Archive - Aug 2009 - Story

Dear Mr Cuomo (or should I call you Andrew by now?):

In my last missive, in (re)introduced you to the potential for illegal and unethical harvesting of inside information as created by so-called "expert networks." I singled out the Gerson Lehrman Group in my last missive. Today, I'll keep my laser-like focus on GLG and a little phone company called Verizon (Ivan Seidman, please pick up the phone now.). Verizon is one of the two largest phone companies in the country right.

Call us old fashioned but financial engineering can only take you so far. For actual economic growth one sometimes needs such old-school components as trade, just ask David Ricardo, who had it right 200 years ago. Yet trade flows over the past 6 months have been collapsing, with both imports and exports taking major hits across the globe. However, for the best perspective on the sad state of affairs, one only needs to look at the "portal to the west", the (formerly) great ports of Los Angeles and Long Beach. And if current trends are any indication, a return to normalcy will not occur for at least 3 years, indicating that huge excess capacity will take much longer than expected to be swept out of the system, and the record inventory bounce which everyone is expecting to save future GDP will be much more questionable.

• Developing: UBS to produce 4,450 names as part of settlement
• UK Government swaps rise after Cameron warns of default risk (Bloomberg)
• Warren Buffett: The Greenback Effect (NYT)
• Scholes, Merton call for better bank-asset data (Bloomberg)
• What drives market prices? The valuation vs momentum dichotomy (Value Expectations)
• California to get $1.5 billion loan from JP Morgan (LA Times), China to provide equity tranche to complete LBO

• Asia stock markets mixed on uncertain Chinese outlook, improving US economic state.
• Big retailers reported that American consumers are continuing to hunker down.
• Crude oil falls, reversing gains, as Chinese equities decline
• IMF has described a “nascent” global recovery, warns on ending fiscal stimulus.
• Natural-gas futures fell to a fresh 7-yr low as a glut of the fuel and tepid demand.

No, seriously.

You know the truth is glaringly obvious if the Onion finally got around to satirize it.

Now you can pretend you have read Fooled By Randomness and The Black Swan (on the other hand if you want to pretend you can use the word Heteroscedasticity in a sentence you will need to wait for RIEF's next apologetic letter explaining how minimizing portfolio drawdown is so much more important than actually generating P&L)

And no, the 38th president of the US is not set on a transdimensional spree to save the US financial system from beyond the void (although it would be so poetically fitting).

Dear Chief Financial Officer:

Clear and transparent disclosure about how you account for your provision and allowance for loan losses has always been critically important to an investor’s understanding of your financial statements. While generally accepted accounting principles regarding how to account for these items have not changed in recent years, the current economic environment may require you to reassess whether the information upon which you base your accounting decisions remains accurate, reconfirm or reevaluate your accounting for these items, and reevaluate your Management’s Discussion and Analysis disclosure.

A quick look at the USDJPY chart shows that most of the gains due to second derivative unemployment numbers have been wiped out.

We dare anyone to go to the bank and try to get a new credit card (limit anywhere between $50 and $5 trillion) by presenting this personal budget.

"If the recent financial crises were truly highly infrequent random events, then any set of policies that can continuously prevent their reoccurrence seemingly will be very expensive in terms of idle capital and presumably less efficient markets required to avoid them. If, on the other hand, the crisis was the result of financial innovation and the ability to get leveraged cheaply, then society need not continuously bare all the costs associated with preventing market events like the bursting of asset bubbles"

When Zero Hedge initially looked at the Taylor Rule Estimate for the Federal Fund Rate back in January, the prevailing consensus was that, even then, the Taylor-to-Fed Fund Differential was a whopping 6%. Eight months later we evaluated the Taylor Estimate again, and found a surprising result.

Crude supplies continue to accumulate as the demand picture continues to deteriorate.

We present two provocative perspectives