Archive - 2009 - Story

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

No sooner did Jeff Merkley announce his opposition to Bernanke ahead of tomorrow's reconfirmation farce/hearing, than key Republican Senator John McCain said that he was leaning against voting for the the Chairman. McCain said he would favor either former Fed Chief (and apparently only sane economist in the Administration) Paul Volcker, or ex-Treasury official, and creator of negative implied interest rates, John Taylor.

“Tomorrow, I will vote against confirming Ben Bernanke as Chairman of the Federal Reserve. The reason, in short, is that as Chairman, Dr. Bernanke failed to recognize or remedy the factors that paved the road to this dark and difficult recession. Following our economic collapse, it is also apparent that he has not changed his overall approach to prioritizing Wall Street over American families." - Senator Jeff Merkley

More bad news for a troubled Greece. More bad news for a troubled Greece. And all this happening even as finance minister George Papaconstantinou says that Greece "is not banking and not operating under the assumption" that the Hellenic country will be bailed out by its Eurozone neighbors. He has certainly studied the Dick Fuld script well.

One of the numerous adverse side-effects of the horrendous policy decision to start bailing out each and every risky bank, and thus allowing no more risk in any investment (for the time being), has been the very simple observation that massively mispriced risk has gotten concentrated to an unparalleled degree among very few players. The population of Big Banks has been massively trimmed (Goldman thanks everyone for allowing them to have massive Fixed Income bid/ask spreads) and now a mere five banks account for the bulk of loans, deposits, and derivative exposure. When the economy is faced with another Lehman event at some point in the future, when bailing one of the Big 5 is no longer feasible, the delayed consequences which have so far been successfully swept under the rug, will come back in time and bury any positive legacy that the Man Of The Year may have created. One indication that this time may be sooner than most think comes out of the St. Louis Fed itself, which has released a paper titled "The evolving size distribution of banks" in which it highlights the expected: big banks are getting bigger, and are holding a record share of all rosky assets. When the asset repricing moment occurs, absent an apriori renewal of Glass-Stagall, look for the inevitable moment of complete House Of Cards collapse.

RANsquawk 16th December US Morning Briefing - Stocks, Bonds, FX etc.

Recently, an extended analysis by Shadow Stats' John Williams evaluated the risk of a hyperinflationary episode as one which has the potential to come as soon as next year. Somewhat in support of this theory yesterday's read of PPI came in above consensus, indicating that inflation may indeed be coming. Yet today's CPI data, whose core read came in at 0.0%, may have just poured a whole lot of cold water over Williams' thesis. Nonetheless, at the end of the day Williams may be right: the question remains - if and when the excess reserves start hitting the broader currency (as the Fed is scared shitless to withdraw liquidity on its own), we may experience a transition from deflation to inflation so rapid, that is has no historic analog. At the end of the day deflation will likely be the name of the game for quite some time, until such point as "Man of the Year" Bernanke finally flips (the turbo print switch on), and any pretence of prudent monetary policy is thrown out of the window. At that point, look for the stock market to promptly go to 36,000 followed by an even faster drop to 0, all the while the dollar gets hyperdeflated (Zimbabwe redux). With the Administration set on not losing the midterm elections by a landslide, don't expect much in terms of economic experimentation at least until 2011. At that point, all bets will be off as the Fed will likely have at most 2 more years of shelf life before both its, and thus Wall Street's, life support are forcefully yanked out.

Citigroup: “Today we announced a series of transactions to repay the $20B of TARP outstanding and terminate the asset guarantee we received from the U.S. Government.”

Translation: I am sick of working for $1 per year.

Remember all that pooh-poohing when the gulf states were talking about their own currency? About how silly that would be? That it would never happen? Yeah well, sort of looks like it might. True, there is a deep and very comfortable denial in the United States such that the country can spend anything it wants, pump debt to any level it likes, play whatever games it wishes with the way it counts spending, and still enjoy the benefits of a reserve currency indefinitely. That denial may be just about ready to hit reality.

Wells Fargo is repaying their $25Bn TARP loan. That makes WFC the last of the big boys to be done with the emergency loan program, just one year after it started. At this point $161Bn of the $245Bn lent out will be repaid with WFC raising $10.4Bn in a stock sale to get out from under the government’s thumb - just in time to pay out the Christmas bonuses. I won’t go off on a rant about how stupid it is for the banks to borrow and dilute in order to pay big bonuses and further punish shareholders by reducing earnings – it won’t matter anyway, any bank but C that announces they are done with TARP gets a nice boost as it indicates they can go back to raping and pillaging as usual in 2010.

While Bernanke is preparing to hit the TV circuit (after hiring Obama's exhausted teleprompter team) to cash in on his Time Warner accolade, even as he is set to do nothing at all about the liquidity bubble forming in every aspect of the economy, the much more logical and efficient country of Norway is doing the right thing, and in making sure its economy does not overheat, has raised interest rates by 0.25% to 1.75%. The target rate: 1.25%-2.25%. In other news: Goldman Sachs is not moving to Oslo.

One of the things that spooked the market yesterday was not so much any concerns of tightening language in today's FOMC statement, as much as a rumor that the Fed was planning on bumping up the discount rate. Krishna Guha, in a blog post, wondered, "might the Fed raise the discount rate at this week’s policy meeting? I think this is a possibility and should be considered as a risk factor. But I would not include a discount rate increase in my base case forecast for the meeting." The key reason for this would be the increasing desire of the Fed to "draw an increasingly sharp distinction between liquidity policy and monetary (interest rate) policy in the spirit of the ECB’s separation principle at this meeting and in subsequent communications." Yet the question remaind: is the Fed about to hike the Discount Rate?

• An unwelcome spotlight falls on SAC Capital (NYT)
• The middle class collapse (HuffPo)
• Congress punts problems to 2010 (Politico)
• As Goldman thrives, some say an ethos has faded (NYT)
• US gave up billions in tax money in deal for Citigroup's bailout payment (WaPo)
• 10 years of booms, busts and bubbles (MarketWatch)

• Asian stocks rise, led by Japanese financial companies; Dollar strengthens.
• Australia's Q3 GDP grew 0.2%- showing growth momentum isn't yet self sustaining.
• FDIC in 2010 plans to add more than 1,600 staffers, mostly to handle bank failures.
• India to levy antidumping duties of as high as more than 3x the value on some Chinese telecommunication equipments.
• Senate rejects plan to import low-cost drugs.
• Sugar jumps to highest price since 1981 in New York on deficit concerns.
• US Industrial output rises 0.8% - most in three months as recovery gains speed.