Fin/Inv

There's too much reporting that focuses on how policy proposals are supposedly playing, rather than what's actually in them.

This isn't the first time the Sunshine State has suffered from a big real estate bubble.

• Japan democrats win landslide in historic election (Reuters)
• As Germany's Angela Merkel poised next on the chopping block (Bloomberg)
• Must read: REITs racing to bankruptcy (Contrarian Profits)
• Alan Abelson: Sometimes a great nation (Barron's)
• World stocks controlled by a select few (Global Research)
• Russia's perspective on America: The new bourbons (Pravda)
• Reuters picks up on Barney Frank endorsing HR 1207 story, first reported on Zero Hedge (Reuters) - might be just a little tougher to back out now...
• Lehman claims could reach $100 billion, as the company's stock skyrockets (Reuters)
• Halting recovery divides America in two (WSJ)
• Rakoff pokes further at attorney client privilege in bonus case (AmLawDaily)
• The dollar carry trade: cheaper to borrow in USD then JPY (Debts of a Nation)
• CHF1 trillion of Switzerland's CHF2.8 trillion of foreign money is untaxed "black money" (Swiss Review)
• China Investment Corp fuelling stock market bubble by investing in hedge funds (Bloomberg)
• More SEC stupidity: regulator designated questionable rating agencies (Dow Jones)
• China's SOE may terminate commodities contracts (Caijing)
• AIG shares look overpriced (Reuters), talk about an understatement
• Fighting alcoholism in Russia absolutely impossible, Medvedev says (Pravda)
• Wall Street betrayal seen in $4.8 billion company debt losses (Bloomberg)
• The Zell of the brawl (Breakingviews)

While the capital markets debate has recently shifted to a discussion of who is right: whether equities, surging higher in expectation of something close to Zimbabwean hyperinflation, or the bond market, where yields have been declining, indicating the much more rational credit world is seeing deflation as the norm for a long time, a different perspective of this divergence can be witnessed by comparing treasury curve flattening versus commodity price movements.

The chart below demonstrates the highly correlated performance between the price of oil and the steepness of the Treasury curve as indicated by the 2s10s since the March lows. Yet an odd recent divergence is that the 2s10s has tightened considerably even as oil has continued to attain new highs. One argument here is that oil is driven exclusively by the dollar (devaluation) trend, which in turn is impacting all medium and high beta assets (the dash for trash being a great example).

The preliminary conclusion is that bonds are reflecting a deflationary environment while commodities and stocks are betting on inflation.

As risk has returned with a vengeance and alpha is being chased across asset classes with little to no discrimination, in effect converting the market into one big alpha trampoline, the only remaining rationality seems to be evident in bonds.

Yet even that conclusion could be premature.

As Zero Hedge has pointed out, it is likely that the Treasury market has been gamed via various machinations by the Fed to i) encourage direct bidder interest and ii) to encourage indirect bidders to swap out of agency holdings into Treasuries, (in the same time blurring the distinction between direct and indirect bidders) while equities have been manipulated via three relatively simple schemes including i) massive rolling short squeezes and stock recalls across critical stock classes (financials and REITs being two key examples), ii) HFT strategies designed to encourage momentum chasing in the failure of all other quant factors, and the displacement of traditional market neutral funds, while masking for liquidity provisioning and iii) collapsing stock market volume, with bid interest represented by bankrupt companies due to straggling (and struggling) money managers who are now literally betting the farm on the worst of the worst just to generate a little market outperformance (while traditional L/S 170/70 hedge funds like RenTec's RIEF have been getting killed all year long). In other words, both stocks and bonds are potentially being manipulated to a point where they bear no reflection of the underlying assets, whose values they are purported to represent.

As for the commodity market, while the CFTC laments the passage of a time when several major banks could easily manipulate all commodites, China has quietly taken matters into its own hands and has informed ISDA that it will soon be unliaterally terminating commodities contracts, having said enough to the persistent irrational market which day after day gets the CFTC's blessing to continue mispricing assets courtesy of a select few speculators. 

Is it thus surprising that fewer and fewer investors remain in the market (just observe NYSE stock volumes as the Buffett mantra of "buy and hold" is now dead) as the only entities left to speculate amongst each other are a few computers and ever decreasing numbers of degenerate gamblers. Framed in this light, is the debate about inflation versus deflation based on asset trends really relevant: a bizarro market dominated by animal spirits and intraday greed has ceased to indicate any long-term trends and our advice is to simply enjoy it for what it is - a ponzi casino, whose only real correlation is the Madoff pyramid, in which the mechanism works as long as there are marginal gullible investors. However, once the game of musical chairs ends, investors/speculators should not be surprised to find that the game was rigged from the start and there were no chairs to begin with.

I don`t hold a very high opinion of bankers but you really have to be dumb, dumb, dumb not to make any money when the government gives you money free of charge. So the bankers get the money free of charge , so they can do things and they will make money. And the worst the economic conditions will become, the worst the commercial real estate market becomes the more money the government will throw to the system and more bailouts will follow. You should buy bank stocks around the world.

in Lateline Business

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

Professor Hamilton has changed the emoticon on his site to neutral. Hamilton has been generally negative since early 2007 ...

Date	Status
Sep 13, 2006
Feb 21, 2007
Apr 25, 2007
Jun 27, 2007
Oct 5, 2007
Jan 4, 2008
Aug 30, 2009

If you've only been following Econbrowser since 2008, you may have thought that the crabby countenance in the upper-right corner of our main page was a permanent fixture, conveying our general grumpiness about the state of the economy or perhaps life in general. Despite having been stuck in the pessimistic mode for quite some time now, the emoticon was in fact always intended to be a dynamic feature, adjusted from time to time to provide readers with our overall impression of incoming data. The table on the left provides links to each occasion that our Little Econ Watcher's countenance has changed in the past.

Last week's data persuaded me to move the Econbrowser Emoticon back into neutral, signifying that I now judge overall output to be growing slowly rather than declining. Here are details on the evidence that prompted this change in assessment, and what it signifies.

See Hamilton's post for the reasons for the change. I think we are a long way from a smiley face.

Maserati is set to unveil the first four-seater convertible in the history of the Trident, at the Frankfurt motor show on September 15. The new GranCabrio, which is being dubbed the Trident’s ‘third prong’, completes Maserati’s product line-up – alongside Quattroporte and GranTurismo

Pictures courtesy of Classic Driver

Well-known investor Jim Rogers, who founded the Quantum Fund with billionaire investor George Soros, was in Sri Lanka last week on a ‘quiet’ 3-day trip which included meetings with top government officials, the Sunday Times FT reliably understands.

He met several government officials during a hitherto-unannounced visit. “Yes, he was here and told me – during a long conversation – that he is very bullish on Sri Lanka,” one official, who declined to be named, told the Sunday Times FT. News of Mr Rogers’ visit is certain to stimulate the Colombo stockmarket which has not picked up as much as most investors expect.

The 67 year-old investor, frequently quoted in recent times in international news wires about Sri Lanka being a good investment following the end of the war, also visited Kandy during the low-key trip. There was no information as to whether he met with corporate heads and private sector officials.

in The Sunday Times

Robert Waldmann

Polling results are absolutely clear. Now and for the decades a clear majority of US residents support taking from the rich and ... well it doesn't much matter what. Republicans often argue that this or that would be "class warfare" leading to the guess that they might have some reason to believe that class warfare is unpopular. There is no evidence to support that view.

The data which prove my claims come after the jump.


First look at polling report on taxes.

http://www.pollingreport.com/budget.htm

Search for taxes and look at people for and or against soaking the rich. Only one listed poll -- the Gallup poll -- has asked directly about this.

Gallup Poll. April 6-9, 2009. N=1,027 adults nationwide. MoE ± 3.

[skip]


"As I read off some different groups, please tell me if you think they are paying their fair share in federal taxes, paying too much, or paying too little. How about [see below]?"


Fair Share Too Much Too Little Unsure
% % % %

[skip]

"Upper-income people"
4/6-9/09 23 13 60 3
4/6-9/08 24 9 63 4
4/2-5/07 21 9 66 4
4/10-13/06 21 8 67 4
4/4-7/05 22 7 68 3
4/5-8/04 24 9 63 4
4/03 24 10 63 3
4/99 19 10 66 5
4/96 19 9 68 4
4/94 20 10 68 2
3/93 16 5 77 2
3/92 16 4 77 3


"Corporations"
4/6-9/09 18 8 67 6
4/6-9/08 15 6 73 6
4/2-5/07 19 5 71 5
4/10-13/06 18 5 70 7
4/4-7/05 21 4 69 6
4/5-8/04 19 5 69 7

OK now soaking the rich to pay for health care reform. Here there is lots of polling

http://www.pollingreport.com/health.htm
and search for "tax". I'm trying to get everything relevant.

NBC News Poll conducted by the polling organizations of Peter Hart (D) and Bill McInturff (R). Aug. 15-17, 2009. N=805 adults nationwide. MoE ± 3.5 (for all adults).

[skip]

"Now I am going to tell you more about the health care plan that President Obama supports and please tell me whether you would favor or oppose it. The plan requires that health insurance companies cover people with pre-existing medical conditions. It also requires all but the smallest employers to provide health coverage for their employees, or pay a percentage of their payroll to help fund coverage for the uninsured. Families and individuals with lower- and middle-incomes would receive tax credits to help them afford insurance coverage. Some of the funding for this plan would come from raising taxes on wealthier Americans. Do you favor or oppose this plan?"
.
Favor Oppose Depends
(vol.) Unsure
% % % %


8/15-17/09
53 43 2 2


7/24-27/09
56 38 3 3


Quinnipiac University Poll. July 27-Aug. 3, 2009. N=2,409 registered voters nationwide. MoE ± 2 (for all adults).

[skip]

"To extend health insurance coverage to most Americans over the next decade, would you support or oppose imposing an extra tax on individuals who earn more than 350,000 dollars and couples who earn more than 1 million dollars a year?"


.

Support Oppose Unsure
% % %


7/27 - 8/3/09
61 36 2


Time Poll conducted by Abt SRBI. July 27-28, 2009. N=1,002 adults nationwide. MoE ± 3 (for all adults).

[skip]

"Raises income taxes on people earning more than 280 thousand dollars a year to help pay for providing health care to most Americans, even those who cannot afford it now."


7/27-28/09
57 40 4

CBS News/New York Times Poll. July 24-28, 2009. N=1,050 adults nationwide. MoE ± 3 (for all adults).

[skip]

"In order to help pay for health care reform, would you favor or oppose increasing taxes on Americans with high incomes?"


Favor Oppose Unsure
% % %
7/24-28/09 65 32 3

NBC News/Wall Street Journal Poll conducted by the polling organizations of Peter Hart (D) and Bill McInturff (R). July 24-27, 2009. N=1,011 adults nationwide. MoE ± 3.1 (for all adults).


.

"Let me read you a couple of proposals made by President Obama. For each one, please tell me whether you approve or disapprove of this action. ... Using government funds to expand health insurance coverage, and raising taxes on wealthier Americans to pay for it."


.
Approve Disapprove Unsure
% % %


7/24-27/09
50 44 6


4/23-26/09
56 37 7


[skip]

"Experts currently estimate that this proposed health care plan will cost one trillion dollars over the next decade. I am going to read you some proposals for how the plan could be funded. After I read each statement, please tell me whether that proposal is acceptable or not acceptable. . . ." Half sample (Form B), MoE ± 4.4


.
Acceptable Not
Acceptable Unsure
% % %


.


"Raise taxes for families with incomes more than one million dollars per year."


7/24-27/09
68 29 3


"Raise taxes for families with incomes more than three hundred and fifty thousand dollars a year."


7/24-27/09
56 39 5

Pew Research Center poll. July 22-26, 2009. N=1,506 adults nationwide. MoE ± 3.

[skip]

"And thinking about some ways to pay for changes to the health care system: Would you favor or oppose [see below]?"


.
Favor Oppose Unsure
% % %


[skip]


"Raising taxes on families with incomes of more than $350,000 and individuals earning more than $280,000"


7/22-26/09
63 32 5



off topic but very relevant to attitudes towards class war. Most Americans can chose to fight the classes above them or the classes below them (Bill Gates and the homeless have fewer options). Polls consistently always and invariably show strong support for soaking the rich. How about the poor ? Do most Americans think we are already giving to poor too much ? Look at this

Kaiser Family Foundation Kaiser Health Tracking Poll. Aug. 4-11, 2009. N=1,203 adults nationwide. MoE ± 3 (for all adults).

[skip]

"Now I'm going to read you some different ways to increase the number of Americans covered by health insurance. As I read each one, please tell me whether you would favor it or oppose it. Here's the (first/next) one: [See below.] Do you favor or oppose this?"

[skip]

"Expanding state government programs for low-income people, such as Medicaid and the State Children's Health Insurance Program" N=603 (Form B)


8/4-11/09
80 17 4


7/7-14/09
74 23 3

6/1-8/09
75 22 3

4/2-8/09
77 20 2


I don't see how the people of the USA could make it clearer. Concerning health care they want to take more from the rich and give more to the poor.

Now reforming social security. Generally, there was overwhelming opposition to any change in social security. There was one exception to this rule. A majority wanted to raise or eliminate the FICA ceiling. Once again (as always) most Americans wanted to soak the rich.

CBS News/New York Times Poll. June 10-15, 2005. N=1,111 adults nationwide. MoE ± 3 (for all adults).

[skip]

"Currently, people pay Social Security taxes only on the first $90,000 of their annual income. If it were necessary to keep the Social Security program paying benefits as it does now, would you favor or oppose increasing the amount of income that is subject to Social Security taxes?"

.

Favor Oppose Unsure
% % %
6/10-15/05 63 30 7


CBS News Poll. May 20-24, 2005. N=1,150 adults nationwide. MoE ± 3 (for all adults).


.


"How should the Social Security system pay its benefits? Should it pay out money to retired people based only on how much they contributed, or should it take some of the contributions of better-off people and give them to poorer people?"


.

Contribu-
tions Only Give More
To Poor Both (vol.) Unsure
% % % %
5/20-24/05 46 43 3 8
2/24-28/05 47 43 2 8


.


"Currently, people pay Social Security taxes only on the first $90,000 of their income. Would you favor or oppose raising the amount of income that is subject to Social Security taxes?"


.

Favor Oppose Unsure
% % %
5/20-24/05 62 31 7
2/24-28/05 61 31 8


.


"Would you favor or oppose limiting the rate of growth of future Social Security benefits for people with incomes of $100,000 or more?"


.

Favor Oppose Unsure
% % %
5/20-24/05 50 40 10


.


"Would you favor or oppose limiting the rate of growth of future Social Security benefits for people with incomes of $50,000 to $100,000?"


.

Favor Oppose Unsure
% % %
5/20-24/05 35 55 10


NBC News/Wall Street Journal Poll conducted by the polling organizations of Peter Hart (D) and Bill McInturff (R). May 12-16, 2005. N=1,005 adults nationwide. MoE ± 3.1 (for all adults).


[skip]


"If there is a time in the future when Social Security benefits must be reduced, which approach would you favor? Approach A: Reduce benefits by an equal percentage across the board for all workers to maintain Social Security as a program where your benefits depend on what you paid in the system. Approach B: Reduce benefits by a higher percentage for workers earning more than twenty-five thousand dollars, while making no change for workers who make less than this so that those with the most need receive the most benefits."


.
Approach A Approach B Unsure
% % %
5/12-16/05 40 50 10



"I'm going to mention changes some leaders have proposed for Social Security. Please tell me if you support or oppose each one. . . ."


.
Support Oppose Unsure
% % %


.


"Increasing the Social Security tax rate"


ABC News/Washington Post Poll. March 10-13, 2005. N=1,001 adults nationwide. MoE ± 3 (for all adults). Fieldwork by TNS.

[skip]

"Collecting Social Security taxes on all the money a worker earns, rather than taxing only up to the first $90,000 of annual income"


3/10-13/05
56 40 4


As always a majority of US residents support raising taxes on the rich.


*terminology: when I write "most" I mean more than half. The word is often used equivocally to mean more than half when one must prove the claim and then to mean "approximately all" when one draws implications.

Goldman Sachs: The Firm Everyone Loves to Hate
Aug 28, 2009 09:00am ED

Interesting discussion at the Washington Post about the downside of TBTF: As we Bailout more banks, we are creating more behemoths — reducing consumer choice, and feeding ever more Moral Hazard.

Here is David Cho:

When the credit crisis struck last year, federal regulators pumped tens of billions of dollars into the nation’s leading financial institutions because the banks were so big that officials feared their failure would ruin the entire financial system.

Today, the biggest of those banks are even bigger.

Well, that’s only if you go by asset size, fees, depositor base. If we were to go by market cap, well then, the whole group got considerably smaller. But based on every other measure of  bank size, the big got much bigger.

>

>

Back to Cho:

The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit.

J.P. Morgan Chase, an amalgam of some of Wall Street’s most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.

A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected.

Good stuff . . .

>

Source:
Banks ‘Too Big to Fail’ Have Grown Even Bigger
David Cho
Washington Post, August 28, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/08/27/AR2009082704193.html

Bloomberg (and everyone else) is reporting that The LDP of Japan has suffered a crushing defeat, calling it a "bloodless revolution":

Hatoyama, who quit the LDP in 1993, has pledged to revive an economy emerging from its deepest recession since World War II by boosting child-care spending, cutting taxes and curtailing the power of bureaucrats. His grandfather founded the LDP in 1955 and became the first of that party’s 22 prime ministers.

“This election has been all about changing the government,” Hatoyama said in a nationally televised press conference. “Everything starts now.”

Indeed it does.

Before the election The Democratic Party of Japan had talked assiduously about the avoidance of US Debt Hegemony (read: Japan may stop buying or even sell US Treasuries) and in addition they made noises unthinkable just a few years ago - their stance towards China, long thought of as an arch-enemy of Japan, is quite friendly and cooperative.

While Bloomberg and others seem to be reporting that the Japanese debt and stock markets will cheer this win, that is not necessarily something that I would be inclined to chase in our markets if indeed it translates over here at all.

There is a tremendous amount of contradiction out in the marketplace in regards to what this means.  I have seen articles over the last two months claiming that this win would mean dramatic increases in bond issuance, and then others claiming that the party is adverse to bond issuance.  Which is the truth? Who knows - but what has come through loud and clear is an unmistakable tenor that the DPJ is well-aware of that the policies of the last twenty years, adopted on the back of the Nikkei's and Japan's property market crash (gee, anyone see parallels?) have not worked and have instead stagnated the Japanese economy for close to two decades.

The DPJ has audacious goals in terms of social spending.  One way to meet them could be to sell some or part of their US Treasury holdings to raise cash (oops!), which would have dramatic and immediate impact in our Treasury market.  It could also do interesting things to the Yen/Dollar balance, but between that and trying to sell huge quantities of additional debt into the Japanese market, I suspect the former, rather than the latter, would be the wiser policy - for them.

More ominously a link-up between the Yen and Yuan, unthinkable with the former government, now looks possible.  Create a basket-of-currency settlement system over in Asia with the Yen and Yuan as the core elements and the US immediately loses control of the game we've been trying to run with the banksters and fraud-laced credit games in the United States.

That which cannot continue forever won't, and I suspect we're about to get a lesson in reality from our friends over in Japan and China - a lesson we may not like at all.

Time is drawing short for The US to clear The Bezzle on a voluntary basis, lest we be forced to as a consequence of US Debt rejection by the Asian nations that have, thus far, enabled us to continue this charade.

My four day splurge into America is nearing an end, so I'll probably be dead quiet today as we wrap up here at Disneyland and travel back home.

Tishman Speyer's 2006 acquisition of Stuyvesant Town for $5.4 billion apparently is about to turn terminally sour. The "biggest deal for a single American property in modern times" which never managed to be profitable from day one, is on the verge of completely exhausting reserve accounts tied to $3 billion of securitized accounts.The premise - take the 11,227 rent-stabilized u,nits apartment complex and convert them to market-rate. Alas, the timing could not have been worse due to an implosion in the NY rent market, coupled with legal difficulties - to date only 4,350 of the units have been converted to market rate, while the remaining rent-controlled units will likely increase in number due to a recent court ruling.

According to RealPoint the original reserve fund which had a balance of $650 million in 2007 when Stuy Town's debt was first securitized is down to a meager $49.7 million. The origianal reserve fund set consisted of a $190 million general reserve as well as a $60 million replacement reserve, both of which have been depleted, as well as a $400 debt-shortfall service fund, which has now declined to just over 10% of its initial balance.

The reserve fund was drawn down by $7 million month to date, versus $13.3 million in July and $19.6 million in June, with an average decline in the reserve fund of $11.3 million per month. At this rate Stuy Town's reserves will be completely wiped out in four months, sometime in December.

To demonstrate what a colossal failure Tishman and Blackrock's assumptions have been from the very beginning, the property has a $23.8 million monthly debt service, while on the revenue side, according to first quarter data, the property generates $136.5 million in annual cash flow, or $11.4 million monthly, a $12.4 million monthly shortfall (a cap rate of about + infinity).

And to demonstrate just how bad (and getting progressively worse) real estate in New York is, midtown's Dream Hotel, owners Hampshire Group have notified special servicer LNR Group, that it wold not make any more payments on the $100 million loan against the property. According to CREDirect, in 2008 the property's cash flow dropped 11 percent to $7.8 million as occupancy fell 3% to 84%, with a DSCR drop from 1.41x in 2007 to 1.26x. Things have since deteriorated, not just for the now defaulted Dream, but for a vast majority of all other New York hotels who have been struggling with declining bookings and room rates.

As usual, there will be a way to spin this and make it seem like this is favorable news for REITs, whose stock prices are now completely disconnected from the reality of collapsing cash flows, declining DSCRs and reserve rates, and reduced rental rates.

h/t the Bankster

Robert Waldmann

is a bit irritated with [many] US senior citizens. They want to keep the hands of the government off their medicare.* I don't want to think what would happen if the government meddled with their social security pensions. Most US senior citizens are acting as egoistical hypocrites.

I would like to offer them a deal -- let's not change the laws governing US federal government financing of health care at all. Just say no to any change in the law.

I'll explain the deal and why selfish seniors citizens would prefer ambitious health care reform after the jump.

update: the word "many" was added in response to a comment by Coberly. The unqualified assertion that senior citizens want to keep government hands off their medicare was an attempt at humor. I am sure that the vast majority of US senior citizens accept the fact that the medicare administration is part of the federal government (the few exceptions are authentic, not an urban myth, and a cause for reflection).

My actual thoughts on US senior citizens begin with the word "most". The qualifier "acting as" is important. I did not speculate as to whether most are selfish or hypocritical, I just noted that they would act as they are acting if they were.

Thanks to Coberly for pointing out my error of omission (the word many) and the failure of my attempt at humor. I apologize to Coberly for the tone of my replies to his comments. I didn't reread my post but assumed I remembered what I wrote.



Congress, being another bunch of hypocrites, forces the CBO to believe its promises of huge tax increases and spending cuts next year. This means that every year they need to pass a bill that says "no not this year next year." One such bill is the annual alternative minimum tax fix. The other is the annual adjustment to medicare compensation rates.

Under current law, medicare compensation scales would be cut by very roughly IIRC 20%. The cuts hit next year and are relevant to deficit forecasts. Every year the cuts are put off one year so they don't bother anyone. Those who don't consider medicare a government program certainly don't know that congress re-meddles with it every year. Now it is standard practice to adjust the compensation every year so no one notices the issue. It would be totally unreasonably and unlike Democrats to hold the standard yearly change in the law hostage.

Democrats in congress (I think Pelosi plus a majority of the conference committee) can present our nations senior citizens with a choice. Health care reform or nothing. With health care reform, the only thing that will change for senior citizens is they lose their beloved prescription drug doughnut hole. With no change, their doctor will suddenly be paid much less to care for them, unless he or she refuses to let the federal government take advantage of him or her.

The slogan "you can keep everything you have if health care is reformed" is good the slogan "you can keep everything you have if and only if health care is reformed" is better.

Here is a graph of bankruptcy filings vs. mortgage delinquencies (including homes in foreclosure process) by state for Q2 2009.

Click on graph for larger image in new window.

The bankruptcy filings data is from the American Bankruptcy Institute.

The mortgage delinquency data is from the Mortgage Bankers Association.

No surprise - there is a clear correlation, although each state has different bankruptcy laws that can impact the relationship (see Florida).

Here is a sortable table to find the data for each state (use scroll bar to see all data).

Well, cycling actually.

Didn't rapid population growth make it easier to deal with debt? Didn't the fact that the rest of the world was in ruins help? No.

Hear ye, heat ye, all rise!

The case of Bloomberg LP v. Board of Governors of the Federal Reserve System, U.S. District Court, Southern District of New York (Manhattan), No. 08-9595.

>

The Federal Judge that granted Bloomberg’s FOIA request for information about borrowers from the Federal Reserve has granted a temporary stay of execution to the Fed:

Federal Reserve has until Sept. 30 to appeal a federal judge’s order requiring the central bank to identify financial institutions that benefited from its emergency loans.

The Fed’s Board of Governors asked Manhattan Chief U.S. District Judge Loretta Preska to delay enforcement of her Aug. 24 decision that the identities of borrowers in 11 lending programs be made public by Aug. 31. The central bank wanted Preska to stay her order until the U.S. Court of Appeals in New York can hear the case.

The Fed’s “ability to effectively manage the current, and any future, financial crisis” would be impaired, according to the Fed’s motion for a stay. It said “significant harms” could befall the U.S. economy as well.

I suspect this is merely a delaying tactic, with the Fed eventually losing 3 to nothing on appeal.

It is one thing to grant immunity to sensitive defense secrets during wartime, it is something else entirely to avoid wanting to embarrass poorly run banks who needed cash, and keep crucial info from shareholders and taxpayers.

If the Appeals Court were to grant this request, then kiss the idea of an open soceity good bye. The slipperly slope downwards from this to anything else declared by any government agency to be “Important” or “Sensitive” or “Embarrassing” is the eventual result of the Fed winning their appeal.

My prediction: The Appeals court tells the Fed to go jump . .  .

>

Sources:
Judge Sets Sept. 30 Deadline for Fed to Appeal Disclosure Order
Mark Pittman
Bloomberg, Aug. 28 2009
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aQSMj84TPttg

Judge puts Fed’s bailout revelations on hold
Jonathan Stempel
Reuters, Aug 28, 2009 6:48pm
http://www.reuters.com/article/ousiv/idUSTRE57R5BE20090828

This story began for me with simple reader inquiries concerning a stock market indicator called TRIN and their perceptions that TRIN was "broken". For the uninitiated, TRIN assesses the proportion of stock exchange volume that is going to advancing stocks to the volume attributable to declining issues. When TRIN is below 1.0, it means that volume is relatively concentrated in rising shares; above 1.0 means that volume is concentrated in declining stocks.

TRIN appeared to be broken because we were getting huge swings in its values from moment to moment in the market. It would swing wildly, sometimes going far above 1.0 and sometimes far below. I pointed out that, from a purely mathematical vantage point, this could only occur if a disproportionate share of NYSE volume was occurring in one or a handful of stocks.

Further inquiry revealed that this was, indeed, the case: I found that, not only were the trading volumes of such stocks as C, AIG, FNM, and FRE elevated, as noted the by Big Picture blog, but that their composite volumes (their volumes traded across all exchanges) exceeded that of all other NYSE stock trading! Indeed, I discovered that the 20-day TRIN was at its lowest level since 2000 because volume was highly concentrated in rising stocks. This was not just unusually heavy volume; it was unusually heavy to the buy side.

Since this volume was directional--all of these stocks had made spectacular percentage gains--and because the highly unusual activity was unique to troubled financial firms (not stable companies such as GS and JPM), I surmised that something might be afoot: a systematic attempt to bolster the shares of taxpayer supported companies that--for political reasons--could not return to the bailout well. Why such an attempt? Perhaps to reimburse the largest shareholder of the institutions and position these companies to raise capital on their own. They certainly weren't going to raise their own capital as languishing two-dollar zombie stocks.

Of late, we've seen articles in the mainstream media suggesting that the volatility in these troubled financial companies' shares is attributable to short-covering. "When large numbers of short sellers close their positions by buying shares at the same time, the stocks involved can register explosive - and often inexplicable - gains," the Financial Times article explains.

On the surface, this makes sense. The S.E.C. has been toying with the idea of reinstated curbs on short selling, and this could spark short covering among financial firms. Indeed, according to the ShortSqueeze site, C, AIG, FNM, and FRE have large short positions as of the most recent report, amounting to approximately 11%, 20%, 6%, and 10% of their total floats respectively.

Once we look at the magnitude of the recent activity in these stocks, however, the idea that this rise is largely a function of short covering becomes implausible. As we see with Citigroup (C) stock (top chart) and AIG, FNM, and FRE (bottom chart), the August trading volume alone has exceeded the total floats of these companies--and certainly their total short interests--by factors of 4 or more. While short covering no doubt has contributed to the rise in these shares, traders and investors could have covered every single short position and still not accounted for the lion's share of recent activity in the stocks.

We also hear the idea from the mainstream media that some of the huge volumes in these stocks can be attributed to "daytraders". This conjures images of young guys in proprietary trading shops churning trades all day long. I know or work with a number of the largest discretionary prop firms in the country and am aware of none with the capitalization to pull off trading volumes of this magnitude. It boggles the imagination that, suddenly in August, daytraders across the country began trading volumes of shares in excess of total NYSE volume. Again, I have no doubt that daytraders have been playing these stocks and contributing to their rally; I just cannot see them as primary drivers of such activity.

The fact that the August trading volumes in C, AIG, FNM, and FRE far exceed their total floats also suggests that individual large buyers of these companies are not driving their rise. To achieve volumes of this staggering magnitude, some kind of churning of shares must be occurring--not just block purchases over time. The only kind of trading technology I know of that is capable of such churning is high frequency, algorithmic trading. This was also the recent conclusion of Zero Hedge. Firms engaging in such strategies, including some of the largest investment banks, do indeed have the capital to trade such volumes.

Of course, these high frequency trading programs are supposed to be market making only, not drivers of directional market moves. As a federal prosecutor noted when there was an alleged theft of some of these programs, however, such technology can "manipulate markets in unfair ways".

Are these bailout beneficiaries now enjoying the fruits of market manipulations? I don't know the answer to that, but I find it interesting that none of the principals of the firms appears to care. According to a recent article, the chair of Freddie Mac indicated that he had "no idea" what these trading volumes were all about. The article also noted that, "Representatives for Fannie, the SEC, AIG, FINRA and the NYSE declined to comment. Spokeswomen for Treasury, which owns most of AIG, and the Federal Housing Finance Agency, which holds Fannie and Freddie in conservatorship, also wouldn't comment."

Somehow I think if the tables were turned and huge volumes were being executed on the *short* side to drop the share values of these companies, we would hear a renewed hue and cry about manipulated markets and the need to curb rapacious short sellers. When there is unprecedented volume lifting the shares of seemingly worthless companies in a manner that could only be accomplished by the directional programming of trading systems, company officials and financial regulators appear to be silent lambs.

I don't have answers to many of these puzzling observations; I do recognize good questions worthy of inquiry. If we're not getting comment from authorities and the firms themselves, where is the investigative financial press? Bland assurances that we're merely seeing heightened short covering and daytrading activity simply don't pass muster.

I will be tracking this story during the week ahead; follow my tweets for updates.

Disclosure: I do not hold long or short positions in any of the above mentioned stocks and have not held positions in any of them during 2008 or 2009.
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August 26, 2009

Words from the (investment) wise for the week that was (August 24 – 30, 2009)

Stock markets, in general, again logged gains last week as pundits perceived economic data to be better than expected. But the recovery path is not home and dry yet, as shown by declines in crude oil, a number of emerging stock market indices, small cap indices and high-yield corporate bonds. All said, risky assets displayed some fatigue despite positive economic reports.

Caution remained over the robustness of any economic upswing, as reflected by the solid performance of government bonds, with safe-haven currencies such as the US greenback and the Japanese yen also edging up.

As expected, Federal Reserve Chairman Ben Bernanke was appointed by President Barack Obama on Tuesday to serve a second term. “Mr Obama is said to credit Mr Bernanke with a leading role in helping to avert economic catastrophe. By reappointing Mr Bernanke – who worked in the Bush White House – Mr Obama can also emphasize his bipartisan credentials at a time when he is embroiled in a fiercely partisan battle over healthcare reform,” commented the Financial Times.

Source: LOLFed.com

However, critics of Obama’s decision were plentiful and Morgan Stanley’s Stephen Roach, blaming Bernanke for his pre-crisis actions, said (via the Financial Times): “It is as if a doctor guilty of malpractice is being given credit for inventing a miracle cure. Maybe the patient needs a new doctor.” Bill King (The King Report) ascribed the stock market rising subsequent to Obama’s announcement to a “thank God it’s not Larry Summers” rally.

The past week’s performance of the major asset classes is summarized by the chart below – a set of numbers showing both the S&P 500 Index and government bonds rising, indicating an expectation of a subdued economic recovery and that the Fed’s monetary policy will stay easy for an extended period of time.

Source: StockCharts.com

A summary of the movements of major global stock markets for the past week, as well as various other measurement periods, is given in the table below.

The MSCI World Index (+1.3%) and MSCI Emerging Markets Index (-0.2%) again followed separate paths last week as China, Hong Kong and Brazil underperformed. Mature stock markets have recorded gains for a straight seven weeks, whereas emerging markets have seen two back-to-back weeks of declines. The end result is that emerging markets have now underperformed developed markets for four weeks running. Could this be a sign of a retrenchment in risk appetite?

The major US indices extended their gains to two consecutive weeks, including eight straight up-days in the case of the Dow Jones Industrial Index, before getting snapped by a decline on Friday. The year-to-date gains are as follows: the Dow Jones Industrial Index +8.7%, the S&P 500 Index +13.9% and the Nasdaq Composite Index +28.6%. With declines on three days, the Russell 2000 Index was the odd index out last week, but still boasts a respectable +16.1% gain since the beginning of 2009.

Click here or on the table below for a larger image.

Top performers in the stock markets this week were Lithuania (+28.2%), Estonia (+17.3%), Latvia (+12.6%), Egypt (+9.6%) and Iceland (+9.1%). The top three positions were all occupied by eastern European countries where worries over the risk of some economies collapsing have receded. At the bottom end of the performance rankings, countries included Nepal (-4.0%), China (-3.4%), Kenya (-2.7%), Uganda (-2.6%) and Bangladesh (-1.8%).

The Chinese Shanghai Composite Index recorded its fourth consecutive down-week as investors remained concerned about how long China’s exceptionally loose monetary policy will continue. The banking regulator has already instructed lenders to raise reserves to 150% of their non-performing loans by the end of this year – up from 134.8% at the end of June, and the central bank has increased money-market rates to drain liquidity.

However, US Global Investors opines that historically sustainable market rallies out of a cyclical trough usually start with an expansion in valuation multiples followed by a recovery in earnings. “China may be poised to enter this second stage against a favorable macro backdrop. With surging money supply and significantly lower commodity prices from a year earlier, corporate earnings in China could produce upside surprises going forward,” said the report.

Source: US Global Investors – Weekly Investor Alert, August 28, 2009.

Of the 96 stock markets I keep on my radar screen, 77% (last week 47%) recorded gains, 18% (47%) showed losses and 5% (4%) remained unchanged. (Click here to access a complete list of global stock market movements, as supplied by Emerginvest.)

John Nyaradi (Wall Street Sector Selector) reports that as far as exchange-traded funds (ETFs) are concerned, the winners for the week included CurrencyShares Russian Ruble (XRU) (+5.0%), First Trust Amex Biotechnology (FBT) (+4.8%), iShares MSCI Australia (EWA) (+4.5%) and iShares Silver Trust (SLV) (+4.2%).

On the losing side of the slate, ETFs included Claymore/AlphaShares China Real Estate (TAO) (-4.2%), Market Vectors Coal (KOL) (-3.1%), SPDR KBW Regional Banking (KRE) (-3.1%) and iShares MSCI Brazil (EWZ) (-3.0%).

As far as credit markets are concerned, Bloomberg reported that banks were increasing lending to buyers of high-yield company loans and mortgage bonds at what might be the fastest pace since the credit-market debacle began in 2007. “Federal Reserve data show the 18 primary dealers required to bid at Treasury auctions held $27.6 billion of securities as collateral for financings lasting more than one day as of August 12, up 75% from May 6. The increase over that 14-week stretch is the biggest since the period that ended April 2007, three months before two Bear Stearns Cos. hedge funds failed because of leveraged investments.” This is a sign of credit markets moving towards normalization.

Referring to the mind-boggling US budget deficit, the quote du jour this week comes from 85-year old Richard Russell, author of the Dow Theory Letters. He said: “Comes the dawn – and the penalty. There’s a price to be paid for Bernanke’s all-out battle to thwart the bear market. And now it’s being told. Yesterday the White House itself admitted that the budget deficit over the next 10 years would be $2 trillion above their original outrageous estimate of $7 trillion dollars.

“As I said all along, it would have been better to have allowed the bear market to run its course to conclusion. That would have been extremely painful, but the US would have recovered. However, deficits in the trillions could ultimately ‘break’ this nation. I can’t imagine how Bernanke-Obama plan to handle the coming mind-blowing deficits, plus the interest on those deficits.

“The pressure will be on the reserve status of the dollar, the level of the dollar compared to other international currencies, interest rates, and the standard of living of all of us living in the new ‘banana republic’, the United States of ‘bankrupt’ America.

“When you take all this in, you can begin to see how this bear market could end with stocks selling below known values and people despising the stock market and capitalism.”

Other news is that the Fed must for the first time identify the companies in its emergency lending programs – created to address the financial crisis – after losing a Freedom of Information Act lawsuit against Bloomberg. The Fed is likely to appeal against the order on the grounds that such disclosure would threaten the companies and the economy.

Also, the Federal Deposit Insurance Corporation (FDIC) on Thursday said (via the Financial Times) the number of “problem banks” had grown from 305 to 416 during the second quarter, representing total assets of $299.8 billion. In the meantime, the FDIC’s deposit insurance fund, which insures up to $250,000 per depositor in each bank, had fallen to just $10.4 billion – the lowest level since March 1993 – as a result of all the bank failures, tallying 84 so far in 2009.

Next, a tag cloud of all the articles I read during the past week. This is a way of visualizing word frequencies at a glance. Key words such as “market”, “Fed”, “bank”, “prices”, “rates” and “economy” featured prominently. Interestingly, “recovery” is still moving up the ranks as the global economy seems to have turned the corner.

The key moving-average levels for the major US indices, the BRIC countries and South Africa (from where I am writing this post) are given in the table below. With the exception of the Chinese Shanghai Composite Index, which fell below its 50-day moving average about two weeks ago, all the indices are trading above their respective 50- and 200-day moving averages. The 50-day lines are also in all instances above the 200-day lines and therefore not threatening the bullish “golden crosses” established when the 50-day averages broke upwards through the 200-day averages.

The August 17 lows that represent short-term support levels for the major US markets and are as follows: Dow Jones Industrial Index (9,135), S&P 500 Index (980) and Nasdaq Composite Index (1,931).

Click here or on the table below for a larger image.

For more on key levels and some ideas regarding the short-term direction of the S&P 500 Index, Adam Hewison’s (INO.com) short technical analysis provides valuable insight. Click here to access the presentation.

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A heartfelt rap from Eminem says it well: Never let your passions, drive, and obsessions damage the relationships that ultimately sustain you.

As I approach the ripe old age of 55 this coming week, I think about what's most important and become ever more appreciative of family, friends, and colleagues, many of whom I've met through the blog.

Many thanks--

Brett

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Late Night with Marla Singer.

Chat up the DJ/Send Tunes: via AIM here.

Pull our bits off the interweb: http://cdo.zerohedge.com:8000/listen.pls

Here is some data from the Atlanta Fed on cash buyers in the southeast. This is part of the economic and financial highlights the Atlanta Fed puts out weekly.

Click on graph for larger image in new window.

From the Economic Highlight:

Orlando and Tampa Realtor data [earlier] showed an increase in the share of cash buyers, but in recent months that share has weakened somewhat.

In the Knoxville market, where home sales and prices did not accelerate as much as in Orlando and Tampa, the share of cash buyers had peaked earlier in the year but has tapered off since March.

The percentages for Orlanda and Tampa are similar to the percentages in the lower priced areas of the California Bay Area: see the table in Carolyn Said's recent article in the San Francisco Chronicle 'Cash is king' in market for foreclosed homes

I suspect many of these cash buyers are investors buying for cash flow (not the speculators we saw during the boom). Frequently these investors are buying in the same areas as first-time home buyers (some motivated by the $8K tax credit) - and the competition is pushing up prices and reducing supply. Now if we just had better first-time home buyer data ...

I came across this article from 321gold.com written by Kal Gronvall on Aug 28, 2009.  Whether or not you believe in “conspiracy theories” or whether or not there is a “global elite” planning every move on the planet, this editorial is at the very least, compelling. Read the entire article called Vital Signs and the “Fix” by clicking HERE.  Keep an open mind while also being mindful that it is an

* Recovery hampered by firms without credit, weak consumers; I'm looking forward to being a guest contributor for The Big Picture next week;

* A Chicago prop firm is offering its trading signals and more via subscription;

* What's working in pairs trading;

* How cool is this? Dual-screen laptops. (shout out to Drudge);

* Key skill: A prop trader illustrates reading the tape;

* Leveraged ETFs can be toxic;

* Developing intuition in trading;

* Why is AIG soaring? The same question might be asked for a number of TARP recipients.
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