Archive - Jan 9, 2011 - Story

Confused by the recent downdraft in the price of (paper) silver... Even more confused by what is happening with the record open interest in the metal? Have no fear. The bears are here, and explain things in their traditionally simple and sound effect-filled way.

The WaPo shares the full criminal complaint with all 5 counts, as well as the affidavit by FBI special agent Tony Taylor which discloses that according to documents seized from 7741 N. Soledad Avenue in Tucson, Arizona, where Lougner resides, that there was an envelope recovered with "handwriting on the envelope stating "I planned ahead," and "My assassination" and the name "Giffords," along with what appears to be Loughner's signature." There goes the temporary insanity defense.

More bad news for the BofA/Wells syndicate. After on Friday two of the biggest mortgage lenders in the world were hit with bad news out of the Massachusetts supreme court, today it is seven of the nation's major pension funds, between them representing nearly half a trillion in capital, which are demanding that "the boards of directors of Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo immediately undertake independent examinations of the banks’ mortgage and foreclosure practices." The coalition of pension funds called for the banks’ Audit Committees to launch independent examinations of their loan modification, foreclosure, and securitization policies and procedures. “This will help to prevent future compliance failures and restore the confidence of shareholders, regulators, legislators and mortgage markets participants,” the coalition advised in its letter. The coalition members’ insistence on immediate action reflects the urgency of their concerns over mishandled mortgages. But Jim Cramer on Friday said there was no urgency, and no reason to be concerned, and that this is nothing but a buying opportunity for the lemmings which jut got one step closer to the cliff.

Keeping track of the pace of US recovery will probably be the main focus of markets. The key US data releases are retail sales, industrial production and CPI, which are all out on Friday. We expect a robust retail sales print for both headline and ex-autos, after the indications from the autos and the same store sales report last week. For CPI (and PPI the day before), we expect a relatively sharp rise on a headline basis, but much more muted gains ex food and energy. As mentioned, concerns in the Eurozone continue to rumble in the background. The Portuguese and Spanish bond auctions planned for this Wednesday and Thursday respectively will be important to monitor.

When it comes to providing analytical perspectives and empirical insights into the realm of sovereign deterioration, few come close to the work of Reinhart and Rogoff. Citi’s Willem Buiter is one such man. In his latest summary piece describing in excruciating detail just how bad things are at the sovereign level (and judging by tonight's opening print in the EURUSD more are starting to realize this), Buiter provides a terrific country by country guide of what is now an insolvent world, starting with the merely extremely risky, going through the backstop-baiters, and finishing with the time bombs that have already gone off and everybody pretends not to care. For those who do care, this is a definitive guide to what each individual European (and not only) country can look forward to in an age of global moral hazard. The only open question: with China's interest now to preserve the Euro's viability, how will Beijing act in the next few months as the eurozone finally starts unraveling.

Following tragic days such as yesterday, some form of levity is always welcome. Which is why we present A. Joseph Cohen's latest. Let the joyous merriment commence.

Salon provides some unpleasant additional information on yesterday's headline news, which many had already suspected: namely that Loughner likely did not act alone. "Pima County Sheriff Clarence Dupnik said at a news conference in Tucson on Saturday that authorities may have a photo of another suspect." Unfortunately, with a nation increasingly on edge, this possibility will likely turn out to be true. We can only hope that other like-minded individuals do not take this event as an escalation signal, and proceed to take vigilante "justice" into their own hands.

Four years ago to the day from Saturday, a team of "experts" from ACA Management took the elevators to the 29th floor of 590 Madison, the then address of Paulson & Co., and sat down to discuss the structuring of a CDO. For both firms, this was supposed to be a by the numbers transaction: ACA, which had the financial acumen of any borderline retarded rating agency, was going to provide the wraparound insurance and be the portfolio selection agent in a synthetic CDO, while Paulson & Co. would be the transaction sponsor, and which, through Goldman Sachs, would indicate on various occasions, that it was a beneficially interested party, and represent direct and indirectly that it was long the equity tranche: an indication that it was beneficially inclined for the success of the portfolio. Little did ACA know that Goldman would assist Paulson in lying to investors about the fund's orientation, and the numbers in question would be one billion for Paulson and a comparable loss for everyone else. The CDO in question is of course Abacus, and has since resulted in the biggest ever SEC settlement with an investment bank, pardon, governmentally subsidized hedge fund. And while Goldman may have thought that the settlement put the embarrassing Abacus situation to rest, ACA certainly harbored no such intentions, and on January 6 filed a lawsuit against Goldman seeking monetary and punitive damages. The reason: ACA claims, and has evidence, that despite Lloyd Blankfein's representation to Congress that it was merely making markets, and did in fact nothing illegal, the reality was far different. In fact, as ACA demonstrates in the attached filing, Goldman repeatedly represented that Paulson was long the equity tranche, and neither Goldman nor Paulson did anything to debunk such an assumption. In fact, in solicitation materials Goldman misrepresented outright the economic interest of the transaction sponsor. We are confident that as many other firms that loathed doing their own due diligence (of which ACA is most certainly guilty) realize that Abacus is still a mini goldmine, we will see other such copycat lawsuits, as banks, primarily those out of Europe (and preferably still in business), attempt to collect a few hundred million here and there.