Fin/Inv

A very invigorated and activist Michelle Caruso-Cabrera points out what Zero Hedge has been claiming for some time: that the SEC should be disbanded post haste (although it appears Michelle's gripe is more with the lack of individual responsibility by the American citizen...alas that is arguably the mootest point in the history of the universe- exhibit A: McDonalds desert wrappers that claim "contents may be hot," to avoid frivolous multimillion dollar lawsuits from idiot customers). At least the former SEC Chairman Harvey Pitt confirms that the SEC (and the Rating Agencies) has been an abysmal failures in detecting and preventing any form of market abuse, and frankly, does not deserve a one cent budget, let alone $900 million:

Those who sit back and think that they can rely either on the government or rating agencies or even third party experts, are making a huge mistake.

Thank you Harvey, we could not have said it any clearer ourselves. As a former Chairman of the agency you should know.

Yet Pitt is correct in the following:

"I think the most important thing for the government to be doing is getting a constant flow of significant data from everyone who takes money from the investing public and then analyze that information, and disseminate it back to the markets. We are not seeing that and therefore our markets are not transparent."

Start immediately with those who now effectively run the markets.

 

Presented without commentary, although we fully expect yet another taxpayer funded study to calculate societal impact that this piece by Kyle Fee of the Cleveland Fed has had. And so forth.

The Effects of “Cash for Clunkers” on the Auto Industry

As of October 1, the “Cash for Clunkers” program has processed 670,557 reimbursements totaling $2.8 billion dollars. The program has received rave reviews in the media for its short-term success, but the open question is whether short-term successes facilitate long-term growth. Will the program jump start the restructured auto industry or will it result in mere transitory demand shifts, “stealing” from future consumption?

There is no doubt that the “Cash for Clunkers” program—known officially as the Car Allowance Rebate System (CARS)—provided a much-needed shot in the arm for the ailing auto industry. From July to August, total auto sales increased 25.4 percent. Passenger car sales grew 29.7 percent, lightweight truck sales 20.2 percent. As expected with a program that was intended to improve fuel efficiency, sales of medium and heavy truck decreased 5.6 percent. In dollar terms, auto sales increased 10.6 percent—for comparison, total retail sales increased 3.0 percent over the same period. Note though, that removing the government contribution of $2.8 billion drops the increase in auto sales to 5.7 percent and total retail sales to 1.9 percent.

Thanks to the “Cash for Clunkers” program, auto sales have increased markedly relative to this same time last year—total sales are up 3.6 percent, and passenger car sales are up 17.4 percent. On the other hand, lightweight truck sales remained negative (−9.6 percent), as did and medium and heavy truck sales (−33.5 percent). In dollar terms, auto sales and total retail sales decreased year over year, 1.0 percent and 6.0 percent, respectively. Removing the $2.8 billion government contribution from the calculations knocks down auto sales to −5.3 percent and total retail sales to 6.9 percent, year-over-year.

Another benefit of the CARS program can be seen in the continued decline in domestic auto inventories. In August, inventories decreased 16.3 percent to 708,700 units, a new record low even in the age of lean inventories. August also saw auto and light truck production continue increases off of historic lows seen in June. Sharp inventory declines point to further increases in auto production, as automakers will need to rebuild inventories. However, automakers face the difficult task of determining the optimal production schedule to obtain the best mix and level of inventory in the face of uncertain consumer demand.

The inventory-to-sales ratio is one measure to keep an eye on as automakers rebuild inventory levels. The ratio hit an all-time high of 4.6 in January 2009, after a year of falling sales and elevated inventories as the consumer pulled back. Auto production shutdowns over the spring and summer have helped bring the ratio down amid weak sales. The “Cash for Clunkers” program caused the ratio to slide from 2.4 in July to 1.6 in August.

It would be naive to expect the level of auto sales to continue at rates seen in August, which makes managing the inventory rebuild that much trickier. Even with the “Cash for Clunkers” program, auto sales accounted for only 20.5 percent of total retail sales, breaking the 20 percent mark for the first time since May 2008. Moreover, auto sales as a percentage of total retail sales are well off of the 2000-2007 average of 25.2 percent.

In the end, the CARS program subsidized total auto sales, decreased inventories, and increased production, providing temporary relief to an ailing and restructuring domestic auto industry. However, the risk going forward is that long-term health of the automakers relies on a debt-burdened consumer, who may pull back on auto sales in the near term because of a government-enacted policy that basically “stole” from future demand. Under these circumstances, automakers must be careful when ramping up production in the fourth quarter to avoid building up inventories in the face of declining sales.

That oughta show ‘em:

>

via Salon

Hat tip Tim B!

Below we provide a snapshot of various currency ETFs along with their recent performance. The US Dollar's weakness has been pretty much every other currency's gain, with some obviously doing much better than others. As shown below, the Australian Dollar ETF (FXA) is up the most year to date with a whopping gain of 24.81%. The G10 currency strategy ETF...

Canwest Media, Canada's largest media company, which reaches "20 million Canadians who turn to [it] every week as their source of news, information and entertainment," just announced that its Canwest, CMI, Canwest Television Limited Partnership (including Global Television, MovieTime, DejaView and Fox Sports World) as well as The National Post Company units have filed for creditor protection (read Bankruptcy, or technically Chapter 15, and specifically, 09-15994, U.S. Bankruptcy Court, Southern District of New York), as part of a plan to refinance its excessive debt load. Interestingly, so confident is Canwest in investors' willingness to throw their money at anything, including bankrupt companies, that is bankruptcy plan contemplates an up to $65 million new equity raise, which apparently has still not been formalized. This plan has been, brought to you by the company's legal team from Bracewell & Giuliani, headed by Evan Flaschen.

From BusinessWire:

The CMI Entities' have approximately $65 million of cash (following the recent sale of the shares of Ten Network Holdings Limited) and have arranged debtor-in-possession (“DIP”) financing of up to $100 million to enable its business units to meet their obligations to employees and suppliers of goods and services provided after the filing date.

Under the proposed recapitalization, creditors of the CMI Entities whose claims are compromised under the plan of arrangement, including the holders of the CMI 8% Notes, will receive common shares of a restructured Canwest. Existing shareholders of the Company will receive 2.3% of the shares of a restructured Canwest. It will be necessary for the Company to obtain new equity financing in the amount of at least $65 million. The percentage of the equity of a restructured Canwest to be received by affected creditors will be dependent on the percentage of equity sold to new investors. Leonard Asper and members of his family have reached an agreement with the Ad Hoc Committee on terms which the Ad Hoc Committee would support for the investment by the Asper family of up to $15 million in connection with the recapitalization. The Asper family’s commitment would be subject to a number of conditions, including securing a co-investment from one or more Canadians, acceptable to all parties. Canwest has not made any determination with respect to the terms of any proposed equity investment by the Aspers or any other parties but welcomes the commitment of the Asper family to assist Canwest in achieving a successful recapitalization.

The case has an interesting structure as can be seen by the Affidavits by Flaschen and Mrgure, provided below for your reading pleasure.

What is more interesting, is who the creditors on the ad hoc committee are, as they will effectively convert their $761 million in existing 8% bonds for full equity control. One wonders how many of these are potentially TBTF enterprises that may or may not have repaid their TARP holdings, and which would now have a key stake in determining content for one of Canada's primary (deleveraged) media corporations, and whether or not the FCC is taking a close look at this. Zero Hedge is currently going thru all relevant filings and will present appropriate findings.

 

This just further highlights why you have to be careful when following analyst calls. UBS today resumed coverage of the insurance group with Buy ratings on 2 of our Growth Portfolio stocks in Hartford Financial (HIG) and Phoenix Companies (PNX). The HIG call is just mind boggling as the target goes from $13 to $35. Basically by following UBS, investors missed over a 100% gain already. Yikes!And

Okay, I have good and bad news for you. The good news first:

The daily Zero was spot on.

The bad news?

The daily Zero was spot on.

Wish I would have listened - but as this tool only goes back about six months now I could not justify adjusting my positions until I had confirmation that the current EWT count had been disqualified. It could have been wrong and yesterday’s push might have been reversed - but (un)fortunately the DZ turned out to be right on the money. Which however gave me added confidence in my decision to unwind my positions and go back into cash during today’s intra-day descend. If now both the DZ and the new EWT count are wrong then I am basically SOL and might need to find another racket

Today’s tape was one big freak show. The highlight of the day from a Zero Lite perspective was a beautiful divergence which allowed me to get rid of my puts at slightly better premiums (and bid/ask spreads). After that we’re talking woodchipper and the only trade I took was a Geronimo alert which concluded successfully. It’s good to see that this thing is ticking again, after it had a bad day or two last week.

Program Trading Update:

geronimo/ES: +2.5

There was actually a second alert that coincided with the close of the first one and thus didn’t trigger. Eric and I talked about this and we have some ideas on increasing the profit margin on geronimo. We’ll test a modified version of it on our end and will report back if we find that the release of a new version is justified and does not impair the current performance ratio.

As a final nail in the sarcophagus of the bears Mr. VIX confirmed the buy signal in equities today. Yet another reason why I decided to go back into cash. Yes, something really strange could be going on and we might be dropping down down down right from here. But I am a technical trader at heart and thus can/should not rely on hope and personal opinions for my trading - as far as I am concerned today was a huge slap in the face for the bears as they did not manage to resolve the highest probability wave count as of yesterday night. Thus, holding long/medium term short positions, at least in my trading universe, cannot be justified. This is not about ‘capitulation’ - it’s about looking at one’s chart and having to admit that your current plan and position is wrong, thus you move to the sidelines. There will be another day, and for that I will preserve my resources. In the interim there is geronimo - I’m going to continue scalping this tape until I see an opportunity which leads me to think that the odds are in my favor. As of right now I can not assume that they are.

Cheers,

Mole

"I own the yen so I am very pleased to see the yen going higher. Various things are happening in Tokyo and Japan. They are the second largest creditor nation in the world plus their government has given big incentives for people to bring the yen back into Japan. Billions of yen have been invested outside of Japan and now there is good reason for them to bring it back.

So you have a new government [in Japan], you have incentives to bring the yen back, you have the carry trade unwinding, there are many reasons for the yen to continue to go higher. I own the yen and I hope it does go higher."

Mark Cuban gets the FTC's artificial distinction between bloggers and journalism exactly correct.

Full disclosure: I had a Press Pass to the Clinton Global Initiative, and got things such as a disc copy of Financial Football* and a video ostensibly about the Rwandan National Forests (sadly, not so interesting) as a result.


*It's not my fault Visa describes it as "Financial Soccer" on the U.S. edition of their website.

"If you look at the next 10 to 20 years in the West, I don’t see how the lifestyle of the average person will improve meaningfully. On the other hand, if you look at a country like Vietnam, they have a GDP per capita annually of $800 which may go to $3,000 over the next 15-20 years.

The same is true for China and India. You suddenly have a middle class of 230 million people in India who will be buying cars like the $2,500 Nano and other goods.

Once a family moves from the bicycle to the motorcycle, it’s an improvement in their standard of living. But when you move to the car and drive your children to school in your car, it’s a huge increase in your standard of living and your social class."

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.

Submitted by Edward Harrison of Credit Writedowns

The following is my translation of a much-discussed article that appeared in Swedish daily Svenska Dagbladet at the weekend.  This information was being withheld from the public and leaked at an inopportune moment.

Note that the Swedish government has secretly been preparing the banks for financial Armageddon, encouraging Swedbank into a rights issue which arguably was conducted under fraudulent pretenses – very reminiscent of Bank of America’s shareholder vote for the merger with Merrill Lynch.  In August, I asked “Why is Swedbank doing a second rights issue?.” Now we know.

This is the kind of thing that topples governments.

Secret meeting on the crisis in Latvian

Finance Minister Anders Borg has had secret talks with the major Swedish banks and warned of a near economic collapse in Latvia, Svenska Dagbladet has learned. A nightmare scenario for Swedbank and SEB.

Yesterday Anders Borg issued a stark warning to the Latvian Government that it must take its financial problems seriously.

The promised cuts must be implemented when the new Latvian budget is presented in late October, according to Finance Minister.

The international community’s patience is very limited, stressed Anders Borg at the summit of European finance ministers in Gothenburg where he hosts as the finance minister in Presidency.

His statement came after recent reports from Latvia on political divisions in the ongoing budget negotiations.

But for Swedish bank heads, Borg’s move came as no surprise. According to several independent sources, Anders Borg, over the last few weeks, has contacted the senior management of major banks and warned them of an acute political crisis in Latvia. This in turn can lead to both a devaluation and eventually a default. It is a kind of national bankruptcy, similar to what hit Iceland last fall.

In secret talks with Swedish banks, Anders Borg explained the growing pressure that exists within the International Monetary Fund (IMF) to force Latvia into a devaluation.

A collapse in Latvia would have serious implications for several major Swedish banks. With a devaluation the already high loan losses would explode overnight, especially because many Latvians have loans in euro, which would become significantly more expensive.

Swedbank has up to today lent 61 billion kroner to Latvian individuals and businesses. The figure for SEB is 40 billion, while Nordea has 30 billion in loans.

For Swedbank a possible devaluation would come at an especially poor time. The bank is currently in the middle of a second rights issue in which shareholders have been asked to put up 15 billion.

CEO Michael Wolf’s message to shareholders and customers has repeatedly been that the money would be used for offensive investments. To then have to deal with a severe national bankruptcy in one of its major markets and see new issue money disappear into a black hole would be a severe blow to the bank’s credibility.

That a serious crisis approaches in Latvia has already been flagged by Anders Borg in the budget he presented a few weeks ago. On page 99 he writes:

"Since it is difficult to safely assess Latvia’s ability to pay and with conditions for recovery, one cannot completely exclude the risk of a major default."

The background to the current situation is a crash in the Baltic economies. Latvia is just the worst hit. This year, the country’s GDP is to shrink by as much as 18 percent.

This led to a rescue package cobbled together at Christmas last year. The International Monetary Fund (IMF), the EU and the Nordic countries decided on payments totaling SEK 80 billion, of which Sweden accounts for 7 billion.

An essential condition for aid money, however, is that Latvia implement substantial cuts in order to get the economy in balance.

This means wage cuts for state employees in over 15 percent, including hospital closures and major tax increases.

In July of last year Latvia went to reduce their spending for next year’s budget by more than 7.5 billion crowns.  It opened the door to  a further one billion disbursements from the IMF and the EU.

But then, the domestic political situation deteriorated. The previous Latvian government fell in February and since then the country has been governed by a coalition of five parties. The Prime Minister is Valdis Dombrovskis.  Next year come elections again.

Two of the parties in this five-party coalition have now objected to the previously announced savings of 7.5 billion. Some want to go back on parts of the promise and believe that a reasonable savings is instead about 4 billion kroner.

The goal to save 500 million lats (7.5 billion kroner) is practically impossible to achieve without eliminating several parts of the economy, Vents Armands Krauklis from the influential Liberal Party, which sits in the government coalition, said the day before yesterday.

24 hours later came the response from the EU.

"Latvia does not have much room for maneuver; It must fulfill its letter-of intent," said Anders Borg yesterday in Gothenburg to the news agency Direkt.

Original Source

Hemligt möte om lettisk kris – Svenska Dagblaget

Also see my August post, “Zombie banks Scandinavian edition and the threat of too big to fail.” This problem looms even larger now.

Update 7 Oct 2009: minor translation corrections were made resulting from reader suggestion.

Während in einigen asiatischen Industrienationen, allen voran in China, die Industrieproduktion im August 2009 sogar mit einer Rate von +12,3% im Vergleich zum Vorjahresmonat anstieg (Singapore ebenfalls +12,3%, Indien +6,8% und Südkorea +1,1%), geht es in Großbritannien mit ungebremster Dynamik weiter abwärts. Im August 2009 fällt der Output der Industrie in UK auf den tiefsten Stand seit September 1987!!!

> Der breit gefasste Total Production Industries Index fällt auf 85,9 Indexpunkte um kräftige -2,5% zum Vormonat und um -11,2% zum Vorjahresmonat! Das Hoch beim Output der Industrieproduktion wurde im November 2000 mit 104,8 Indexpunkten markiert, ein Einbruch seit dem von -18%. Selbst 2007 wurde das Hoch aus dem Jahr 2000 nicht mehr erreicht. Der Langfristchart seit Januar 1968. <

Großbritannien ist eine klassische Bubbleökonomie, getragen vom Finanzsektor, einer unglaublichen Kreditausweitung und den daraus entstandenen Vermögenswertblasen, vor allem am Immobilienmarkt. Industrielle Wertschöpfung ist seit langem auf dem Rückzug. Noch deutlicher als am breiten Industrieproduktionsindex wird dies an den Beschäftigungszahlen im verarbeitenden Gewerbe (Manufacturing) sichtbar.

> Die Jobs im verarbeitenden Gewerbe sind seit Beginn der monatlichen Datenerhebung im Januar 1985 fast ununterbrochen im Sturzflug. Nur noch 2,634 Millionen arbeiten im verarbeitenden Gewerbe im Juli 2009. <

Im Gegensatz dazu arbeiten immer noch 6,4 Millionen im künstlich aufgeblähten Finanzsektor (Finance & Business Services). Die Arbeitslosenquote erklomm mit 7,9% den höchsten Stand seit April 1995, mit aktuell 2,47 Millionen offiziell registrierten Arbeitslosen. Aber auch in UK sind diese Zahlen geschönt, ein wenig mehr Wahrheit findet sich unter der Rubrik Economically inactive! Dort befinden sich 7,986 Millionen ohne Job bzw. 21,1% aller Arbeitsfähigen zwischen 16 und 64 Jahren. „Nur“ 5% bzw. 1,607 Millionen suchen aber angeblich aktiv einen Job (Claimant count)!

Vormals getragen von den neoliberalen Vodoo-Ökonomen (Spekulation statt Produktion) lag nun nach dem Platzen der britischen Immobilienblase und dem Platzen der Kreditexzesse der deregulierten UK-Banken, die Rettung aus den entstandenen Verwerfungen beim Staat. Wie auch in den USA wurden und werden exorbitante Summen von Staat und Zentralbank in das britische Finanzsystem gepumpt und damit wurde vorerst das Überleben der britischen Banken gesichert. Das Kredit- und Bankenrettungsprogramm hat eine maximale Exposition von bis zu 1,4 Billionen Pfund (2,3 Billionen Dollar). Die Bank of England versucht das Bankensystem zusätzlich mit einem historisch niedrigen Leitzinssatz von nur 0,5% zu unterstützen.

Auch diese staatlichen Summen haben bisher nur zur maximalen Fehlallokation geführt, der realwirtschaftliche Effekt dieser Aktionen ist bei NULL, die sogenannten Green Shoots haben nicht stattgefunden. Das britische Pfund, wie auch der Dollar werden weiter abschmieren und zusammen mit den Bergen an Kreditschrott in den Bilanzen der Banken den sicheren Weg in ein Desaster ebnen, es ist alles nur eine Frage der Zeit. Ohne Wertschöpfung, Jobs und Einkommen sind die britischen Kreditpyramiden nicht bedienbar!

Die Schulden der privaten Haushalte sind mit am höchsten in der Welt, sie liegen bei 132% der Einkommen! Gewaltige 1,457 Billionen Pfund an privaten Hypotheken und Konsumentenschulden stehen zum Zinsdienst und theoretisch auch irgendwann zur Tilgung an! Da sieht die Staatsverschuldung im August 2009 mit 57,5% des BIPs bzw. 804,8 Mrd. GBP (632,8 Mrd. GBP August 2008) sogar noch vergleichsweise moderat aus.

Ganz im Gegensatz zu den harten Wirtschaftsdaten zeigen auch in UK die Stimmungs- und Erwartungsindikatoren viel Positives an, so auch der Index des Verbrauchervertrauens:

> Das Verbrauchervertrauen in Großbritannien mit 71 Indexpunkten auf dem höchsten Stand seit April 2008! <

Die Beurteilung der aktuellen Lage (Present Situation Index) durch die Verbraucher ist weiter schwach, der Subindex dümpelt mit 19 Indexpunkten im September 2009 nahe der Tiefs (markiert mit 16 Punkten im Juli 2009) herum!

Die Erwartungshaltung der Verbraucher geht allerdings fast so ab wie der Goldpreis. Der Expectation Subindex steigt auf den höchsten Stand seit Dezember 2005! Nur die Substanz dieser optimistischen Erwartungen ist wesentlich fragwürdiger:

> Die Erwartungskomponente steigt im September 2009 auf 102 Indexpunkte, nach dem Tief im September 2008 mit 53 Punkten. Quelle Daten: Nationwide.co.uk/consumer confidence data <

Die Stimmungs- und Erwartungsindizes spiegeln wenig die Realität wider. Sie sind Werkzeug einer positivistischen Wirtschaftsberichterstattungs-Propaganda, die ausschließlich auf das Wunschdenken der Befragten und vor allem der Statistikerheber basieren!

Quelle Daten: Statistics.gov.uk

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Today’s Fusionomics report on Gold:

~~~

Gold jumped to above $1039 on dollar weakness, a Bank of America supportive report and strong Indian jeweller demand. That’s above the previous record intra-day high of $1034, hit on 17th March 2008. Indeed, factors that could still drive the gold price higher:

1. An increase in inflation fears, which have played only a small part in the rally so far.

2. A creeping loss of confidence in paper currencies and the US dollar.

3. The psychology of the market. The headlines that gold is setting new record highs in nominal terms will inevitably draw attention to the fact that gold is still trading well below the all-time high of around $2,300 in real (inflation-adjusted) terms, which was seen briefly in 1980. This will encourage talk of the potential for further explosive price gains.

The upshot is that don’t be surprised to see gold break still higher in the coming weeks. However, a mix of unfounded inflation fears, conspiracy theories and speculative demand looks more like the ingredients for a speculative bubble than the grounds for a sustainable increase in prices. Recall that after peaking at around $850 on 18th January 1980, gold quickly slumped to $650 by the end of January and below $500 again by April. While consolidation will likely occur, key support levels at these breakout points may hold leading to gradual higher gold prices over the intermediate/long term. The focal point of such a scenario would be pinned on the US Dollar.

~~~

Contact Peter Greene for more information about institutional research & trading:

Trading/Institutional Contact

From Zachery Kouwe and Eric Dash at the NY Times DealBook: Sternlicht, Ross Strike Deal for Corus Assets

The Federal Deposit Insurance Corporation plans to announce on Tuesday that it will sell about $4.5 billion of troubled real estate loans that it recently seized from Corus Bancshares to a group of private investment firms led by the Starwood Capital Group ...

Under the terms of the complex deal, Starwood and its business partners agreed to pay $554 million for a 40 percent equity stake in the loan pool while the F.D.I.C. keeps a 60 percent stake ... By providing guaranteed financing to the buyers, the government hopes that they will be able finish developing the condo projects or turn them into apartments or hotels.
...
The sale reflects an estimated price of about 50 cents on the dollar for the batch of troubled loans ...

The details are not available yet.

Certain traders I've observed seem to be habitual contrarians. If the market is screaming higher and looking like a trend day to the upside, they're looking for places to sell. If the market is slow and rangebound, they're hunting for the next breakout move.

Instead of identifying what the market *is* doing and following that, habitual contrarians try to anticipate the *next* move. Interestingly, that next move is generally something different than the market is presently doing.

Habitual contrarians are trading a need to be right: a need to make big market calls. They are engaging in trading to feed their ego, not build their account statements. It isn't enough to go for the high probability trade; they want to call the turn or break.

Many, many good trades are decidedly unsexy. They involve buying pullbacks in an uptrend or fading low volume moves to a range extreme. Successful traders subordinate ego; in their dance with markets, they don't need to lead.

Theirs is a situation in which unmet needs from outside of trading conspire to sabtotage trading. I will be writing more about this shortly.

.

Submitted by Nic Lenoir of ICAP

Everyone who grew up watching James Bond must have had a kick reading the news last night or this morning, and finding out about secret meetings between China, Russia, Gulf countries, France, and Brazil, plotting to organize the demise of the US dollar. Unlike in Goldfinger, the villains this time weren't planning to plant a bomb in Fort Knox, but rather stop using the greenback, and instead price currencies against a basket of currencies composed of (drums please): the yuan, the ruble, a newly created Arab currency, the euro, the yen, and gold. I don't remember reading the Brazilian real but we could throw it in there so we don't hurt anybody's feelings.

Let's be serious. Russia was inches from begging the IMF for money last fall. The Yuan is not freely tradable and money supply in China is growing at twice the pace at which it is growing in the US, the UK, or Europe. The Chinese government actually believes the acronym GDP stands for printing money to buy commodities. The Euro has shown how using a single currency for a set of different economies is extremely difficult to manage. Spain and Ireland used the euro to fuel (or extend) bubbles before completely collapsing in near-depression. Setting appropriate rates is very difficult and there is little doubt that if more Eastern European countries get integrated the problem will be magnified, as these countries will jump on the opportunity to become centers of production, and this time they will be protected under the same exchange rate regime as the rest of the EU, unlike last fall where many of them almost went bankrupt. Then comes the Yen, it has been used as part of jokes involving gazillions in several Hollywood comedies over the past 20 years but other than that it has mainly fueled every carry trade before the USD joined it.

Honestly people need to think really hard before they start discussing a new world reserve currency or other options of the sort to replace the USD. Every currency needs to be associated with an interest rate regime, which takes you back to the problem discussed before regarding the Euro. All you will achieve with a unique currency is kill any cost of production differences across the countries adopting the new currency, and align everybody on a single living standard benchmark. With different currencies, if producing abroad is cheaper a country will import, and with a negative balance of payments the currencies will adjust to reflect, thereby smoothing out the process. Eliminate foreign exchange as your equalizer and all you will have is the alignment of everybody's living standard on that of Chinese farmers. That's not even discussing bubbles that could be formed by having a standard rate curve for everybody under that new currency. Imagine if Brazilians could borrow at 0% instead of 10%? Would the Bovespa be only up 4 folds since 2000? I think not. The second issue is liquidity management. While recently it seems the method applied has been a ruthless flooding of the markets with liquidity, it remains that overall the Fed has an unmatched expertise when it comes to managing liquidity. It took all that experience and an incredible arsenal of innovative tools to insure there would not be a run on a bank last year. Managing a central bank on a more global level would be almost impossible.

Certainly many countries are concerned about using the USD as the reserve currency, and when the market for funding became tight last year many of them were afraid of going bankrupt... but it was mainly because they were short USD. Let's be very clear, if you borrow a currency and it suddenly appreciates you are in trouble. That will be true even if you used gold or copper as your benchmark. If suddenly the price of copper rose sharply and a country has some debt to refinance in copper or gold, things will be difficult. It's easy for countries whose currency don't inspire any confidence to borrow in dollars and then complain. Maybe managing their finances and currency differently would allow them to sell bonds in their local currency. After all with Turkey's CDS at an all time low, there is risk appetite for emerging anything so that financing in local currencies should be possible.

And if you decided to use a precious metal as your new currency, wouldn't there be a huge political risk with all the producing countries. Maybe it's worth going through the list of gold producing countries and make sure there are no surprises... Having unstable countries control a vital resource is dangerous, this is nothing new, and that has been a problem with oil in the past, a more serious problem than the USD can potentially be I might add. It is ironical to have countries manipulating their currencies turn around and complain about the dollar because our finances are not in order. It is reminiscent of having Lybia or Iran complain about the lack of democracy at the UN. It certainly is a fair attempt at using our politically correctness against us, but it cannot be answered seriously. Our finances are not in order, we know that, but no one is really in a position of giving lessons on the subject right now. We have an imperfect system for world trade, but it took us far and it's the best option for now, so let's not mistake misplaced malicious regional interests for inevitable future consequences, and let's have a proper open reflection on the subject.

Good luck trading,

Nic 

I argued in Bailout Nation that TARP was mostly a cover for Citigroup; Barshofsky is less sanguine:

Submitted by Damien Hoffman of Wall St. Cheat Sheet

If you or anyone you know still believes the government (or the media) tell us only the truth, please pass them this direct admission that lying is a primary strategic device for so-called “authority figures”:

[T]he Treasury Department said that any review of [patently misleading and false] announcements last year “must be considered in light of the unprecedented circumstances in which they were made.

Translation: when our elected representatives and their appointed officials believe we need to be manipulated, they rationalize their lies based on whether they think we need them at the time.

I am not naive. I firmly believe we have a problem with ignorance and sheeple in our country. However, the only way to fix the problem is to distribute more accurate information — not the opposite. Further, for those of us who work hard to stay educated, we expect to be treated like adults!

In this specific case, the Treasury Department’s lies (via Hank Paulson) encouraged people to hold their investments. Therefore, if you listened to Paulson et al, you literally lost your hard earned money and life savings. Last time I checked, citizens should not expect to get fiscally hosed by their Treasury Secretary.

To be fair, this is not only a Wall Street and Washington problem. Seemingly, most public discourse these days centers around complete lies, myths, and other rhetorical strategies aiming to put insular interests ahead of what’s best for the nation. It’s time to demand at least our public stewards accurately explain the true state of affairs so we can make informed decisions.

Market up 125 +, but slowly slipping. Here is what is on my reading list for today:

• Niall Ferguson: There’s no such thing as too big to fail in a free market (Telegraph)

• The demise of the dollar (The Independent)

• America’s most tone deaf CEO (CNN/Money)

• Newspaper front pages during the financial crisis (Economics of Contempt)

• Gold Jumps to Record as Inflation Outlook Fuels Investor Demand (Bloomberg)

• It’s Ron Paul’s world, we can only read about it; Ex-presidential candidate’s Fed stance invigorating (Marketwatch)

• Ballmer’s 14 year old Son Helps Ensure Windows 7 Isn’t Next Vista (Bloomberg)

What else are you reading ?

The following response is what Fidelity submitted when a concerned customer demanded that none of his orders be flashed to other market participants.

"You requested that we verify in writing that the equity trades you place in your Fidelity brokerage accounts are never subject to "Flash orders." I have reviewed your request and determined that we are unable to verify this information, since flash orders involve the activity of stock exchanges to which orders are routed, not the brokerage firms which receive the orders from their clients."

To their credit, Fidelity is right. To Citadel's benefit, and Mary Schapiro's chagrin, all her claims that retail customers can toggle whether their orders are Flashed or not, have been refuted. In other words, even as Flash is facing a death squad, the HFT machines keep on seeing major order flow ahead of non-Flash enabled participants, courtesy of the exchanges that have still not voluntarily removed Flash, such as Direct Edge and others.

Dear Mary Schapiro: please get at least one thing in your "career" right.

 

Another fruitless effort on my part to combat the notion this is a "Bear Only" blog - here's a stock I've mentioned before as a really beautiful long position - symbol BBEP. I own it.

Some interesting changes in Doug Short’s now infamous chart:

We have clearly diverged from 1929 (see below)

But before tossing ‘73, I would try shifting it leftward a few months — the parallel still holds . . .

>

Thanks, Scott!

The "everything is up but the Dollar trade" is getting a little bit ridiculous and a little bit frothy.

Just to complete the CRE circle: rising vacancy rates for apartments, offices, and retail ...

From the Press Enterprise: Vacancy rates among Inland retailers mounts

... Inland retail vacancy rates in the third quarter [were] 11.2 percent ...

That marked a rise from 10.6 percent in the prior quarter, and was well up from 7.6 percent in the third quarter of 2008, according to new data from commercial real estate broker CB Richard Ellis.
...
"I think we're going to be seeing these trends for the rest of this year and for much of 2010," said Matt Burnett, senior associate in the Ontario office of CB Richard Ellis.

The REIS national Q3 retail vacancy rates will be released soon, but here is a preview based on the Q2 numbers:

Click on graph for larger image in new window.

In Q2, the U.S. strip mall vacancy rate hit 10%, the highest level since 1992.

"Until we see stabilization and recovery take root in both consumer spending and business spending and hiring, we do not foresee a recovery in the retail sector until late 2012 at the earliest."
Victor Calanog, director of research for Reis Inc, July 2009

The Epicurean Dealmaker notes that the stock market "game" is irrevocably rigged against the individual investor, and the best thing anyone can do is realise that is so:

I believe [Leo E. Strine Jr, vice chancellor of the Delaware Court of Chancery]'s analysis should conclusively disabuse participants in the current debate over financial regulatory reform of two related notions....The second is the canard that all public shareholders are alike, and they all share the same interests and motivations.

Realizing that the second of these is false, and that Fidelity Investments and SAC Capital do not have the same investment timeframe and objectives as Aunt Millie or even the Ohio Teachers Pension Fund, would have a highly salutary effect on the beliefs and behavior of truly long-term shareholders.

If nothing else, getting Aunt Millie to realize she is the only one in the shark tank without a safety cage should do her a world of good. [emphasis mine]

Read the whole thing, as well as Mr. Strine's piece in the NYT's DealBook that inspired it, for a glimpse of the soft, white underbelly of corporate governance and management.

If so, that would explain the significant more lower in the stock intraday (see previous post) as well as the drift wider in CDS, which opened 100/105, rose to 103/108 and jumped to 107/112 on the rumor. (Ignore the stock's move higher over the past few minutes. That's just computers responding to the stock bouncing off of the closing VWAP).

In other news, asset class divergence is palpable, as credit is weaker on the day! IG is wider by 1.5 pts intraday.