Archive - 2009 - Story

"The legislation will send a message that we’re trying to respond to what got us into this economic meltdown and trying to set up mechanisms to prevent future economic meltdowns” - Barney Frank

We will revisit this quote in 12-18 months

With gold having dropped nearly $100 in a very brief period, as the Fed is doing all it can to prevent an all out gold rout (hey it worked the other way around too, and stopped the intended dollar free fall), spot is now a mere $13 away from the 50 DMA. Will this prove a material support level or will it be breached, leading to a cascade all the way down to the 950 previous support. For the latter to happen one can see the DXY going back all the way to 80 which the banks will certainly not be too happy to see. Alternatively, a collapse in spot will present a great accumulation level (at a cost basis below that of India, and other fringe CB accumulators) as Bernanke is still dead set on inflating trillions of toxic mortgages (the ones he is unable to collateralize the dollar with).

Developing from Dow Jones: US Treasury - No Plans For One-off 2009 Bank Bonuses Tax; Bankers can sleep well.

You didn't think all those massive stock market gains would come free of charge? The cost: about $1.9 trillion in new debt allowance according to Steny Hoyer, almost $500 billion higher than previous estimates by Senate Budget Committee Chairman Kent Conrad. It took a mere 4 days for Conrad's optimistic estimate of the future cost of today's carefree living to go up by 30%. And who will bear the brunt of this ludicrous leverage: the U.S. soldier. Dow Jones reports that the debt ceiling increase provision will be added to legislation setting forth the Pentagon's budget for 2010. "It is unconscionable for the Democratic majority to pile the debt limit increase on the backs of the American soldier." In ironic retrospect, it will not be so "unconscionable" when the same soldier is sent for some preliminary diligence work west of the Pacific, just in case America's partner in the most crucial prisoners' dilemma game of all time, China, decides to finally defect, and tell the Fed it can monetize its own debt without Beijing's cooption. But that's a topic for late 2010/early 2011.

Because you know JPM is completely unconflicted and unaxed from pushing a Chinese growth model in the US. Justifcation: "GDP growth is being revised upward reflecting this week's upside surprises in monthly reports on inventories, net exports and retail sales." Somehow JPM managed to have an embargo on this report, likely prepared days, ago until 11:51 am. In other news: the government has no bias to presenting overinflated data.

CB Richard Ellis has a brand new client: the bankrupt state of California, which is now attempting to sell what is the largest office portfolio currently marketed nationwide, at 8.7 million square feet. The California Department of GeneralServices has announced CBG has been retained to sell 17 office buildings. The state is hoping the sale will generate more than $660 million in proceeds to offset cuts in the state budget. With a budgetary hole in the billions, California willlikely need to throw in quite a bit of beachfront property in order to make it seem like it has the fiscal catastrophe under control.

For the last two decades the trend of inflation has been easing. The same as applied to the general trend of the percentage growth in the GDP. One big problem for managers is to drive looking forward rather than manage backward. Oil as an echo bubble will quickly fade away and will bring better prospect at anchoring inflation expectations.

To the dismay of some CNBC pundits who are presenting a "strong dollar" decoupling case for equities, the key thing that they constantly forget are the numerous constituents of the DXY. Aslightly more granular analysis of FX pairs indicated that everything is still as expected, with the JPY-EUR leading the way as usual. And that particular "micro leading" indicator just snapped.

The Dubai collapse is about to claim its first domestic icon in the face of Barney's luxury store. The New York retail icon is set to file for bankruptcy after the Christmas season, or such at least are expectation of the company's key bondholders - Perry Capital and Ron Burkle's Yucaipa according to the NY Post. What the union-leveraged Burkle sees in the retailer is a big unknown (absent some firm principals' fascination with the firm's metrosexual merchandise), however, the firm, together with Richard Perry, is said to have accumulated virtually all the bonds in the name, at about 60 cents on the dollar, likely in advance expectations of a debt-to-equity conversion.

"When I asked Ken Lewis, Bank of America’s CEO, about why he had not disclosed the mounting losses to shareholders before the shareholder vote, he told this Committee that he relied on the advice of counsel. Protecting shareholders is often, in the final instance, the practical responsibility of corporate General Counsels and their outside counsel. The Subcommittee’s investigative findings demand the question, “Where were the lawyers?” The glaring omissions and inaccurate financial data in the critical November 12 Forecast
make Bank of America’s decision not to disclose to shareholders unsupportable. Furthermore, the flaws in the forecast document were so obvious that they should have alerted the attorneys to the necessity of a reasonable investigation before making a decision on Bank of America’s legal duties to disclose. The apparent fact that they did not mount such an investigation makes the decision not to disclose Merrill’s losses to shareholders an egregious violation of securities laws." - Dennis Kucinich

A 5th sequential revese repo test conducted by the Fed, indicates either unprecedented posturing by the printer leprechaun or some legitimate concerns about pulling the trillions in banker slush funds floating around and propping REITs around 200% higher than fair value. What was odd about this reverse repo test is that for the first time, the Fed accepted Agencies, and specifically $180 million in a 2 day operation, as collateral. There is still a long way to go before the Fed is willing to reverse repo bankrupt stocks and Goldman bonus pool IOUs: the same assets which the banks have repoed out from the Fed (at par value no less...) We only partially jest about the bankrupt companies part, but since nobody except the Fed Chairman can correct us on what the haircut, and what the assets in the discount window are (the particular data is what Ron Paul is trying to get public), we will continue claiming that the Fed is allowing banks to collateralize worthless assets at 100 cents on the dollar, until such time as there is an actual fact that would refute such claims. At that point we will even gladly issue a retraction. Auditing the Fed would seem like a fair price.

Economic data adjustment/recasting/proforma expert, and the government's favorite mouthpiece (aka CNBC Senior Economic Reporter/Producer), Steve Liesman, apparently has never heard of EUC. In the clip below we were much amused as the COMCASTIC ones were trying to make yesterday's Dept of Labor data into something positive, when instead the influx of 328k into EUC programs weekly, demonstrated the complete lack of hiring and the roll of hundreds of thousands from continuing into EUCs on a weekly basis (592k in the last two weeks alone). Please see 2'40" in the attached clip.

Trying to read between the lines of BOJ doctrine, even as the Yen continues rising contrary to what the economic data out of Japan time and time again suggests it should be doing, Morgan Stanley is out with a report that attempts to quantify the probability of a Yen intervention. And even though there has been no official instances of intervention since 2004, MS feels that "increased JPY strength from current levels is increasingly likely to trigger official FX intervention." As this relates to the economy caught in the biggest deflationary vise in the last two decades this does not surprise us very much.

RANsquawk 11th December US Morning Briefing - Stocks, Bonds, FX etc.

• Must read from Taibbi: the real Sellout (Obama's that is): (Rolling Stone)
• Ireland, Greece may leave Euro, Standard bank says (Bloomberg)
• IMF witholds $3.5 billion loan to the Ukraine(NYT)
• Do we really need a systemic regualtor? (WSJ)
• Even with fewer people spending, somehow more people are spending (Bloomberg)
• KKR: Omaha on the Hudson (BusinessWeek)