Free Money

Guest Post: Fed-Covert Money Printing Alert

A big picture perspective of why the American public, and the world, should be very concerned about the fate of the U.S. dollar courtesy of one grotesquely irresponsible act by the Federal Reserve after another.

November 10 CDS Heatmap

With a half-day in credit yesterday, and the usual meltup in equities on no volume (free money, straight from the Fed, come get your free money: just buy a stock, any stock: since you can't get money anywhere else, buy, buy, buy into the stock bubble), yesterday CDS painted a gloomier picture. As the image below demonstrates, wideners outpaced tighteners. Asonly a few increasingly more powerless computers trade equities these days, we, as usually , warn readers to keep track of developments in the credit arena, and we are hopeful that the regulators will consider our proposition to gradually allow retail trading in CDS products (after the minimum notional is reduced substantially).

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This week's link fest has a common theme: the unintended consequences of government actions. I include the US Fed in the government category for obvious reasons. Between Greenspan’s beliefs in efficient markets, Bernanke’s Great Moderation, tax credits for housing and the Fed’s current unlimited money printing, it is amazing how much damage can be done by the wrong ideas and policies.

Observations On Reverse Repos Coupled With A Record Excess Bank Reserve Balance

Those who follow the meandering permutations of the Fed's balance sheet must have observed with great irony the proclamation by the NY Fed on October 19th that it is prepared to commence tightening liquidity via reverse repo operations, even as 48 short hours later later the Fed announced a new all time high in bank reserves, which for the first time ever hit a level over $1 trillion. The glaring discrepancy between these two observations has left many wondering not only about the veracity of any statements coming out of the Fed, but to consider what the best trades to front-run the Federal Reserve may be for that time when, whether it likes it or not, the NY Fed is forced (politically or otherwise) to start extracting its pound of flesh from the banking system.

Do It Yourself High Frequency Trading

As the only way to make money in this market is to mimic the big boys and to churn stock after stock (especially those with massive short interests) then closing 100% in cash at the end of every day, it was only a matter of time before someone started pitching the very same product that Comedy Central's Cash Cow highlighted is a sure way to make gobs of free money, to retail investors. That this someone happened to be Lime Brokerage is probably not very surprising.

Frontrunning: October 24

  • Rampant buying of Kindles did not help UK's GDP, which posted a "surprising" drop of -0.4% in Q3 (Bloomberg)
  • Allan Meltzer: Banks are holding prices down because they can buy Treasurys with free money from the Fed (WSJ)
  • UK GDP reaction: sterling tumbles, Gilts rally, but FTSE fine (FT Alphaville)
  • New Jersey pays Goldman for swaps on non-existant bonds (Bloomberg)
  • Dollar's doom puts a face on new $1 million bill (Bloomberg)
  • China's 8.9% growth? No way - Beijing has spent its way to a sugar high (Forbes)

Chris Whalen Discusses Citigroup's Earnings And Prospects

The Institutional Risk Analytics Managing Director nails the banks' consistent beating of analyst expectations: financials keep "coming in better on non-recurring items." Indeed, once the government's "non-recurring" subisidy of free "money ends," and such by-now forgotten business lines as investment banking have to pick up, what then?

Additional observations from Whalen include bank subsidies, consumer credit trends, bank reserves, loss rates, non-performing assets, the regional versus the TBTF duel, and the reconciliation of Citi's positive net income and its EPS loss, and an outlook on a "disappointing" Q4.

Why Economic Predictions Always Fail Us?

"There is a sense when one reads sufficiently educated publications that a lot of people feel betrayed by financial and economic forecasts. One can argue whether some analysts foresaw what was about to unfold as early as 2006, but fact is most people had it completely wrong." - Nic Lenoir

Excess Liquidity Game Is Coming To An End

"So for the first time in the post-WWII era, we have deflation in credit, wages and rents, and from our lens this is a toxic brew that in the end will ensure that the focus on capital preservation and income orientation will be the winning strategy over a strict reliance on capital appreciation." - David Rosenberg

Bank Of America Amazed By Goldman's "Unmatched Risk-Taking/Risk-Management Skills"

The lately abnormally notorious Goldman Sachs received a little pat on the back today compliments of Bank Of America and its analyst Guy Moszkowski, who in a report published this morning announced his expectation of an "unexpected" Q2 surprise (quick, someone find the next big counterparty that Goldman shorted and also has several tens of billions in collateral exposure with the 85 Broad oracles) and also anticipates forecasts to rise. Maybe now that Goldman's fate allegedly is in the hands of a few good hackers, Guy may want to redo his hypothesis. But I digress.

Frontrunning: June 8

  • Corporate profits diluted 4% by U.S. share sales, dividend cuts (Bloomberg h/t root)
  • HSBC unit to stop financing for investors in hedge funds (Bloomberg)
  • Gorgon Brown faces revolt after poll thrashing (Reuters)

Smurfit CDS Auction Yet Another Opportunity For Free Money

Smurfit Stone's CDS Auction concluded at 2pm today with a final clearing price of 8.875, a whole 100 bps over the Inside Market Midpoint of 7.875. Whoever got hit - congratulations as the bonds were bid 9.5 post auction, an 7% immediate pick up.

Of -6% Fed Fund Rates and $9.3 Trillion in Troubled US Assets

Zero Hedge makes fun of sell side research often. After all who doesn't. But sometimes we are pleasantly surprised, such as when we read Goldman's weekly economic analysis piece for the week of January 23. Several issues discussed in the report include an overview of the remaining arsenal of governmental responses to the mega crisis we are in, both in the fiscal and monetary realm, a sober estimation of just how bad the real troubled asset situation in the U.S. may be if we remove the wool from our eyes, as well as what needs to be considered before making an appropriate policy move.

Of -6% Fed Fund Rates and $9.3 Trillion in Troubled US Assets

Zero Hedge makes fun of sell side research often. After all who doesn't. But sometimes we are pleasantly surprised, such as when we read Goldman's weekly economic analysis piece for the week of January 23. Several issues discussed in the report include an overview of the remaining arsenal of governmental responses to the mega crisis we are in, both in the fiscal and monetary realm, a sober estimation of just how bad the real troubled asset situation in the U.S. may be if we remove the wool from our eyes, as well as what needs to be considered before making an appropriate policy move.