Archive - Mar 7, 2010 - Story

Yawn, more "imminent warfare" out of North Korea. As the Kospi is up over 1%, South Korea is either engrossed by Ben Stiller's make up or giving this news the proper attention it deserves. The news comes from Xinhua via Dow Jones.

After recently pulling a $2 billion bond issue due to an internal Snafu (and, as the rumor goes, due to a material lack of institutional demand), California has been advertising (and, ironically, using Google contextual ads on Zero Hedge for just that purpose, possibly running on this very page) the very same bond issue, direct to retail investors, and making it seems like retail is getting a great deal by getting on the same (deserted) floor as institutions, and even frontrunning the major institutional investors (which incidentally would not touch these bonds with a 12 foot pole). While we sympathize with Bill Lockyer's problem of being the Treasurer of a default state, we are not very sure that going direct to retail is the best option (or, all that legal either). If anything, it underscores just how horrendous the fiscal situation in California is, and how anyone buying into this bond issue should be prepared that the next round just may not find enough greater fools to extend the perpetual refi Ponzi (forget about repayment at maturity).

Love him or hate him (and based on some recent appearances, notably side by side Hugh Hendry, he hasn't left much room for amorous intentions), Joe Stiglitz once again takes center stage, this time in this appearance at the Commenwealth Club, in which he discusses various things (among which are his grading of Obama, which compared to Dubya' administration, he gives an A+, and since this is roughly in line with where the rating agencies rate the US, it should raise all sorts of red flags). One of the key topics of discussion is his claim that efficient markets are a myth, and that Adam Smith's "invisible hand" appears as such because it was never truly there. Joe's bashing of economists with their hollow goal-seeked theories is one thing we can certainly agree with, and as to the market being propped by visible hands and other means, well, that is beyond the scope of this post (unless Chairman Shalom decides to grace the comment stream with his presence).

The horrible news hits just keep on coming for Goldman's Jim O'Neill. First the BRIC acronym creator (soon to be largely forgotten when confronted with much more awesome comparables as CRAP and STUPID, the latter of which has already been subsumed for general consumption by CNBC) is rumored to be getting the boot from Goldman due to his involvement in the Red Knights group which is seeking to acquire the Red Devils (aka Manchester United), and now China just announced it is about to pull the rug out of the entire lending concept when it announces it is nullifying loan guarantees by all local governments. Just to put this in perspective, the impact of this is akin to what Obama did to Chrysler's secured lenders, multiplied by about one Fed dollop of MBS holdings (i.e., trillion), with debtors not even getting the courtesy Steve Rattner K-Y reacharound. The total potential impact: $3.5 trillion smackers. And some large, recently bailed out bank, has been seen as claiming the CNY is about to get revalued. HA HA HA. Oh, and goodbye BRICs.

Looks like Tom Hoenig's dissension at the recent FOMC vote is starting to generate some serious traction. A paper just released by V.V. Chari of the Minneapolis Fed, "Thoughts on the Federal Reserve's exit strategy" goes so far as blasting the Fed for demonstrating Goldman Sachs-like "hubris" courtesy of the persistent lowest common denominator resolution to every crisis, namely Bernanke's redux of MLK "I have a dream" speech for the 21st century, in the Chairman's "we have a printing press" thesis. "...The Fed differs from private firms and emerging markets in that it can “create” money to finance its debts. And indeed, that ability may well lead to hubris on the part of policymakers—similar to that seen among financial managers in the current crisis who were clearly overconfident in their ability to obtain financing. Regardless of such self- assurance on the part of policymakers, if market participants lose confidence in the Fed’s ability to obtain funds from lenders, the Fed would have to pay very high interest rates to obtain short-term debt. A self-fulfilling, high-inflation equilibrium in which expectations that the Fed will pursue lax monetary policy because banks demand a high-inflation premium will lead banks to demand that high-inflation premium." - Minneapolis Fed

Curiously, Zero Hedge just received the following email from the Greek Embassy. Little did we realize that our fringe, breathless ramblings were considered necessary and sufficient to merit official government listserv inclusion.

Periodically we update readers on Goldman's conviction buy/sell list. Following up on our observations from yesterday in which the market melt-up is now taken for granted, we highlight the latest universe of 69 companies which comprise the most updated Goldman conviction list, of which 54 are buys and 20%, or 14, are sells. The empirical evidence seems to suggest that shorting the Buys and buying the Sells tends to generate the highest alpha over the next 6-12 months.