Archive - Oct 2010 - Story

First it was the New York Fed, now the FHFA itself (regulators of Fannie and Freddie) is getting involved in putbacks. The WSJ has just reported that the GSEs have hired law firm Quinn Emanuel as the "agency considers how to move forward with efforts to recoup billions of
dollars on soured mortgage-backed securities purchased from banks and
Wall Street firms... The FHFA hasn't disclosed the targets of its subpoenas, though some
banks have acknowledged receiving them, including J.P. Morgan Chase
& Co. The probe is focused on so-called private-label securities
that were originated by mortgage companies, packaged by Wall Street
firms and then sold to investors." Not to be confused with RoboSigning, which is at the heart of the Fraudclosure and could serve as a catalyst to what some claim as the unwind of the multi-trillion MBS market in a worst case scenario, this is a parallel effort that seeks to get banks to repurchase far more of misrepped and miswarrantied mortgages. As we previously disclosed, it is precisely this ongoing action that Bank of America and Wells Fargo have been (under)reserving against: and if the GSEs, together with the FRBNY, Pimco, BlackRock and who knows who else, are sensing the current moment as one of terminal weakness for the mortgage servicers, who knows how many billions in mortgages could be putback to the TBTF banks, who are luckily flush with still fresh taxpayer cash and trillions in excess reserves. Either way, it appears that while the New York Fed is going after BofA, the GSEs are about to dine on Jamie Dimon. Either that, or all this is a smokescreen to promptly settle all current and future possible litigation in an adversarial process involving government entities, and thus streamlined to a mutually amicable resolution.

Part four of David DeGraw book "The Road Through 2012: Revolution or World War III.”: "Now that we have an understanding of how the Global Banking Intelligence Complex ran operations through BCCI, let’s look at how some of BCCI’s key players kept operating after the bank was finally shut down. As discussed in the last chapter, during the 1980s and early ’90s, the CIA worked in partnership with BCCI in what was, at the time, the agency’s largest covert operation ever, pumping an estimated $10 billion into funding the Afghan Mujahideen. Through this operation, Osama bin Laden’s al Qaeda network was formed. Bin Laden had accounts in BCCI and ran CIA/BCCI-funded camps."

Our friends over at Big Macro have put together the latest issue of their periodic newsletter. In this issue they look at the at seemingly inexplicable divergence between the VIX and the EURUSD 3 month implied correlation (never a good sign), the increasing delinquency rates across all consumer loan classes (as in buying but not paying, leading to companies like Netflix which made $7 million in cash in the quarter to have a market cap of over $8 billion), but most notably at the differential between commodity prices and the CPI, superimposed against inflation. What is uncovered is that while when unemployment is below 6% companies can increase prices faster than commodity prices can go up, at current levels of joblessness, it will be impossible to pass through surging input costs (whether these be in wheat, cotton, or rare earth minerals). This leads to the conclusion: "What does this mean for the inflation/deflation debate? If the FEDs QE program will continue to push up prices, companies can only squeeze their margins so much. The reason we are not seeing  inflation today is that there is a lag in the feed trough from commodity prices to consumer prices, partly because companies have been able to temporarily save their margins by aggressive cost cutting. I think we are potentially set up for a big decline in returns for equity investors." The last statement has a linear severity with the amount of free money that Bernanke floods in the market in two weeks.

Oil prices came roaring back, which is what we have come to expect. The bears really had the bulls on the ropes on Tuesday, and a haymaker on Wednesday could have beaten the bulls decisively and sent them in a complete rout. We have discovered repeatedly this year that the bears no longer have that knock-out punch. The buying started on Tuesday night into Wednesday morning, when the US dollar started to lose ground. As Wednesday continued, the euro made steady progress as the dollar dropped in an almost vertical decline that lasted throughout the session. And equities rallied, putting two big outside factors on oil’s buy side. - Cameron Hanover

I don’t think commercial real estate is the big Achilles heel for these institutions right now because of the manipulations the federal government has undertaken. I think the real Achilles heel for all these banks, and for bond markets, is going to be the residential markets. Not to be overly dramatic, but this is a huge ticking time bomb. Things are getting worse, not better. - Andy Miller

For our non-Trekkie readers, Kahn was played by Ricardo Montalban (the boss from Fantasy Island fame) and he was the baddest dude in the universe. Fortunately for the Federation of Planets, Kahn also had one bad trait - stubbornness. You see, years earlier Captain Kirk defeated Kahn and banished him to a remote planet for the rest of his life. Year pass, and out of the blue Kahn emerges, more powerful than ever with one objective - get even with Kirk. Without making a long story longer, Kahn actually has the enterprise defeated but his preoccupation with destroying Kirk as well, blinded him to a counterattack. From his Captain's chair, watching Kahn on his 120 inch plasma TV (another early invention by Star Trek), the good Captain pulled the trigger on the biggest giant death ray known to mankind whispering "Here it cones" - and with that, Kahn was gone. Fast forward to October 2010. Ben Bernanke, the Chairman of the Federal Reserve (the most powerful financial institution on the planet) is also sitting in his captain's chair, watching a 120 inch plasma TV and he too is getting ready to pull the trigger on his own version of "Here it cones." What exactly is "it"? Well, "it" refers to a big helicopter filled to the blades with money - Helicopter Ben, you see, is about to drop the single biggest financial bomb ever: anywhere from $500 billion to $7 trillion onto America.

With QE2 now the functional equivalent of a reality show (for the financially semi-literate), here is a rundown of the key actors, the main cliques, and their public motives (their real motive, as those of any banker, is a simple, and green, one) ahead of the November 3 season finale of the FOMC follies, from Goldman's Andrew Tilton.

At this point what is there to say that has not been said already 23 times in a row? ICI reports the latest fund flow data: flows into everything are up... except domestic stocks. The only silver lining: the outflow is declining, and we may just see an inflow next week. Although at $81billion in redemptions YTD, even an uptick eventually would be too little to late. The only marginal buyers continue to be the primary dealers (using POMO cash), desperate pension funds (getting led to the slaughter), and algos which churn stocks a few million times per day, end on a loss, but then collect liquidity rebates from the exchanges and are happy. Aside from these three, there is nobody else.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 20/10/10

While it will have no bearing on your trading today or probably tomorrow, the following story will drive the economic future for years. I have been warning for a while about currency wars, trade wars, and civil or outright good old fashion wars... in fact since 2008. 2 out of 3 so far: not bad, and the 3rd one is just about as likely to come as winter follows autumn. - Nic Lenoir

The tech trifecta reporting after hours. E-Bay beats across the board, Seagate misses, Netflix misses EPS, FCF plunges and has Q4 guidance below consensus, but new subscriber adds seem to be all that matters as computers lift every offer inciting a short covering rush.

After major gains were seen in the USD on Tuesday following the surprise decision by the PBOC to hike rates the greenback staged a swift reversal and retraced nearly the entire move as investor focus returned to the potential for the Fed to embark on additional quantitative easing (QE). Sources indicated on Wednesday that a major US think-tank believes the Fed maybe be siding on the opinion of purchasing USD 500bln of treasuries over the next 3 to 6 months with the possibility of extending the program over the next 12 to 18 months depending on economic data. Although the analysis would be logical in its proposed method it will likely fuel expectations in the near-term that the Fed will pull the 'QE trigger' in November so the weakening trend looks set to continue. In sympathy with the USD move the commodity linked currencies such as the AUD and CAD have also staged an impressive rebound with AUD/USD reclaiming the 98.00 handle midway through the US trading day, a gain of over 100 pips on the session. - Talking Forex

The good news: title insurers may be getting back into the game. The bad news: they will demand indemnity and warranties from the issuing bank assuring their paperwork is sound before backing sales of foreclosed homes. At least this is what the largest title insurer in the US, Fidelity National, will do going forward (which makes one wonder just what exactly FNF's job function is if the mortgage issuing bank, such as BofA, now caught in too numerous RoboSigning scandals to mention, essentially takes over the title guarantee process...) From Bloomberg: "An indemnity covering “incompetent or erroneous affidavit testimony or documentation” must be signed for all foreclosure sales closing on or after Nov. 1, the Jacksonville, Florida- based company said in a memorandum to employees today. The agreement was prepared in consultation with the American Land Title Association and mortgage finance companies Fannie Mae and Freddie Mac, Fidelity National said." And what happens if the bank is once again caught to be, gulp, lying? Who foots the bill then? Why the buyer of course. All this does is to remove the liability from companies like Fidelity National and puts it back to BofA, which is already so much underwater it has no chance of really getting out without TARP, contrarian Goldman propaganda notwithstanding.

And here come the US taxpayers to bail out the world's biggest and most toxic bank. Reuters reports that Bank of Countrywide Lynch has sued the FDIC, and is demanding $1.75 billion from US taxpayers to recoup investor losses over a rather interesting spin on foreclosure gate. Bank of America, as trustee for failed Taylor Bean's Ocala Funding Unit, is angry that the FDIC has denied claims by Ocala noteholders to recover from Colonial Bank and an
Illinois lender also in receivership, Platinum Community Bank. The FDIC had previously served as received for Alabama's Colonial BancGroup and Taylor Bean which Zero Hedge wrote about last year. In its lawsuit BofA said Ocala used proceeds from note sales to Deutsche Bank and BNP Paribas to buy Taylor Bean mortgages, but is no longer able to repay noteholders. Yet, as Reuters reports, here is the kicker: "Bank of America accused executives at Taylor Bean, Colonial and Platinum of having fraudulently schemed to "double- and triple-pledge mortgages and steal assets" to hide their faltering conditions as the housing market declined." Ironically, this is precisely what some are accusing BofA itself of having done. And to a much greater degree.

A little reality about the job situation in this country is in order. The unemployment rate reported by the Bureau of Labor Statistics and parroted by the mainstream media is currently 9.6%. Once you stop counting people who have given up looking for jobs and “left the workforce”, discouraged workers, marginally attached workers and workers forced to work part-time, you magically get a 9.6% rate. Using the method of measuring unemployment used during the Great Depression and reproduced by www.shadowstats.com, the real unemployment rate is a depression-like 22.5%. The peak unemployment rate during the Great Depression was 25%. There is no doubt that we are in the midst of 2nd Great Depression, but where are the bread lines and the lines of unemployed winding around the corner? No need. This is the electronic Great Depression – iDepression 2.0. Your 99 weeks of unemployment and food stamps are direct deposited into your bank account so that you don’t have to leave the comfort of your McMansion that you haven’t made a mortgage payment on in the last 14 months. There were no credit cards in 1933. Without a job or a house, you needed to move to where there might be a job. Hence the mass migration from the Midwest to California – ala The Grapes of Wrath. Today, a neighbor in a matching McMansion down the street, with the perfectly manicured lawn, could be unemployed for three years and no one would ever know. They could sustain themselves on unemployment payments, food stamps, and credit cards. Welcome to the iDepression 2.0.