CRAP

Observe the exponential volume spike at 10:30 when news of the Fitch downgrade hit. And, as always happens, there was smoke coming out of the windows of Liberty 33 following the much necessary stick save. And after that, as volume plunged, the algos took over. Because as everyone knows, If Volume Crap Then Buy, Buy, Buy. At this point if you are in this market, you are on your own and soon to go broke.

In order to manipulate bond fund NAVs, two employees "actively screened and manipulated dealer quotes", "fraudulently published NAVs", made "price adjustments" that "were arbitrary and did not reflect fair value." The list keeps going. "This scheme had two architects - a portfolio manager responsible for lies to investors about the true value of the assets in his funds, and a head of fund accounting who turned a blind eye to the fund's bogus valuation process," - Robert Khuzami, Director of the SEC's Division of Enforcement. Sharp Mary barked today. FINRA & the SEC bit.

Here is the latest on the Greek collapse, straight from Reuters: "Greek banks have asked for access to the remaining part of a 28 billion euro state support package, highlighting pressure on the sector from the country's recession and spiralling borrowing costs." So take €17 billion in immediate liquidity needs and couple this with the outflow of deposits, which we have been pounding the table on since February: "Data also showed Greek bank deposits had fallen 8.4 billion euros, or 3.6 percent of the total, since December." Add to this the unsustainable yield (and at this point financial and corporate) curve which is indicative of endgame, and you have the reason why Athens realizes it is now in a full-blown liquidity crisis. The fact that the funding crisis has forced banks to resort to shoring up short-term liquidity in the form of immediate "financial crisis" assistance highlights just how serious the situation is. Indeed, as Reuters summarizes, "The banks' request for aid could help the lenders face possible liquidity problems in the short term but would not reverse a grim outlook."With all this to ponder, it is no surprise that the Bundesbank has just realized throwing money in a bottomless pit may not be the most prudent use of capital: the bank has suddenly gotten cold feet on the whole Greek bailout. In fact, events from the last few days have even gotten Goldman's always cheerful Erik Nielsen to say that things in Greece will likely get even worse.

Yawn

In 2008, when Lehman went bankrupt because of all the “toxic assets” on its balance sheet, the severe credit crisis that happened as a result was because everyone realized that Lehman was the canary in the coal mine. All of the American banking system was insolvent, for more or less the same reason: Assets on their books simply were not worth anything close to their nominal value. Between September, 2008, and March 2009, the Fed backstopped the entire US banking system—but it still wasn’t enough. The losses were too great, the holes in the balance sheets too big.
So on April 2, 2009, a key FASB rule was suspended: Specifically, rule 157 was suspended, related to the marking of assets to market value—the so-called “mark to market” rule. However, ever since April 2, 2009, when the FASB rules were suspended, the American banking system has been floating on nothing by air. By suspending rule 157, none of the banks have had to admit that they’re insolvent. With the suspension of mark-to-market, accounting rules are now basically mark-to-make-believe.

Dear human race,

First of all, you’re welcome. In the last few days I’ve been overwhelmed by your letters and calls expressing your gratitude to Apple, and mostly to me personally, for inventing yet another life-changing, mind-altering product. All I can tell you is that with iPad, as with all of our products, all we did was create something that we want to use. We’re just so glad that you want to use it too. It’s humbling, actually. When you devote your entire life to the endless, selfless quest to improve the lives of others; when you live a monk-like existence, and focus all of your power and genius on the singular goal of creating objects that nourish souls and transform people’s lives with magic and wonder; and when people tell you that this is, indeed, what you’ve done — well, it’s gratifying. Namaste, entire population of Spaceship Earth. I honor the place where your desire to consume becomes one with my desire to create.

- Fake Steve Jobs

The campaign by the big banks against the people of the US is getting louder by the day. First, it was JP Morgan' Jamie Dimon, who segued into the Goldman "god' banker" refrain that all megabanks are not just critical but need to get even bigger in the form a 36-page lament to shareholders (in which among other things he repeats that even though JPM was bailed out, and even though it was handed Bear with Maiden Lane I left to pick up all the crap he did not want, none of those activities by the US taxpayers were necessary), and today it is none other than Goldman Sachs, which after prudently keeping a low public profile for a few months, is about to remind everyone who runs the world. And with the US public comprised of phlegmatic sheep, or morts as Michael Lewis put it very graphically, it appears that nobody is willing to stand up to those who run not just the markets, the economy and the administration, than the Fed's contrarian Tom Hoenig. In an exclusive interview with HuffPo's Shahien Nasiripour, Hoenig indicates that even among members of the Fed, there are people who not only think rationally, but realize that should the big banks/hedge funds (really just JPM and GS at this point) get their wishes to continue the status quo, the next leg of the crisis can't be far behind.The only problem: this time America itself will go down with the big banks: remember - all negative swap spreads indicate is that the banks insured by America, are now perceived as less risky than America itself.

An interesting thing happened when we were combing through the Fed's Maiden Lane 1 portfolio. After going through holding after holding of crap, that would make junk indignant if one were to call the Fed's adopted holdings of muni CDS, Subprime mezz bonds, and Agency CMO such, we ended up looking at the rate hedges section. As is disclosed by the Fed, the FRBNY holds 5000 TYM0 puts, 3825 TYH0 puts, short 4000 FVH0, short 7828 TYH0, short 2240 USH0, and is short a bunch of eurodollar positions. Also, the interest rate exposure is in thousands so the Fed has about 3 trillion in notional swap exposure. Now Maiden Lane is supposed to be an adopted, run off (or, as Geithner likes to boast, run on) portfolio, presumably without active management. Which is why we were surprised by the presence of the TYH0 and TYM0 positions: these did not exist at the time the Fed created Maiden Lane I! In fact TYM0 did not exist until March of 2009!

And that's just the beginning: why is the Fed concerned about interest rate risk on a tiny $25 billion MBS portfolio, when its DV01 on its $2.4 trillion in SOMA holdings is $1 billion, and is very much actively unmanaged.

If you were one of the unlucky few caught exposing Barclays' shenanigans over the past year while acquiring Lehman at subfiresale prices (and being sued for that now), you probably were not invited to the annual Lehman Brothers (yes, that's how it will always be know, and always with Brad Rogoff leading the charge) HY conference, this year held at the Phoenician in Scottsdale, AZ. On the other hand, even if you were invited, but like quite a few people, spent all your time in Jenna Jameson's Babe's Cabaret, and need to send your boss a summary of all you"learned" you must be about as pleased as Tim Geithner at a Tax Cheats Anonymous meeting. Fear not - here is the full presentation deck, chock full of cool stuff stuff, pretty graphs and bullish, bullisher, bullishest ideas. So buy all the worst junk before the market crashes again and Lehman still has gobs of crap paper on their books. Cause this time the Repo 105 reacharound just ain't gonna cut it.

Much ink has been spilled over the topic of surging corporate cash holdings. In fact today, DB's Chief Strategist Binky Chadha wrote an extended report called "Buying Firms Who Will Raise Payouts" discussing why investors should run, not walk, and buy all the companies that he has mentioned in his report, which is basically a CapIQ screen of all names that have seen their cash holdings spike over the past 2 years. The report has some pretty charts, the main one demonstrating that the cash and short term investments in the S&P 500 ex fins has increased by 30%. Binky's argument: these are the companies which will spend all this "excess" cash on such sundry as dividends, stock buybacks, CapEx, M&A, etc., all wonderful things which in a normal environment will certainly grow revenues and EPS. Binky would be completely correct if it weren't for one simple thing. Taxes. With apologies for bursting Mr. Chadha's bubble, there is not one mention of the word "tax" nor the fact that as companies have been pumping up their cash balances, their corporate tax outflows have plummeted. Well guess what: net corporate tax withholdings by the US government have declined by exactly the amount that cash has grown by. It is extremely naive to assume that in an environment in which Obama is preparing to hike not only individual taxes but corporate taxes as well, that the current LTM net tax withholdings (which incidentally are at all time TTM lows of $90 billion), will not go back up to their historical average of $400 billion. Glaring Binky report oversight #2: the amount by which corporate tax has declined ($300 billion) is precisely the amount by which cash and ST investment has risen ($300 billion). Companies are not going to use the cash for all much-fabled stock price boosting activities noted in the Chadha report. Instead, they are merely preparing for the massive tax hikes which will soon hit them all, as the administration realizes that it must tax the crap out of the S&P companies that have reaped the benefits of the 80% S&P rally. Sorry Binky: pretty charts though.

The ECB is finally realizing that Greece will be a major issue for years if not decades to come. Which is why Jean-Claude Trichet finally put the debate of whether his bank will accept BBB- rated collateral beyond 2010 to rest. The answer is yes. This also takes out Moody's ridiculous A2 Greek rating out of the equation: finally Moody's can vote with its conscience. "It is the intention of the ECB's Governing Council to keep the minimum credit threshold in the collateral framework at investment grade level (BBB-) beyond the end of 2010. In parallel, we would introduce, as of January 2011, a graded haircut schedule, which will continue to adequately protect the Eurosystem." Considering how well the Eurosystem has been protected to date, we can't wait to see just how well this experiment will play out.

Presented is the full text of speech by ECB head Jean-Claude Trichet before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels. While the speech itself has nothing new to say, further entrenching the bubble mentality of the Bernanke Put, some of the comments by JCT in the Q&A are rather relevant, namely that the ECB will once again look at the "collateral issue" of government bonds. Just in case Moody's grows a conscience, here is how the ECB will deal with it: "The European Central Bank does not expect Greek government bonds to be downgraded again, but if they are it might have to reconsider its plan to revert back to pre-crisis collateral rules at the end of this year." This is amusing because earlier today Alphaville posted a research note by UniCredit which shows just how increasingly impaired by "rubbish" the collateral provided by European banks to the ECB has become. This is inline with extended disclosures provided on Zero Hedge about how our own Fed has recently allowed total crap to be lent against in both its discount window and the Primary Dealer Credit Facility. Another amusing soundbite: "High government bond spreads don't justify emergency loans." Oh, so the CDS speculators won't be summarily executed after all, even despite all the disclosure by BaFin and everyone else that CDS speculators had no impact whatsoever on blowing up bond spreads? What an anticlimactic development.

Just because, you know, we still need the market to go up a little more so we can short the crap out of it even as we tell everyone how stocks have about 100 upside on average (link to Goldman's most recent conviction list, which incidentally benefits massively from a weak dollar, and a strong euro). Furthermore, by going long the euro will not be breaking any soon-to-be-misconceived laws, whereby shorting to EUR or, and we await for official Congressional confirmation on this, buying the dollar, will be seen as an act of treason.

The FDIC has just announced that it has closed the sale of $1.8 billion of Notes backed by RMBS "from seven failed bank receiverships." The value of the actual aggregate balance: $3.6 billion. And somehow banks still keep their RMBS books marked at par. Furthermore, "the timely payment of principal and interest due on the notes are
guaranteed by the FDIC, and that guaranty is backed by the full faith
and credit of the United States. Sure enough, smelling this insane deal, the vultures came out to snack on the taxpayer's corpse: "The transaction was met with robust investor demand, with over 70 investors participating across fixed and floating rate series. The investors included banks, investment funds, insurance funds and pension funds. All investors were qualified institutional buyers." Just how many of these "banks, investment funds, insurance funds and pension funds" are viable to begin with, courtesy of the FDIC's permission for every failed bank to continue existing is an amusing question, and Zero Hedge will attempt to get an itemized list of the participating buyers.

Charlie Gasparino over at Fox Business News reports a rumor that the government may be looking to dispose of its 27% Citi stake at some point over the next 3 months. Logistics aside, presumably somehow this means that even more bankrupt companies like AIG, FNM and FRE are probably next in line for offloading the taxpayer stake into the hands of hapless hedge/sovereigns funds. We hope it is not the same hedge funds that have recently received subpoenas and C&D orders from ever shorting the euro (i.e., going long the dollar).As a reference point the gov't owns 27.01% of Citi which has a hilarious market cap of $108 billion, and owns 80.66% of AIG with its $23.5 billion capitalization. This explains why the government is now actively pulling the borrow: gotta sell at the highest possible price. Meanwhile, Doug Kass reports that a rumor of "new stringent short-selling rules is causing a squeeze in heavily shorted names this afternoon." Last but not least, here is the rumor as reported by Seeking Alpha. So yes, it appears we are back to the joyful days of late spring 2009 when the rumorsphere drove crap financials into the troposphere, even as nobody knows anything, and rumors are generated simply to explain massive short squeezes.