Joanito

Case-Shiller's Recent Strength: It's Not Just Seasonality

The cat is dead. Cat, meet concrete. The cat bounces. The dead cat is a metaphor for something. See if you can guess what the dead cat symbolizes.

Bill Gross: Sell Equities, Buy Treasuries

Oh what does Bill Gross know anyway?

'Green Shoots' Are a Mirage: Economy Will Deteriorate Further

Why didn't Paulson highlight his BAC aquisition in June when he topped it off? How much was BAC trading for in June vs right now? Hedgies can be very deceptive. Paulson could eat a huge loss on his distressed bank portfolio and use it as a tax write off against other gains without losing a night's sleep. I would be surprised if he's still adding shares at these prices or if he decided to hold once banks resume their nosedive. Additionally, by which mechanism would you have MBS and CMBS reinflate so that fair value is in the same stratospshere with the value that these instruments are being carried at on the banks books? When do you expect these instruments to appreciate back to non-distressed levels? At maturity?

"The institutional values are supported by actual cash flows being received every month, plus default histories, and are in every respect supported by real, tangible data."
Is this not what these entities did to arrive at fair value as opposed to the value at which these assets are carried?

Any asset is worth only what the market is willing to pay. Not surprisingly, the market is fairly illiquid for securities collaterallized by pools of loans originated during the very height of credit lunacy and insured by CDS contracts created by institutions that are obscenely undereserved. If even a few percentage points worth of CDS contracts outstanding were to have to pay out, the underwriting institutions would instantly evaporate whatever remains of TARP and any other bailout facilities barring a situation in which the insuring parties were equally hedged for each loss. How probable is it that any underwriter is going to be equally hedged for each CDS contract that they have to pay out on?


On Aug 13 12:46 PM Tack wrote:

>
> The single greatest misconception during this entire financial crisis
> is the role that has been played by unregulated CDS contracts and
> naked shortselling. The "market" valuations espoused by so-called
> "mark-to-market" advocates are a fiction, one that was artificially
> created by the institutions and hedge funds, who recognized the unbridled
> opportunity to short debt assets and financial institutions, without
> any regard to underlying performance.
>
> If one examines almost any debt assets --from prime to subprime--
> one can see that the supposed "market" values bear no sensible relationship
> to the usual discounted-cash-flow methods used by institutions to
> value debt assets. The institutional values are supported by actual
> cash flows being received every month, plus default histories, and
> are in every respect supported by real, tangible data. The "mark-to-market"
> values, on the other hand, have no underlying methodology and depend
> on nothing more than manipulated trading and fear.
>
> These "values" would have one believe that prime paper, performing
> at a historical rate of about 85-90 cents on the dollar, is only
> worth 50-60 cents, or less. This disparity is absurd and also explains
> why no sensible bank or other financial institution is in a hurry
> to dump their "toxic" assets, so some predatory vulture capitalist
> can make all the inherent gain built into these artifically-depressed
> prices. It's also why certain groups, supported by these interests,
> lobby so diligently to have Congress force the banks to liquidate
> these assets at giveaway prices, when common and sound business sense
> dicates the opposite.
>
> That all the above makes sense could not be made more clear by the
> just-announced news that John Paulson --the biggest shortseller winner--
> has taken huge positions in the Bank of America and numerous regional
> banks, the very same entities he feasted upon when the traders drove
> the market to despair.
>

Bailed-Out Banks Help Keep Treasury Rates Down

Gre

Irrational Exuberance of the Green Shoots

yep.... you're right. Specifically about the public being unprepared part. Not going to end well.

Michelle Caruso-Cabrera, Charlie Gasparino Bash Finance Blogs

All one has to do is look at the number of comments this article has attracted. The power of the blog universe is really just beginning to get real traction with many of the followers of mainstream media. The best thing that CNBC could have done, aside from doing the sheeple of the world a favor and openly admitting that their "news coverage" is a farce, would have been to completely avoid tangling with the likes of Denninger and Durden. It was a MAJOR mistake to allow a lightweight infotainment type like Dennis Kneale to bring the Market Ticker and Zero Hedge into the light of day. All his infantile rantings did, aside from providing me with some great reading, was to take Denninger and Zero Hedge into the mainstream, right into the living room, right where CNBC wants to be. Zero Hedge has been very thankful for all of the free advertising that has come their way via CNBC. ZH could have spent millions and not gotten the level of exposure that the clowns on CNBC laid right in their lap. It was quite gracious of Karl Denninger to appear on Kneale's show knowing that he was going to get about thirty seconds or so before either getting cut off or run over as is the tradition in modern news comedy fluffer talk shows these days. Although for me personally, I will give props to CNBC for one thing: I don't watch much TV, and never watch CNBC, for the simple reason that CNBC's content in particular is nauseating, but when I was reading ZH's and Market Ticker's articles about CNBC, I did watch CNBC for about three minutes. Dickweeds....

Next Round of Stimulus Must Be Directed at Regional Banks

Maybe it's appropriate to have some sympathy for all the banks who are in trouble right now due to problems that are largely of their own making. I have none. So far, the feds have yet to dole out more than a trickle of the already approved massively bloated life support program that some call stimulus. The corrupt filth that was put to the American public with a .45 cal point blank to our collective skull last fall in the form of $750 billion TARP has failed on all accounts, with the notable exception of the real goal of the program, which was to buy some time for the biggest banks who have managed to buy our government. So, it's really perversely obscene that, while the consumer is receiving a legendary ass kicking to their bottom line, folks are already talking about what can be done to save the dead men walking. The answer is to now prop up small banks? Where will all this abuse end? The sheeple of the world have just finished recapitalizing the largest perpetrators of abusive lending in history. Surely, if the big banks are now "healthy and well capitalized" they'll be able to swoop in and consume the assets of the smaller banks as soon as they go belly up.
In reality, this bailout mania must be stopped, immediately. The government handouts have acccopmlished nothing to date except that the laws of natural selection as they pertain to markets have been temporarily suspended. Time was, when a business worked hard with a conservative business model that emphasized risk control and an astute reliance on financial common sense, that business was rewarded for employing such hard nosed and boring tactics when the inevitable and periodic wars of attrition started. The folks who abused the laws and took way too much risk ceased to exist, while their assets were bought on the cheap by businesses, banks in this case, that played by the rules and fought the good fight waiting for good opportunities to emerge. Now, people in our government and citizenry are advocating a complete repudiation of this most sacred of all the laws of the capitalist jungle? Did these guys get their inspiration from "Weekend at Bernie's"? Where will the incentive to run a modest business that has appropriate risk controls re-emerge if their is absolutely no reward whatsoever for those who played by the rules? Here's the andswer for all of the banks who abused the ancient laws of lending for a short term gain: Let them rot. Let the leaner, meaner banks who have busted their butts to position for exactly this moment take the spoils of victory. Anything else may feel good in the short term, but will lead us all on a steady descent into hell in the long term.

Jim Rogers Shares His Thoughts on the Market

So which is it ""I'm afraid they're printing so much money that stocks could go to 20,000 or 30,000. Of course it would be in worthless money, but it could happen and you could lose a lot of money being short." " or "To conclude, Rogers thinks that the stock market will eventually hit new lows this year or next year after the bear market eventually subsides."? Additionally, I do recall that commodities decided to come along for the ride to the bottom along with stocks. If anything, it has been proven that commodities are no hedge when the world is deleveraging the greatest credit fueled asset bubble of all time. Commodities are esepcially questionable in an evrironment where producers do not have as much pricing power. The only thing that higher commodities do here is to further squeeze business margins, causing more economic havoc. Also, I hear no mention of any potential ill effects of the loosening of lending policy in the developing markets. The world is teetering on the brink of true financial chaos as a result of an unruly debt bubbble in the west, but potential lending issues in Asia, which still has yet to come to grips with the annihilation of their export based economic model, and is hoping that their stimulus policies are going to buy more time (at the expense of U.S. treasury prices), are overlooked for the sake of pumping Rodger's latest book. Interesting...

Commodity Prices: Undeniable Green Shoots

Where is the castle in the sky in which producers can pay 50% more for materials than they were paying three months ago and pass that cost increase on to the consumer? Either they will buy less raw materials, or they will let go of more employees, because pricing power, on the part of goods producers, is non-existent. How does the new commodity bubble jive with recent reports showing continued reductions in wholesale inventories? The oil market will be brought back into line as soon as the bubble China is meticulously constructing shuts off like a faucet, like it did last summer. Let me guess, the owner of a given business, which is fighting for survivial, will look at these conditions and decide that it's time to floor it. Logic be damned, let's produce more stuff which we can try to sell into a market which is comsuming much less stuff. Which of those likely outcomes is supportive of economic growth and a viable reason for commodities to continue their moonshot? You interpret another dose of runaway commodity inflation (speculation) as a sign of true economic recovery? By that measure, I guess the summer of 2008 (runaway speculation) was the healthiest that the U.S. and global economies had been in decades. How exactly will skyrocketing commodity prices (fleeting anomoly due to the dislocation of large volumes of hot money from treasuries and dollars) lead to economic recovery for the business that consumes raw commodities in order to bring a finished product to market? How have export based economies fared in the last few months when they were actually benefitting from record low commodity prices? Do you actually think even for a second that Toyota and Honda will make a profit by paying more for their raw materials to produce cars to be sold in the U.S. against GM and Chryler's never ending going out of business sale (government protected monopoly? Wait, I thought that was against WTO rules)? Have you seen the sales numbers for Toyota and Honda, global manufatcuring behemoths, since GM and Chryler became wards of the state? Let me guess, you'll have me believe that consumerism is on the rise in China, which is building it's own bubble of risky lending? The U.S. consumer is in the midst of the greatest debt unwind of the last 100 years, and this unwind is going to continue for as long as it takes for some semblance of balance to return to the "balance" sheet. If anything, commodity inflation will lead to accelerated deleveraging albeit in a more erratic and radical pace since businesses have even more pressure put on them to either reduce their workforce in order to pay more for raw materials or to cut back on buying raw materials in general, or both. The conditions in the market will not support higher prices being passed on to the comsumer until employent and the great debt unwind have run their course.

Will Capacity Utilization Tell Us the Recession Is Over?

Why oh why must you look to fancy "numbers" and "charts" and "research"? All anyone needs to do to realize that the recession is over, and full potential growth resuming, is listen to the government's endless list of truths. Everything's fine. Buy some bank and reit stocks and enjoy the summer.

Market to Fed: Get Ready to Tighten

The fed's hold on interest rates is a popular myth, but the reality is quite evident to anyone trying to get a 30 yr/fixed mortgage anytime during the last few weeks. In many markets, mortgage rates went skyrocketing by a full percentage point or more just within the last 2 weeks. The market has already moved way in front of the fed and is pricing in risk, not green shoots, as far as interest rates go. If the fed raises rates, the biggest growth industry for the next two years will be demolishing newly built homes that have been and will remain empty. Many have predicted the day when the fed's interest rate lever would be broken off by the market. Welcome to that day.

Higher Mortgage Rates Are Not a Threat

A difference of only a half point or so can add or subtract $100-150 or more to a monthly mortgage payment, which, for the average citizen, is a lot of money. As mortgage rates tick higher, the doors of the housing debt markets are slamming shut for the vast majority of would be borrowers. What should they do with their extra coin in a given month I wonder? If the average citizen is qualified for a conventional 30 yr fixed mortgage, should he or she go after one, thus ensuring that any and all extra income will go toward servicing said note for a house that, as far as anyone can tell, will be much cheaper in a year or two (credit card debt, savings, and employment insecurity be damned)? Sure banks make more money when rates are higher, if mortgages are in high demand, but the statistics I have seen since rates started their most recent climb show mortgage applications falling off a cliff within days of mortgage rates going on the increase. How would you consider a robust dropoff in the number of mortgage apps. as an increase in demand. I am guessing that this rate increae is tied to ludicrous increases in U.S. national debt issuance that the rest of the world is already choking on. The fed's nightmare scenario of the market pricing debt much more expensively than their precious stated target rates is beginning to unfold. They never were able to control interest rates really. This recent rise reflects the increased risk premium that shaky borrowers are forced to pay if they want to borrow, and that is all.

The Market Needs Strong Economic Data; China's Got Some

Trusting economic data pertaining to China as espoused by "A group of economists" seems like a fairly risky exercise in optimism. Is it not possible that the better than expected numbers coming out of China are priced in already, especially after the tear that world markets have been on since March? The only government that can spin numbers more dramatically than the U.S. is China's. I also have doubts about the ability of the Chinese consumer to even hold a candle to the world class gluttony of the American consumer over the last couple of decades. Am I to believe that a nation populated with the most progious savers the world has ever known is supposed to just start ravenously consuming flat screens and other junk as they simultaneously look around and see the labor landscape deteriorating due to a rapid fall from years of 10+% gdp? No one seems to want to talk about the real elephant in the Chinese room, which is that Chinese banks have taken a page out of the U.S. and Western Eurpean books in terms of an increase in risky lending. Why did BAC and GS recently dump large positions in Chinese banks and lending institutions? If the super powered analysts working in the bowels of those institutions were so bullish on the near future why didn't they just hold their Chinese shares? The factory numbers in China may be more reflective of an increase in risky lending and reflation speculation than any sort of sustainable push due to internal demand. Since I have not been to China and have no real way to judge these numbers for myself, except of course, by listening to the endless littany of pumpside analysts. I believe that the markets of the world, in particular, those in China and the U.S. have priced in most of the economic stimulus that will be forthcoming from the larger economies. I have no choice but to remain on the sidelines until a large dip in all the world indexes begins to reflect the situation on the ground, which is still utterly nauseating. You're right that at this point the markets are insatiably oriented towards streams of good numbers just to maintain their current stagnant levels. This market may just be strictly powered by..... bull.

The Week in Credit: Weekly Credit Market Summary

Won't be long now before the government minions pull the plug on this rally. Most of the biggies have had a chance to issue a ton of debt into a receptive market. They'll be able to limp along for a while. But, before the speculators of the world go getting all ahead of themselves, and really tank the dollar causing commodity inflation to spike even higher than the ridiculous run up in May (all this in a world that is awash in excess capapity?), and before the 10 yr yield curve has an even more absurd blowout, which would push the 30 yr/fixed into the mid to high 5% range (quickly microwaving all green shoots predicated on the great housing bottom call) I believe these events could unfold. Someone flicks THE switch and the GS SLP machine goes into reverse which should be enough to tank stock indeces around the world. This sudden change accomplishes several things:
1) It would breath new life into the risk averson trade helping the feds move some more debt at lower long term yields.
2) Inflation cools off a little before higher oil (and other) prices nuke any economic recovery, squeezing businesses into choosing between buying gas and other stuff or letting go of even more employees, and the consumer into choosing between necessities like food or paying their already worthless mortgage, making the "worst case scenario" as outlined in the "stressful" tests a reality sometime this summer, not in 2011.
3) It would allow GS and others to show massive realized gains through long trades off the March lows, just in time for Q2 earnings.
4) Certain very large players would be reminded (or maybe it is they who would do the reminding) that most of the world has just come off a a twenty year construction spree, and that speculation in hard assets comes with high risk especially when demand is anemic at best. Better stick to something relatively safe like buying up excess U.S. debt. If the dollar keeps tanking, Americans will never be able to afford to buy imports, not to mention that the U.S. would, over a few years, become a net exporter at the expense of the export based economies around the world.

Green Shoots Turning Red Hot

You can talk all you want about red hot when mortgage rates go above 5.1%/30 yr fixed and buyers still can be found for the glut of homes dumping onto the market. Unless the risk aversion trade comes back to life, it appears that high mortgage rates are going to break the back of any immediate recovery in housing, which is the main metric for the green shoots argument. The liquidity in the banking system is mainly a buffer against future losses. The average consumer is still choking on debt and unable to roll it over unless the fed/treasury tag team can pull off more "miracles". It's always nice to hope though.