J. D. Swampfox

Hedge funds may get their hands on AIG (AIG) cash. AIG has put money in escrow for at least one major bank whose hedge fund clients bet against the housing market. The money will be released if mortgage defaults rise above a certain level.

These hedge fund "bets" against the housing market were likely just that...speculative, without an insurable interest. As such the government could, if it had the will, tax the proceeds (say 99%) of the payout of all payouts without insurable interest. It could require the payor, AIG, to withold the government's share of the payout. The government could then simply waive AIG's remittance back to the government, given AIG's inability to pay and its 80% government ownership. This drives the value of speculative CDS's to zero and since insurance is not for speculation, rightly so.

see Willem Buiter’s column “Should you be able to sell what you do not own? at blogs.ft.com/maverecon/

Is Deflation Done?

It seems still a little early to tell yet...especially since the numbers can be and are manipulated.

Setting aside the notorious volatility of monthly housing-starts data, and that the rise in building permits was far less inspiring, Curious Capitalist wonders if we should be so delighted with yesterday's jump: "With so many existing homes sitting around unsold, do we really need to be building that many more?"

Yes, it was mainly multifamily, but still the question is a good one. Do we really need more apartments? Even though folks may only be able to afford an apartment, there's plenty of them already available too and that's why REITs like EQR are trading so low...

Will the Fed Finally Embrace Quantitative Easing Tonight?

The whole AIG bonus show is just that - an orchestrated show to distract from the real failure of the government to deal with the CDS's that caused us to be owners of AIG in the first place.

Insurors' Statutory Capital Declined by $32 Billion in 2008

Zerohedge says, "One hint to the true financial state of insurers is the recent applications by Hartford (HIG), Prudential (PRU) and MetLife (MET) to all obtain treasury capital infusions". Besides the banks, we may need $2-3 more trillion for the insurance industry too...pretty soon we will be talkin' 'bout some real money here...

John Hussman: Are Stocks Really Undervalued?

So...who's up for assuming "a sustained return to the unusually elevated profit margins of recent years"? Any takers?

Washington's Lack of Focus Puts Recovery at Risk

The Administration seems to be delaying but the reason is not completely clear. Many have said that bank bondholders need to take haircut, probably from being forced to exchange their bonds for equity in the banks. But, if governments force this equitization, then a default event occurs and all the off-balance sheet CDS's written on those bonds become payable.

To avoid the panic that would come from equitization - they simply ignore the problem and put forth a new smoke screen: the unworkable scheme called the TALF, that private investors will likely never get on board with.

Doug Kass's audacious forecast: In the months ahead, the fear of being in will be replaced by the fear of being out.

Doug Kass says we are in the cycle where we were 1937 -7+ years after the '29 crash. So we are supposed to believe that what took 7+ years then, has been compressed into 1 or 1.5 years now? Our systems and smarts are not THAT much better than they were back then...the forecast is indeed audacious.

Is It Finally the End of the Bear Market?

The writer says, "we can now admit that the Fed actions the past few months have been a success and that it clears the sky a bit." a success? - I don't accept that at all... Bank bondholders have to take a haircut... but if they are forced to, all the CDS's written on the banks bonds will be triggered and payable, leading to another meltdown. The TALF and so-called Public/private partnership is just another re-arrangement of the deck chairs on the Titanic...see Mike Whitney's article in the Market Oracle here: www.marketoracle.co.uk...

We certainly may see a little more upside, but deeming the FED's actions a success? -the sky is not clear at all

George Soros, Reflexivity and Market Reversals

I'm not sure I understand the connection between Soros' idea of reflexivity and the writer's own ideas about parabolic price patterns. The writers actually say, "Soros does not provide any clues about how he solves this problem. Timing is obviously a key to success since markets will be in freefall (or melt up) when the reflexive forces are in full swing, by definition." So, the writers endeavor to supply a market timing approach FOR Soros. I wonder if Soros will endorse this timing approach? As written, it's just name dropping...

FASB, which sets U.S. accounting rules, thinks companies should have more leeway in determining if assets are "distressed." Board members say the move could help boost fair values - and draw investors back into bank stocks.

OOPS, here's a link to the CNN video of Paul O'Neal at Huffington that appears to work: www.huffingtonpost.com...

FASB, which sets U.S. accounting rules, thinks companies should have more leeway in determining if assets are "distressed." Board members say the move could help boost fair values - and draw investors back into bank stocks.

"Board members say the move could help ... draw investors back into bank stocks" Even FASB is taking to cheerleading... Let's see Cheerleaders try to get folks to cheer when there's nothing to cheer about.

Paul O'Neal, former Treasury Secretary, said yesterday that there are banks that are hiding the truth. The interview was posted on Huffington yesterday, but it appears the Obama Administration has asked them to take it down...it's nowhere on the internet anymore...

'Long S&P 500 Overnight' Is Not an Advisable Strategy in Bear Markets

It seems then, that if it is undesirable to be LONG overnight, then it might actually be desirable to be SHORT overnight in these wild bear market times ...

Fully Invested, No Bottom in Sight

"The policy of subsidizing private debts, or transferring them to the public balance sheet, is still alive and well. But ...– the debts linger in one form or another, rather than being written off, restructured, or swapped for equity.... Piling debt onto the balance sheet of the federal government does not remove the obligation, and concentrates the risk of a failure that would be a true systemic event."

Boy the writer said a mouthful there. Governments are assuming that non-systemic risk (particularly related to their bonds) of individual firms "might" be systemic and so they take it on as a liability of the taxpayers and make it systemic officially. The problem is that once its systemic, we can't diversify it away...

Markets Look Overbought to Start the Week

The writer says, "There certainly is a risk to see the S&P hit 600 at some point over the next couple of months; with forward earnings estimates in some quarters hitting $50 (Goldman Sachs said $40 recently) a 12 P/E puts the S&P at that level." It looks like even Goldman's $40 may even be conservative....The S&P 500 index suffered a net loss of $180bn, or $20.70 a share for fourth quarter, according to S&P. This is the worst performance ever, with records going back to 1935.