Archive - Aug 19, 2009 - Story

"The worst outcome for China would be one that includes ever-rising inflation pressures, as money and
credit flows augmented by “hot money” capital inflows push the inflation rate up to a level that threatens China’s stability. Since that would be most likely under a scenario in which industrial economies are not recovering in the second half of the year, we could see a situation in which disappointment over the recovery in the big three economies coincides with disappointment about the sustainability of China’s planned 8 percent growth path. That outcome would coincide with a likely bursting of the stock and property market bubbles that are inflating in China now on the hopes that a second-half recovery will validate China’s goal of sustained 8 percent growth in 2009."

All you need to know about how the markets operate these days, courtesy of Nic, an analyst at ICAP.

Archive this one for the funny pages. It has been leaked by administration officials (and sponged up by Bloomberg), that on August 25, when the CBO releases its updated budget estimate, the 2009 deficit is expected to decline from $1.825 trillion to $1.58 trillion. And, get this, one of the reasons for the reduction is the FDIC spending $78 billion less, presumably due to "fewer bank failures than the administration anticipated." Pardon us, but last time we checked, not only did the FDIC have no cash left in the FDIC, and was effectively in a debtor position vis-a-vis the administration, but of the top 4 banks pending for blow up, Colonial was under (granted with some arbitrarily optimistic loss expectations), Guaranty was about to be hawked over to a few siesta loving left midfielders, and Corus was about to... well, we are not quite sure what the hell Corus is doing these days.

Spreads widened in general today in the face of a surprisingly resilient US equity market as overnight saw more Asian angst and dollar doldrums. HY underperformed IG but both were wider as indices underperformed intrinsics and low beta underperformed high beta. Intraday ranges were wider than average in IG and HY today but both closed much nearer their wides than tights, as stocks closed at their highs. HY's resilience yesterday (following the AXL debacle) seems to have run its course with both IG and HY now wider on the week. IG and HY are both significantly wider than their Friday closes and Monday opens whereas the S&P seems modestly worse than Friday's close but considerably better than Monday's open - infer what you will.

Two months ago Zero Hedge first wrote about Alan Grayson's request to the SIGTARP to audit the $300 billion in federal guarantees received by Citigroup. Neil Barofsky has taken the request seriously, and has announced that he will "examine why the guarantees were given, how they were structured and whether the bank’s risk controls are adequate to prevent government losses."

One would think that with an almost 18% unemployment rate the Spanish have enough problems, right? Wrong. According to Bloomberg the winning (and highly subsidized) bidder for Guaranty is BBVA (Banco Bilbao Vizcaya Argentaria SA), Spain's second-largest bank by market value (probably not saying much).

Another brutal selloff in the Shanghai last night left many retail stock speculators (aka Pai Gow players) stunned and in shock, frozen with fear.

When you are TheHedgeFund, this is likely the easiest way to pay for bonuses.

A new monthly report released by the New York State Comptroller indicates that the tax collection weakness in Empire State continues. For the April-July quarter total tax revenue was $11.5 billion, $52 million below projection, and, more significantly, $3.6 billion below amount collected in the prior year period. For the Year To Date period, receipts, including transfers from other funds, through July 2009 of $15.7 billion were $190.9 million below Financial Plan projections released by DOB on July 30 and $4.8 billion lower than last year for the same period.

The Shanghai Composite at a major technical crossroads

The big question - "Why Now?" (is it because we have a big deficit) is strategically left unanswered.

Cessna maker Textron, whose stock has gotten bombed over the past year after the very public bashing of any and all private jet purchases, might be in more hot water. After briefly making the press in relation to speculation that it could be an acquisition target, which subsequently turned out to be a large insider trading leak that subsequently led to the suicide of the alleged perpetrator, Textron is now being sued by the City of Roseville Employees' Retirement System for business condition misrepresentations.

“Perhaps this is because of my own prejudices as a former bond?markets trader, but the pessimistic minority seemed much more experienced and literate to me. They were also generally a lot more senior. That might not mean much but it does suggest to me that there is a risk of bad news in the future causing a stampede of pessimism. Of course the majority is not necessarily wrong (in spite of the claims of contrarians, who paradoxically enough include nearly everyone, it seems), but the volatility impact of information that confounds their expectations is much greater than that of information that reinforces their expectations.” - Michael Pettis

Equities happy to track dollar down, not so happy when it roars right back up.

PIMCO happy, Bernanke happy, Dollar mauled, Stocks flying. All is good.