Archive - 2009 - Story

Of course, we do not intend that Zero Hedge should become a center of excellence for the review of obscure Senate rules, but, as a consequence of the full-court-press-rush to pass the health care bill, this was too interesting not to reprint.

Why should we care anyway? Oh please, we know he's not going to get through all 150 years of incarceration...

In the annals of bailout history, commitments don't get a lot more slippery than this.

Another harried day where the dollar sells off and the robots immediately start buying anything and everything associated with "risk". Anxiety is building. Many hedge fund managers have already cashed out having "made their year", and are now sitting on a Caribbean beach somewhere. Other more enterprising, hungrier gamers are hunkered down in snowstorms staring bug-eyed at the screens trying to get a jump on the "hot trade" for 2010.

Anyone looking at their 401(k) portfolio performance since the end of August will undoubtedly be very happy (and extremely surprised), as the market has climbed steadily higher despite i) increasingly declining trading volume and ii)consistent and material withdrawals from domestic equity mutual funds. Furthermore, if anyone was merely looking at the trading action in regular hours, one would think there was absolutely no profit made since early September. The reason for that: all the upside since September 14th has come exclusively from after hours action. The chart below demonstrates the relative performance of regular hour trading in the SPY as well as that in the extended session. The notable observations: gaps, gaps, gaps. Every single day, minimal volume pushes the futures index higher. Good news, bad news, it don't matter to the Goldman S&P and Russell 1000 futures desk: they just lift every micro offer, giving the impression that the market is unstoppable, often leapfrogging each other as the latest viagra'ed GDP or unemployment rumor is spread. Come morning, it is time for the HFT brigade to come in and scalp their trillions of pennies while leaving the market unchanged, then at 4pm handing it off again to leveraged futures manipulation and dark pools. In a nutshell, this is the secret of the past quarter's phenomenal market performance.

Vladalloyd?

Greetings from our supreme ruler Lloyd.

The Los Angeles Times reports that the Governator is expected to appeal to Washington for some $8 billion in bailout funds, and is holding hostage CalWORKS, the mainstay of California's welfare program (and a long standing and favored catamite to the country's progressives) in the unlikely event he doesn't get it.  Arnie also seems poised to select this as an opportune time to re-open the question of drilling for oil off the Santa Barbara coast.

• In Former Soviet Republics, Dollar trades you on black market [gallup]
• Congress: sucks; Obama: starting to suck; Economy: sucks; Life: sucks.  (Thank god we have experts to tell us these things) [gallup]
• BankAmerrilwide starts Dollar General coverage with a "Buy." (Target price under a dollar?) [dow jones]
• Blackberry outtage slows U.S. messaging to crawl (Inlaws celebrate renewed interest in pre-christmas stories by young guests) [reuters]
• Bernanke enjoys 3-1 "in favor" ratio in Senate.  (Senate also enjoys 3-1 "in favor" ratio in Senate) [bloomberg]

Fitch "ups the rhetoric" in the continuing assault on sovereign AAA. Today Spain, the United Kingdom and France are on the chopping block. Though the report, "Unpleasant Fiscal Arithmetic for Sovereigns in '10" addresses some of the most looming issues for the sovereigns, it is hard to see any of the ratings agencies as more than reporting entities, rather than predictive ones.

Much has been written about the Fed's Permanent Open Market Operations, or the technical name for Quantitative Easing's Bond Repurchase, aka Monetization, program. What has been largely left out is the true cost in the form of a call premium that the Fed has paid out due to what amounts to an early redemption of $300 billion in par securities. From a basic bond standpoint, the Fed's buybacks of Treasuries at market prices simply represent premium redemptions as a substantial amount of the bonds bought back had been issued (at par) when interest rates were materially higher. Therefore the differential from par to market has to be considered when evaluating the actual cost to US taxpayers, and by implication, early paydown benefit to bondholders. The surprising result: after $300 billion in par repurchases (or $295 billion ex-TIPS to be precise), a whopping $27 billion has been paid by the Fed over par to account for declining interest rates over the past three decades. As the actual price paid by the Fed is known only to the Fed itself, despite claims to transparency and openness, this is at best an exercise in extended bond math. Only when the Fed is truly audited will we get a full glimpse into just how much the Treasury portion of QE has truly cost US taxpayers in order to provide a quick and lucrative "out" to all those bondholders , especially the ones who purchased bonds at lofty interest levels (and thus very discounted prices) in the early to mid 80's. In sum, even though the Fed has purchased a nominal $300 billion in assorted government securities, its actual cash outlay has likely been in the $325 billion+ ballpark. Keep in mind this analysis excludes the roughly $1.4 trillion in MBS and Agencies that Bernanke is still actively gobbling up to prevent the housing market from collapsing. A comparable exercise performed in that part of the POMO market would likely yield even more distributing results.

After a fashion, one has to feel sorry for the Congressional Budget Office. Except not really. Though the organization is supposed to be "non-partisan," it faces a dilemma that much resembles that of the Federal Reserve. It is intended, by design, to occasionally throw itself in front of moving freight trains and, despite whatever manic political momentum has built into velocity and pure mass of pages, occasionally stop them cold in the face of intense pressure, public and private. It has singularly failed in this mission since about 2001, and has, in the last few years, become merely a rubber stamp regularly gamed to extract its endorsement to flaunt in the satirical play that is the courting of public opinion.

On December 14, 2009, an inauguration took place that deserves more attention than it received because it marks an economic power shift to the benefit of three Central Asian countries and China and to the detriment of Russia. The presidents of China - Hu Jintao, Turkmenistan - Gurlanguly Berdymukhamedov, Kazakhstan - Nursultan Nazarbayev, and Uzbekistan -Islam Karimov, inaugurated the Central Asia-China gas pipeline that links Turkmenistan's natural gas fields on the Caspian Sea to the Western Chinese border in the Xinjiang province.

As much as you hate gold bugs saying "I told you so"... they were right... at least these last 10 years (absent JPMorgan shorting gold in tried and true fashion down to $250 tomorrow).