Archive - 2009 - Story

Just occasionally, we feel as if we might be a little too harsh with Barney Frank. He has, after all, been something of a singular lightning rod for many of the more adverse consequences of the housing boom. Without question he has taken a disproportionate share of the heat generated by increasing scrutiny of Government Sponsored Entities like Fannie and Freddie. True, he was involved directly in crafting provisions of the Troubled Asset Relief Program. Indeed, as he chairs the House Committee on Financial Services, he is uniquely exposed to all things "credit crisis" and most things "bailout." Yes, his loose alliance with figures like, say, Maxine Waters, tends to draw sporadic sniper fire from the trenches (well, and sustained grazing fire from the MG42 nests). And, obviously, some of the more publicly scrutinized aspects of his personal life have aligned social conservatives against the Congressman. The combined effect of these disparate circumstances gives us pause in those moments when we begin to form our critiques of the Distinguished Gentleman from Massachusetts. Then we come to our senses.

Anything goes! (Well, almost anything).

As the Zero Hedge duty officer this holiday season (we're making "The Narrator" do this next year, trust me) I'm watching closely (or at least casually) for the "take out the trash" dump of sketchy announcements, bad news and shifty disclosure this weekend. We've already seen a bit of it in the form of the Fannie and Freddie blank checking shell-game, and I'm sure there is more to come. Be that as it may, the tempo of the world has ebbed just a bit and things actually appear a bit... well... slow. So I thought I would share with you some upcoming highlights. Consider them belated holiday gifts from Zero Hedge. (All purchases final).

• Russia lowers key rate, kills carry trade.  Merry Christmas, foreigners.  ("In Soviet Russia, rates lower you") [bloomberg]
• Ethanol producers sue California to prevent low-carbon fuel restrictions. (Corn shortage forces greens to start to eating their own young?) [wall street journal]
• Latvia attempts to lower pension benefits to avoid fiscal meltdown. Courts: "Denied." Latvian PM: "We will just go bankrupt if we observe all legal norms" (Sufficiently satirical comeback fails me) [baltic reports]
• Increase in pension contribution requirement for NY Teachers causes rush to lock in old rates.  (Officials shocked, shocked to find that rational actors avoid taxes)  [wall street journal]
• Retailers extend Christmas hours to boost traffic. (Losing money for every open hour, but making it up on volume) [bloomberg]

J.S. Kim is the founder of SmartKnowledgeU™, an independent investment research and wealth consulting firm. J.S. accurately called the recent global financial crisis, sharing his thoughts on his investment blog, to his subscribers, and in a series of YouTube videos. His articles have been reprinted online by Reuters, the New York Times, USA Today, the Wall Street Journal, the Financial Times and the International Business Times. He recently authored the timely book, “Confessions of a Wall Street Insider, a Zen approach to making a fortune from the coming global economic crisis.”

The Obama administration is on the case, don't you worry. Given that expanding the balance sheets of Government Sponsored Entities, increasing their regulatory caps on assets, and then, when caps could rise no further, permitting them to resort to securitization to move underpriced real estate loans off their balance sheets didn't work, let's relax caps even more, and, while we are at it, give them a blank check drawn on the Treasury.

Eric Sprott's most recent report has generated serious ripples within financial circles due to his unique interpretation of some rather nebulous data in the latest December Treasury Bulletin. Sprott raises a major question mark as to the constituency of the "Other Investors" as defined on page 48, which in his calculations, has accounted for $510 billion of Treasuries in the first three quarters of 2009. Could this be a "phantom purchaser" that is the Federal Reserve in all but name? Or is it something far more innocuous?

Dancing through the aisles this morning at TCO's Beverly Center and Westfield's Westfield Century City. (A photo essay sans javascript click-whoreish "slide show.")

In the "Everything Old is New Again" category, Tim Geithner inadvertently (we hope) invokes classic (and classically fitting) political satire in the form of Peter Sellers' cinemagraphically immortal "Chauncey Gardner," introduced to an unwitting American public in Hal Ashby's 1979 piece "Being There."  It is fitting that on the film's 30th anniversary real life political characters should so perfectly resemble the lumbering incompetence and "form over function" sketched so comically by Sellers.

Tim Geithner and Ben Bernanke can both sleep well - the Great American Ponzi ("GAP") can continue for at least one more month, courtesy of Senate Democrats who all, with the exception of Evan Bayh, voted to raise the debt ceiling by $290 billion to $12.4 trillion. 59 Democrats all did their job in pretending that an exploding budget deficit is nothing to write home about, as there is this thing "called the printing press" yet with 60 votes needed America could have been on the verge of its first ever technical default. The savior: Republican George Voinovich of Ohio, who voted against party lines, and 39 other Republicans, and voted "for" unlimited printer cartridges.

• No Christmas cheer for Goldman. Bear takes up the slack. (In Bailout Nation alumnus of bankrupt firms party harder than employees of the profitable) [bloomberg]
• Ford to sell Volvo to Chinese.  (Part of strategy to eliminate non-core auto manufacturing activities to concentrate on defined benefit and health care management units) [freep]
• Fannie and Freddie throw millions to politically connected senior execs. (Largest fiscal black holes emit Bekenstein-Hawking radiation in the form of salary. Perhaps evaporation will finally result?) [reuters]
• Obama sneaks COBRA extension into defense bill. (G.I. Joe shocked. "The More You Know" segment in the works). [washington post]

"As we have seen so illustriously over the past year, all Ponzi schemes eventually fail under their own weight. The US debt scheme is no different. 2009 has been witness to spectacular government intervention in almost all levels of the economy. This support requires outside capital to facilitate, and relies heavily on the US government’s ability to raise money in the debt market. The fact that the Federal Reserve and US Treasury cannot identify the second largest buyer of treasury securities this year proves that the traditional buyers are not keeping pace with the US government’s deficit spending. It makes us wonder if it’s all just a Ponzi scheme." Eric Sprott

Recently there has been much speculation that the US government will do anything, anything, to rekindle the housing bubble. Even if that means providing Option ARMs at blue light special prices and hiring Angelo Mozillo as Mortgage Czar (we hope we are kidding about the latter). Yes, those very same Option ARMs which banks' balance sheets are still expecting to be neutron bombed by, courtesy of the long gone days when there was private sector mortgage origination risk. Now that all the mortgage exposure is borne by taxpayers, we decided to analyze how the ARM spread to the traditional 30 Year Mortgage has moved throughout the year. Somehow we were not surprised that the 30 Yr - 1 Yr ARM spread for Freddie Mac just hit a record wide this past week. The government is presumably actively encouraging borrowers to approach the GSEs, and using the same NINJA protocols, to ask, nay, demand, an Adjustable Rate Mortgage. Who cares what happens one year down the line? Certainly not the US government which has $3 trillion in T-Bills to roll by this time next year.

There’s an article published in the WSJ Online noting how luxury goods manufacturers are hoping the holiday shopping sprees will regain some exclusive tastes in self-indulgence, particularly the luxury watch markets- which have traditionally looked to Wall Street’s bonus pools to mark their sales horizon “uptick” for the year; but with this year’s bonus season either hit or miss, depending on who you talk to, what’s the luxury maker to do? Look to China, of course- because they consume a quarter of the world’s luxury goods. Right?