Archive - Oct 25, 2010 - Story

As all financial service companies are making ritual sacrifices of lambs, goats, or virigns, whatever is cheaper to procure these days with rampant asset price explosions, to assorted gods that stock volumes finally pick up, the next chart demonstrates the very vivid Catch 22 that markets now find themselves in. To wit: every single pick up in volume, which means more than just the upward biased churn of the High Frequency Pirates, is immediately followed by a complete obliteration of the bidside order books, and a consecutive plunge in prevailing stock prices, especially in such ETFs (courtesy of record stock correlations) as the SPY and (synthetically) ES. Which is why the daily action since the beginning of September on less than miserable volumes is not an indication of any sort of buying interest, but a complete lack of trading interest. And any actual trading volume is always from a better seller. We hope that the brokers are positioned appropriately for that inevitable volume pick up, which however, will result in the market trading down quite promptly to late August levels, and, who knows how much lower.

Finally the FDIC acknowledges the shitshow:

• BAIR: LITIGATION FROM SERVICER ISSUES COULD BE `VERY DAMAGING'
• BAIR SAYS FORECLOSURE PROBLEMS WILL REQUIRE `GLOBAL SOLUTION'
• BAIR: CRISIS REQUIRES `DECISIVE' ACTION FOR MORTGAGE SYSTEM
• BAIR: FDIC SECURITIZATION RULES `CONSISTENT' WITH DODD-FRANK

And the kicker:

• BAIR SAYS CRISIS REVEALED `CRITICAL FLAWS' IN MORTGAGE FINANCE

Oh, so there are flaws??? As a result, Bank of America takes out 10/20 lows

Below is the full text of Berkshire's "disagreement" letter with the SEC over the recognition of long-term impairments. The letter was sent out in July 1. Good thing Berkshire only took so much temporal liberty with determining what filing is material. Had it waited a mere decade longer, it is more than likely this whole matter would have been completely irrelevant, as its 2020 release would have coincided with TARP/QE 666, geared exclusively to bailing out Berkshire's 99.9% holdings in Goldman and all the other insolvent TBTFs.

A token amount for a test of what the US apparently does not have the guts to do: note maturity - November 1, 2060. Price talk on the $250 million issuance at 6.25%. Use of proceeds: General Corporate Purposes, also known as bonuses for the janitors. Oddly enough, the par on the notes is just $25. Is Goldman now trying to appeal to retail direct? Are pension and mutual funds tapped out, courtesy of endless redemptions and lack of cash for ponzi perpetuation purposes? Either way, if this is successful, and it will be in the broader drash for yield, look for most TBTF banks to start issuing 100 year bonds that will never be repaid.

Some earth-shattering insider buying in the past week (a fact not seen in months), courtesy of a large block of stock purchased in Monstanto (for $1 MM), Intel ($384K), and GE ($334K), has done miracles to the general insider selling to buying ratio, and almost managed to offset the $114 million sold in Google, $100 million in Oracle, and $30 million or less sold in Safeway, Discovery Communications, Costco and a total of 61 other names. In the week ended October 22, S&P 500 insiders sold 229 times more stock than they bought, per Bloomberg. To be sure, this is a vast improvement from last week's 2,000+ plus ratio, yet still the rolling insider average selling to buying over the past 8 weeks is about 1,000 to 1. At least insiders continue to benefit from ever more irrational prices in stocks from which they can bail at increasingly loftier levels.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 25/10/10

A new just released stunner discloses the unprecedented level of hypocrisy attained by Warren Buffett, for whom apparently accounting rules are swell, except when he actually needs to follow them. Reuters has just announced that the U.S. Securities and Exchange Commission questioned Warren Buffett's Berkshire Hathaway in the second quarter on why it was not writing down large losses on shares in Kraft and US Bancorp, but the company insisted its accounting was right. The issue arises out of $1.86 billion in "unrealized" losses in Kraft and USB, which had a duration of more than 12 months, and should have thus been written down, as is required of most non-monopolistic companies which believe the world revolves around them. Berkshire's response: "We believe it is reasonably possible that the
market prices of Kraft Foods and U.S. Bancorp will recover to our cost
within the next one to two years assuming that there are no material
adverse events affecting these companies or the industries in which they
operate." In other words, let them eat cake - we will determine our own impairments, thank you very much, aka, SEC guidelines are for chumps, and Warren makes up his own accounting rules on the fly. This is especially true when it is a question of the ponzi reverting to its mean, which it most certainly will courtesy of the Oracle's millions in embedded political financial lobby interests, and the fact that just like with the rating agencies, all of Berkshire's computers ref out if one assumes a decline in prices. Perhaps Mr. Buffett will be so kind to tell a fawning and mouth wide agape Becky Quick next time they are deep in the bowels of a rapidly amortizing NetJets asset, just how often he thinks that mark-to-market, revenue recongition, or the whole credit/debit thing, is also a completely irrelevant piece of accounting folklore, to be used when useful, and discarded when, well, not.

The NAR reported September existing home sales came at 4.53 million units, a 10% jump from the prior downward (of course) revised number of 4.12 million, compared to expectations of 4.3 million. Keeping this number in perspective, it is only the 3rd worst in history. The September median price for existing homes declined by 2.4% to $171,700 from a year ago. Most notably, 35% of existing sales were distressed sales compared to 34% in August. And since all of this data is for September, and thus complete noise now that the entire home sale perspective is thoroughly distorted thanks to foreclosuregate, none of this data is relevant at all. What is relevant, is that inventory of homes for sale dipped slightly from one year to 10.7 months worth of supply, or 4.04 million units. Look for this number to surge shortly as little to no transactions get done now that nobody is willing to actually insure home sales titles.

Bank of America, which is gearing to resume foreclosures as soon as today, has just confirmed that it has "discovered errors in 10 to 25 out of the first several hundred foreclosure cases it examined starting last Monday." Assuming a nice round number of 500 or so tested cases, this means a faulty incidence rate of up to 4%. Considering that the bank has about 102,000 cases it is preparing to resume foreclosing on, this could mean that as much as 4,500 cases are about to put back. And who knows what else Bank of America is lying about?

A recent study by J.M. Coates and J. Herbert analyzes "Endogenous steroids and financial risk taking on a London trading floor" confirms that risky activity tends to increase testosterone levels, and that high testosterone levels increase risky ventures. This is about as remarkable as a Federal Reserve "finding" commissioned using taxpayer dollars, and is pretty high up there on the Captain Obvious pyramid of scientific discoveries. One wonders how Vegas' multi-billion economy will adjust its business model now that it knows that gambling, arousal and testosterone are all related. Yes, that was rhetorical. Amusingly, the study discloses the following: "No subject consumed anything during the study that would interfere with his endocrine system." That also sounds very credible. Yet the most interesting discovery in the finding is the correlation of cortisol, or stress hormone, levels with various economic releases among which home sales, durable goods, jobless claims, Chicago PMI, ISM and NFP. What is curious is that cortisol peaks not on NFP, which has traditionally been seen as the most important macroeconomic metric and the one in which the BLS takes a most active expectations management role, but during ISM releases. Is it time for the Department of Truth to LBO the Institute of Supply Management?

It took 3 days for Goldman's EURCHF trade to hit stop losses. Now Goldman is aggressively selling Citigroup to its clients who are now "buying with conviction" the world's most bankrupt bank. The only question now is, how long before Citi joins BofA in desperately needing TARP 2.

• No surprise here: US foreclosure pipeline slows (FT): "Freddie Mac, one of the two government-owned entities that finance about half all US mortgages, says that homes are taking as long as eight months to work their way through its foreclosure pipeline, two months longer than was typical before the housing crisis began."
• Key Tax Breaks at Risk as Panel Looks at Cuts (WSJ)
• Hilsenrath still has that inside touch, and a way with words: "Why the Fed Wants a Tad More Inflation" (WSJ)
• As predicted a month ago: Bubble fear as rare earth prices soar (FT)
• Sarkozy Doing `Dirty Work' Means No Scapegoat as Ratings Slump (Bloomberg)
• Strike paralyses Greek rail network (Earth Times)
• Waiting Ships Number Up Again In French Oil Port Strike (WSJ)
• Napoleon Idiot Dynamite: The Fed must adopt an inflation target (Fred Mishkin, h/t Miles)
• Unsolicited fiscal advice from the unemployed: Now Isn’t the Time to Cut the Deficit (Christina Romer)
• To fix the economy, let bad banks die (LA Times)

• Asian stocks gain as SGX buys ASX; Dollar weakens on G-20 currency pledge.
• Bank of Japan may leave policy unchanged after cutting rates to near zero.
• G-20 vows to avoid weakening currencies as leaders prepare to prod China.
• Japan's September trade surplus widens 54% from year-ago, more than expected.
• One third of Britons see house prices falling: Righmove Plc.
• US Treasury 30-year yield near two-month high on outlook for quicker growth.
• Amazon to begin allowing Kindle users to lend e-books to friends, for 14 days.

Belgian bund spreads this morning are modestly tighter, at 81 bps, down 6 bps on the day, after Belgium completed a "successful" bond auction, which was no doubt intermediated by the ECB, as has been the case in all the problematic European bond issues over the past six months. As to how successful it was, the broad drop in the Bid To Cover, coupled with the surge in interest rates, especially in the 3 year, leaves quite a few open questions. Below are the results.

Data on existing home sales and manufacturing conditions in Texas plus four members of the FOMC from all ends of the policy spectrum…