Jeremy Grantham launches into his most aggressive and succinct anti-Fed diatribe yet. He is a man who gets it. 'If I were a benevolent dictator, I would strip the Fed of its obligation to worry about the economy and ask it to limit its meddling to attempting to manage inflation. Better yet, I would limit its activities to making sure that the economy had a suitable amount of liquidity to function normally. Further, I would force it to swear off manipulating asset prices through artificially low rates and asymmetric promises of help in tough times – the Greenspan/Bernanke put. It would be a better, simpler, and less dangerous world, although one much less exciting for us students of bubbles. Only by hammering away at its giant past mistakes as well as its dangerous current policy can we hope to generate enough awareness by 2014: Bernanke’s next scheduled reappointment hearing." Pretty much all familiar topics to Zero Hedge readers.
SIGTARP Calls Out Tim Geithner On Various Violations Including Data Manipulation, Lack Of Transparency, "Cruel" Cynicism, And Gross IncompetenceSubmitted by Tyler Durden on 10/25/2010 14:53 -0400
SigTarp Neil Barofsky has just released the most scathing critique of all the idiots in the administration, with a particular soft spot for Tim Geithner. If after all this disclosure Geithner does not resign, well, America truly will have the Treasury Secretary, not to mention administration, it deserves.
It's astounding, markets are fleeting...Keynesian madness takes its toll...Lets do the Subprime Warp Again...
Let A = America, B = Banking System, and C = the Crony System. Then, given a heavily subsidized and corrupt financial system in the U.S., we can infer that A + B = C. Since we know that C must fail due to its poor design and widespread moral hazard, and that B is too big to fail, where does that leave A?
The market was mixed today as fears of currency wars formed the yin to earnings beats' yang (or the teeth to earnings beats' hummer if you will) and with macro data more non-existent than Mel Gibson's career, there wasn't much for the Street to manipulate.
Here we go - the rating agencies are now officially in the game. Next up - collateral calls and other nasty stuff: "Today, Fitch Ratings issued a number of separate press releases placing on Rating Watch Negative most U.S. bank and bank holding companies' Support Ratings, Support Floors and other ratings that are sovereign-support dependent. The two companies mostly impacted by this announcement are Bank of America Corporation and Citigroup, Inc." BBB+ coming up.
The market rally was back on today with stocks shooting up faster than Ben Bernanke could chant "quantitative easing" over his bubbling cauldron (though he was heard incanting: "Double, double toil and trouble; Dollar burn, and assets bubble")...
I don’t think commercial real estate is the big Achilles heel for these institutions right now because of the manipulations the federal government has undertaken. I think the real Achilles heel for all these banks, and for bond markets, is going to be the residential markets. Not to be overly dramatic, but this is a huge ticking time bomb. Things are getting worse, not better. - Andy Miller
The market was down today as foreclosure-gate threatens to shut down the foreclosure process for banks quicker than an AIDS ridden penis has shut down the porn industry, though with potentially much more dire consequences (unless that AIDS penis touched the lovely Tori Black, because Money McBags can think of no more dire consequence than a world deprived of her talents).
Oh shit, it is on again like white on rice, stink on shit, and Black on Scholes (and for you quants, just know that Brownian motion has more than one meaning), as a flurry of blue chip companies beat earnings guesses and pushed the market higher. With the 50 day moving average now rising above the 200 day moving average the S&P has hit the fabled Golden Cross (which is kind of like the Hindenburg Omen only less fiery, with fewer McClellan Oscillators, and the exact opposite), which means technicians are expecting to be showered with returns.
The U.S. Federal Reserve, which is in charge of the world’s reserve currency has gone completely and totally insane. Every time the stock market is down 2 points some maniac academic with a printing press delivers a speech about how much money they are going to print, basically daring anyone to short or sell the market. No one is smart enough to know how much QE is priced into the market, is it $500B? $1 trillion? $3 trillion? No one knows, but what we all do know is that the Fed through its non-stop yapping has now set up the ultimate moral hazard in financial markets. It doesn’t matter if all of the economic data miraculously comes in extraordinarily bullish over the next three weeks. The markets have put the Fed into the biggest box they have ever been in. They must do QE2 at this point and they probably have to do it big. The problem is, with the equity market up at the levels it is I don’t think ANY amount of QE2 will cause a rally. In fact, this might be the biggest “sell the news” event in the history of the stock market. If you are smart you will take appropriate actions while you can and sell to someone with less of a clue (believe me there are plenty out there). - Mike Krieger
Some rather scary predictions out of Paul Farrell today: "It’s inevitable: Wall Street banks control the Federal Reserve system,
it’s their personal piggy bank. They’ve already done so much damage, yet
have more control than ever.Warning: That’s a set-up. They will eventually destroy capitalism,
democracy, and the dollar’s global reserve-currency status. They will
self-destruct before 2035 … maybe as early as 2012 … most likely by
2020. Last week we cheered the Tea Party for starting the countdown to the
Second American Revolution. Our timeline is crucial to understanding the
historic implications of Taleb’s prediction that the Fed is dying, that
it’s only a matter of time before a revolution triggers class warfare
forcing America to dump capitalism, eliminate our corrupt system of
lobbying, come up with a new workable form of government, and create a
new economy without a banking system ruled by Wall Street." And just like in the Hangover, where the guy is funny because he's fat, Farrell is scary cause he is spot on correct.
Old school private equity guy-turned-hedge fund manager, Michael Tennenbaum, was on Bloomberg TV, discussing his perspectives for the distressed debt market (yes, such a thing did once exist, before HY bonds of 20x levered companies starting trading at par+). And all those who believe that courtesy of the Fed's intervention in every market there will never be another bankruptcy, let alone a bond yielding more than 10% take heart: according to Tennenbaum a full $50 billion in distressed debt may go Chapter in the next two years, although this is probably more good news for all the mini restructuring boutiques who overhired last year only to see the administration make bankruptcy illegal. The math: "Over the next five years $1.2 trillion in non investment grade debt comes due, of which $200 billion are due in the next two years, and of that a quarter or $50 billion are issued by companies rated rated B or lower. The experience that we and others have had is that this leads to default." Of course, Tennenbaum is a traditional debt-for-equity investor is more than incentivized to see this occur: he is currently sitting there doing nothing, as not only does nobody need DIPs or other rescue financings (why, when you can issue new B3/B- debt at 8%), but no company is willing to part with equity when every pitchbook it sees tells it can progressively refi current debt into paper that may eventually pay a 0.001% coupon. On the other hand, this, as well as every other contrarian outlook is predicated on the assumption that the Fed will be able to control the demolition of the US economy, which it won't. Which is why we are confident that not only will Mike be correct (eventually), but the full amount of HY paper that will default will boggle the mind when the dominoes really collapse. Until then, study learn (and earn) the Bernanke Moral Hazard Put: learn it and love it.
Anglo Irish Tier 2 Debt Downgraded By S&P To CCC On Restructuring Concerns, As Bank Prepares To Receive Bail OutSubmitted by Tyler Durden on 09/29/2010 07:42 -0400
The EURUSD was last seen well north of 1.36. The reason for this strength certainly was not based on news flow out of Ireland, where Anglo Irish just saw its Tier 2 debt downgraded to CCC, on what the rater called a "clear and present risk" of a restructuring of this debt. Yet this is likely irrelevant in the grand scheme of moral hazard things: after all, as the FT reports, Ireland is about to unveil an "additional capital injection expected to be about €5bn (£4.3bn). That would bring the bail-out costs for Anglo Irish to €30bn, shy of the €35bn forecast by credit rating agency Standard & Poor’s." Nonetheless, Ireland’s cost of borrowing on Tuesday hit record levels with yields on 10-year government bonds jumping 25 basis points to 6.72 per cent. And to make things delightfully surreal, the Irish unemployment rate was reported to jump from 13.0% to 13.7% in one month.
I try to provide an inductive, critical and speculative analysis of the Fed`s (open market) operations to date. Although not quite as speculative as the typical bank loan of the past few decades.