AIG

The man who singlehandedly fought the administration over the idea of converting Fannie and Freddie into the latest taxpayer-funded handout machine, FHFA head Ed DeMarco, and refused to write down Fannie and Freddie home loans in yet another Geithner-conceived debt forgiveness scheme, whose cost like any other non-free lunch will simply end being footed again by yet more taxpayers (what little is left of them), appears to have lost the war, and with the second coming of Obama appears set to be replaced as head of the FHFA. The WSJ reports that "The White House has begun preparations to nominate a new director to lead the agency that oversees Fannie Mae and Freddie Mac as soon as early next year, according to people familiar with the discussions. This would pave the way for President Barack Obama to fill what has become one of the most important economic policy positions in Washington." And so the impetus for as many as possible to default on their mortgage in a wholesale scramble to obtain debt forgiveness, will soon take the nation by storm, while the contingent liability will be transferred to those who still believe that taking out debt should be a prudent activity and one that takes into account future cash flows. In other words, the solvent middle class - those who were prudent stupid enough to save when they should have simply be doing what the government does and spend like a drunken sailor, preferably on credit, will soon be punished once more. And like it. Because according to the new broke normal "it's only fair."

• Central Banks Ponder Going Beyond Inflation Mandates (BBG)
• Bloomberg Weighs Making Bid for The Financial Times (NYT)
• Hedge Funds Fall Out of Love with Equities (FT)
• Obama and Boehner resume US fiscal cliff talks (FT)
• Italy Front-Runner Vows Steady Hand (WSJ)
• Spanish Bailout Caution Grows as Business Lobbies Back Rajoy (BBG)
• Japan sinks into fresh recession (Reuters)
• China economic recovery intact, but weak exports drag (Reuters)
• Greece extends buyback offer to reach target (Reuters)  ... but on Friday they promised it was done
• Basel Liquidity Rule May Be Watered Down Amid Crisis (BBG) ... just before they are scrapped
• Irish, Greek Workers Seen Suffering Most in 2013 Amid EU Slump (BBG)

In our first installment of this series we explored the concept of stock to flow in the gold markets being the key driver of supply/demand dynamics, and ultimately its price. Today we are going to explore the paper markets and, importantly, to what degree they distort upwardly the “flow” of the physical gold market. We believe the very existence of paper gold creates the illusion of physical gold flow that does not and physically cannot exist. After all, if flow determines price – and if paper flow simulates physical metal movement to a degree much larger than is possible – doesn’t it then suggest that paper flow creates an artificially low price?
Leveraged systems are based on confidence – confidence in efficient exchanges, confidence in reputable counterparties, and confidence in the rule of law. As we have learned (or should have learned) with the failures of Long Term Capital Management, Lehman Brothers, AIG, Fannie & Freddie, and MF Global – the unwind from a highly leveraged system can be sudden and chaotic. These systems function…until they don’t. CDOs were AAA... until they weren’t. Paper Gold is just like allocated, unambiguously owned physical bullion... until it’s not.

• More QE could distort rather than deliver (FT)
• Soros Buying Gold as Record Prices Seen on Stimulus (BBG)
• EU Leaders Face Greek Aid Gap in Brinkmanship With IMF (BBG)
• Weak data point to bigger economic drag from Sandy (Reuters)
• Shirakawa Pushes Back With Criticism of Abe Unlimited Easing (BBG) But... but... Bernanke??
• French Downgrade Widens Gulf With Germany as Talks Loom (BBG)
• Japanese Poll Shows LDP Advantage Ahead of Election (WSJ)
• BOJ in the Balance as Next Government Picks Top Posts (BBG)
• Exchanges Get Closer Inspection (WSJ)
• Greece edges closer to €44bn bailout (FT)
• Japan Government to Spend 1 Trillion Yen on Next Stimulus (BBG)
• China’s Richest Woman Divorces Husband, Fortune Declines (BBG)

This is what the most brand name US hedge funds bought and sold in the third quarter.

Just when we thought blowing up one fund in one year is enough for Whitney Tilson (recall from July: It's Official: T1 Is Not T2; Tilson Liquidates To Buy More Of The Same), we got a glimpse of his just released 13F and are rather confident the man, the myth, the stuff of Anti-Tilson ETFs will shock and awe us all one more time. The reason? As of September 30, Tilson's inaccurately named T2 Partners - it should be T1 now that Glenn Tongue is long gone - had a total of $175 million in AUM. That's not the punchline: as part of this $175 million, Tilson had $63 million in put/call stock equivalents. In other words the much vaunted "asset manager" who for some absolutely inexplicable reason continues to get CNBC airtime, managed a grand total of $110 million in real (mostly family and friends) money. That's not the punchline either. The punchline is that Tilson's top 3 positions were AIG and AAPL, with AIG in both stock and Call format. In fact, more than 10% of the firm's virtual AUM, or $18.6 million was in stock equivalent calls for AIG and AAPL, stocks which since September 30 have gone in a literally, not virtually, straight line lower, and have as a result likely wiped out the entire intrinsic call value. The only silver lining: Tilson owned $5.5 mm in NFLX calls and a grand total of $3.6 million in NFLX stock. We hope it carries him far, because once the Icahn grand jig is up, in which the raider is exposed as having absolutely no intentions of buying the company, or even putting it in play, but merely squeezing the shorts courtesy of a costless collar and a sternly worded 13D, that will be the final straw for Tilson's second coming, and most likely, his career.

For millions of common people in New York and New Jersey, Sandy has been a historic disaster, with leaving ruined, homeless or forced to live in the dark and cold indefinitely. Sandy was a historic event for the Wall Streeters (a term used loosely as many of them reside in midtown or in Connecticut) among us too. And now, courtesy of Bloomberg's Max Abelson, we see how some of them managed to (just barely) scrape through...

Weak earnings over the last few days, notable weakness in Canadian GDP this morning and two dismal prints for Chicago PMI (early) and NAPM-Milwaukee all dragged on S&P 500 futures into the open. From strong overnight gains, ES was exactly at Friday's highs when the day-session opened. AAPL immediately dropped further from pre-open - down more than 2.5% at $586 (<200DMA) - note average trade size so far this morning is extremely high for AAPL. Insurers are being hit hard with TRV down 1.9%, CB down 0.9%, ALL down 0.7%, and AIG down 1.2%. Some of the most stunning moves are in: UBS +14% (they should fire more people we guess), bankrupt A123 +13%, and Western Union -25% (miss).

So with world central banks printing paper money day and night it is no surprise that Gold is now emerging as the ultimate currency: one that cannot be printed. Indeed, Gold has broken out against ALL major world currencies in the last ten years. The below chart prices Gold in Dollars (Gold), Euros (Blue), Japanese Yen (Red) and Swiss Francs (Purple):

Cautiously optimistic. Yes, really. 

Of the current stack of 30 'Blue-Chip' stocks that comprise the Dow Jones Industrial Average, Alcoa has managed to do the worst over the past 25 years - gaining a cumulative 63% in the last 25 years (or 2.2% annually). The Dow itself, based on Bloomberg's Chart of the Day, has risen 627% since the crash in 1987 (or 8.6% annually) - almost 10x that of Alcoa; while McDonald's (perhaps perfectly summarizing what America is all about) has risen on average 12.8% per year for a 1620% gain since Black Monday. But who has impacted the Dow the most since its highs in October of 2007? (Hint: they disappointed this week!)

Just before Lehman, these people had exactly zero predictive capabilities.

A mere three weeks ago we noted that Tim Geithner is preparing to transition to a Blackrock cubicle...

Geithner Reiterates Refusal to Talk About Monetary Policy. Or which floor of Blackrock his cubicle will be on

— zerohedge (@zerohedge) September 25, 2012

Today, it seems, the FT has finally got the memo as they note that Mr. Fink (Geithner's new boss?) trumped Mr. Rubin (Geithner's old boss?) as the most frequent 'can-I-phone-a-friend' call - speaking 49 times over 18 months (once every 11 days). We wonder if this is simply a 'rotation' discussion/interview process as Fink transitions to Geithner's little seat at Treasury and Geithner slides into his capacity as official guard of the Blackrock Stapler in the 3rd sub-basement.

“Our new logo reflects a rebuilt and forward looking AIG – contemporary, dynamic, Too Big To Fail and revitalized," said CEO Robert H. Benmosche

Evoking the dark days of 2009 - after a steep and bumpy slide