There are so many Federal programs to aid housing it looks like a tag cloud graphic that you see on some web sites. Yet they all have one thing in common: failure. The more they try to keep the corpses of the housing boom alive, the worse the problem becomes. Every program to forestall a quick economic readjustment has only served to prolong the problem. Here's why.
Fed Rejects AIG Attempt To Repurchase Toxic Maiden Lane II Loans, Will Open Portfolio To Popular AuctionSubmitted by Tyler Durden on 03/30/2011 17:46 -0400
Just as Zero Hedge first suggested when we heard about the ridiculous idea that AIG wants to buy back the Maiden Lane II loans that were among those forcing the government to effectively nationalize the insolvent company, the Fed has rejected the less than arms-length offer, and instead is opening up the portfolio of toxic loans to popular bidding. That other investors will trickle in is great, yet it is merely another confirmation that all funds are once again scrambling after yield since nobody has any hope of seeing the loans through maturity, and is merely a ploy to capture a few basis points before the current credit bubble implodes. Luckily for taxpayers, the Fed is not paying AIG a fee of a few hundred million for what Benmosche would most certainly characterize as a "stalking horse" bid.
Russ Certo, head of rates at Gleacher, shares his perspective on the rate complex, over a short, and longer-term perspective: "As I arrive back and survey markets and prospective opportunities, I see the U.S. Treasury market down nearly 10 consecutive days in a row. Although, I believe SUBSTANTIALLY HIGHER rates are here come in the intermediate future, I feel asymmetry exits in the next 72 trading session hours and into next week. Let me explain..."
With all the recent excitement in Japan, some may have forgotten that the entire MENA region is currently experiencing a historic, and in many cases very violent, revolution. Conveniently, Emad Mostaquew of Religãre Capital Market has shared an extended overview of the current snapshot in the Middle East and North Africa region. Of particular note is the section on Yemen. As was disclosed yesterday it now appears that the US is directly funding "flickers" of Al Qaeda in Libya, and possibly will be arming such factions in the future, it now appears that Yemen's internal response to instability will also gravitate around the Al Qaeda strawman: "After several prominent defections following the death of 52 protestors at the hands of government snipers, President Saleh began negotiations to step down. This appears to have been a ruse to gauge opposition strength and once he was offered a host of concessions to leave, he withdrew his offer, using the time to solidify ties with key tribes. Saleh’s key tactic has been to emphasize the chaos that would follow his departure, with Al Qaeda in the Arabian Peninsula (AQAP) central to US and Saudi concerns. To play on these fears, security forces have been pulled from key governorates, which are now no longer under government control and have been releasing rebel leaders." Then again, perhaps judging by recent developments in Libya, the US may not be all that concerned about Al Qaeda after all. Much more in the full report below.
Large US corporate defined-benefit pension plans experienced record sponsor contributions last year, consulting firm Milliman Inc. reported in a study, saying a decline in discount rates fueled record levels of pension expense and cash contributions.
As Morgan Stanley Unwinds Its Massive MBIA CDS Losing Position, Is A Billion+ Hit To Earnings Coming?Submitted by Tyler Durden on 03/29/2011 10:40 -0400
When we reported on some peculiar action in MBIA CDS back in February, we said that one of the reasons for the massive tightening in MBIA CDS which ripped from 55 pts up to 37 pts in the span of two weeks was possibly on CDS commutation speculation (this in addition to ongoing aggressive litigation by MBIA against mortgage originators who may be commutating CDS in a quid-pro-quo fashion to achieve prompt settlement). But whatever the reason for the move, one thing was certain: one bank more than anyone, will be hurt materially by the move - Morgan Stanley. As we said "According to a source, Morgan Stanley was short risk the monoline after it had obtained protection on a static pool of CMBS via an MBIA-related entity called LaCrosse Financial. And as LaCrosse wrote protection against the static pool that was non-transferrable by Morgan Stanley, the bank hedged its counterparty risk by purchasing protection on MBIA itself. So while CDS was blowing out, MS was profiting. Then over the past two weeks, the bank has seen hundreds of millions in paper P&L evaporate through the window. The only question is when will Morgan Stanley close its now underwater protection (which continues to bleed a substantial amount of theta), especially since the actual credit event may have just been pushed back indefinitely. In other words, those who are short the MBIA CDS may wish to wait just a little longer, and see just what the breaking point on Morgan Stanley's collateral call is." Well, per another source, and per Euro Money magazine, that breaking point has been reached and MS has now been forced to close its exposure, at a loss that some speculate could be in the billions.
The hedge fund industry's strong rebound from the credit crisis has prompted investors to ask whether some funds have grown too large and inflexible to keep delivering bumper returns for which the sector is famous. Are these concerns justified?
When even Goldman's summary update on Ireland, which conveniently ignores today's news that the country may be preparing for a senior bondholder haircut and most certainly ignores last week's dump of Irish paper by LCH Clearnet from the repo market), is unable to find much if anything good to say about Irish bonds it is really time to get out of dodge (not like anyone was still left in it). The kicker in Francesco Garzarelli's just released analysis: "With around EUR 30bn worth of senior bonds maturing in 2011-12 (40% of
which is not already government guaranteed) and under continued
reduction of funding efficiency of the covered bond program, rolling
over maturing debt remains indeed one of the biggest challenges faced by
the Irish banks." Everything else is noise. Add to this the Portuguese government crisis, its own funding crunch, and the rapidly deteriorating German political crisis and Europe will be a very fun place over the next few months. In fact for once we agree with Goldman: "In light of this, Irish bonds [ZH: aka Paddy Paper] will continue to exhibit high volatility, in our view."
I still remember when there was a certain cachet to Japanese made products. They were technologically advanced and better built than anything else available. Sonyo, Toshiba, Toyota, Honda, Kawasaki, Yamaha, etc. were all dominating brands. You could find products in Electric City in Tokyo that were generations ahead of what you could purchase in New York City. That gap has narrowed and in many cases reversed over time, but now we might be hitting a stage where 'Made in Japan' is a big negative...I was long Japan post quake as the market seemed to have over reacted to the earthquake. The bounce, though, has been large and profitable, so I'm out, and as the situation in Fukushima continues to deteriorate, the market looks expensive as its not pricing in the potential consequences of this being a nuclear event rather than an earthquake event.
That chart from Tyler's article is reason enough by itself to get back to our BBB strategy (bullets, beans and bullion) and head for the fallout shelter - even without the fact that there is ACTUAL FALLOUT spreading across the globe from the STILL NOT FIXED nuclear reactor in Japan.
Q4 Final GDP Revision 3.1%, Up From 2.8% Previous, In Line With Expectations; Change In Inventories Key DriverSubmitted by Tyler Durden on 03/25/2011 08:40 -0400
Today's final Q4 GDP revision indicated a 3.1% annualized rate of pick up in the economy, modestly higher from the previous print of 2.8% and in line with expectations of a 3.0% reading. Of course, it being almost April 2011, this number is by now completely irrelevant. Nonetheless, here are the components that contributed to the difference: "The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, and nonresidential fixed investment that were partly offset by negative contributions from private inventory investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased." As the chart below shows, once again Inventories was the swing factor, which detracted 3.42% from Q4 GDP as opposed to 3.7% in the prior two GDP estimates. As Q1 2011 GDP data starts coming out, we are confident inventories will once again be a contributor to GDP "growth" as this most hollow indicator of economic improvement needs to pick up the slack for declining PCE and trade balance contributions.
Portuguese Bond Liquidity Disappears As LCH.Clearnet Kicks Portugal Paper Out From RepoClear Basket EligibilitySubmitted by Tyler Durden on 03/25/2011 08:16 -0400
And another major hit for all those still unlucky enough to own Portuguese bonds: "Following S&P's lowering of its sovereign credit ratings on Portugal to BBB on Friday 25 March 2011, RepoClear participants are advised that with effect from Monday 27 March 2011 Portuguese Government bonds will no longer be eligible for delivery in any of the RepoClear €GC Baskets. Until today’s downgrade Portugal had been eligible for the single A €GC Basket." Luckily, Portuguese bonds are still eligible for trading on OTC/Bulletin Boards, where the bid/ask will soon be greater than the actual bonds price.
Just out per Lipper, High Yield recorded its largest weekly outflow ever with a negative $2.8 billion this week. Presumably this is due to the risk off mood in the markets carried over from last week, or maybe just more funds converting out of fixed income and pumping into equities in advance of what even the futures just seem to realize is an inevitability (go ahead, check out the ES chart AH, we dare you). That said, per ICI there was a 3rd consecutive outflow from domestic equity, so perhaps this was simply derisking. Continuing on the Lipper news, the 4 week average dropped from $181 million of inflows to $641 million in outflows, pushing the year to date down by half to just $2.9 billion in inflows. On the other hand, loan funds continues being John Holmes with $9.5 billion in YTD inflows, although just $57 million (down from $686 million) in the last week.
The great Gold Bull Market of the 20th Century is said to have started in 1972, just after Richard Nixon announced on August 15, 1971, he was taking the United States off the Gold Standard. At that time Nixon realized foreign countries were hoarding more gold and silver-backed currency than could actually be redeemed by the precious metal's reserves we held.
What will happen to the U.S. economy and the dollar in the near term? Will inflation increase dramatically? What is the outlook for gold, and where should you put your money? BIG GOLD asked a world-class panel of economists, authors, and investment advisors what they expect for the future. Caution: strong opinions ahead...