Archive - 2012 - Story

Earlier we presented the person that Time's editors thought is worthy of the title "Person of the Year" 2012. Below, we show a slightly different version of utopic leaders, this time showcasing the person of the year however as elected by Time's readers (and yes, we were just as shocked there are any left). And the winner is...

Presented with little comment - but it's that time of the day again...

A $1.5bn fine. Sounds like a lot but in relation to the trillion dollar derivative markets hanging on every tick and reset from this now-proven-to-be-entirely-false market, it seems a fine is too easy. Just as with Barclays, the UBS traders (who combined their LIBOR submission and proprietary trading units from 2005 to 2009) used hints and suggestions and requests for "market color" to ensure fixes were exactly where they needed them up and down the curve. The quotes and hubris are entirely damning and also show a totally willful disregard for capture (especially following a discussion of the mainstream media noting 'odd' LIBOR quotes during the crisis). This went from top to bottom in the organization, summed up perfectly in this one exchange: "...It is highly advisable to err on the low side with fixings for the time being to protect our franchise in these sensitive markets. Fixing risk and PNL thereof is secondary priority for now."

There was little excitement in today's November housing starts and permits numbers, the first of which missed expectations of 872K modestly, and was down from 894K to 861K on a seasonally adjusted, annualized basis (64.6K unadjusted, non-annualized, the lowest since March; the Northeast unadjusted print was 25% lower than a year ago!). The prior two months were also revised lower from from 863K and 894K to 843K and 888K. On the other hand, permits which are nothing more than an opportunity cost fee for an application filed with the local housing office, rose from 868K to 899K. Curiously enough, this was the one series that was supposed to benefit from Sandy, as builders would step up reconstruction efforts in the hurricane impact areas. Alas, that did not happen, in the impacted Northeast Region, as both Starts (73K) and Permits (76K) came at multi month lows (in the case of permits, this was the lowest print of all of 2012). What did drive housing starts and permits? The "South" where both categories saw the respective data prints jump to the highest since 2008. The same south which was promptly featured in our "Interactive Guide to the Housing Recovery." The housing bubble is back in full force.

A few days after divesting its stake in the firm that started it all, AIG, and at a profit at that (ignoring that the risk has merely been onboarded by the Fed whose DV01 is now $2+ billion as a result), the US Treasury continues to divest of all its bailout stake, this time proceeding to GM, where the channel stuffing firm just announced it would buyback 200MM shares from the US government at a price of $27.50. More importantly, the "Treasury said it intends to sell its other remaining 300.1 million shares through various means in an orderly fashion within the next 12-15 months, subject to market conditions. Treasury intends to begin its disposition of those 300.1 million common shares as soon as January 2013 pursuant to a pre-arranged written trading plan. The manner, amount, and timing of the sales under the plan are dependent upon a number of factors." Assuming a price in the $27.50 range, this implies a nearly 50% loss on the government's breakeven price of $54. So much for the "profit" spin. One hopes all those Union votes were well worth the now booked $40+ billion cost to all taxpayers.

For those curious why many people are scratching their heads how the market cap of Bank of America has nearly doubled in the past year, here it is: "Bank of America Corp. has amassed $64 billion of mortgages that are at least six months delinquent and have yet to enter foreclosure, more than twice the amount held by its four largest competitors combined." $64 billion is more than half the market cap of Bank of America as of this moment. 

• Republicans put squeeze on Obama in "fiscal cliff" talks (Reuters)
• Inquiry harshly criticizes State Department over Benghazi attack (Reuters)
• Banks See Biggest Returns Since ’03 as Employees Suffer (BBG)
• Italy president urges election be held on time (Reuters)
• Bank of England Says Sterling Hurting Economy (WSJ) - there's an app for that, it's called a Goldman BOE chairman
• China slowdown hits Indonesian farmers (FT)
• China dispute hits Japanese exports (FT)
• Market to get even more monopolized by the HFT king: Getco wins Knight with $2 bln sweetened offer (Reuters)
• MF Global Cases Focus on 'Letters' (WSJ)
• UBS fined $1.5 billion in growing Libor scandal (Reuters)
• Spotlight swings to interdealer brokers (FT)
• China Widens Access to Capital Markets (WSJ)
• With Instagram, Facebook Spars With Twitter (WSJ)

Those curious why the EUR is back to highs not seen since April, it appears the reason is because Europe's currency is once again directly collateralized by such money good assets as Greek Sovereign bonds. At least the farce that is the "temporary" indirect bailout of Greece via the ELA can finally end.

Blah blah Fiscal Cliff blah. Blah blah blahdy blah Cliff. Cliff blah blah republicans blah democrats blah blah blah blah. Blah blah blah blah, blah blah, blah blah blah blah blah, blah blah, Cliff. Blah blah blah blah, blah blahdy blah.... Blah.

From the sheer hypocrisy of a fight over a few billion dollars when faced with trillion dollar deficits and the eventual austerity that will be forced upon the US, DoubleLine's Jeff Gundlach expounds during this excellent Bloomberg TV interview on his growing concerns at markets where fundamentals "are trumped by policy decisions," and while he does not believe that bond markets are bubbly at the moment, the impact of an inevitable recession could be devastating given valuations. His subtle suggestion to keep powder dry through 2013 and into 2014 (as deploying money at that future point will make all the difference), follows from his view that he does not see much value in US equities (people always want investments to go up like a line... That's just not reality) and suggests great care be taken in US bond markets (focusing on low volatility funds) as he looks at Japan's dismal record (and hyperinflationary possibilities) and reflects on the US that "the issue isn't the fiscal cliff. The issue is the fiscal crisis that the United States has been looking at for the past several years." Must watch.

Following on the heels of Byron Wien, Morgan Stanley's Surprises, and Saxo's Outrageous Predictions, Deutsche Bank's FX strategy team has created a who's who of 13 outliers for 2013. Quite frankly, given the extreme nature of monetary (and now fiscal) policy, asset allocation decisions, and bankers' and politicians' willingness to go into the media and lie directly to our faces, the comprehension of the possible (no matter how improbable) is far more important for risk management than the faith in the centrally-planned unreality our markets (and therefore ourselves) currently find themselves in. As they note, all too often, the tendency to not stray too far from a self-anchoring recent-history-extrapolated consensus (while apparently highly profitable for some for a microcosm of time) leads to unrecoverable drawdowns exactly when career-risk was the limiting factor. From Malaysian elections and EM bubbles bursting to Fed monetizing equities and South China Sea escalation, these outliers seem all to 'normal' in our brave new world.

There is now about 48 hours until the rubber hits the road. What happens in the next 2 days: in a somewhat surprising development earlier, the Republicans today managed to turn the tables on the president, and as reported this morning, proposed an alternative "Plan B", one which the president has already said he will not to accept as it extends the current Bush tax cuts on all those making $1 million or less (and thus not nearly punitive enough in the eyes of Obama's electorate). The reason for this strawman is that unless Obama settles on some compromise definition of 'wealthy' between his already adjusted definition which moved from $250,000 to $400,000 earlier, and the $1 million cutoff proposed by the republicans, republicans will take the Plan B proposal to the House on Thursday and pass it, only so it is immediately voted down by the Senate, but have the popular backstop of saying "they gave it their best" just as Ken Langone suggested to Rand Paul earlier today on CNBC. And as Reuters reported, it appears that the drop dead date for House majority leader Cantor is Thursday, at which point he will vote, and pass, Plan B. At that point the Fiscal Cliff debate for 2012 is as good as over, as the resulting animosity that develops in the subsequent days will guarantee no further compromises are achievable for the balance of the year.

We couldn't have said it better: "Bank of America blocks users from accessing websites that present certain risks to the bank."