Art Cashin On High-Frequency Signing, The Death Of Securitization, And Fleets Of Fed Helicopters

Tyler Durden's picture

Some thoughts on affidavit-stuffing from Art Cashin, which are oddly comparable to our own.

Foreclosure Fiasco Ferments Further – When I wrote last week about the emerging problems in foreclosures, I opined that the problem could get much bigger and more complicated. Boy, has it ever.

Wednesday morning, my good friend David Kotok, dropped by the NYSE to be interviewed, along with Rod Smyth of Riverfront Investment Group, on CNBC’s Squawk on the Street. Before they left, they dropped by to say hello. The conversation quickly turned to the foreclosure fiasco.

It was noted how quickly this had morphed from a potentially isolated processing problem at a single institution (GMAC) to an industry-wide disaster that may threaten the very concept of securitization.

That would be a major problem since at the top of the bubble, it was estimated that nearly 80% of all credit came from securitization. That’s a hole that no fleet of Fed helicopters can fill.

The problem is even being politicized to some degree. Speaker Pelosi and several associates called on the Justice Department and other regulators that the banks be “held accountable for their practices”.

There are fears that the murky comingling of mortgage packages may take months or even years to unravel. In one case, as many as four separate entities claimed title to the same piece of property.

With foreclosures virtually frozen, a surreal new world seems to be evolving. Delinquent homeowners live in the house but make no payments. The banks/mortgage holders get no payments but are still liable for things like property taxes. Could this morph into TARP II?

Before we got each other more depressed, we exchanged greetings and went our separate ways wondering if the “new normal” was morphing into the “new abnormal”.

And some other thoughts from the nimble cocktail-napkin charter:

Put That On Mute – The dollar remained weak against the Euro but in a far more muted manner than we saw Tuesday.

That, in turn, produced a more muted reaction in the various asset classes that are influenced by the dollar/Euro.

Therefore, gold rose slightly, oil rose slightly and the Dow rose slightly. (The Nasdaq fell after a warning from Equinix put a dark cloud over cloud computing.)

Traders spent the day watching the stock market slavishly follow the currency movements. They assume the high level of nearly instantaneous correlation means the high frequency folk may have linked their algorithms to the Euro.

The only oddity of note was that the S&P still appeared to be restrained by the 1159/1163 resistance band that had contained it in Tuesday’s rally. Tuesday’s high was 1162.76. Yesterday, the high was 1162.33. The bulls will have to break above this smartly or risk turning the ball over.

Tempering Tepper – Back on the last Friday in September, David Tepper came on CNBC and said that the Fed’s commitments and actions made the stock market a near lock-in buy. The market listened carefully and a powerful rally ensued.

Yesterday, Kyle Bass of Hayman Capital came onto CNBC and headed down a different road. Courtesy of CNBC, here are a few of the points he made:

“You can't get lost in whether I should own stocks or bonds, you should expand your horizons.”

“I actually own some stocks. I do, I own a few. But you're asking me if I would buy stocks here in general, I wouldn't. There are much better things for you to own. I think productive assets are better.”

He suggested commodities, especially the precious metals.

For example, Bass cited the performance of metals. Although equities have been up within the last few weeks, the metal complex of commodities during the same time period—Gold, Silver, Platinum, Palladium—"as a group if you were to equally weight them are up about 75 percent," he said.

Aside from stocks, one of Bass' biggest concerns is the Federal Reserve's effort to boost the economy.

“I also think with what we've been hearing from the Fed and what we've started to hear the Fed wants to print another trillion bucks. We have a monetary base of $2 trillion today and we're gonna print another trillion—what if that doesn't work?”

"When you start printing money—as such a huge percentage of the monetary base—and the Fed itself has admitted in the last couple days in speeches that they don't know what they're doing. They just hope what they're doing works."

When you are experimenting with such a fragile system and fragile thought, according to Bass, there are two important variables:

"Nominal amount of currency in the system versus the goods and services approaches. If you have $100 dollars in the system and you print 10, you didn't devalue the currency by 10 percent, you devalued it by 15. And you go print another 10, and you don't devalue that by like say nine percent, it devalues it by 20 more. So there is a nonlinearity between the amount of money in the system—the quantitative side of things and the qualitative aspect of people's belief in the underlying currency."

Bass turned to the connection between Fed action and the stock market. "So when you talk about what's going on, yes they are trying to ignite equities, they are also trying to change expectations in people," Bass said, adding, "you don't have the confidence to go spend. You still have 25 million people out of work."

"I personally don't know how you're going to create sustained growth if there is no certainty on taxes and you are literally printing a trillion dollars," he concluded.

Bass also pointed to the risk of hyper-inflation if the Fed’s attempts to expand the money supply suddenly go awry.
While Bass’s sober assessments didn’t have the same instant impact on the market that Tepper’s had, nevertheless, they inspired a good deal of buzz on the floor. It puzzled some that two such brilliant men saw the probabilities so differently.

Cocktail Napkin Charting – As noted above, the S&P has remained contained by the 1159/1163 resistance. Should it continue to test and fail at this area, it could raise the specter of topping. That, in turn, could resurrect talk of those two cycles we discussed a few days back.

For today, the napkins suggest the initial resistance is 1159/1163 then they look to 1172/1176 followed by 1181/1184. Support looks like 1149/1153 with fallbacks at 1138/1141 and 1130/1133.

Trivia Corner

Answer - "I.O.U." stands for "I owe unto" as in I owe unto Priscilla.
Today’s Question - Who was the first President to have both parents out live him?