Archive - Sep 2009 - Story

The Fed's scheme to destroy the dollar is taking the world by storm with everyone now taking advantage of the soon to be issued $100 trillion Federal Reserve Note, and issuing wallops of dollar denominated bonds. Robert Mugabe gets the memo last and launches an all out campaign to convert all Z$ based securities into US Dollars. And with that the wholesale debasement of all US dollar debt is off to the races.

"According to the US Federal Reserve’s latest Flow of Funds report released on Thursday, the market
value of corporate equity at the end of the second quarter was 0.78 times companies’ net worth at
replacement cost. We suspect the continued rise in share prices during the current quarter has since
pushed up this ratio – known as “equity Q” – to around 0.9. The geometric average of equity Q since
1900 is around 0.64. The stock market is therefore roughly 40% overvalued relative to historical
trends based on this yardstick. Our other favoured metric, the 10-year cyclically-adjusted P/E ratio
(CAPE) of the S&P 500, also suggests the market is overvalued. At a current level of more than 19, the
CAPE is about 30% above its long-run average of below 15." - John Higgins, Capital Economics

The unemployment rate in California has hit another record, at 12.2%, while the temporary reprieve in Michigan, which may have been due to a temporary pick up in labor as a result of CfC, is back to losing jobs: after hitting a record 15.2% in June, and dropping to 15% in July, the August unemployment rate is once again at the 15.2% high. Only 17 states reported declining unemployment rates in August, led by Indiana (-6.6%), Colorado (-6.4%) and Virginia (-5.8%). On the other end, the biggest labor losers were: New Mexico: 7.1%, Nevada: 5.6%, Louisiana: 5.4%, District of Columbia: 4.7%, and New York: 4.7%.

in short - nobody.

Yesterday Bob Toll sells 1.6 million shares of TOL. Today JP Morgan upgrades the stock, raising its recommendation from Neutral to Overweight, and stock price from $17 to $29.

What are the possible conclusions:

1. Bob Toll is a hopeless fool who knows nothing about his company's business prospects (unlikely)
2. Bob Toll does not have access to the JPM research reports huddle (likely)
3. A Rorschach test of JP Morgan analyst Michael Rehaut using the picture below reveals an answer of "a diamond in the rough" (near certainty)

Total Federal Reserve balance sheet assets for the week of September 16 of $2,101 billion ($30.7 billion higher compared to the prior week's $2,071 bn), just $73 billion shy of the all time high of $2,174 billion recorded on April 22.

• Reviews of Ron Paul's "End The Fed" (Mises Institute)
• SEC's new rating agency rules (SEC, and AP)
• Pandit says Phibro will be restructured (Bloomberg)
• New York unemployment hits 10.3% (NYT)
• Hedge Funds' ATM moves from Tokyo to Washington (Bloomberg)
• Wall Street's biggest con is M&A "Advice" (WSJ)

• Asian stocks fall as consumer finance firm Aiful seeks debt delay, Hong Kong warns of bank risks.
• EU officials press Obama on capping bank bonuses, tougher climate change.
• Euro-zone's surplus in its trade with the rest of the world hit a 7-year high in July.
• For the first time in nearly 2 years, American households grew a little wealthier in Q2.
• Hong Kong’s central bank warns lenders against mortgage-rate reductions.
• Housing starts rose 1.5% in August as apartment construction rebounded.
• Mortgage rates in US decline for third week, reaching 5.04%.

CNBC continues to bleed vierwers. Whereas the last time we provided an update of CNBC's Nielsen score, the GE subsidiary was down 28% YoY, the September decline is even more pronounced: at 37% in total vierwers and 26% in the 25-54 demographic. We are, however, confident that the company will take appropriate measures to address the growing lack of interest of the general public in its content by continuing to provide hard hitting, probing and objective reporting (on issues such as pornogprahy) day after day.

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And so the pump and dump continues. Within 20 minutes of Palm's earnings release (one wonders just how much of a promptly completed "fill in the blanks" report this was) and disclosure that it is issuing a 16 million share follow on offering, joint-managed by none other than Goldman Sachs, the 85 Broad firm send out an email praising the company's glowing results...and its glowing new liquidity picture compliments of a follow-on offering joint lead-managed by... Goldman Sachs.

Developing story: absent some odd detour, this should be a good start. The next step is public opinion, and second vote at a later date, so things can still change. Furthermore, in the words of Senator Ted Kaufman: "Flash orders may be a symptom of a much larger problem." Zero Hedge wholeheartedly agrees.

Keep in mind, in May 2008 there were MANY people we will not name who thought we were headed right back to the highs, so sentiment is not really prophecy and far from it in fact. This time it's different though... bears and reality are fighting the US government and its arsenal of liquidity. That's why we can have the market diverge so much while making new highs with indicators screaming "overbought". On top of it, while some time has been bought pulling the SFP bill program in order to debate the possible raise of the debt ceiling, should the Fed and the Treasury succed and have it raised we can't exclude more quantitative easing and hence more money being poured into the markets. I guess an hyperbolic collapse of the USD would then be the most likely outcome to bring back markets to reality. In the end, bonds mature, investors have to either be repaid or then default occurs, and there are a lot of maturities and mortgage resets rolling down the pipe. So given that the ISM is about to top, QE money is running out (we are below $15Bn remaining out of $300Bn or just about), and many stimulus programs are running as well, headwinds could start being felt again. Barring more US government intervention it is likely that recent exhuberance will come to an end sooner rather than later. However as always one must remain cautious because these days capital markets are a mere reflection of government action... as long as government remains unchallenged.

U.S. FED BALANCE SHEET LIABILITIES GROW TO $2.125 TRLN SEPT 16 VS $2.072 TRLN SEPT 9-FED

We will provide the full spread of the Fed's balance sheet later tonight