Wednesday, November 30, 2011

Official Chinese PMI Figures Confirms Last Week's HSBC Flash Reading, as Contraction Hits for First Time in 32 Months

Lost in the happiness over the dollar swaps today was the news after the Chinese market close yesterday that the country's central bank was moving to its first easing stance in 3 years.   A small step but considering the country is still dealing with inflation, especially of the food kind, it's an interesting change of heart.  With China being the primary driver of the global bounce in economic activity in 2009-2010, it will be interesting to see how it plays out this time around as many of the loans the Chinese authorized in that era are going bad.  Will they be willing to repeat their old actions if there is a wider global recession in 2012?  Anyhow a question for another day - for now the official Chinese Purchasing Managers index confirms what we saw last Tuesday with the flash report from HSBC - the first contraction in 32 months.   It's not affecting the Chinese market today since Asian markets were closed before the 8 AM EST coordinated dollar swap plan was announced, hence the region has to 'catch up', but this push-pull is something we want to watch very close over the next 6-12 months.

  • China's manufacturing contracted for the first time since February 2009 as the property market cooled and Europe’s crisis cut export demand, a survey showed. The Purchasing Managers’ Index fell to 49.0 in November from 50.4 in October, the China Federation of Logistics and Purchasing said in a statement today. The median estimate in a Bloomberg News survey of 18 economists was 49.8. A level above 50 indicates expansion.
  • The central bank last night announced the first cut in banks’ reserve requirements since 2008, moving two hours before the U.S. Federal Reserve led a global effort to ease Europe’s sovereign-debt crisis. The move will add about 370 billion yuan ($58 billion) to the financial system and more reductions may follow as the government seeks to support growth, Citigroup Inc. said.
  • Today’s report “clearly adds to the urgency for easing,” said Yao Wei, a Hong Kong-based economist with Societe Generale SA. “The PMI is showing weakness across the board and this would seem to be the reason the government cut banks’ reserve requirements. If this trend continues we should see another cut pretty soon.”
  • The Shanghai Composite Index fell 3.3 percent yesterday, the biggest decline in almost four months. 
  • The manufacturing index compiled by the logistics federation and National Bureau of Statistics is based on a survey of purchasing managers in more than 820 companies in 20 industries.
  • A gauge of new orders contracted for the first time since January 2009 and the output index expanded at the slowest pace since the same month, today’s survey showed. New export orders fell below 50 for a second straight month.
  • “China’s growth will slow further over the next six months,” Li Wei, a Shanghai-based economist with Standard Chartered Plc said before the data. “If the deterioration in Europe and the U.S. accelerates in the first half of next year, the government will have to put maintaining growth as its top priority.”

Best Day Since March 2009

If only we could have interventions every week.

Of course, no one thinks to ask why we need (constant) intervention - that would be inconvenient.

On the day, as we broke to highs of the day late afternoon at S&P 1240, we spiked on an additional 7 points in short order.  It is incredibly clear how technicians are ruling this market.  No surprise when it's so headline driven.

This 'best day in years' follows the 'worst Thanksgiving week ever" which followed 'one of the best Octobers ever' which followed....

Well you get the point


EDIT 4:55 PM - the headline refers to the DJIA only ;)

Junk Stocks Leading, Not a Great Sign

This past weekend, I went through about 200 stock charts (yes, I live an exciting life) and was shocked at how bad the setups were.  Frankly I could only find about 4-6 charts I'd really consider from the long side.  Of course the market has bounced some 6% this week on intervention central (first the Sunday rumors of IMF to Italy and then this morning).  That doesn't mean we have good setups... a lot of the best movers are the junk stocks.  I say junk not as a discussion of their business, but on their performance this quarter, half year, year to date, etc.  You want leaders to lead... not the broken stocks.   The meek shall lead them works well in religious text, but not so good in stock markets.

Bespoke shows us this in a nice table.... the stocks that have had the most mojo this week have been the bottom feeders.   That doesn't mean its not fun to enjoy a big move up if your positioned long but frankly most except the most nimble who are enjoying this week's gains also 'enjoyed' last weeks "worst Thanksgiving ever."  Along with a lot of other things (i.e. European bond yields improving substantially for one), you want a crop of leadership stocks with the strongest relative strength to be your thoroughbreds for a sustained move.  Not these guys...

That said it is always fun when coal stocks trade like Commerce One or Lycos circa 1999.

"Risk On", "Risk Off" Has Officially Jumped the Shark as UBS Rolls Out Risk On and Risk Off ETNs

Presented with little comment but eyes rolled, via IndexUniverse.  While not surprising in this era of everything on Earth correlated, it is a jump the shark moment.

Personally I would have called it Lemmings On and Lemmings Off ETNs but these investment banks don't know the first thing about marketing.  Can you imagine how cool it would be to sit at the trading desk of hedge fund XYZ:  "Dude, I'm going all in Lemming Long, put me in for 18 million!!"  (34 minutes later)  "Lemming Short time - filler up!" (while popping some 5 Hour Energy)  That said, they did get some cool ticker symbols.

  • UBS, the Swiss bank known for its private-client investment services, today launched a pair of ETNs that serve up an easy way for investors to express a risk-on or risk-off trade, taking aim at the increasing correlation among assets in markets globally.
  • Up until now, investors looking to take on risk or eliminate it have had to individually buy and sell securities from various asset classes that move in tandem or in opposition to one another.  (but that's too much work!
  • But the ETRACS Fisher-Gartman Risk On ETN (NYSEArca: ONN) and the ETRACS Fisher-Gartman Risk Off ETN (NYSEArca: OFF) put in exchange-traded wrappers a basket of 35 securities including equities, commodities, currencies and fixed income that together amount to either risk-on or risk-off positions.
  • The two ETNs are essentially mirror images of each other. They are designed to mix assets that either rise or fall given a particular market outlook. For example, ONN features long positions in equities and short positions in bonds, while OFF shorts equities and goes long on bonds.
  • The funds target growing correlation among asset classes that has characterized the aftermath of the market collapse of 2008-2009. Indeed, the gnawing cycles of hope and anxiety surrounding the global economy has made outsized spikes and plunges the norm for almost three years. ONN and OFF mark the first time the asset management industry has designed products catered to the prevailing uncertainty.
  • The two ETNs bear the name of renowned macro traders Mark Fisher and Dennis Gartman, in part, because the two approached UBS with the risk-on/risk-off concept. The two are behind the Fisher-Gartman Risk Index.
  • ONN is a plain-vanilla long product, while OFF resets daily, an acknowledgment that markets historically fall a lot faster than they rise.
h/t AbnormalReturns for finding the original link

What the Heck Did this Morning's News Mean?

Sometimes you have to step back and remember not everyone in your audience lives, breathes, and dies the markets 24/7 so this morning's central bank news probably was a bit opaque for those who actually have lives. This piece on CNBC does a great job explaining it, so I thought I'd pass it along.  In essence the Fed is providing cheap(er) financing to the European banks.... using the ECB as a conduit.  Unlike the typical U.S. bank model where deposits are generally the source of (a good portion of) funds, it appears many of the European banks lean more on short term financing.

  • In essence, the US central bank, or Federal Reserve, agreed to provide cheaper dollar funding to the European Central Bank—which can then provide cheaper dollar loans to cash-strapped European banks.
  • The participation of the central banks of Canada, England, Japan and Switzerland is more of an effort to show that all the central bankers are working together than any expectation that there will be lots of dollar borrowings under their facility.
  • The goal is to ease the credit crunch in Europe. Lots of European banks make dollar denominated loans, in part because US interest rates are so low. The banks do not usually finance these loans in the way you might think—by lending out the deposits of their retail customers. Instead, the loans are financed by short-term borrowings from other financial institutions.
  • When European banks make a dollar loan or purchase a dollar denominated asset, they typically borrow the dollars on the what’s called “international wholesale deposit market”—which is a fancy word for borrowing from other banks that have dollars. Alternatively, they can borrow in their native currency and then use foreign exchange swaps to hedge the currency risk.
  • Now that Europe is in the throes of a debt crisis, it has become much more difficult if not impossible for many European banks to borrow dollars in the wholesale markets. To make dollar loans, then, they have to turn to the European Central Bank. What’s more, the cost of the foreign exchange swaps has increased, making it more expensive to make dollar loans based on euro assets.
  • Normally, central banks only make loans in their domestic currencies. But in times of international stress—the credit crisis of 2008, for instance—central banks around the world set up swap lines that allow them to borrow from each other, creating the ability for them to make loans in other currencies.
  • In short, European banks were finding it too expensive to make dollar loans, which hurt their ability to lend dollars and encouraged them to sell euros. This depressed the value of the euro and restricted credit in Europe. The ECB arranged to borrow dollars more cheaply from the Fed, so it could ease this market.
  • So was is this some giant giveaway to profligate Europeans of US taxpayer money?  Not quite. In the first place, European banks are major lenders to the US corporate market. When they cannot participate in dollar loans to US companies, US credit also contracts. What’s more, these are loans to the ECB, which is unlikely to default. Finally, the Fed isn’t lending out “taxpayer dollars” at all. Rather, it is lending out newly created dollars at very low interest rates.

For more on how the ECB borrows from the Fed, go here.

New Website Launch Pending Regulatory Review

Upon regulatory approval (a different agency outside the SEC), the new site will be unlocked and open for viewing.  If you visit now it's simply a locked splash page, until we get 'the word'.  I am hoping this review completes within a week or two but as I've learned the past year, don't have expectations on timetables.

How Will Congress Pay for 2012's Extensions of the Payroll Tax Holiday & Unemployment Benefits?

Not much to talk about in the market - just like Monday it's a day where just about everything is up.  Completely bipolar action continues - last week you couldn't find anyone to buy a stock, and this week selling is completely unfashionable.  Remember Monday when EVERY S&P 500 stock was up around 10 AM?  [Nov 28, 2011: An Amazing Moment]  Now we have another epic day - only 2 S&P 500 stocks down.  In retrospect Monday's action now leads us to ask "who was tipped off on this morning's news" - i.e. who got the "wnk" in 1 on 1 conversations....


So let's look at other topics.  We've been giving 'stimuli' in one form of another to the American consumer since 2008 (remember those Bush rebate checks?), as the organic economy seems dysfunctional without massive intervention.  It is nearing the point, 1 in every 5 dollars of income for the typical American is coming from government.  (last I checked it was about 5.3) [Jun 6, 2009: 1 in 6 Dollars of Income Now via Government - Highest Since 1929]  The latest iteration of this was last year's payroll tax reduction of 2% which gave between $1000-$2000 to the typical household in 2011.  Of course much of that went directly into Saudi hands as gas prices spiked (no relation to QE2) this year, but some seeped into the most important economic function in the country: shopping.  I wrote at the time that this 'temporary' measure would be extended again a year from then because the GOP would cry "how can you raise taxes in this environment!"  Well I was wrong, it is actually Obama using the GOP line.  Irony at it's best.  The bigger theme is when you give something away in this country, there is almost no way to take it back politically - almost everything 'temporary' becomes 'permanent'.  There is some scuttlebutt that this tax holiday may not get extended - I say nonsense.  It will get done (along with the 'emergency' unemployment benefits) - both costing just under $200B.  Because we need our annual stimuli.

So the question is will Congress try to find a way to offset the costs?  Or just throw it under the 'emergency spending' provision, in which no one has to account for a darn thing.  That, I don't know, but CNNMoney looks at some of the options.  Regular readers will know one of the options - which is using a new measure to undercount inflation even further.  [Nov 7, 2011: Congress Considering Moving to a New Measure of Inflation that Would Measure "Away" Even More Inflation]  This was supposed to be one of the main tools during the $1.2T deficit reduction negotiations but since that fell on its face, it can instead be used to 'fund' our annual 'temporary' stimuli.  The other one is the same phony "war savings" that also was going to be used as part of the $1.2T deficit negotiations.... when all else fails, funny accounting solves many ills.

  • At issue are several expiring provisions of law: a Social Security payroll tax cut; long-term federal unemployment benefits; a "doc fix" to ward off a scheduled cut in Medicare physician pay; and a bevy of temporary business tax breaks.
  • Whether they're extended or not, the measures could end up increasing the 2012 deficit. Two possible outcomes:
  • --Congress lets the payroll tax cut and unemployment benefits expire. Many economists worry economic growth will slow because Americans will spend less. Slower growth means tax revenue falls and demand for safety net programs grows. Deficit goes up.
  • --Lawmakers extend the payroll tax cut and jobless benefits in conjunction with a one-year doc fix and at least one key business tax break. Cost to federal coffers: About $180 billion. Deficit goes up.
  • Of course, Congress could choose to offset all or part of the cost. But it won't be easy.
  • Obama and Senate Democrats have proposed paying for the payroll tax relief with a surtax on millionaires. Republicans have said that won't fly.  Many Republicans are also likely to oppose any other tax increase proposals.
  • Democrats are said to be considering applying war savings from the drawdown of U.S. military efforts in Iraq and Afghanistan. But many budget experts consider such a pay-for a gimmick since those savings are going to be realized regardless.
  • As for other spending cuts? The low-hanging fruit has already been plucked or otherwise identified as necessary for deficit reduction.  "It's hard to see what the spending cuts would be that would be acceptable to everybody," said James Horney, vice president of federal fiscal policy at the Center on Budget and Policy Priorities.
  • Rudolph Penner, a former Congressional Budget Office director, said there may be one possibility for savings: a change in how annual inflation adjustments are calculated for government benefits and tax brackets. Such a change could raise an estimated $217 billion if left in place over a decade, according to the Congressional Budget Office. (of course another grand solution is to pass this inflation measure change in conjuction with the spending increases, then when older people complain they are getting ripped off, reverse it in a year or two - which of course meant you offset nothing. That would be typical D.C.)
  • And it has gotten some bipartisan support in various quarters. "That could be put in place for however long it took to pay for all or part of any deficit-increasing measures," Penner said.  But that policy proposal has drawn a lot of fire from the left, because it would reduce annual cost-of-living increases in Social Security. 
  • So that leaves one other option if lawmakers want to pass the payroll tax cut and unemployment benefits. They could deem the extensions to be emergency spending.  That way, the new costs would be exempt from any requirement to pay for them.  Both Horney and Penner said they wouldn't be surprised if Congress took that route.
  • If the payroll tax cut is allowed to expire, a person making $35,000 will pay an extra $700 in payroll tax next year and a person making $75,000 will pay another $1,500.

ADP Employment Over Expectation at 206,000 - Going to be a Happy Day for Bulls

While sometimes not anywhere near the Friday official data point, ADP for November just came in at 206,000 vs expectations of 130,000.  Previous month revised up from 110,000 to 130,000 as well.

ADP today reported that employment in the U.S. nonfarm private business sector increased by 206,000 from October to November on a seasonally adjusted basis. The estimated advance in employment from September to October was revised up to 130,000 from the initially reported 110,000. The increase in November was the largest monthly gain since last December and nearly twice the average monthly gain since May when employment decelerated sharply.

Employment in the private, service-providing sector rose 178,000 in November, which is up from an increase of 130,000 in October. Employment in the private, goods-producing sector increased 28,000 in November, while manufacturing employment increased 7,000.

Employment in the private, service-providing sector rose 178,000 in November, which is up from an increase of 130,000 in October. Employment in the private, goods-producing sector increased 28,000 in November, while manufacturing employment increased 7,000.

Employment on large payrolls—those with 500 or more workers—increased 12,000, and employment on medium payrolls—those with 50 to 499 workers—rose 84,000 in November. Employment on small payrolls—those with up to 49 workers—rose 110,000 that same period, up from the 67,000 jobs created among small businesses last month.

Full report here.

Futures Pop as World's Major Central Banks Act to Lower Pricing on Liquidity Swap Arrangements

U.S. futures were up for the morning going into the 8 AM hour (mostly as the Chinese central bank has turned course and seems to be back to easing for the first time in 3 years) but just took another big leg up (and through that resistance of S&P 1206) on news all the world's major central banks are injecting liquidity in the system by lowering pricing on liquidity swap arrangements (by 50 basis points).  Whatever the details, the market takes any coordinated central bank action as 'bullish'... shoot now, details later.  Another example of how difficult it is to be short for any period of time as everyone is aiming for you. :)

US, Canada, England, Japan, Europe & Swiss central banks announce coordinated effort to lower US dollar swap pricing thru Feb

Edit - more from Marketwatch:
Global central banks announced Wednesday that they are acting to strengthen the existing swap lines that allow them to provide dollars to domestic banks in an effort to ease financial market tension. Under the new arrangements, the Federal Reserve has lowered the cost of the swap lines. The arrangments have also been extended until 2013. The central banks also agreed to set up bilateral swap lines so that all currencies can be made available if needed.

The new interest rate has been reduced to the dollar overnight index swap rate plus 50 basis points, or half a percentage point, from 100 basis points, the Fed said in a statement in Washington. The Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank are involved in the coordinated action, the Fed said.

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the statement said.

ADP employment will be released shortly.

Tuesday, November 29, 2011

Fed VP Janet Yellen Prepares Us for QE3, while Bank of America (BAC) Sees $5 From its Porch

Along with using the same ole media sources to leak their plans, the Bernank likes to send rangers out into the woods setting the stage for the next policy move.  Of course by the time we read this, 'very important investors' will already have been given "the wink" (see story this morning) in their 1 on 1 "consultations" with the Fed.... weeks ago.  But in case you were not one of those lucky souls who can trade on insider information legally, Janet Yellen would like to confirm for you what the guy who runs Fund My Mutual Fund has been calling for since the start of QE2:  QE3 will be coming by this fall or winter.

I'll give myself a break on the QE call to arrive by fall (since QE2 ended in spring, and our economy needs drugs I always assume the Fed will step in within 4-5 months of stopping the previous operation) since Operation Twist ruined my chance for a quick QE3.... but give it a meeting or two from here and we'll all be dancing like we did last summer.... err, 2 summers ago.


Summary format: Dear plebeians, our omnipotent leader shall suck the dirty mortgage paper from our friends the banks, and then shower you filthy heathens with new U.S. dollars.  Soon.  Your stock market shall levitate and you shall partake in the same riches the 0.1% will have.  Nevermind those elevated spring and summer 2012 gas prices - our powers do not affect the commodity complex, we only provide beneficial asset inflation.  Now kiss my hand in thanks.

Long format:  Yellen said the “Fed continues to provide highly accommodative monetary conditions to foster a stronger economic recovery in a context of price stability,” she said “the scope remains to provide additional accommodation through enhanced guidance on the path of the federal funds rate or through additional purchases of longer term financial assets.

Atlanta Fed President Lockhart is skeptical, but he is almost a plebeian himself:
  • "I am skeptical that further asset purchases will produce much gain in terms of increased economic activity," he told business students at the University of Georgia in Atlanta.

All that's left is to hear it directly from the horse's mouth, either in a speech, or through his puppets in the financial media.  And our gift shall be delivered.


In a non related note - hello $5 Bank of America (BAC).  Below $5 a lot of funds are required to sell....

No reports yet of how many Congress members and staffers have been short the name the past month.

No position

[Videos] NBC's Rock Center Examines the Surge in Food Shopping at 12:01 AM the First Day of the Month, While 60 Minutes Examines the Homeless in Florida

Outside of the pepper spraying festivities at the mall, a lot of not so great things are happening to the once middle class. Over the past 2 days both NBC's Rock Center and 60 Minutes had some nice segments on different segments of the population.

Over at NBC, we take a look at the surge in shopping at 12:01 AM the first day of the month, when food stamp cards are reloaded with money.  It has reached the point, even Walmart is changing its behavior to react to the demand - something we highlighted a few years ago.  [Nov 10, 2009: Walmart Executive - "There are Families Not Eating at the End of the Month"]  When I started this site - food stamps was an issue I was highlighting.  At the time 1 in 11 Americans used the service... now it is 1 in 7, including 1 of every 4 American children. [Nov 29, 2009: 1 in 4 Children, and 1 in 8 Americans Now on Food Stamps]

10 minute video - email readers will need to come to site to view


Meanwhile the fascinating gap between well off and not so well off turns into a chasm, as a new class of homeless emerges: families who live in cars.   Quite a different scene than the one playing out at the local mall.

14 minute video - email readers will need to come to site to view

[Jul 24, 2010: Increasing Evidence that Generation Y Will Not Have the Living Standard of their Parents]
[July 26, 2010: [Video] DatelineNBC - America's Increasing Ranks of Poor]

Tiffany and Co (TIF) Punked on Weak Guidance

Hey... this is not supposed to happen.  We're talking the impervious high end consumer...

Despite fantastic earnings growth of 63% year over year, a 'miss' in guidance versus the analysts $1.63 (TIF forecasted $1.48 to $1.58) has the stock down some 9%.  The stock currently sits at about 18x year end (Jan 2012) estimates, post selloff.

The last 2 times Tiffany (TIF) broke support, buyers were quick to come in bargain hunting.

Via Reuters:

  • Concerns about slowing sales momentum took some of the luster off Tiffany & Co's stock amid signs that European and U.S. economic distress are weighing on luxury consumers.  The upscale jeweler, a stock market darling for how fast its international business has grown, reported third-quarter earnings that beat analysts' estimates but gave a holiday-quarter profit and sales outlook that missed Wall Street expectations.
  • Chief Executive Michael Kowalski said in a statement there had been "recent sales weaknesses in Europe and in the eastern part of the U.S."
  • And the company said there is reason to be cautious. Chief Financial Officer Pat McGuiness told analysts on a conference call that Tiffany is "cognizant of the challenging economic conditions and uncertainties in a number of markets."
  • Globally, Tiffany's sales in the third quarter were up 17 percent in the third quarter, excluding the impact of currency translation.  But that is below the 19 percent pace of the first three quarters combined. 
  • The slowdown was limited to the Americas and Europe, which together make up nearly 60 percent of Tiffany's business. In Japan, its second biggest market, and elsewhere in Asia, the pace picked up.
  • Another concern is that gross margin, a measure of profitability on jewelry sold, slipped, Swinand said.  Tiffany's gross margin edged down 0.6 point to 57.9 percent in the third quarter, largely because it sold more pricey jewelry, which the company said has lower margins. The markup of very-high-end jewelry is typically lower, analysts said.  (that is a shocker to me - one would think the markup on very high end jewelry would be the best, as those consumers are least price sensitive)
  • Tiffany expects sales to rise at a low-teens percentage rate for the holiday quarter. In the third quarter, sales at stores open at least a year, excluding the effect of currency translations, rose 16 percent.
  • Tiffany said it expects fourth quarter earnings per share of $1.48 to $1.58, below the $1.63 Wall Street analysts were expecting, according to Thomson Reuters I/B/E/S.
  • Tiffany reported net income of $89.7 million, or 70 cents per share, for the third quarter ended Oct. 31, up from $55.1 million, or 43 cents per share, a year earlier and above the 61 cents a share that analysts were expecting, according to Thomson Reuters I/B/E/S.

No position

2 Amazing Stories in the Past Week on the Legality of Trading on Insider Information in D.C. - and Not Just in Congress

Lost in the 60 Minutes piece a few weeks ago [Nov 13, 2011: (Video) Trading on Inside Information? It's Cool if You are in Congress] about the 'benefits' Congress and its staffers receive in terms of trading on inside information, is the rise of a subsector of 'information' to be sold to hedge funds, using these same channels in D.C.  It's so outrageous on the face of it - but apparently perfectly legal.  There was a piece on this about a month ago in the WSJ - Hedge Funds Pay Top Dollar for Washington Intelligence.

Now if this was just information that was available to anyone it would be one thing, but it appears its the same information that Congress and staffers are privy to, but can be sold to the highest bidder.  Hence the name 'smart money' given to the hedge fund class I suppose.

But in the past week we have 2 stories that are even more egregious.... if possible.  I didn't have time to post this story last week regarding the Federal Reserve giving 'tips' to the superior class of investors.... but combined with another barn burner from Bloomberg Markets magazine on Hank Paulson tipping off the illumanti from the squid Goldman Sachs & Eton Park hedge fund on what would could happen to Fannie and Freddie, WHILE telling the public (and Congress) a totally different story.... well folks, you just can't make this stuff up.  And yes that was a run on sentence of epic proportion but trust me, you will be incensed too at what apparently is 'cool' by legal standards, as long as your part of the D.C. set and/or have enough money to access such 'market movers'.


First to the piece on the Fed.... long article; worth the full read, make sure to take blood pressure medicine ahead of time.

  • Hours after an Aug. 15 meeting with Federal Reserve Chairman Ben Bernanke in her office, Nancy Lazar made a hasty call to investor clients: The Fed was dusting off an obscure 1960s-era strategy known as Operation Twist.  The news pointed to a boom in long-term bonds.  
  • It was a good call. Over the next five weeks, prices on 10-year Treasury bonds soared, offering double-digit returns in an otherwise dismal year.  By the time the Fed announced its $400 billion Operation Twist on Sept. 21, the window for quick profits had all but slammed shut.
  • Ms. Lazar is among a group of well-connected investors and analysts with access to top Federal Reserve officials who give them a chance at early clues to the central bank's next policy moves, according to interviews and hundreds of pages of documents obtained by The Wall Street Journal through open records searches. 
  • The access is part of a push by hedge funds and other traders to get more information about the inner workings of government. Developments in Washington have become more important after the financial crisis in 2008 spawned new regulations and a stronger hand by lawmakers in businesses.
  • The words and actions of the Federal Reserve, in particular, have an enormous impact on markets, prompting the creation of new guidelines at the central bank to combat the perception of favoritism.  Conversations are important to both sides, making it difficult for the Fed to completely close its doors to traders and analysts. Fed officials want to know how investors might respond to changes in monetary policy and to avoid surprising markets. Investors, meanwhile, reveal developments that might pose unseen dangers to the U.S. economy, say people familiar with the matter.
  • Such talks are perfectly legal but create a delicate dance for the Fed, which tries to sate its need for information to help guide monetary policy without giving Wall Street an unfair advantage over Main Street.  

We interrupt this story for tape of an actual conversation (ok not really) but in theory highlighting how this awesome give and take works:

Prominent Fed official with beard:  "So.... if we were going to launch a purchase program with an unspecific name.... in an amount somewhere between say $599.8B and $601.2B... I don't want to get too specific to give you an would the fellas down on the Street react?"
Very important, well connected, and wealthy investor type:  "Wait are you hinting to me you are going to do a new QE program of $600B?"
Prominent Fed official with beard: (while stroking beard) "Now I could not say that could I?  It would unethical and stink of favoritism.  I am simply asking if I were to use my omnipresent powers to make it rain dollars.... in say the next meeting or two, would you like it?  Wink twice for yes, and three times for hell yes."
Very important, well connected, and wealthy investor type: (blinking rapidly)  "Ok so you are not telling me you are doing QE, but by not telling me, you are preparing the market, so the market is not surprised when it happens.  Because all policy in America must please the market."
Prominent Fed official with beard:  "Now I didn't say that.  But if you said it, it would not be a disagreeable thing."
Very important, well connected, and wealthy investor type: "When are you leaving?  I need to make some calls... pronto."

Back to your normally scheduled WSJ article:
  • Mr. Bernanke discusses only matters already public, a spokeswoman said. But hedge fund managers and Wall Street executives who meet regularly with him and other Fed officials—both in his office and through advisory committees—say they get valuable insights during the face-to-face talks.
  • "It's like an inquisition, they have a topic," said Laurence Fink, chief executive of investment-management giant BlackRock Inc. "By the questions they ask, by definition, you know what's on their mind."
  • New York Federal Reserve Bank President William Dudley also meets regularly with investors, both in his office with individuals and in committee groups. The New York Fed, one of 12 regional banks that constitute the Federal Reserve System, has the strongest ties to investors because it conducts the Fed's bond-market transactions.
  • Mr. Dudley, who also is vice chairman of the Federal Open Market Committee, which sets the nation's monetary policy, acknowledged the discussions could give the misperception that investors with access to Fed officials have an advantage.  "We take great care to frame subjects and questions in a neutral manner that does not provide any insight into our own thinking and we are careful to keep in mind that their comments may sometimes reflect their firms' own interests," Mr. Dudley said in a statement.  (insert laughter here)
  • Over the past two-and-a-half years, Mr. Dudley has had dozens of private meetings, according to his calendar, which lists SAC Capital Advisors, Citadel Investment Group, Duquesne Capital Management, and Tudor Investments, among others. Lloyd Blankfein, chief of Goldman Sachs Group Inc., (God's work) and Mr. Fink, of BlackRock, also had private meetings, according to Mr. Dudley's calendar.
  • These investors employ strategies tied to interest-rate policy and economic trends—making snippets of information as subtle as head nods and body language extremely valuable.  (as I outlined above...winking is also very important
  • Worries about Fed access surfaced a year ago.  (and what was done about it? Nothing?  Oh.  Carry on)  On Aug. 18, 2010, former Fed governor Laurence Meyer, who runs a research service predicting and analyzing Fed actions, told clients in a note the central bank's "bazooka is loaded" to buy bonds to stimulate the economy. (obtained through winking or strokes of the beard in a private meeting I am sure... )  The note described how the Fed's "doves," members inclined to ease monetary policy, had said the Fed couldn't "sit on its hands," according to Mr. Meyer's account. An Aug. 20 note included some specific information about the Fed's balance sheet.
  • A week later, Mr. Bernanke said during a speech in Jackson Hole, Wyo., that "policy options are available to provide additional stimulus" to the economy. Stocks rose on the news, which by then had given Mr. Meyer's clients plenty of time to profit.  The Fed announced its move in November—a second, so-called quantitative easing plan, known as QE2, that entailed buying $600 billion worth of long-term Treasurys.

As for our current Treasury Secretary?  Well in his last role as head of the most powerful regional bank - he helped grease the skids for the current system.
  • When Treasury Secretary Timothy Geithner was president of the New York Fed beginning in 2003, he worried the Fed wasn't close enough to big investors, (that line is so open to interpretation it's beyond the pale) especially financial firms like hedge funds that operated outside of the regulated banking industry. He set up a new staff position to coordinate private meetings with hedge fund managers and other Wall Street power brokers. (what a gentleman - with kind moves like that I bet the power players would like to see him in say a role as.... Secretary of the Treasury someday)

The rest of the piece goes on to give example after example of these 'hints' and how "the cool kids" benefited from them - nothing overt that could lead to criminal charges mind you.  But even though we know the playing field is unfair, when you peel back the onion to see the stink below... and how those in power positions today made it even easier on their way to the top reaches of D.C. - it is all a joke.  Thankfully, no one reads stories like this ...


So that takes care of your bond portfolio as long as you are 'important' (read: rich, or connected) enough.  But you still need to work on that equity side of the portfolio.  Who do you call? The U.S. Secretary Treasury... in fact, he even comes to you to tell you cool things per this awesome piece in Bloomberg Markets.  And since shorts need not be publicized to the SEC - everyone wins!  God's work... indeed. 

  • Treasury Secretary Henry Paulson stepped off the elevator into the Third Avenue offices of hedge fund Eton Park Capital Management LP in Manhattan. It was July 21, 2008, and market fears were mounting. Four months earlier, Bear Stearns Cos. had sold itself for just $10 a share to JPMorgan Chase & Co. (JPM).  Now, amid tumbling home prices and near-record foreclosures, attention was focused on a new source of contagion: Fannie Mae (FNMA) and Freddie Mac, which together had more than $5 trillion in mortgage-backed securities and other debt outstanding.
  • Paulson had been pushing a plan in Congress to open lines of credit to the two struggling firms and to grant authority for the Treasury Department to buy equity in them. Yet he had told reporters on July 13 that the firms must remain shareholder owned and had testified at a Senate hearing two days later that giving the government new power to intervene made actual intervention improbable.  “If you have a bazooka, and people know you have it, you’re not likely to take it out,” he said.
  • On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie’s books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.  (so Paulson said this to the press.... hours before he went to the Eton Park - you can guess what happened next)
  • At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.
  • Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives -- at least five of them alumni of Goldman Sachs Group Inc. (GS), of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.
  • Non-Goldman Sachs alumni who attended included short seller James Chanos of Kynikos Associates Ltd., who helped uncover the Enron Corp. accounting fraud; GSO Capital Partners LP co-founder Bennett Goodman, who sold his firm to Blackstone Group LP (BX) in early 2008; Roger Altman, chairman and founder of New York investment bank Evercore Partners Inc. (EVR); and Steven Rattner, a co-founder of private-equity firm Quadrangle Group LLC, who went on to serve as head of the U.S. government’s Automotive Task Force.  (the only value of this story to me other than exposing more crony capitalism, is a whose who of who I should be watching much more closely on TV knowing they have access to inside information - legally
  • After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” -- a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.  Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.
  • The fund manager says he was shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.
  • At the time Paulson privately addressed the fund managers at Eton Park, he had given the market some positive signals -- and the GSEs’ shares were rallying, with Fannie Mae’s nearly doubling in four days.

So what did said 'smart money' fund managers so next with this information you may ask?  Well you will never know - because there is no need to disclose short positions ;) 
  • There’s no evidence that they did so after the meeting; tracking firm-specific short stock sales isn’t possible using public documents.
  • (blah blah blah)  Brosens and Rattner both confirmed in e-mails that they had attended and said they couldn’t recall details. They didn’t respond when asked whether they traded in Fannie Mae- or Freddie Mac-related instruments after the meeting. Chanos declined to comment.
  • Eton Park’s Mindich, Lone Pine’s Mandel, TPG-Axon’s Singh and Och-Ziff (OZM)’s Och all declined to comment through spokesmen. Reservoir’s Stern didn’t return phone calls. Altman, through a spokesman, confirmed his attendance and declined to comment further.  (I am noticing a pattern

But we all know how this ended up:
  • Seven weeks later, the boards of the two firms voted to go into conservatorship under the newly created Federal Housing Finance Agency. 

And it's perfectly legal in our $*(*(#*#(@(#* system:
  • And law professors say that Paulson himself broke no law by disclosing what amounted to inside information.
  • William Black, associate professor of economics and law at the University of Missouri-Kansas City, can’t understand why Paulson felt impelled to share the Treasury Department’s plan with the fund managers.  “You just never ever do that as a government regulator -- transmit nonpublic market information to market participants,” says Black, who’s a former general counsel at the Federal Home Loan Bank of San Francisco. “There were no legitimate reasons for those disclosures.”

And the rest of the very detailed article goes on from there.  I myself cannot continue posting it due to the puke inside my mouth.  All in another day of 'free market capitalism' and 'free and transparent markets'.

Don't Get Too Excited

As I was saying during some of the massive oversold bounces in August and September, these are not signs of health but an over reactive, headline driven market where daytrading is dominating.  The most vicious rallies come in bear markets and/or downturns - which is why it's very difficult to be a dedicated short seller.  A week of gains can go poof in one overnight session, or nowadays within minutes on a headline on a website.

Last week the 50 day simple moving average, after holding for 2 sessions, was broken.  We had some waterfall action downward after that... some 50 S&P points in short order.  Yesterday was of course a vicious kick to the upside - ironically mostly due to an IMF rescue package that was refuted.... but by that point the short covering had taken place and momentum fed on itself.  But as we now see very often almost all of the move was in the overnight session and during the actual sessions from 9:45 AM onwards the market basically went sideways.  Not much opportunity for those who actual buy stocks during the normal market hours.

Looking at that 50 day moving average once more (I am using the simple because that's the only major MA within sniffing distance) we see it back around 1206.  As always old support becomes new resistance.... until proven otherwise.  And let me add all this technical mumbo jumbo means nothing once the ECB commits to a rescue. ;)

As an aside there was really nothing that positive outside of equity markets yesterday - European yields continued to act punk, and the euro didn't really act very healthy.  So it was a narrow day in terms of what markets were working (equity).  That doesn't really bode well - we'd want to see currencies, bonds, and equities working in concert to feel any confidence that this is much more than a much needed oversold bounce.  (the S&P 500 had been down 7 sessions in a row)

Cliff Notes:  Don't Get Too Excited.  If you are anything outside of a daytrader, it remains an environment to protect your assets.

Monday, November 28, 2011

Jeremy Grantham v Bob Doll - Can Record Profit Margins be Maintained?

Anyone observing the financial blogosphere the past few years will surely have read that corporate profit margins have exploded as global labor and tax haven arbitrage have been exploited by the multinational class.  Within the U.S. the share of profits between capital and labor have swung to extreme levels historically in favor of capital.  Labor has paid the price.  The question is.... is this a new normal, or is this simply unsustainable.  Investment guru Jeremy Grantham leans to simply unsustainable (which he outlined in his August letter Danger Children at Play) whereas Blackrock's Bob Doll says this is the new normal.  I am afraid I have to side with Doll on this one, if I am going to be consistent with my long held theory that the global labor class is going to fall towards a median across borders.  When pressured with rising wages (or taxes) in one country, the multinationals march to the next colony country.  Therefore the American, or western European worker demanding a return to the 'good ole days' will be smirked at.  I hope I am incorrect on this one, but thus far - not so much.  Also don't forget the role of automation - you want health benefits? Forget it, we're going to get some robots....

Wildcard?  Some sort of global energy shock where 'producing local' is a requirement.

Via Bloomberg:

  • U.S. companies are the most profitable in more than 40 years, and some of the best-known stock pickers are divided over how long that will last.  Bob Doll, chief equity strategist at BlackRock Inc. (BLK), said low labor costs and cost-saving technology will allow companies to keep up their profitability. Jeremy Grantham, chief investment strategist of Boston-based Grantham, Mayo, Van Otterloo & Co., said margins will send stock markets tumbling when they eventually revert to their mean.
  • “The implication for the stock market is ugly, because it means earnings are unsustainably high,” Grantham’s colleague Ben Inker, GMO’s director of asset allocation, said in a telephone interview. GMO, an investment manager that oversees $93 billion, puts the fair value of the Standard & Poor’s 500 Index at between 950 and 1,000, compared with the 1,158.67 level at which it closed last week.
  • U.S. companies’ ability to squeeze more profit from each dollar of sales is pushing earnings higher, even as the economy has grown at a below-average clip since the recession ended in June 2009. Grantham, who called corporate profits “freakishly high” in an August commentary, sees wide margins as an aberration
  • Grantham also believes in mean reversion, the notion that most measures drop back to their historical norms over time.  “Lower margins are the great threat to market performance,” he wrote in the August newsletter. Grantham is known for his bearish investment outlook and for his successful record in identifying stock-market bubbles.
  • Margins have been propped up by a “great surge” in government spending that fueled consumption, Grantham said. As political pressures force the U.S. to cut its budget deficit, the economy will suffer and margins will drop, Grantham predicted without laying out a timetable.  (this is true - the government has stepped in with its 10% annual deficit spending the past 3 years to prop up customers, letting the government bubble replace the housing bubble as a driver of incomes.  If government ever became serious about cutting the deficit it would be a threat to the current system - but since our political body can't help themselves, there will not be any serious cuts.  After all "no one wants to raise taxes in this environment" in 1 party combined with everyone is a Keynesian in the other party leads to no serious changes ex accounting gimmicks.  Hence Grantham has his behind covered by saying there is no timetable.)  [Jun 6, 2009: 1 in 6 Dollars of Income Now Via Government, Highest Since 1929]
  • Grantham said of profit margins, “They do not seem to be connected to economic realty.”  
  • Some of his competitors say changes in the economy and the way firms operate could keep them near peak levels for another year or two.  “We don’t think they have to fall,” Doll, whose New York- based firm is the world’s largest asset manager, said in a phone interview. BlackRock oversees $3.35 trillion.
  • Two forces that have lifted margins, a weak job market and investment in labor-saving technology, show no sign of reversing, Doll said. “We lean towards the optimistic side,” he wrote in a Nov. 21 note on the stock market’s prospects.
  • The margins of non-financial companies in the U.S., a widely used measure of profitability, reached 15 percent in the third quarter, according to data from Moody’s Analytics . That was the highest level since 1969. When the recession ended in the second quarter of 2009, the comparable number was 8.7 percent.
  • Those on both sides of the debate agree on two things: margins are unusually high and the driving force behind their rise is companies’ ability to keep a lid on expenses.
  • “Businesses have done a marvelous job of reducing costs,” Zandi said in a telephone interview.
  • The globalization of the workforce and a U.S. jobless rate of 9 percent last month have given management the upper hand in dealing with labor, Zandi said. (hmmm, sounds like something written on these pages 4 years ago)  Wages and salaries as a share of national income fell to 49.4 percent in the third quarter, the lowest since the government began collecting the numbers in 1948, Moody’s data show.
  • Companies, while slow to hire, have been upgrading technology.  Businesses invested in equipment and software at an annual pace of $1.15 trillion in the third quarter, up 26 percent since the fourth quarter of 2009, data from IHS Global Insight in Lexington, Massachusetts, show.
  • Dennis Bryan is skeptical that the trends that have supported margins can continue. Bryan is co-portfolio manager of the $1.2 billion FPA Capital Fund (FPPTX).  Firms may be reaching their limit in wringing out costs, after two years of rising margins.  “Will companies be able to keep tightening their belts by cutting millions more Americans out of the workforce?” he said.  (uhhh yes Dennis)
  • Profit margins have been trending higher since the mid-1980s, (and what trend started in earnest in the 1980s?) said Chris Christopher (awesome name by the way), an economist at IHS (IHS) Global Insight, who has written on the subject. Quarterly margins peaked at 11.9 percent in the 1980s, 13.6 percent in the 1990s and 14.5 percent in the most recent decade.
  • High margins are here to stay, said Allen Sinai, chief economist at Decision Economics Inc  Cloud computing, which provides access to software and computing tasks remotely over the Internet, rather than through a company’s own system, is just the latest tool corporations can use to keep costs in check, Sinai said.  “This is the way of the world now,” he said in a telephone interview. “CEOs are paid to maximize profits.”

[Dec 2007: Do the Bottom 80% of Americans Stand a Chance?]

S&P 500 Stocks with Most Short Interest

We are now "up" to 4 stocks in the S&P 500 red on the day - still remarkable.  In the twitter-verse someone posted that only once since 1997 has there been a day where 498 out of 500 stocks finished green - that was also this year, August 11th.  I doubt it's a coincidence as the market becomes more EFT+HFT dominated we are seeing this 'everything together' action.  Personally I don't like it but as Rumsfield says, you go to war with the market you have, not the market you might want or wish to have at a later time.

Speaking of, below is a list via CNBC of the most heavily shorted S&P 500 stocks - up until today, a very good list indeed. ;)  Keeping in the theme that everything must go in the same direction, each one is a winner for the shorts - although of course they vary by degree.

Data source: CNBC Analytics and Capital IQ

Most Popular Stocks Among the Hedge Fund Universe

Goldman's quarterly update on the stocks hedge funds are massing in - no surprise Apple (AAPL) is stock #1, but a few surprises here - General Motors (GM) at #7 was one; certainly a stock that has disappointed me since its IPO.  CIT Group (CIT) at #20 is also fascinating.  As always, Visa (V) and Mastercard (MA) take their spots in the top 25.

h/t Zerohedge

No positions

An Amazing Moment

I just ran a screen on and EVERY S&P 500 stock is green.  I have never seen that before.  Maybe it has happened on other days, but I certainly never have caught it.  Simple amazing.

Here is another way of looking at it, in a heat map.

[click to enlarge]

This market has jumped the shark in terms of being A.D.D. and bipolar.  Buy everything or sell everything - no in between.

The Most Important Story of the Past 24 Hours

This Bloomberg Markets piece on the action's of the Federal Reserve, in secret, should be required reading for every American citizen.  While 'too complex' for the masses, what is going on in the back halls of D.C. is simply amazing.  Bloomberg has been fighting for two years through Freedom of Information acts to get to the data - thankfully some parts of our press are not completely owned and paid for by the corporatacity (yes, I'm making up words).   As with almost everything else in this country, the numbers are so large as to escape comprehension - at this point the Fed could be handing out $500 quadrillion, and it would not make that much of a difference in terms of impact to the psyche.  TBTF lives on.....

Quite a lengthy read so I encourage the full review, but some snippets:

  • The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.
  • The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day.  (let's stop there for a moment - absorb that number - the entire national GDP in a year is $14T.  In one day the banks required 1/14th of our entire national output!  Too big to fail? or bail? Certainly not the latter)
  • Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy
  • And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.
  • Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.
  • A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.
  • The size of the bailout came to light after Bloomberg LP, the parent of Bloomberg News, won a court case against the Fed and a group of the biggest U.S. banks called Clearing House Association LLC to force lending details into the open.
  • The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma -- investors and counterparties would shun firms that used the central bank as lender of last resort -- and that needy institutions would be reluctant to borrow in the next crisis. Clearing House Association fought Bloomberg’s lawsuit up to the U.S. Supreme Court, which declined to hear the banks’ appeal in March 2011.
  • The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.
  • “TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.”
  • The Fed initially released lending data in aggregate form only. Information on which banks borrowed, when, how much and at what interest rate was kept from public view.  The secrecy extended even to members of President George W. Bush’s administration who managed TARP. Top aides to Paulson weren’t privy to Fed lending details during the creation of the program that provided crisis funding to more than 700 banks, say two former senior Treasury officials who requested anonymity because they weren’t authorized to speak.
  • The Treasury Department relied on the recommendations of the Fed to decide which banks were healthy enough to get TARP money and how much, the former officials say. The six biggest U.S. banks, which received $160 billion of TARP funds, borrowed as much as $460 billion from the Fed, measured by peak daily debt calculated by Bloomberg using data obtained from the central bank. 
  • The six -- JPMorgan, Bank of America, Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (GS) and Morgan Stanley -- accounted for 63 percent of the average daily debt to the Fed by all publicly traded U.S. banks, money managers and investment- services firms, the data show. By comparison, they had about half of the industry’s assets before the bailout, which lasted from August 2007 through April 2010. 
  • Judd Gregg, a former New Hampshire senator who was a lead Republican negotiator on TARP, and Barney Frank, a Massachusetts Democrat who chaired the House Financial Services Committee, both say they were kept in the dark. "We didn’t know the specifics,” says Gregg, who’s now an adviser to Goldman Sachs. (I'm laughing more at where Gregg landed rather than our Congress being in the dark - although both are laughable)  “We were aware emergency efforts were going on,” Frank says. “We didn’t know the specifics.”
  • Byron L. Dorgan, a former Democratic senator from North Dakota, says the knowledge might have helped pass legislation to reinstate the Glass-Steagall Act, which for most of the last century separated customer deposits from the riskier practices of investment banking.  “Had people known about the hundreds of billions in loans to the biggest financial institutions, they would have demanded Congress take much more courageous actions to stop the practices that caused this near financial collapse,” says Dorgan, who retired in January.  (Dorgan is one of the few in Congress who actually seemed to be doing his job - he saw this crisis coming a decade earlier!) 
  • Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.  Total assets held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data. ("too even bigger to fail")
  • Lobbying expenditures by the six banks that would have been affected by the legislation rose to $29.4 million in 2010 compared with $22.1 million in 2006, the last full year before credit markets seized up -- a gain of 33 percent, according to, a research group that tracks money in U.S. politics. Lobbying by the American Bankers Association, a trade organization, increased at about the same rate, reported.
  • Top officials in President Barack Obama’s administration sided with the FSF in arguing against legislative curbs on the size of banks.

And of course the man whose negligence of regulation at the head of the NY Fed.... was promoted for his 'good works' for the banks or as Blankfein would say he was 'doing God's work'.
  • On May 4, 2010, Geithner visited Kaufman in his Capitol Hill office. As president of the New York Fed in 2007 and 2008, Geithner helped design and run the central bank’s lending programs. The New York Fed supervised four of the six biggest U.S. banks and, during the credit crunch, put together a daily confidential report on Wall Street’s financial condition. 
  • At the meeting with Kaufman, Geithner argued that the issue of limiting bank size was too complex for Congress and that people who know the markets should handle these decisions, Kaufman says.   In the end, Geithner had his way. The Brown-Kaufman proposal to limit the size of banks was defeated, 60 to 31
  • Lobbyists for the big banks made the winning case that forcing them to break up was “punishing success,” Brown says. 

Much more in the story....

Holiday Sales are Up! Shocker! They Should Be!

The breathless holiday reports are in and like almost every year (ex disasters like 2008) holiday sales are up! Shocking! (not)

By nature retail sales (Christmas or otherwise) should increase every year, by inflation alone, if we are not in a deflationary environment.  If you believe the government statistics, retail sales should rise 2-4%ish due to inflation alone even if actual goods purchases are flat- and if you believe the 'black helicopter set', the number should be higher than 2-4%.  Second, we gave every working American family between $1000 and $2000 more a year due to the payroll tax holiday in 2011, so let's call it $100 to $175 a month.  So by nature, in a country where saving is akin to 'letting the terrorists' win, spending should go up.

Aside from those two points - many stores were open at midnight (or in some cases 10 PM) rather than the 4 AMish of previous years, so you've added even more hours of the great American shopping experience this year versus last.  Any scientist will tell you, we are changing multiple variables - so any year over year comparison when trying to analyze one variable (spending) is highly suspect.


Thus far we are hearing everything from a 6.6% increase in holiday sales, to 16%.  Uhhh....

Why the huge difference?  Barry Ritholtz over at the The Big Picture however says the early reports of giddy holiday sales - not accounting for my comments above - are mostly hyperbole at this point.  Why?  Much like the NAR in the real estate market, it's always sunny side up when an industry group reports data on its sector -- and the way these things are measured can be quite humorous.  From Ritholtz:

When the data finally comes in, we learn that the early reports were pure hokum, put out by trade groups to create shopping hype. Let’s start with this whopper from an utterly breathless press release from the National Retail Federation:

“U.S. retail sales during Thanksgiving weekend climbed 16 percent to a record as shoppers flocked to stores earlier and spent more, according to the National Retail Federation.

Sales totaled $52.4 billion, and the average shopper spent $398.62 during the holiday weekend, up from $365.34 a year earlier, the Washington-based trade group said in a statement today, citing a survey conducted by BIGresearch. More than a third of that — an average of $150.53 — was spent online.”

No, retail sales did not climb 16%. Surveys where people forecast their own future spending are, as we have seen repeatedly in the past, pretty much worthless.

We actually have no idea just yet as to whether, and exactly how much, sales climbed. The data simply is not in yet. The most you can accurately say is according to some foot traffic measurements, more people appeared to be in stores on Black Friday 2011 than in 2010.


Mark's note - Do you remember to the dollar how much you spent this weekend?  Within $10?  Within $20?  Do you even remember what you spent on lunch two days ago?  But no worries, in a country where math is 'a challenge' for many, I am sure such surveys are incredibly accurate.

Barry also takes the 6.6% figure from another report (seemingly more reasonable accounting for inflation, and the payroll tax holiday) to task, later in his post.  However, all of this is highly inconvenient so I'd much rather take the breathless data at face value and just cheer!

Sunday, November 27, 2011

Futures Up Big on Italy 'Rescue'

Futures up big on Greek rescue, futures up big on Irish rescue, futures up big on Portugal rescue, futures up big on on 1.4T ESFS package, futures up big on Italian government change, futures up big on Greece government change, futures up big on IMF rescue of Italy.  Winner winner, chicken dinner .... notice a pattern?

Stock Futures


DJIA INDEX11,349.00162.0011,333.0011,355.0011,321.0020:01
S&P 5001,175.0021.601,172.001,176.201,170.0020:01
NASDAQ 1002,186.0038.502,173.752,186.002,173.7520:01
S&P/TSX 60650.500.30643.20653.80643.2011/25
MEX BOLSA34,666.00-775.0035,445.0035,715.0034,545.0011/25

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