

We, the entitled society, morally and fiscally bankrupt have borrowed, spent, and bailed our way into a historical corner. Nero should be so proud. Our public trusts are nothing more than government sanctioned check-kiting operations shifting liabilities from one credit card to another faster than our creditors can say “Federal Reserve.” The Ponzi-scheme that is our fiat currency system is about to go the way of what was for a time the symbol of American superiority, General Motors. It used to be said that what was good for General Motors was good for our nation. As I claimed in 2005 that GM would go bankrupt I will now guarantee that the US government is soon to follow. How our ultimate entropy will take form I cannot say, but form it will. We will default. We will restructure. It will be at this point our arrogance will end.

In October, foreigners purchased $43.4 billion of domestic securities, a decline of $12 billion from the month before. This was offset by $22.7 billion of foreign purchases by US residents, for a net capital inflow of $20.7 billion. The bulk of foreign purchases was conducted by private investors ($28.8 billion) with the balance of $14.6 billion by foreign official institutions. Segregated by product, foreigners purchased $38.8 billion in Treasurys ($15 billion official, 23.9 billion private), sold $5.6 billion in MBS/Agencies ($4.1 billion sold by privates and $1.5 billion sold by banks), sold $0.5 billion in corporate bonds, and purchased $10.6 billion in stocks, mostly by private entities.The big three purchasers (China, Japan, UK) were, for the first time in 2009, net sellers of Treasury, with a $74 billion decline MoM, to $29.5 billion in October.

Today's Honeywell investor presentation provided another example of the wholesale "kick the can down the road" mentality that has gripped America. And while this myopic approach to the future is fully expected out of the 218 patriots who voted to keep increasing America's debt ceiling, impending debt repudiation be damned, such a shallow view has traditionally not been expected out of corporate America. Until now.

WSJ reports that the president of Consumer & Small Business Banking for Bank of America has been named CEO. Yet will the track record of the new CEO be spotted from the beginning: recall that Moynihan served as emergency General Counsel replacement after then GC Tim Mayopoulos was suddenly fired in December 2008, presumably for objecting to the Merrill deal. With the lawsuit on the Merrill debacle yet to come, courtesy of Judge Rakoff, will Moynihan be implicated, in addition to lame duck Ken Lewis?

It was just a matter of time before the administration's covert plan of rewarding bank execs for massive failure by allowing them to load up their balance sheets with record risk once again, while paying out historic bonuses, blew up in Larry Summers' face. Today's attempt by the government to not only allow the failed Citi management team to pay itself an infinite amount of money more than it deserves for destroying one of America's landmark companies (why the hell is Vikram Pandit still in charge of the Titanic?) but to pretend that it "generated" another taxpayer win by selling off its shares at a profit, was aborted after hours, when Citi could barely find enough interest to sell $17 billion at the embarrassingly low price of $3.15, below that government's cost basis. This will preclude Obama from making a TV appearance tomorrow of how the US taxpayer made even more money by backstopping Moral Hazard. What the US taxpayer however did do, is funnel money straight out of its pocket, into that of Vikram's worthless lackeys. We somehow doubt this will make the teleprompter of whatever it is Obama will be praising in his TeeVeethon tomorrow.

The apocalyptic flavor of the month is dollar crisis. One should take the possibility seriously. The data does offer reasonable assurance that it won’t happen anytime soon. Yes, even in spite of massive (but not unprecedented) fiscal and monetary craziness, a socialist president, a populist legislature, and seething people just itching for the whole outhouse to go up in flames. Why doesn’t it make sense that the dollar should be out on its rear while gold or oil and their devotees dance in the street?

Because those distinctly American circumstances don’t incorporate a wide enough range of vision. The issue isn’t about the United States in a vacuum. It is about the United States as a reserve currency country whose debt acts as the world financial system’s risk-free collateral. Before any imminent implosion of the dollar, there is a whole zoo of more flawed economies like Dubai and Greece and dozens of others that would fall. As old as history itself is the truth that the last ones standing claim the spoils of victory. The United States has the 61st highest public debt ratio in the world.

A useful chart from Themis Trading presents the exponential jump in stock volume since the adoption of Reg NMS and the appearance of various ECN/ATS middlemen, whose primary goal in life is to scalp spread... sorry, provide liquidity to an extent never seen prior to 2007. It is these very organizations, and the scores of micro traders who make money only courtesy of the resultant increased daily speculation and momentum escalation, that are now screaming about the implications of what proposed Reg NMS 2 would do to their top and bottom line, for obvious reasons. The explosion in volume of course is notsynonymous with an increase in liquidity, unless one counts the "huge" benefit that one gets by trading Citi in 20 different exchanges (Citi alone accounted for 20% of NYSE volume today). The "strange attractor" of HFT, in which a HFT dominated stock attracts more HFTstrategies with the flip of a switch, is the only "benefit" of magnified "liquidity", while the threat of massive systemic imbalance as every single trader jumps on the same side of the trade, as highlighted recently by traders such as Wilmott and many others, continues growing ever larger. It is time to take the market back from all these various tolling operations which provide absolutely no real benefits to the market.

Rosie doing what he does best: staking a lot by going against the consensus... Again

Congratulations Citi: your ability to pay massive bonuses by rushing out of TARP just cost US Taxpayers their cost basis in your garbage stock (not like there was any doubt). Look for a firestorm of critism tomorrow as the populist anger at Vikram et al is rekindled, this time for cause.

House lawmakers voted by a razor thing margin of 218-214 to pass the borrowing increase. Not a single Republican lawmaker voted to support the hike. They argued that increasing the debt ceiling was giving the Democratic majority and the Obama administration a license to spend more money.

Developing story and developing sovereign debt collapse.

So Citi buying Wells' follow on, Wells buying BofA's, and BofA about to buy Citi's? The $50 billion circle jerk in full glory. Looks like the CEOless fbank is about to get the best deal of all (while everyone else bails). Offering to follow shortly.

Paul "We need a housing bubble" Krugman reaches new heights in objective, hypocrisy-free self-assessment. In his latest blog entry analyzes the destructive effects of the magazine cover effect. He should know...

Every FOMC day is the same. Stocks flatline in the morning doing nothing, then suddenly wild gyrations as traders frantically try to parse the "words" spewed forth from The Beard. Billions of eyeballs watching the 1-min. chart of the Euro, and billions of anxious fingers rattling the F11 and F12 keys. Meanwhile, other individual stocks getting dunked or skyrocketed on OpEx plays exaggerates the action. Kind of like being on a date with some psycho chick on crack.

The only real action after the FOMC statement so far has been on the long-end of the curve both in USTs and mortgages. Kneejerk sell off in the Fannie 30 Year, is matched only by the puke in treasuries, where the spread is now much tighter, wait, wider, no, no, tighter.