The Burden of Proof
Tyler Durden had a fascinating report out over the weekend that generated plenty of interest. The title is as sensational as it gets:
An Overview Of The Fed's Intervention In Equity Markets Via The Primary Dealer Credit Facility
I will not go over the whole article, you would do well to read the entire thing.
After that title I was looking forward to some carbon paper copies of stock buy orders with Ben Bernanke's signature on them. Something like:
"BUY 10,000 shares GOOG at ASK. Authorized by Boom Boom Bernanke."
In the end, the author Tyler Durden submits that the Fed used the Primary Dealer network to buy equities by channeling funds to them via the multitude of lending facilities.
Of course, there are other views and Ed Harrison of Credit Writedowns was underwhelmed by the article.
From my seat it seems semantics are at play here. Did the Fed directly buy equities? Of course not, not even those guys are that stupid. Did the Fed accept anything and everything as collateral for loans to the banks, who then turned around and ignited a 60% rally in the markets (with huge moves up for banking stocks) with the new found cash? It is hardly debatable. Did the Fed give a wink and a smile to the banks to do this very thing? I cannot be sure, but the burden of proof is on the Fed, not me.
Until the Fed releases what kinds of collateral they are holding and how much they lent out based on said assets, nobody can really know. Audit the Fed and let's see.
If You Have Nothing to Hide, You Have Nothing to Fear
At some point in every socialistic society, the Government becomes so all knowing and all powerful that they feel it is their duty to make right all the wrongs of the country. If a few principles have to be bent for the greater good, then so be it. If you happen to have a safety deposit box in the English bank in the story you need to feel better that the target of the raid was illegal assets, not your hard earned stuff. Of course, good luck getting your stuff back.:
The Raid that Rocked the Met
Why gun and drugs operation on 6,717 safety deposit boxes could cost taxpayer a fortune.
More than 500 officers smashed their way into thousands of safety-deposit boxes to retrieve guns, drugs and millions of pounds of criminal assets. At least, that's what was supposed to happen.
The entire article is a great read.
Some pictures from the story:
Police cutting open the boxes with grinders.
Now I want to be clear here. This operation was focused and well studied to target drugs, drug money, and weapons. On the face of it, all noble actions.
Of course there are problems. The police are overwhelmed by the non criminal box owners wanting their items back. Of course it seems a few stacks of bills may have been "lost" during this process. Add to this, by definition items in the boxes are not declared anywhere, so you could have fraud by the box holders (I had 3 million dollars in there! Where is it?), or theft by the authorities (We only found 10 pounds sterling in there, not 3 Million, honest!).
If you are not a criminal you have nothing to fear except it may take a while to get your stuff back, and maybe not all of it comes back. But you did help fight the war on drugs, so you have that going for you. Which is nice.
At least if your safety deposit box is making you worry, you need never fear your bank deposits here in the USA. We have the FDIC, which guarantees your dollars will be there in the morning. Sheila Bair wanted you to know:
Of course the Fed can make it so that your dollars are not worth anything, but they will indeed be there, so relax.
Your Regularly Scheduled Rally Will Resume After this Brief Interruption for the the Largest Bond Sale in History
This week's 100 Billion Dollar plus funding bonanza will need a little help to make sure all goes well. In an effort to gets some traction, the dollar moved massively (snark) higher Monday (an entire point up! A monster 1/75th of a jump!) and this caused the equity market to have a fit. A move from 75 on the dollar index all the way up to 77 may just bet the ticket to scaring the foolish into piling into US debt. It cracks me up that the same game gets played and the supposedly nuanced bond market types swallow the bait every time.
Of course the bond sales this week will go perfectly, perhaps with the best participation rates ever seen. After that, the regularly scheduled market rally will resume either Friday or next Monday at the latest. Position accordingly.
Of course there is always one annoying guy at the party that tries to screw things up for everyone, and the #1 stock for the momentum "It's a new Era" type traders coughed up a hair ball tonight.
Baidu (BIDU) came in a bit under estimates across the board, which is no easy feat this earnings season (see earnings call transcript here). Of course this represents a great buying opportunity after a 12% move down after hours. Remember the beauty of dollar cost averaging!
If you are a nervous holder of BIDU here, allow the sage voices on the Yahoo Message boards to put your mind at ease:
I had wondered what had happened to Casey Serin but it is clear Mr. Serin moved on from his real estate empire into BIDU stock and sees this pull back as a "sweet deal".
just spoke to large investor - very excited about quarter.
2. slowing rev not a surprise - and not indicative of slowing momentum
3. EPS impact should not be that significant, as margins on Nest significantly higher
4. Expects company to highlight that rev momentum should quickly reaccelerate in Q1
5. Thinks announcement was a bit naive, but expects the take home message will be - and should be - Q3 rev and earning growth reflects a business expereincing extremely strong fundamentals right now, and that should quickly resume following the transition.
6. Does not expect 2010 forecasts to be reduced - in fact - expects them to INCREASE - reflecting the 9 mo trend of 2009
Buying on 20% ah selloff.