I have been calling Barrack Obama’s Presidency a failure for at least six months now and it seems that I now have considerable company in this assessment as it becomes obvious to most. It is not a failure because of the Republicans. It is not a failure because of events beyond his control. It is a failure because this was a man that filled a depressed and downtrodden nation with the audacity of hope. When I voted for the man I knew it was against my personal financial interests. It was clear what he would do with taxes. Nevertheless, I got to the polls and voted for this fifth avenue creation thinking maybe, just maybe he might do some of the things he said. Most important to me were two issues related to the military-industrial complex (see Eisenhower’s warning on this during his Farewell Address) and civil liberties. George W Bush was turning America into a depressed police state with perpetual war and consolidation of power between a corporate oligarchy and entrenched political class. A nation where the masses voluntarily gave up many of the liberties the founding fathers fought for merely to ease the fear that consumed them and which was propagated by the administration and the media. I and many others that voted for him even though they disagreed strongly with his economic policies thought he would at least reverse this trend. Why did we think this? Cause he said so. How foolish we were.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 16/07/10
Even as stocks continue to ignore the broader economic decline, and trade exclusively to kneejerks on one-time items such as Goldman's settlement and BPs pressure tests, the far more liquid and rational bond market is hunkering down. Today, the 2 Year hit an all time low yield, even as the 2s10s tightened by yet another 6 bps to 240 bps. The impact of today's curve flattening alone will have a far more profound impact on Goldman EPS than the latest SEC wristslap farce. And as we pointed out previously, the spread between the S&P and the 10 Year yield continues to diverge. In fact, it is now so wide, that in the latest John Noyce piece, the Goldman Strategist says: "As in mid-June, the S&P looks very overvalued relative to yields. Yields are also beginning to decline again as equities stall." Sure enough the reverse is also true, and bonds may be rich to stocks, but either way, we reiterate our observation that the short stocks-short bonds trade will eventually converge (luckily with the yield on the 10 Y so low, the carry is marginal and the repo rate will likely be a greater burden until the spread recouples).
The weaknesses in the S.E.C.’s case against Goldman were always obvious. At the end of the day, an investor who bought Abacus 2007 AC-1 was buying a static portfolio of risks. It didn’t matter who chose the underlying investments in the CDO, or whether John Paulson was destined to receive a windfall. If you were a sophisticated investor who had done his due diligence, you didn’t need to be told that the deal was designed to fail. You would have figured it out for yourself. If you actually reviewed the performance of mortgage backed securities held by the CDO, and understood how cash flow waterfalls and delinquency triggers worked, then you could see that subordinate tranches being insured for the benefit of Goldman were already worthless when the CDO closed. You could also figure out that the rating agencies had deliberately delayed announcing downgrades of the RMBS within the CDO, in order to keep the markets and the deal flow moving. But the dirty little secret on Wall Street was that all too often, due diligence was a sham.
It is time for the SEC to slap another token wrist. Now the the "regulator" has made it official that the punishment for fraud is roughly 3% of a firm's annual bonus pool for all godlike corporations, and millions of dollars, bars and jailtime for everyone else, it is time to tickle, pardon, we mean tackle, that other major fraud: Repo 105-type end of quarter window dressing, which we now know has been practiced not only by Lehman but by Bank of America. Because according to the just released primary dealer holdings data by the New York Fed, the end of quarter window dressing continues across all PD asset classes to this day. As the chart below shows, the week following the EOQ asset balance hit a total of $270 billion, which was a $15 drop from the week prior, the subsequent week has surged by $19 billion, and is now back to $289.5 billion. This is a two week swing only matched by... the prior quarter window dressing farce, when the roundtrip amount was $81 billion.
Reuters reports that democrats vote for settlement; republicans against. Is the president starting to miss all that Goldman lobby cash? Alas, it might be a little too late for kiss and make up.
Watching my children grow older, now heading into the treacherous shoals of the teenage years, has been a visceral reminder of how the human mind develops. As young children, we see the world with fresh eyes and wonderment, and then quickly begin testing the physical and societal bounds as part of morphing into our more mature selves. As we age into our teens and beyond, the testing of boundaries evolves into a series of calculations. If I do “A,” we wonder, will it lead to “B” or maybe “Z”? From a young age, most of us are told to advance our education and otherwise better ourselves so that we will be able to find a good job, or a succession of good jobs, that will provide sustenance and security lasting most of a lifetime before retiring to dawdle about in our golden years. At least that is the modern view of life pursued by the vast majority of the citizenry in the developed world. But having spent some time in rural Argentina recently – where it seems to me that most people spend more time living and less time planning to live – I have had some time to ponder the assumptions embedded in this view. What if, I wonder, the whole modern construct of what passes for making the right moves in an advanced society is plain wrong?
As America slowly digests the empirical evidence that both our judicial (SEC settlement) and legislative (FinReg farce) branches are now dead and buried (we all know how the executive branch is faring), the only thing left is humor. In continuing with our deep throat screen captures of executive level individuals (Ben Bernanke here previously), we present Tim Geithner's desktop next, courtesy of a Zero Hedge reader.
This is all that Goldman consents was done wrong, without admitting or denying guilt:
Goldman acknowledges that the marketing materials for the ABACUS 2007-ACI transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was "selected by" ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson's economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure.
We, in turn, regret that America no longer has a fair and just legal system
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 15/07/10
SEC's announcement of a paltry and ridiculously small $550 million Goldman settlement a few minutes before market close means all is well with the economy (and presumably the resignation of Lloyd Blankfein now that Goldman admits it is not admitting fraud). We presume whatever backdoor cash is involved will also stop the Cuomo criminal case into Goldman. The tactical surgical strike to ramp the market also coincided with last minute announcement that BP has halted a leak - which was the expected pressure test and is not news at all, but who cares -buy buy buy! In other news: ES and SPY disconnect massively, as nothing makes sense any more.
Ah, the perils of being a rich communist nation: everyone wants a part of the spoils. South China Morning Post reports that Honda's mainland China operations have been hit by a fresh strike, this time at the Atsumitec Company in the city of Foshan. The operation began on Monday, with 170 workers striking after management fired about 100, a worker who declined to give his name told reporters by telephone. “The local government has sent police to our factory and will be here in the afternoon,” he said. As SCMP reports, the strike follows a turbulent period in June, which saw hundreds of workers at a number of foreign-owned factories, many of those in the affluent Pearl River Delta, walk off the job demanding better pay. More than anything, the recent bout of strikes, in addition to putting increasing pressure on China's social tenuous fabric, demonstrate how just-in-time manufacturing, now highly popular among western manufacturers, can put companies at risk because it allows little margin for error when supply chains get disrupted. Should Chinese slave laborers, er, workers, continue aspiring to be able to work for even one fifth of US minimum wage, in their quest to replicate iPad mania so popular in the US, the problems may easily get out of hand. Furthermore, with labor costs rising dramatically, the impact on already tight export margins is going to be severe.
The explosions occurred at a mosque in Zahedan according to IRNA. No details on injured or casualties yet.
Charles Nenner, who prior to founding the Charles Nenner Research Institute served as a technical analyst for Goldman for about 10 years, has been looking at charts and not seeing much to write home about. In his interview with the TechTicker, Nenner says "I expect the bear market rally to continue for 4 more years, with big upswings like in Japan before coming down again. I don't expect the market to totally fall out of bed. It is going to be very difficult few years to make some money. We will test the lows of 2009 to be tested over the next couple of years. I don't expect the economy to pick up until 2020." How charts can give him macroeconomic perspective with a 10 year bogey, we are not too sure. As to trading, he believes that as long as the S&P does not close below 1,085, the market will continue bouncing, and if 1,085 is taken out "it should be all over." For longer-term investors, Nenner suggests to wait until the Dow goes below its trendline average, with a Dow target of around 5,000. Of course, whether Brian Sack will allow stocks to drop that low is a different matter altogether.