Calculated Risk points to an interesting but short article at Bloomberg by Meredith Whitney in which she postulates that once the Fed withdraws its support for the mortgage backed securities market, mortgage rates will move up and the banks will be faced with more writedowns.

The blogger Felix Salmon, at Reuters, was kind enough to link my post from Friday morning about the Bair-Miller-Moore Haircut and to disagree with it. I will try to answer Mr. Salmon point-by-point and also offer a more general, conceptual response.

He writes that the haircut, or the threat of one,

When the FDIC chairman, Sheila Bair, gave a speech in Istanbul on October 5 floating a proposal to limit the claims of secured creditors of failed banks, we commented that the change would "make it harder and more expensive for banks to raise capital." When we checked if her proposed 20% haircut would apply just to newly issued debt or retroactively to existing secured creditors, her spokesman replied, "The chairman simply raised the issue as a possible approach. No details were provided." Well, the details are in, and the proposal has gone from trial balloon stage to actual legislation, in the form of an amendment passed this week to the House financial services "reform" bill.

The amendment, offered by Rep. Brad Miller of North Carolina and Dennis Moore of Kansas (where Ms. Bair has roots), is as follows:

It's been a big week for the cottage industry of John Paulson-watching.

The Paulson & Co. fund manager is set to launch a dedicated gold and gold mining equity-focused fund at the start of next year, in which he'll invest $250 million of his own money.

You may recall that Paulson's earlier forays into gold ignited a new rush into gold by hedge funds and investors piggybacking on the trades of sophisticated hedge fund managers. JP's new fund signals his continued positive outlook for the precious metals sector over the intermediate to long-term.

Unfortunately, FDIC has prohibited us from releasing any information regarding the auction. We've been trying to get them to let us release the results, but they have denied our requests. We aren't allowed to release any details.

http://www.bloomberg.com/apps/news?pid=20601103&sid=aP_4vjiIq7KU

Alternative title: What the devil is he going to do in this mess?

On a percentage basis, the price of silver can easily outpace gold over the next few years as both metals hit record highs after adjusting for inflation since 1980. Silver might achieve that goal far more quickly than gold.

But as gold reaches over $1,145 this week (+10% in November) there's one missing ingredient required to legitimize this historic bull market; silver must exceed its March 2008 high of $20.78 an ounce. Spot silver trades at $18.71 an ounce this morning in New York.

Today's extraordinary loose monetary conditions are "benefiting hard assets," according to James Passin, co-founder and manager of Firebird Global Fund and Firebird Global Fund II. Surplus liquidity is flowing into ETFs that buy commodity futures and physical commodities, which James says, is "creating a feedback loop" that is driving up the price of resources. James discusses gold's momentum, as well as its associated near-term risks and shares some hot companies and sectors he's following right now in this exclusive interview with The Gold Report.

The Gold Report: James, last December, you commented on the low interest rates that the government had on bonds. You said you thought that would spur inflation and an increase in commodity prices. Now that we're in the last quarter of '09, how do you feel about your predictions and what do you see going forward into 2010?

LDK Solar (LDK), a well known Chinese Solar Company, invested (since summer 2007) in a very ambitious plan that almost cost them their future: Build an in-house Poly Plant to build the polysilicon needs for their Wafer Production.

Why that plan? Well, Polysilicon is a major cost component of a Wafer and at the time of the project decision (that the market warmly welcomed), the price of polysilicon was rising constantly.

click to enlarge

If you take a look at my recent post on the CBOE equity put/call ratio, you'll get a sense for what an average ratio has looked like lately. Those ratios, however, can also be informative on an intraday basis.

The top 3 Singapore banks based on assets held as of December 2008 are listed below:

Source: BankScope

Introduction

In the Gold mining world as in life, Darwin’s law of survival of the fittest holds true. The large Gold mining companies (which we shall refer to as “Big Gold” hereinafter) need to continue growth in order to survive. Big Gold needs to replace their mined out resources in order to continue their existence and to grow.

By Jeff St. John

The South Korean government has declared its intention to help its home industries win 30 percent of the global smart grid market, Reuters reported Friday.

Canadians observed the sub-prime crises and consequent financial meltdown with morbid fascination, all the while congratulating themselves that it would not happen to them. After all, the laws forbade anyone from walking away from an underwater mortgage and strict rules were in place to even qualify for a mortgage.

The fact is, over 90% of existing mortgages in Canada are "securitized" - that's the practice of pooling mortgages and other loans, then issuing new securities backed by MBSs, or Mortgage Backed Securities. In order to find buyers for these securitized mortgage pools, the Canadian Government has put guarantees on them by directing the Canadian Mortgage and Housing Corporation (CMHC) to guarantee ALL Canadian mortgages.

Sure, foreign currency contracts, even at so large a number represent a relatively small portion of derivative contracts -- less than ten per cent. And there are those who point out that foreign currency derivatives have not been a problem area during the financial crisis. Of course, neither were any of the derivatives that became problems when subprime mortgage values collapsed until, of course... they became problems. A couple of years earlier, one could have argued that we exclude credit default swaps, such as those that took down AIG, because they had a trouble-free history. To argue for exclusion of the foreign currency contracts based on a largely trouble-free history is pure nonsense. Indeed, those who argue most vehemently for the exclusion are the same people I would watch carefully if an exclusion is permitted.

And so it was initially refreshing to see Mary Schapiro appointed to head the Securities and Exchange Commission (SEC). Unlike her two Bush era predecessors, Donaldson and Cox, she had neither ties to Wall Street, nor a history as a "business friendly" legislator. Indeed, she has spent most her career at the SEC, a technocrat free of direct ties to Wall Street or its influential lobbyists. On the other hand, in 1993, then a senior SEC official, she delivered a noteworthy speech in Davos Switzerland advocating a flexible regulatory regime. This she asserted would permit innovation.

Market Generalities

When reading Seeking Alpha Friday, I couldn’t help notice that the most popular article was: Why the Stock Market Should Crash, by Charles Hugh Smith. With all due respect to Mr. Smith, and all the other doomsayers out there, I frankly just don’t get it. In my opinion, fear is a negative emotion that causes more harm than good. My favorite acronym for FEAR is: False Evidence Appearing Real.

By Michael Kanellos

Johnson Controls (JCI) will informally refer to itself as the IBM of green building and in many ways the analogy is apt. Both companies have extensive histories. The Milwaukee-based company just announced another quarterly dividend, the latest in a streak that stretches back to 1887.

By Ucilia Wang

Solar company executives have often talked about India as a potentially huge market. Now they can count on the government's help to make that a reality.

The New York Times has a news article running under the headline "New Consensus Views Stimulus as Worthy Step" that is ridiculous even by New York Times standards.

Says the Times:

by Jeff St. John

The South Korean government has declared its intention to help its home industries win 30 percent of the global smart grid market, Reuters reported Friday. But to start, the government will spend a relatively small 37 billion won ($32 million) to test smart grid systems from a consortium including SK Telecom (SKM), LG Electronics (LGERF.PK), Hyundai Heavy Industries (HYHZF.PK) and national utility Korea Electric Power Corp., or KEPCO (KEP).

by Michael Kanellos

Nearly two months after its successful initial public offering, A123 Systems (AONE) seems headed back to its roots.

by Michael Kanellos

Tesla Motors is preparing to move forward with an IPO, according to unidentified sources at Reuters.

Platts, the highly respected energy consulting company, released its Platts Top 250 Global Energy Company Rankings for 2009 this week. One of the sub-sectors of this ranking is the Fastest Growing Energy Companies in Asia.

The Top 20 Fastest Growing Energy Companies in Asia:

Over the past several months, many have argued that a Zevalin comeback was impossible. The drug has been ignored by doctors for several years. For this reason, many argue it’ll never sell today. I will not deny it, changing previously held beliefs and perceptions isn't always easy. Without question, the Zevalin turnaround is a tall order and especially for a small drug maker like SPPI. So, I can appreciate and understand why most have not shared my view and enthusiasm for SPPI.

by Paul Amery

There’s been a lengthy discussion on other blogs this week about how ETF Securities’ new currency ETCs work. In my view, the blogs’ authors, Felix Salmon of Reuters and Izabella Kaminska of FT Alphaville, have missed one key subject – collateral costs.

China’s economy appears to have pulled itself out of the global recession at a steady clip, but will related shares and ETFs be able to maintain the gains?

The Year of the Ox may be the Year of the Bull instead. Among the reasons to like China as an investment opportunity include: