Archive - Nov 2010 - Story

This one is sure to get Barofsky's blood boiling. Reuters has just confirmed what even a retarded, diapered, midget money will immediately grasp is nothing but a shell game of massive proportions. Basically the Treasury has announced it will proceed with a plan to give AIG the $22 billion released by various TARP repayments (presumably in the form of a loan), so that... drumroll, AIG can buy back the Fed's preferred stock interests in various layers of the AIG cap structure. In other words: Treasury gives taxpayer money to AIG -> AIG buys back rescue equity from Fed -> both Fed and Treasury trumpet massive success of AIG rescue operation, even as nothing has been changed, and more taxpayer funds are stuck, only this time higher in the cap structure, allowing existing equity interests of other investors to be pushed further in the money.

Bloomberg reports that the week ending October 29 saw the largest amount of insider selling (by notional) in S&P500 stocks in months, possibly in all of 2010 (unfortunately our records don't go back all the way to the beginning of the year). Altogether, $662 million in stock was sold in the past week, compared to purchases of just $1.6 million. The result: an insider selling to buying ratio of 423x. This is nearly double the prior week's 229x. Yet the ratio was rescued by three brave buyers who bought up $787k and $407k worth of American Express and Procter and Gamble. Absent these two purchases the ratio would have been a disaster. What is more important is the denominator side of the fraction, as the total selling over the week hit what appears to have been a near-term record, at a total of $662 million. Biggest selling continues to take place at the (no surprise here) tech names which continue to be bid up by investors hoping a return of the dot com bubble. If there is a clearer indication that no bubble is imminent than relentless insider selling, someone please tell us. And this week the insider certainly are telegraphing just that when it comes to Oracle, Apple, McDonalds, Precision Castparts, EMC and Coca Cola.

Investors in FHN are not very happy after it was just announced that the the bank has been subpoenaed by the FHFA, conservator for the GSE, in connection to ongoing probe; and further allegations that it may be unable to determine probable loss, and that no reserve was established. Oops. And here we were thinking that the recent subpoenas disclosed as launched by the FHFA (which also target JPM among others, and obviously First Horizon) would result in absolutely nothing. Luckily, the SEC last week reminded all banks that keeping track of mortgage repurchases and foreclosure reviews may be a good idea after all. Looks like just as "Waddell and Reed" was the SEC sacrificial lamb in regards to HFT, so FHN may be tasked with the same function vis-a-vis fraudclosure... Unless we actually see comparable actions taken against the real villains in this case: BofA, Wells, JPM and Citi.

By now everyone is aware that M&T bank acquired Wilmington Trust in today's version of Merger Monday... however this time with a twist. The company was acquired at a 40%... discount. That's right, as shareholders were happy with their WL positions at close yesterday, it appears the financial firm, and its acquirer were all too aware that the sellside pump syndicate was woefully wrong on the name, and 11 analysts had an average target on the stock of $10.31. The question then becomes if Wall Street is so very wrong in evaluating one of its own to the tune of a 40% plunge to closing price, and 60% to the target consensus, just how overvalued are all other financial firms, all of which continue to trade based on circle jerk rating boosts by one another, even as those behind the Chinese Wall (such as M&T management and WL executives) know all too well the fair value of assets is way below where the gullible public is buying the stock. Which is why we present some of the most egregious examples of sellside hubris and pumpatude disclosed by this price discovery event: below are the hall of shame analysts who missed this take under by about a mile.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 01/11/10

As America reaches its two year anniversary from the immediate economic collapse that followed the Lehman bankruptcy, punctuated mostly by vast and broad layoffs across every industry, arguably the most relevant topic that few are so far discussing is the expiration of full 99 weeks of maximum claims (EUC + Extended Benefits) for cohort after cohort of laid off Americans. And since these people are certainly not finding jobs in the broader labor market (which continues to contract and thus make the unemployment percentage far better optically than the 10%+ where U-3 should be), their next natural response will be to get very angry at the teat that has suckled them for so long, and is now forcing them to go cold turkey. Which is why we read with little surprise that now in Indiana, and soon everywhere else, unemployment offices are starting to add armed security guards. Of course, the official explanation if a benign one: "Armed security guards will be on hand at 36 unemployment offices around Indiana in what state officials said is a step to improve safety and make branch security more consistent." Why the need to improve safety all of a sudden? The 99 weeks cliff of course. Which means that on your next trek to the unemployment office to collect that last stimulus paycheck from Uncle Sam, you will most likely see the masked fellow below.

Today's POMO (for all those who forgot, stocks needed that little extra oomph today, thank you Brian Sack) has closed and despite $18.5 billion in submitted par amount of interest, the Fed monetized only $2.5 billion of 2013-2014 bonds, the bulk of which being the 1.75% of 4/15/2013. And don't look now, but the $85 million of PB0's monetized were part of the same issue that was auctioned off a whopping two short weeks ago! In other words: Treasury issues, PDs hold for two weeks, and then turn around and sell right back to the Fed. Monetization Q.E.D. More importantly, the submitted to accepted ratio was far higher than average, indicating the PDs were again positioned weakly for this POMO, and as a result we may see a sell off in risky assets, as we disclosed previously.

A week ago, we presented a comprehensive analysis by Moody's highlighting the key items in the cash flow statement of non-financial corporate America. Not surprisingly, we noticed that one of the biggest sources of cash over the past several years, in addition to cutting expenses to the bone and the resulting surge in unemployment, was the lack of investment in organic growth opportunities, via a plunge in Capital Expenditures, meaning that a revenue flat lining is the best most companies could hope for as most have now given up on traditional top-line growth and instead are either hording cash or investing it in an occasional M&A transaction. Now, in addition to that, courtesy of the Fed's free money policy resulting in surging input prices (see Jones Apparel), the next shoe to drop on the path to an upcoming EPS collapse for the S&P is the imminent drop in gross, operating and net margins for these very companies which are now seeing a contraction at both the top and bottom line. Today, David Rosenberg dissects this issue further, and sees nothing good on the horizon.

A King World News contact out of London has confirmed that, “Massive Asian buying is going to squeeze the shorts in the silver market.  Any reactions in the price of silver will be heavily purchased, and these buyers will take delivery of physical silver.”  The source who wishes to remain anonymous agreed with Eric Sprott that this squeeze could take the price of silver to $50 in a matter of months.

Major beat by the Chicago Manufacturing ISM, coming at 56.9, on expectations of 54, compared to 54.4 previous, and the highest since May 2010. Yet not all is rosy, as the majority of respondents still find conditions deteriorating: "The dollar is weakening again, which is resulting in higher costs
for our materials we purchase overseas. It is hurting our profit
margins"; "Currency continues to wreak havoc with commodity pricing"; "Customers remain cautious, placing orders at the last minute, making supply planning a challenge." Exports contribute substantially to resounding beat as somehow every country is now seeing surging exports to everyone else, and nobody admits to actually importing. Lastly, inventories, the key contributor to the Q3 preliminary GDP beat declined. Go figure. 

What can we say: Rick is one of the lucky ones. Of course, once we move beyond the sarcasm, here is what Rick Santelli says on the Krug's solution (and cause) to all of life's problems (that would be spend, spend, spend and then spend some more to the uninitiated): "How dare we take away their spending privileges, those chosen few with letters after their name who say the only problem with the medicine is that we didn't give a big enough dose." Luckily, Krugman already has set up the "Worst Economist In The World" column placeholder. We are just waiting for him to actually start discussing the most worthy candidate in the category....

Just headline for now from Reuters:

• Greek police says 2 unexploded parcel bombs found on suspects, one addressed to Belgian Embassy
• Greek police believes blast not linked to Al Qaeda, suspects may be linked to leftist Guerrilla
• Greek police says one of package bombs intercepted in Athens addressed to French president Sarkozy
• Greek police say both bombs are now diffused by controlled explosions

Deja vu of a certain archduke frolicking in southeast Europe and some such? No news if package originated in Yemen.

Back on April 13, when Abmac hit over $2/share as the HFT swarm of locusts decided to make the insolvent mortgage insurer its plaything, we highlighted Cramer's call that even though the company is bankrupt, investors should "chase it" there. To wit, the CNBC pumper said: "The purists out there have spurned these points. I could care less about purity. I could care less that someone might be able to say Cramer likes worthlessness.  But the !@#$% animal spirits have it going, and a worthless stock can be worth something if it moves up that much and starts offering equity or bonds against it." We are not going to say that Cramer likes worthlessness. For that to be the case, Cramer should be able to voice a reasonable argument for or against over/under-valuation. He has proven time and again that he is completely unable to do that. Instead, all Cramer does is recommend stocks that go up or down, and throws his viewers into the lemming vice, while constantly hiding behind his disclaimer. Unfortunately for those who listened to Cramer, as he predicted that his situation is "real. [It is] happening. [It has] happened. And this is one of them that I feel is destined to happen again" are now facing yet another complete loss, as the stock opens trading at pennies in anticipation of Chapter 11, and as Cramer esposued momentum trading is proven once again to be lead to nothing but financial ruin.

After opening strong, the EUR is now slowly rolling over, on increasing concerns over bund spreads which are once again surging. If the EURUSD moves to white, look for futures to hope and pray that Australia can sustain the greenness there. Else, all those who were bidding up futures overnight are about to offload accumulated and now largely underwater positions.

One thing is sure to happen when Americans buy more iPads than they can afford: the savings rate will fall. Sure enough, the just reported September savings rate dipped to 5.3%, the lowest reading in 2010, and a decline from August's downward revised 5.6%. This is due to a miss in both personal income and personal spending, the former coming at -0.1% vs Exp. of 0.2 (and a prior revised to 0.4%) with the latter at 0.2% versus expectations of 0.4% (and an upward revised prior to 0.5%). The savings rate has now declined in a straight line since peaking at 6% (2010 high), to the current low. In other words Americans have been spending more than they were making for four months in a row. And on wonders why consumer discretionary names have been doing well... Luckily, it means that courtesy of Americans' savings decline by nearly 20%, there are only so many future landfill filling gadgets that will be bought going forward.