MonkeyBusinessBlog

Have A Nice Weekend. Gotta Head Down to the Junkyard and Get My $4,500 Hunk of Metal!

Offer Another $2 Billion For Clunkers? Ah What the F**k, You're Done!... Offer More??

This is just stunning!  The United States House of Representatives has upped the "Cash for Clunkers" appropriation by another $2 billion!  This is after the original $1 billion ran out after six days!!  From Bloomberg News,

Named the Car Allowance Rebate System, the program provides credits of as much as $4,500 for the purchase of a new car when turning in an older vehicle to be scrapped. Lawmakers had expected the program to generate about 250,000 vehicle sales and to have enough money to last until about Nov. 1.

The Michigan delegation led efforts for congressional approval to transfer economic stimulus funds for the Energy Department to the clunkers program, Senator Debbie Stabenow, a Democrat from the state, said today in an interview. Members said the effort has the Obama administration’s support.

“The administration worked overnight literally to identify a source for these funds,” Senator Carl Levin, also a Michigan Democrat, said in an interview. “They are not only on board, they are enthusiastically leading this effort.”

‘Working That Through’

“We’re working that through” with Congress, David Axelrod, a senior adviser to President Barack Obama, said today of efforts to find more funds.

They're looking to find a spare $2 billion!  They worked to identify a source for the funds!!  This is just astounding!  Please see our earlier post on our opinion of the fantastic program Cash For Clunkers Will Provide a Billion Laughs! 

I know that most folks don't want to hear from us Wall Street guys these days when it comes to fiscal responsibility but here is a little tip that we all learned on the trading floor.  If you are bidding or offering some sort of transaction that isn't incredibly liquid or transparent, in competition with 5 or 6 other guys....if you keep winning over and over again....something is wrong.  Something is very wrong!  

Now think about this CARS Bill (Car Allowance Rebate System....CARS..get it?).  They started this thing with $1 billion just 6 days ago.  The funds were supposed to last until November.  The original funds didn't even make it to August!!  Now the market wants double the original program...TODAY?

Here is what is really twisted.  Again from Bloomberg News;

The funding was offered as an amendment to legislation by Representative Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, which would ban incentive pay for Wall Street executives.

Remember Mom always told you that two wrongs don't make a right?  That's what these chuckle-f**ks are doing!  On the same day that Andrew Cuomo came out with his study showing how Wall Street paid boffo bonuses in 2008 while taking taxpayer bailout money, Congress and the White House ram this giveaway through.  This is their way of saying, "Screw you Wall Street.  It's time for a bonus for Main Street."  The economy is going further into toilet, the "Chosen One's" approval ratings are dropping like a stone, especially in Michigan, and the answer is to give away $3 billion to get people to buy cars.  And I do mean "giveaway" because there is no way in hell anybody is going to properly track and document approximately 666,000 transactions.  Not a chance.

How about a Fresca??

Second Quarter GDP? Horrible.

I strongly urge you to read Karl Denninger's post on this morning's  Q2 GDP release GDP: Uuuuuggghhh

Karl takes a look under the hood and it is frightening.  Here's some of my favorite analysis, but read the whole thing yourself....and then start drinking.

The change in real private inventories subtracted 0.83 percentage point from the second-quarter change in real GDP after subtracting 2.36 percentage points from the first-quarter change.  Private businesses decreased inventories $141.1 billion in the second quarter, following decreases of $113.9 billion in the first quarter and of $37.4 billion in the fourth.

Remember one of the CNBC memes has been "inventories bottomed in 1Q and are being rebuilt"?  Uh, where?  Either the BEA is lying or CNBC was absolutely full of crap. 

Inventories decreased in the second quarter even more than they did in the first; businesses are not as dumb, nor are they seeing "green shoots" and building inventory back up, irrespective of the incessant media pumping of a big fat LIE from March onward.

Personal current taxes decreased $113.1 billion in the second quarter, compared with a decrease of $241.7 billion in the first.

You only pay taxes on earned and unearned income.  It is collapsing.  Good luck Mr. President with your claim that the deficit will be brought under control - you're going to need it.

Cash For Clunkers Will Provide a Billion Laughs!

From Bloomberg News;

The U.S. government’s $1 billion “cash for clunkers” program to spur new car sales ran through the money six days after it began, Senator Debbie Stabenow said.

Stabenow, a Michigan Democrat, and other lawmakers called for an infusion of taxpayer money to subsidize more new-vehicle purchases in the effort to revive dealerships and automakers while getting older, less fuel-efficient vehicles off the road.

“It is amazing that ‘cash for clunkers’ would be this successful this quickly,” said Stabenow in an e-mailed statement yesterday. “I urge Congress and the administration to provide additional funding.”

She's amazed that a program handing out free money with little to no supervision was popular?  More from Bloomberg;

“Any doubt that the CARS program would jump-start auto sales is completely erased,” said Greg Martin, a General Motors Co. spokesman. “More than 200,000 cleaner, more fuel-efficient cars are on the road and a vital industry gets a needed boost. We hope there’s a will and way to keep the CARS program going a little bit longer.”

TWO HUNDRED THOUSAND IN SIX DAYS! A BILLION DOLLARS!  More....more!

“When we get close, we will start alerting dealers so they don’t get caught with a deal in the pipeline,” said Rae Tyson, a department spokesman, in an interview July 28. “We’re not going to leave them hanging. We’re not going to run out of money in a couple days.

Oh sure, we have about six people trying to find out where the TARP money went, I'm sure there's at least two civil servants tracking all this.  Here's my favorite part.

“This was a very successful program, maybe even too successful,” Senator Charles Schumer, a New York Democrat, said yesterday in a statement. “The program should continue, but perhaps with a tune-up so that we get the most stimulus, conservation and efficiency for the buck."

Senator Schumer is from New York.  He knows the tragic comedy that is coming.  A unsupervised government program to fork over $4,500 to dealers for each "clunker" handed in for the purchase of a new car.  A program where the dealer fronts the $4,500 to the clunker-owner and then submits a claim to the government isn't going to draw every criminal, both organized and and freelance, from gaming the program?  I can't wait to see how many "clunkers" get pulled from car graveyards, lake bottoms, impound lots, etc.. and get handed in.  I'm also sure that dealers wouldn't "short sell" clunkers, meaning they move a new car, less the $4,500 discount and then put the word out that they'll pay a grand for any pile of crap that can get dragged in!

I know what you might be thinking.  You're thinking that you can't just drag in a dead car without any registration and claim it to be yours and then buy a new car at a $4,500 discount.  Like I said before, "Who's watching?"  The government just said that the program moved 200,000 cars in six days.  There is NO WAY the state or federal governments are going to be able to keep track of even 10% of these transactions, let alone 100%!"

This might be the dumbest thing the government has ever done!  Oooh, have to get ready for another scam....the release of the second-quarter GDP!

**This just in!  Michigan lawmakers want to expand the program for another $2 billion.  Imagine that!

It's Stand Up With Pete Dominick Thursday!!

Ah Thursday is here again and that means it's time for Monkey Business on "Stand Up With Pete Dominick" on the POTUS Channel XM(130)/Sirius(110) from 4pm to 5pm.  Today we will be tackling the subject of "speculators" in the commodity markets.  

Oh, this just in from Bloomberg News!

Citigroup Inc. and Merrill Lynch & Co., recipients of taxpayer bailout funds under the Troubled Asset Relief Program, paid a combined $9 billion in bonuses last year after suffering total losses of $54 billion, according to a report by New York Attorney General Andrew Cuomo.

How about a Fresca!

Ahh, You Mess With The Bull, You Get the Horns.....Sorry Heidi.

Well, this didn't take long!  Here's Matt Taibbi's response to Heidi Moore's Goldman piece.  The Best Goldman Apology Yet.

Here's how it starts;

And the winner of this month’s Most Retarded Horseshit Written In Defense of Goldman Sachs award goes to… Heidi Moore at Big Money! Come on down, Heidi!

Speculateum

As we like to say, the very underrated NY Post Business section puts out lots of nice stuff. We like John Crudele who writes a column for them and agree with him a lot. But he's been harping on this oil speculation thing for a while now. So have guys like Bill O'Reilly, Matt Taibbi, and everyone else who thinks these speculators are the devil. I've got a little different view here.

First off, I'd like to know where those specualtors, who drove oil prices to $147 last summer, are today? As in, prices went waaay up and US citizens said, "you know what? instead of going to the mall today, i'm going to play monopoly or watch the Netflix movie that has been delivered to my house". That caused some sick number (technical term) of less miles driven last summer and bang-oh! Guess what? Oil started dropping a lot.  

At around the time last summer when oil was climbing fast at $120, Goldman Sachs (there's that name again!) and assorted others put out research reports that said oil was going to $200. How many "speculators" do you think bought oil at that point? And at 130? And at 140? And even at 147? The answer is a lot. What happened to them? You think they are cursing Goldman and the other guys who "forced" them to buy with these "can't miss" research reports now that we are waaaaaaay lower with oil prices? You betcha. But that's what makes a market. 

Some of you didn't take too kindly either to my comments the other day about leaving the short sellers alone. And yes that even means "naked" short sellers. No one ever talks about "naked" long buyers right?  And that reminds me, from late 1987 to late 2007, do you think there were some "speculators" buying stocks? No one really seemed to complain about the umpteen (technical term) percent gains people were getting during that "speculatory" time, did they? 

I just say leave the markets alone. People were miffed last year screaming that speculators were driving up the oil markets so they aren't happy now that oil is down to $64.25? Oh wait, maybe the speculators drove the market down too? Come on. No one is bigger than the market. You want someone to be angry with? Try the local gas station. Gas prices got to $4.11 a gallon on average last summer when oil was $147. Well its 56% lower today at $64.25. Is your gas $1.80 a gallon? Oh, it's not? Do the speculators have something to do with that? Me thinks not. Those are the guys that need to be questioned. The gas man who has a monopoly. Good luck.

Chinese Stimulus.

It seems the vaunted Chinese stimulus package is working wonders.  From the Financial Times Fears of Chinese Bubble as Funds Flow Into IPOs

Domestic IPOs were suspended for nine months until this month at a time when large investors in particular were flush with funds accessed through the government's economic stimulus package.

The appetite for new shares is overwhelming, with a record number of 566,937 new trading accounts opened last week, the most since January 2008.

What could go wrong?  It's kind of like serving booze and matches to children.  In fact, here's a "Family Guy" take on the situation.

The Fed's Exit Strategy: "There Will Be No Inflation. However, Real Interest Rates Will Go to Fifteen Percent!"

From the Financial Times Credit to Remain Tight Says Dudley 

I love how the Fed keeps shaping the conversation around its quantitative easing exit strategy.  They keep describing the tools they have to drain the $1 trillion or so excess reserves, without explaining what effect these "tools" will have on the economy.  Here's a great example from New York Fed President William Dudley;

However, the majority of Mr Dudley's remarks were meant to address inflationary concerns, which could themselves hinder economic recovery as the Fed's balance sheet swells from about $870bn (£528bn) two years ago to $2,000bn today - possibly as much as $2,500bn before it starts shrinking.

Mr Dudley argued that this sharp expansion was not inflationary because the Fed now pays interest on excess bank reserves. That means banks no longer have an incentive to create excessive credit, which in the past led to an overheated economy and ex-cessive inflationary pressures.

"This is not the world in which we now live," said Mr Dudley. "Because the Federal Reserve now has the ability to pay interest on excess reserves it has the ability to prevent excess reserves from leading to excessive credit creation."

Mr Dudley added that the Fed could drain excess reserves from the banks "to provide reassurance that we will not - under any circumstance - lose control of monetary policy"

What President Dudley and the rest of the Fed never seem to get around to telling us is, what rate will they have to pay on those excess reserves to keep them out of the money supply once things start turning around?  How many mortgage backed securities and treasury notes and bonds must it sell to reduce its balance sheet?  The Fed, through what I consider to be a disastrous policy of quantitative easing and artificial mortgage rate capping, has put itself and the country into a intractable situation.  The only way the Fed can drain these reserves and and stave off an explosion of the money supply it to jack real interest rates into double digits.  As a commander in Vietnam once said after a battle with the Viet Cong, "We had to destroy the village in order to save it."

Am I wrong?  Please tell me I am and why. 

"You Shut Up!" "No, YOU Shut Up!!"

Heidi Moore put a piece out yesterday titled Will Everyone Please Shut Up About Goldman Sachs? Since the title is in the form of a question then I will answer, "No, I will not shut up as long as people like Heidi Moore write things like this."   

The image of Goldman Sachs (GS) as a Borg-like hive mind that breeds a bald master-race of capitalists has picked up speed during the last month. Rabble-rouser Matt Taibbi in Rolling Stone memorably called Goldman "a vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." Joe Hagan in New York magazine devoted several pages to "Goldman's current public tarring." The controversy has even attracted the genius of Michael Lewis, who wrote a searingly funny column in the wounded voice of the firm, arguing that Goldman owns only one of the three branches of government outright and that the firm habitually rounds down any number under $50 billion directly to zero.

Needless to say, there is much to make Goldman's rivals suspicious. Super-powered trading programs? Politically prominent alums? Orcs and vampire squid? No wonder rivals can't imitate returns like the firm's $3.4 billion second-quarter profit. These guys are clearly running on a supernatural level, right?

Mission accomplished: The House of Representatives now wants to call Goldman—a firm that no longer owes anything to the government—on the carpet in what are sure to be disastrously populist hearings.

First of all, fabulous suck up to Michael Lewis.  

Secondly, calling Taibbi a rabble-rouser makes Ms. Moore sound like someone sitting on Senator Joe McCarthy's Committee on Un-American Activities.  

Thirdly, Ms. Moore's line, "Mission accomplished: The House of Representatives now wants to call Goldman—a firm that no longer owes anything to the government—on the carpet in what are sure to be disastrously populist hearings." sounds eerily like Jack Nicholson (Colonel Jessup) line to Tom Cruise (Lt. Kaffee) in "A Few Good Men" after Kaffee exposes Jessup as a liar, unfit for command. "Congratulations son, you've weakened the nation."  

Additionally, Moore asserts that Goldman has paid its debt to society with a quick and dismissive line, without addressing the legitimate question, "Would Goldman Sachs be alive today without government intervention?"  What kind of journalism is that?  You can't tell everyone to shut up and get back in line without answering that question, supported by facts.  This is exactly what Goldman has been doing since last year.  They have stated repeatedly, without any factual information, that the firm was never in any trouble and that the firm's exposure to AIG was "immaterial".  If Taibbi is a rabble-rouser then Moore is a shill.  

Anyway, the premise of Moore's article is that Goldman's superior culture is the reason for their consistent, out sized success.  Additionally, Moore illustrates what happens to a lot of Goldman people when they leave the mothership.  They become shockingly mediocre.  Having witnessed average people going to Goldman and becoming stars, and Goldman stars leaving Goldman and becoming average, I agree.  I also agree with Moore's take on the management of most top Wall Street firms.  It's horrible. Goldman on the other hand has a deserved reputation for being an outlier in this regard.  No doubt it is a very well run ship.  However, Goldman management, as brilliant and communal as they are, still managed to run the ship aground like everyone else in this decade.  I have gone through what I believe happened to Goldman many times on this blog so I am not going to do it again.  There's a nice big category "Goldman Sachs" if you want to have a read.

Goldman Sachs is a very well run firm with incestuous political connections that would have made J. Pierpont Morgan blush.  These connections not only saved them in 2008, but set them up to completely dominate the playing field going forward.  Between the firm's global political connections, its dominance in debt and equity raising, its ability to see massive amounts of non-public information as well as the trade flows of the world's largest institutional investors, Goldman has a distinct advantage over its weakened rivals.  When you know the answers to the test you tend to do very well.  This may go a long way in explaining the phenomenon of what happens to superstars leaving Goldman.  They no longer have the answers to the test.    

I'm Smaaaaaht! Not Like People Say!

Let's step aside from the business chatter as the markets trade listlessly this a.m., shall we? Since we often quote the "Godfather" and the "Godfather II", we wanted to keep you posted on an interesting development. The Brooklyn Rose Cinema which can be found at www.bam.org is starting a tribute tonight to John Cazale. A 5 night tribute. This is an interesting cat since he appeared in only 5 movies and they were ALL nominated for a Best Picture Oscar. No one has that record. Al Pacino says, "I learned more about acting from him than anyone else." The 5 movies in order of how they will show them from tonight thru Sunday in Brooklyn are: Dog Day Afternoon, The Confession, The Deer Hunter, The Godfather, and The Godfather II. Oh, they are also showing a soon to be released HBO documentary called "I Knew it Was You" prior to the film of the evening.

Some of you might be asking now, who is John Cazale? Which I guess is why they are having the tribute. This guy was awesome in his day and was taken away from us with brain cancer at the way too young age of 42. Was engaged to Meryl Streep too. Well, even though he plays "Sal" in "Dog Day Afternoon", you probably know him best as "Fredo Corleone" from the "Godfather I and II!" Should be a nifty documentary and because the showing is in Brooklyn, NY it will have a special meaning tonight with "Dog Day Afternoon" because most of that movie was filmed a few blocks away from where the Brooklyn Rose Cinema is! There's also a shot that either one or both of me and Eric will also be in attendance tonight at 7pm sharp. Come on along. Maybe they'll even have the room set up like when Michael Corleone came to Vegas to see Moe Green. Remember Fredo was there with his sunglasses on inside wearing his leisure suit, the gambling tables were set up, the band was there, and of course the dancing girls? Good times.

Goldman Sachs: New York Magazine Article "Garbled Nonsense".

From the best business section in the country, The New York Post Goldman Disputes Evil Tag

The article, written by Joe Hagan, is titled "Is Goldman Sachs Evil? Or Just Too Good," and attempts to take a fresh look at the firm. This week's cover story documents the negative shift in public sentiment Goldman's been facing since posting blockbuster profits in trading earlier this month.

Goldman spokesman Lucas Van Praag bristled at the article, referring to portions of it as "garbled nonsense" and "shoddy journalism" in a letter submitted to the editors.

"The mistakes are so egregious that one has to question Mr. Hagan's motives," Van Praag writes in the letter.

Which part is garbled Lucas?  What are the mistakes that are so "egregious"?  In very clear language, Hagan's Tenacious G  lays out what he believes went down during the AIG Bailout. Why can't Count Van Praag counter each of Hagan's points with supportable facts?  The Count of Praag can't because if he could he would have provided them a long time ago.  In fact, we wrote this LAST October, perhaps one of the first to take this view on the AIG/Goldman Sachs bailiout;

As you know, we have had a serious issue with what exactly went down with the Fed's saving of AIG and that company's involvement with Goldman Sachs.  Richie and I both wrote pieces shortly after the AIG rescue, where the Fed lent AIG $85 billion (now $122 billion).  AIG's largest trading partner was Goldman Sachs.  That is a fact.  We believe that Goldman had bought default protection on $ billions of AAA CDOs via Credit Default Swaps (CDS), from AIG.  AIG had an immediate need for $ billions of cash when they were downgraded by the rating companies in the second week of September.  They needed the cash, or cash-like equivalents to post as collateral with their CDS counterparties.  AIG had a notional CDS book of over $400 billion.  Goldman Sachs was their biggest counterparty.  When AIG was downgraded they had to come up with $20 billion in additional collateral to post with Goldman.  If they couldn't come up with the cash, which they couldn't, they faced certain bankruptcy.  Bankruptcy would mean Goldman getting on line with the rest of AIG's creditors to collect on their CDS.  Suddenly, Goldman would be holding CDOs that had marked down significantly, with the corresponding hedges (the CDS) held up in bankruptcy proceedings.  This could have crippled Goldman Sachs.  Hence, the Fed's bailout of AIG.

Could the system handle the downfall of Goldman Sachs?  Absolutely not.  Did saving AIG potentially save Goldman?  I think so.  Goldman however, denies that it was ever in trouble in the event AIG went down.  According to the NYT article, "Goldman has said repeatedly that its exposure to AIG was 'immaterial' and that the $20 billion was hedged so completely that it would have insulated the firm from significant losses."  Really?  I wonder how one hedges CDS exposure with a counterparty so "completely"?  Another $40 billion of CDS on AIG perhaps?  I wonder who the counterparties were on those?  If you read our "Goldman Superheroes" maybe they really did do a deal with the Martians!

The reason I believe Goldman is so "completely" hedged is because their counterparty has become Uncle Sam!  It is real easy way to find out if I'm wrong, right?  Nearly the entire $85 billion line the Fed gave AIG has been drawn down.  Is it unreasonable as taxpayers to ask where our money went?  If Goldman was completely hedged then there would have been no need for ANY significant money to have gone to Goldman.  Maybe Goldman did have $ billions of CDS protection on AIG.  Can't Goldman clear this up by giving us their positions and showing that these counterparties were so solid that they could have paid Goldman out if AIG went down?  I think we have a right to know the answers to these questions.  I am all for doing WHATEVER it takes to fix our financial system.  However, we cannot build anew on top of a bed of lies.  I want to be proven wrong.

Goldman still hasn't answered these relatively simple questions that were asked last year by "moronic bloggers" and this year by real investigative journalists like Hagan and Taibbi.  I think Goldman's dismissive, insulting and non-factual responses tell us all we need to know.  

Flash Trading: "If You Weren't Silicone Based I'd Punch Your Lights Out!"

I'm not sure which is a greater waste of time and precious resources;

• Me spending an hour a day trying to figure all the ins and outs of High Frequency Trading; 

OR

• The $billions market makers and hedge funds spend to create the fastest and bestus (technical term) computer and code to clip one another and the investing public at large. 

Leaving my own selfishness behind, I am going to vote for the latter.  The Financial Times has an article this morning SEC Runs Eye Over High-Speed Trading  The most perplexing thing to me is the practice of "flash trading";

Beyond rebates, another key concern is the practice of flashing prices, which helps market makers or investors discover where others want to buy or sell stocks. This practice is widely used by high frequency traders and is allowed by BATS, Direct Edge and Nasdaq OMX, while NYSE Euronext has been a vocal critic against the practice.

Still, there are concerns that market makers, such as high-frequency traders, cancel many of their flash orders before other investors can execute a trade. This can enable the market maker to come back and offer shares for sale at a higher price, or place a buy order at a lower level.

“Certain black-box models have cancellation rates as high as 99 per cent on orders,” says Paul Zubulake, senior analyst at Aite Group.

Cancellation rates of 99%!!!!!!  In my old world of liquid bond trading this is equivalent to a dealer sending out a Bloomberg saying "I'm a 99-20 bid for $500 million Fannie 4.5% in August" and then when a big guy like BlackRock comes in to hit the bid the dealer says, "Sorry, someone already hit me.", and then turning around and hitting a real 99-20 bid to get in front of BlackRock.  If the dealer got caught once A MONTH doing that there would be a lot of trouble, the kind of trouble that gets somebody punched in the nose!   

Now imagine him doing it thousands of times a day.....and  all the other dealers AND big hedge fund/fast money guys doing it too!  All day long!  In fact, take it one step further to really make the proper analogy.  It would be like the dealer sending the Bloomberg, watching who picked up his message and then retracting it just as BlackRock came in to hit him!  "Sorry mate, don't know what Bloomberg message you're talking about.  Hey hold on, let me just hit this bid.  So did you catch the Yankee game last night?"

What kind of market would that be if that is all that went on all day long?  What purpose would it serve other than to be some sort of high stakes video game to amuse trading junkies?  So what the hell does it mean when we are told that High Frequency Trading, which includes Flash Orders, makes up nearly 70% of volume on the NYSE and an even higher percentage in the so-called "Dark Pools". Sounds like a whole lot of bull-sh*t to me!

 

Fed's Yellen Sees "First Solid Signs of End to Slump"......With One Little Caveat: Reality.

From Bloomberg News,

Yellen’s remarks echo the view of Fed Chairman Ben S. Bernanke, who told Congress last week the economy is showing “tentative signs of stabilization.” Those indications include a rising stock market, slowing declines in housing prices and a waning pace of job losses, the regional bank president said.

“The interaction between the economy and the credit crunch, often described as an adverse feedback loop, led to what could become the most severe recession since the Great Depression,” the 62-year-old bank chief, who votes on monetary policythis year, said in the speech to a convention of the Oregon Bankers Association and Idaho Bankers Association.

“We glimpse the first solid signs since the recession started more than a year and a half ago that economic growth may be poised to resume,” Yellen said. “Indeed, I expect that to happen sometime this year,” she said, while adding that risks to the outlook remain, with the commercial property slump the biggest threat.

Hmm, rising stock market?  That's always a good indicator.....like Dow 14,000 in October 2007. 

Slowdown in the decline of housing prices?  Maybe, Yellen....maybe.  Personally, I think there's plenty more pain to come, especially at higher price points.  Additionally, like we said in an earlier post, there's a massive shadow inventory just looking for a bid to pop its head up.

Waning pace of job losses?  Ummm, no.  Even if job losses slow, we still have major "underemployment" and a level of long-term joblessness that we have never seen before in our modern economy.  We are just starting to see the effect of long-term joblessness as family savings run out along with health benefits.

The main risk to the outlook is the "commercial property slump".  "Slump"??  If there is one thing that almost everyone agrees with it is that commercial real estate is going to be a lot more than just a "slump".  Commercial real estate has been the crazy uncle everyone has been trying to hide away in the closet for more than a year.  He's coming out of the closet now and is ready to pee in the punchbowl, take time to personally insult everyone in the room and then light the drapes on fire with his Tiparillo.

Why did Yellen even bother making this speech?  Speaking of Tiparillo

Housing "Numbers" Scare Me.....Again.

Not to be lazy, but with all the mindless chatter about "green shoots" in this month's "housing numbers" I'm reposting something I wrote a couple of months ago.  Actually, first read this post from one of my favorite blogs www.housingdoom.com.  When these folks and Ivy Zelman tell me that they see "green shoots" I'll listen.  Misplaced Optimism    

And now the lazy repost from May.

It is obvious that since the U.S. housing market was and still is the epicenter of "The Great Recession", we are obsessed with the "housing numbers".  Markets gyrate off of "New Home Sales", "Pending Home Sales", "Foreclosure Rates", "Median Home Prices", "Months of Inventory", etc.  Some people are starting to call a bottom or near bottom for the housing market, others think we still have a long ways to go.  What scares me is how the hell do we arrive at these numbers?

Do we really know what housing inventories are?  I don't think so.  Personally, between bankers and servicers there has to be many, many homes sitting in sort of a shadow default or foreclosure status.  Servicers keep borrowers breathing for a variety of reasons.  It could be that it's less costly to pass through their P&I than to call a default.  They're not supposed to do that but they do.  It could be they are looking to protect their record as a "seller servicer".  It could be that they are just overwhelmed and haven't gotten to thousands of serious delinquent borrowers yet.  Also, lets not forget that with rising unemployment, that serious delinquent pipeline keeps getting reloaded.

The long and short of it, for me anyway, is when it comes to the "key" housing numbers, it's garbage in-garbage out.  I prefer doing what Richie and other friends of ours do, which is go down to foreclosure auctions, or solicit real bids on existing properties.  And even that approach is going to potentially miss the gigantic shadow inventory.  Still, its a hell of a lot better doing that versus what Al Greenspan does, which is look at a bunch of charts and graphs from the National Association of Realtors and call a "bottom".

Finally, I want to leave you with this little anecdote.  A few weeks ago a buddy asked me how the "months of housing inventory" gets calculated.  I told him I really didn't know but I bet the folks atwww.housingdoom.com do.  So I asked them and here was their response;

Both the NAR and the NAHB express inventory as "This month's inventory/This month's sales".  It's not really a realistic approach when sales and inventory are both seasonal numbers.  The NAHB's numbers are understated in down markets.  In their model, when someone signs with a builder to build a house, it is sold.  If the house has begun and the buyer cancels, it remains "sold" and the spec is not considered "inventory".  The other problem with the NAHB is that they do a sampling of their membership.  They are on the honor system and it is up to builders to say what they consider "inventory"- there is no set definition of how far along the house must be.  They do at least give the margin of errorin their reports- not that the MSM understands it.  I've seen the market rally because sales were "up 3%"- but the margin of error was plus or minus 15%!  The 3% rise would also be a result of this month's number vs. last month's revised number.  In short, don't bet serious money on the accuracy of the reports!

 

The NAR says little about its methodology.  They also sample their membership.  There is no central MLS that they can pull the data from.  One of the things I wish that was reported was the reason that existing homes leave inventory.  When the NAR reports inventory, there's no way if this month's reduction was due to cancellations, expirations, foreclosures, or sales.  When sales are low but inventory is diminishing, I assume that the inventory will come back to haunt us at some point.

 

Comforting?

Ooh. Did You Hear That?

That thumping sound you hear is Deutsche Bank stock opening up in Europe down about 10% this morning. Wanna know why? Increase in reserves for bad loans. The boss man, Josef Ackermann, (is that a great German name or what? Think he has or had blonde hair growing up? Exactly) said he's cautious about the economy going forward too. Uh oh.

For an updated outlook on new problems in the banking world, you might want to have a looksee at the NY Post today where Steve Cuozzo writes in "Facts and Fantasies about the New York Market" how the commercial real estate is going these days. I'll let you have a look but let's just say Steve points out that there will be NO lending by banks for a loooooooong time for new projects in the commercial real estate market, due to them still having to take the losses on the existing stuff. Thud.

You know my feeling on all financial stocks these days, and I won't be buying them anytime soon. Listen a little more. Yes it might be thunder you hear or a nice drop in your favorite bank's balance sheet. Again. The Fed coming this time to bail them out? Again? Not so much.

It Must Be Pretty Bad

I know the stock markets are still way way up since the March 9 lows. And these days even when stocks go down, it doesn't seem like by a whole lot. But it keeps smelling funny. Today, an announcement came from the government that the SEC is going to strengthen rules to prevent abuses in short selling. Now short selling is selling a stock that you don't own and hoping the price goes DOWN. Then you buy it back and make a tidy profit if the stock goes down. Well if you remember last fall, everybody from John Mack, CEO of Morgan Stanley, to Jack Lalane, oldtime muscle guy who pulls trucks with his teeth, were crying up and down about how short sellers were wrecking the economy (and most likely their pockets normally filled with cash). We here at MonkeyBusiness scoffed at such balderdash (technical term).  I mean, last I checked this is the United States of America. 

If you dig a little deeper though, this toughness on short sellers, becomes a little scary. Because if you think about it, if a company, (or in this case companiessssssssss) were strong,  they wouldn't have to worry about short sellers right? I mean if I had a strong company, I would beg these assclowns to short my company stock. Because when it got low enough, I would buy TONS of it (as would many other smart investors) and we would CRUSH the short sellers by driving prices MUCH higher. It's called a squeeze and it ain't a hug from your Aunt Tilly. But I wouldn't stop there. You see these short seller guys like to stay incognito. I would go out on business shows and tell the story. Like "XYZ fund just shorted our stock. Then we crushed them. They could be dead for good. We'd be glad to invite all future short sellers to short our stock at any time. Thank you." Don't think too many folks would be ready to short your stock any time soon. It's kind of the equivalent of a burglar coming into your house and you are sitting there with a nice registered loaded pistol. You whiz a bullet calmly by the intruders ear. You smile and say, "Next time it goes right thru your temple, pally. Make sure you tell all your friends. In the meantime, before you leave, empty YOUR pockets and give me YOUR money." How many times do you think you get robbed again? 

My point is, in the above paragraph there was no call for help to anyone. No government employees. None. And it's a sad statement that the government, due to I'm sure fear and complaints by a bunch of weak companies, have to "tighten" these short selling rules to dissuade short sellers from playing. Smells like a rigged market when capitalism can't flow back and forth and that's never good. Hope it doesn't evolve into like a lot of the little kids sporting events go today; Everybody wins and gets a trophy. Because if that happens, 10-20 years from now Corporate America will be in shambles since no one will know if they are good or bad. Maybe like the kids who play these "can't lose games", when they find out that ain't close to how things go in the real world.   

Do These Guys Even Care Anymore What Gibberish Comes Out of Their Mouths?

From Bloomberg News;

Treasury Secretary Timothy Geithner pledged the U.S. will shrink its budget deficit over the next four years and boost national savings, and he called on China to maintain efforts to ease the impact of the global recession.

“We are committed to taking measures to maintaining greater personal saving and to reducing the federal deficit to a sustainable level by 2013,” Geithner said in opening remarks for Strategic and Economic Dialogue meetings with Chinese officials in Washington.

Let's, just for a second, believe that Timmy actually means what he says about shrinking the deficit.  If the government tries to cut the deficit while the consumer savings rate continues to rise....who's gonna buy stuff?  Might be a little bit of a negative for the old GDP no?

Luckily it's all gibberish.  Tim's lucky he wasn't speaking in front of another group of Chinese students (like he did a couple of months ago and got laughed at).  That statement would have them falling out of their chairs, howling and wetting their pants!  I think Tim was inspired by Rockridge citizen Gabby Johnson.

 

Joe Hagan Writes a Great Goldman Piece

Just got done reading a very good article in New York Magazine from Joe Hagan.  Tenacious G  I highly recommend it.  I got scared at first when Joe started it out like this; 

The man Goldman has selected to come to its defense is John Rogers, the firm’s chief of staff. Rogers is typical of the Goldman elite—doubling as a Washington power broker and confidant to James Baker, Jon Corzine, and Hank Paulson. The atmosphere is airless as Rogers sits down, his steady eyes barely blinking: a silver-haired sphinx in a sky-blue shirt. “We don’t live in a vacuum, and we’re very aware of what the general public is thinking,” says Rogers calmly. “We work in a fiercely competitive global industry, but we can’t afford to be oblivious to public opinion.”

I figured, "Oh boy, here comes the puff piece.  Next thing Hagan is going to tell us is how early Rogers gets up in the morning to get a workout in, all the while reading important overnight communiques from the far reaches of the Goldman empire..etc...etc.."  But no!  It turned out to be a very well balanced piece that lets you decide for yourself if you think Goldman is either the "best and the brightest", or whether they are the kid in the class who gets the answers from the teacher before every test.

You be the judge.  

"Am I Crazy To Be Worried About China?" One Year Later.

From the Financial Times; Mob Killing of Executive Halts Sale of Chinese State Steel Group

The privatisation of a state steel company in China has been scrapped after an executive was beaten to death by workers angry at the threat to their jobs, according to a Hong Kong rights group.

Up to 30,000 workers rioted in north-east China late last week in a reminder of the sensitivity about job cuts from state companies in industries targeted for consolidation. The government shed about 50m jobs in state enterprises in the 1990s but many companies retain bloated staffing rosters.

I wrote the following piece a little more than a year ago when I wondered if investors and economists were putting enough emphasis on how precarious the political and social situation in China is.  China NEEDS to keep delivering economic prosperity to its people.  If they don't then its rulers lose all legitimacy. Think about this when people tell you that Chinese stimulus is going to help pull the global economy out of recession/depression.  China's stimulus spending is driven by a real life and death struggle, in my opinion.  Without the American consumer, China will spend what it takes to build thousands upon thousands of useless things, essentially handing out money to bribe the masses into complacency. From an economic perspective, that usually does not bode well.  Additionally, the $ billions the Chinese spend keeping it's people in line will be billions not spent buying U.S. Treasuries and Mortgage Backed Securities.  Anyway, here is my piece from last year;

Yesterday I got a very interesting newsletter from a renowned international investor extolling the virtues of investing with him in China.  The guy has a proven track record of making killings investing in international, developing economies.  The basic premise of the letter was that he has identified at least 5, formerly state-owned enterprises that, due to their connections with the highest levels of power, are going to become MONSTER global companies.  It made sense and the guy did an incredible amount of work on the ground in China finding out who was who, etc.  Very interesting indeed.  Of course to get the names of these five, soon to be MONSTER global companies, I have to pay for another newsletter, which is certainly fair.  What bothers me about not only investing in China, but also the fact that they have probably financed half the homes in the United States, is it seems everyone has rock solid faith that political and social stability in the country is a given.

A couple of years ago, when I was working for a Wall Street firm, I sat in on a presentation from the global real-estate finance group.  Here was the pitch:

• Our bank would be part of a syndicate lending a few $ billion to a large Japanese commercial real estate company.
• The Japanese company was going to buy a huge swath of property in Beijing.
• At the time, the property was occupied by huge block apartment complexes, built in the 1960's.  The residents were regular Chinese joes (Wangs?) living in state subsidized housing.
• The Japanese company was going to pay the Chinese for the property and Chinese were going to evict the residents and bulldoze all of it.  Where the residents were going to go, nobody seemed to know or care.
• The Japanese were then going to build a huge upscale commercial district with the finest western shops as well as luxury apartment buildings.

While everyone else in the room was doing their jobs, asking question of the best way to sell pieces of the lending syndicate (that's what the ultimate goal of the presentation was) I was thinking;

1. Western Banks, from countries that just two decades ago were the mortal enemies of China were going to finance..
2. The MORTAL, MORTAL, MORTAL enemy of China, the Japanese to...
3. Buyup downtown Beijing, evict thousands of people from their homes so they could..
4. Build stores and residences that the average Chinese would never be able to shop in or live in.

I was thinking, "holy crap, there is going to be a revolution here that will make Tienanmen Square look like a square dance!"  Think about it.  China has 1.3 billion people.  How many can really be prosperous, 200 million?  In the United States how many prosperous people do we have, 100 million?  What about the other 1 billion Chinese?  Remember, the government in China rules by its supposed legitimacy of it's existence.  The legitimacy is based on the belief that the government "freed" the masses from the evil western powers and their puppet Chinese rulers back in the late 1940's.  The legitimacy is based on the belief that the government still protects the people from the evils and abuses of capitalism.  What if suddenly a billion or more people figure out that this government is screwing them?

I asked this to people I was working with and they said, "Dude, they'll just have another Tienanmen Square and the people will get into line again."  I replied, "Back in '89 the people protesting were essentially the elite.  The guys the army trucked in to shoot them were sons of peasants and workers.  This time around, the people that are going to be pissed off are the peasants and the workers!  Those are the guys with the guns in the army.  They may shoot somebody, but it wont be mom and dad!"

Think about it.  Working conditions are horrible and there are all kinds of worker abuse going on in China.  When the workers try to form real unions, they get thrown in jail.  The government, supposed to be supporting the workers, are suppressing them.  The government takes toxic waste and dumps it into lakes that millions of people who live out of the cities rely on for daily life.  The people complain, they get thrown in jail.  The country has a massive earthquake and the "prosperous" kid's schools don't fall down.  The regular folk kid's schools pancake.  The government tells the grieving parents to basically shut up if they know whats good for them.  The country has a one child policy.  The only way you can have more than one is if you pay the government about 20,000 to 30,000 RMB.  Otherwise, that child is a non-person.  No school, no nothing.  If you're "prosperous" you pay and have as many kids as you want.  If you're regular folk, tough luck.  Also, because the culture puts such a premium on having boys (they continue the family name and support the parents in old age), if you're a poor person who was lucky enough to have a boy, there is a whole black-market in China that steals your boy and sells him to the highest bidder.  The government knows all about it and does nothing.  In the eyes of the people, this government has no legitimacy anymore.  How much longer before the billion or so, "regular folk" rise up and overthrow this now illegitimate government?

Doesn't all this scream out that social stability in this country could be in REAL big trouble?  It does to me.  I would love to know your thoughts on the subject.  I would consider it before investing in China and I would worry that the Chinese have essentially became our new Freddie Mac and Fannie Mae.

Great Timing By NYSE-Euronext!

I saw this commercial yesterday and I had to blink a few times to make sure I heard it right.  What cracked me up was it was run during the Sunday morning "hard hitting" news shows. I think I saw it run during "Meet the Press".  What I found ironic was, the commercial is about the "strong regulation and transparency" of the New York Stock Exchange (delivered of course by Goldman alumni, NYSE chief Duncan Niederauer) while a debate rages about High Frequency Trading....the opposite of transparency for us little folk.  

This story was painstakingly researched and brought to light by one of the "moronic bloggers" Zero Hedge (referring to CNBC's recent lame attacks against bloggers).  Meanwhile, the "real" news-people at NBC (owned by GE along with their crack business channel CNBC) have no idea what a slap in the face this commercial is!

When Does a Guarantee Become Meaningless?

Normally on a Monday morning it takes a while for me to find that one statement or article that makes the coffee just dribble out of my mouth as I stare at my screen incredulously.  This morning I found it by 6:30 AM.  From the Financial Times Emerging Nations Rush to Issue Debt  Here is the part that grabbed me by the short ones;

Yields on emerging market sovereign bonds, measured by JP Morgan’s Embi Index, are nearly 2 percentage points higher than those on single A rated US corporate bonds. Poland, rated single A, offers investors a yield that is 1 percentage point higher than that for a single A corporate, such as Oracle, the US technology group.

Bryan Pascoe, global head of debt syndicate at HSBC, said: “Although emerging market bond spreads have narrowed, they still offer a lot of value compared with developed market corporate spreads, with better credit fundamentals in many cases.”

Perverse?  Here's da cappa

Shahin Vallee, emerging market strategist at BNP Paribas, said: “From an investor’s point of view, it does make sense to buy emerging market bonds because there is a safety net.

“Since the G20 [group of nations] committed extra money to the International Monetary Fund in April, it has become clear that the governments will not let an emerging market country default.

“You do not have that guarantee with US corporate bonds."

Umm, isn't that statement the poster child for how dysfunctional our global markets have become? Investors are acting completely rational.  They are simply jumping from one government guaranteed market to the next.  First it was Freddie and Fannie debt, then it was senior bank debt and now it's emerging market debt.  It is like taking candy from babies!  Here is how it works;

• Find the market that offers a significant spread over true investment grade rates, that has a new implicit guarantee from either a G-8 country or the IMF.
• Buy the bejeesus out of it.
• Stand back and watch it snap in a few hundred basis points! 

Read the article, it's short. Look for anywhere in the article for any of the analysts to tell you that they are recommending the debt based on an improved economic outlook.  Guess what?  You won't find it! In fact check this out;  

Hungary, which was forced to turn to the International Monetary Fund for financial support, this month launched its first international bond since June 2008.

Have things gotten better in Hungary?  Doesn't seem like it.  In the days where spreads were based on the borrowers ability to repay the debt you used to see some sort of qualitative statement about the borrowers finances and future outlook to get folks interested in buying their debt.  Now?  It's all about the institutional guarantee.  Investors and analysts have gotten so used to the world's finances running on the government heart-lung machine they've forgotten just how freaking bad things are.  They've also forgotten that with massive issuance of bonds backed by either explicit or implicit government guarantees, entities that do not have such a guarantee, like "Single A Corporates" are completely crowded out.

What is going on in global finance is starting to remind me of the old structured securities game. Investors buy the "top" part of the capital structure, which in this case is represented by senior "guaranteed" debt.  They also buy the bottom part of the structure, junk bonds because of the monster yields....and then the poor guys in the middle who are legitimate investment grade but either don't have enough yield or enough of a government guarantee aren't picked for the team.  That can't be good.  At least in the old days we could have re-packaged all that "unattractive" debt into a deal and paid the rating agencies to make 80% of it AAA! 

Additionally, when supposedly safe governments or institutions expand their explicit or implicit guarantees doesn't that guarantee start declining in value?  Can they really guarantee $trillions of obligations from borrowers who without their guarantee might very well be rated.....junk?  Even if they can, won't they have to engage in a huge debt binge of their own to meet the guarantee?

Have A Nice Weekend!

Check out the guy at 1:16.  That is going to be me in oh.....two hours.

UPS: Global Economy Still Sucks

From the Financial Times UPS and D Post in Gloomy Outlook

United Parcel Service and Deutsche PostDHL, two of the largest package-delivery companies, yesterday warned investors that they had seen few signs that many of the world's economies were emerging from a year-long downturn.

The grim outlooks came as the logistics groups, considered bellwethers for global trade, reported sharp drops in quarterly profit. Cost cuts helped insulate both UPS and Deutsche Post from steeper declines.

"Whether or not we're at the bottom is not the main issue," Scott Davis, UPS chief executive, said yesterday. "What is important is how long we remain here and what type of recovery we have. Remember, all these indicators are still well in the negative territory, illustrating the challenges that lie ahead."

For all you "Green Shooters" out there, all I can say is, "Heck, why listen to someone with tons of empirical data when you can listen to people who are either talking their position or talking out of their ass?" 

That is all from "Reality Central".  We now return to our regular feel good programming with Mr. Gene Kelly;

Hey, Dan Mudd is Back!!

Ah, the empty suit club is alive and kicking.  From the Financial Times Fortress Prepares to Pounce on Vulnerable Hedge Fund Rivals

Daniel Mudd, appointed this week chief executive of Fortress Investment Group, plans to spearhead an acquisition strategy that could see the hedge fund buy other financial companies including banks, insurers, traditional money management groups and other hedge funds.

Mr Mudd, former chief executive of Fannie Mae, joins Fortress as the hedge fund industry looks for signs that outflows, or investor withdrawals, are beginning to slow.

He's going to "spearhead".  Was there ever a time in this country where a CEO could perform so miserably, like Dan Mudd did, and NOT get hired for another great job a few months later?  Anyway, good luck Fortress.  I'm going to check and see if the stock is over $5 so I can short it.  Meanwhile, here's an oldie but a goodie post from last year.

One nice summer day, Dick Syron decided to go for a walk.  While on his very nice stroll he came to the bank of the Potomac River, Dick saw Dan Mudd on the other side.  Dick called to Dan, "Yoo-hooo Dan, how do I get to the other side?"  Dan called back to Dick, "You ARE on the OTHER side!"

Dick Syron and Dan Mudd are sitting on a park bench in the evening and a full moon is out.  Dick turns to Dan and says, "Dan, which do you think is further away, Florida or the moon?"  Dan says, "HELOOOOOOOOOOO, can you SEE Florida? ...duh!"

Dan Mudd goes to the doctor because wherever he touches his body, he is in excruciating pain.  He doesn't want the doctor to know its him so he puts on a disguise.  Dan walks into the doctors office and says, "My body hurts everywhere I touch it."  The doctor says, "Impossible, show me."  So Dan touches his elbow "OW", he touches his knee, "OWW!!", he touches his chin, "OWWWW".  The doctor says, "Stop, you're Dan Mudd aren't you?"  Dan says, "Yes, I am."  The doctor says, "I thought so, your finger is broken."

A Simple Rule of Ours To Determine "Value Added".

I have been trying to get my tiny mind around the latest hot topic, "High Frequency Trading".  Here is something I wrote a couple of weeks ago;

I have to admit that I feel like a complete moron today.  I have been trying to follow this developing story about the theft of Goldman Sachs proprietary program trading code and I guess I really don't understand what exactly program trading is.  I understand that it relies on speed and very complicated mathematical algorithms and I know that it provides nearly half the trading volume on the NYSE on any given day.  What I never understood was how does it make money, unless it has figured out a way to get in front of order flows and capitalize by hitting a bid or lifting an offer micro-seconds before the order being "fronted" gets in and filled.  Is that what it is?  Is it a game of very high stakes poker?  Is the game "fair" wherebye the firm running the program trading has studied the tendencies of all their competitors AND customers and correctly guesses their trades before they make them, holding out the chance that they may guess wrong? Or is it something that is rigged wherebye a big market maker like Goldman or Morgan Stanley gets an order in micro seconds before a client's large trade, thus front-running?

Since I wrote that I have read numerous helpful blog posts, newspaper articles and position paper on the subject. I have to say that I know a little more than two weeks ago, but not enough to determine whether this activity is adding value to the equity markets through increased liquidity, or whether it is harming the integrity of the market as well as harming investors who are not armed with a super computer.  You know what?  We have a rule here at Monkey Business;

If it takes two hundred position papers and requires about as much data analysis as it would to send a manned flight to Mars, all to figure out if something is adding value....it probably isn't.

Both Richie and I did a lot of work in derivatives, mostly interest rate and credit.  What he learned as a trader and I learned as a marketer (when I was selling derivatives I was a "marketer".  When I was selling bonds I was a "salesman".  Go figure) is if you have a trade for a client, if you can't explain 90% of it with your HP-12C (our financial calculators) and a piece of 8x11 paper, it's probably not the right trade for the client.  The only "value added" is the value added to your firm's P&L by picking off the client.

In fact, we are doing a little literary project that concerns structured notes, notes that have a payout formula tied to a complex derivative bet.  From Orange County in 1994 to today, the object behind structured notes, a huge business line on Wall Street, has never changed.  Here it is;

• Find a customer, institutional or retail, that is looking to get an out-sized return on a AAA rated note by betting on some relationship between different interest rates, currencies, curve shapes, etc.
• Find an AAA issuer who is looking for low cost funds. 
• Create a payout formula that entails the buyer of the note selling a package of options worth $100 to the Wall Street firm for $80. 
• Allow the Wall Street firm to sell the options it just bought from the structured note investor for $80 to a hedge fund looking to buy options for $95.  

This has been going on for a long time and has made a lot of people very wealthy.  However, did it add value to the markets and the global economy as a whole?    

• Oblivious investors got to step up to the casino and bet that Swiss Libor could stay above U.S. Libor, and get fleeced in the process, whether they "won" or "lost".  Was that value added?  I'm going to say no.

• AAA issuers like the Federal Home Loan Banks got to issue these notes and then swap whatever crazy formula the note carried with Wall Street to effectively give them very cheap funding.  Was that really value added?  Not really in my opinion, especially in the case of the FHLBs who took the cheap funding and funneled a lot of it into mortgage backed securities that they didn't understand.

• Hedge Funds buying cheap options?  Folks can argue about that for a long, long time and that breaks our rule that if it isn't obvious, it probably is questionable in the value added department.

• Wall Street firms making big bucks?  Let me put it this way.  If you were working on a derivative desk modeling up one of these bonds and a guy or gal from another desk came over and asked you what you were doing.  The conversation would go something like this.

Treasury Salesman:  "Hey, what the hell is that you are working on?"

Derivative Marketer: "Oh, its a callable 3month USD Libor vs 3month Yen Libor range accrual note."

Treasury Salesman:  "Wow, who the hell is buying that?"

Derivative Marketer:  "Asian retail investors.  The private client guys are pumping billions of these into Asia."

Treasury Salesman:  "Hah, you make a lot of wood on those?"

Derivative Marketer:  "Oh sure.  When it's all said and done we are probably taking out two points."

At that point, the poor Treasury salesman would just shake his head and walk away and go back to his business that made less than 1/32 of a point!  

Is all that "value added"?  I think you could have about the same, endless debate about this business line as you could about "High Frequency Trading" and if you have to have that debate, according to our rules, it's not value added.

I Just Figured it Out!!

So an article on bloomberg.com just hit the tape. "Obama gets 87% Favorable Rating Among Investors Outside U.S., 49% at Home" is the title. I thought it might've been a misprint but it wasn't. In case you weren't aware, a LOT of the purchases of formerly rated AAA subprime bonds put into CDO structures were purchased by Europeans and Asians  These are bonds that have pretty much gone kaput (technical term) and forced their governments to provide some "assistance". Yes, for some reason these particular European and Asian investors thought it was a good idea to buy bonds that were backed by random U.S. guys with crappy credit scores, borrowing too much, and in jobs that shall we say were unstable. I couldn't figure out why they did this time and time again. Oh, some said the rating agencies giving a AAA rating gave them the greenlight. Sure for some, I guess. Others said the great yield these bonds provided gave them the go ahead. Ok maybe. Then it dawned on me, as this 87% approval number was revealed, as to why they bought them. Because they are IDIOTS!!

The article says that this favorable rating for Obama among investors "is related to attitudes about his predecessor, former President George W. Bush". Well I got news for you assclowns that are all giddy for Obama: BUSH AIN'T THE PRESIDENT ANYMORE!!! Is this what is going to happen now forever? "Oh I got a hangnail. It's President Bush's fault."?!?!? I assume some of these favorable 87% are from China? Great, you guys gonna keep buying at these interest rates a kazillion (thats a lot) more US Government Bonds? Well why not? You love the President. Hey you stock investors! When Barry O raises the capital gains tax rate, you are gonna run to buy MORE U.S. stocks right? Oh you aren't? Oh, and now that General Motors is Government Motors you will be buying a TON of U.S. made cars in Europe and Asia too, right?  Assclowns and idiots.

I find it quite ironic that the U.S. investors have a 49% rating for him and the article says, "only a quarter of U.S. poll respondents rate his economic policies as "good" or "excellent"". So maybe the U.S. investors, who I gather would know the President the best, are the dopes for not liking his investor policies? I'll leave you with this. Remember when the NASDAQ stock market was at 5,000 back in 2000? Well the move from 4,000 to 5,000 took about 3 months and it was determined that it was about 90% driven by overseas markets. Yep, they were all charged up about U.S. tech stocks. The NASDAQ is up over 22% THIS year. And you know where the index is? 1930. 1930!!! So I'm not sure if the European and Asian investors are the guys I'm going to listen to when it comes to U.S. markets. Just like I think they would LAUGH if I suggested that the U.S. investor was the authority on their markets.

Love to hear the comments. Especially from some of you European and Asian folks. My guess is if you read this blog, you are probably in the 13% camp that doesn't approve..........Insane.

It's All Nickel and Dime Arthur....Nickel AND Dime!!"

This is one of those situations where I have a great clip, it captures how I feel about a lot of things and yet, I am still looking for a story to fill it.  Suggestions welcome. 

"And Justice For All"  Larry Bryggman was supposed to handle a simple case for Al Pacino's poor but harmless client.  Larry screwed it up. 

Goldman Sachs Buys Back Warrants!

Now here is some good news right?  I was out and a buddy shot me a note that Goldie paid us $1.1 billion for the warrants we the taxpayer were given for bailing GS out (Although we all know the didn't need any of our help...wink, wink).  I was just reading Zero Hedge , and as usual they pose a very good question;

What happened with the initial discussion to repurchase the warrants at $600-650 million, nearly half of what the final clearing price?

Now back in the day when I was in this business if a customer called you to bid on something that you sold him and you bid, say $625 million and the customer said; 

"Excuse me, I'm sorry.  Did you really just bid $625?  Did that number really come out of your mouth?  Are you sure you have the right trade up?"

At that point you would run around the desk and say something nice to the trader (actually, if you were good at your job you would have had the trade modeled too and have seen your traders were trying to take your clients pants down) like, "Are you guys out of your f**king minds!!"  Then you, your boss, the trader and his boss would go into a room and have a talk.  After the "talk" you would get on the phone and say something like;

 "Sammy, it was my bad. I'm really sorry.  I gave Makesh the wrong trade.  Really, there was no way he would have tried to do that to you.  His bid for your warrants is $1.1 billion.  Are we okay now??"

At that point your customer would say, "Yeah, that works......but tell those thieving bastards on your desk that if they ever try that sh*t again I will crucify them.....forever!"  Then he would tell you to send him a "F**king" term sheet and hang up.

I have a feeling that sort of thing happened in this transaction.  Maybe it happened over a two week period, but it happened.  Speaking of term-sheets, does anybody have one?  Not to be rude but unless I know the size, the strike, the term and the model, how the hell do we know $1.1 billion is the right price?

Don Corleone Financing!!

Well the Monkey Business Blog quote of the day (and it's still early) has to go to oft quoted Sean Egan, president of Egan-Jones Ratings Co. He said it in a bloomberg.com article today entitled "CIT Hit With Interest Rate More Than 25 Times Libor". As many of you know CIT is the finance company that's been rebuffed by the government for a bailout. (Perhaps the Obama administration is talking with Germany's Merkel administration which keeps turning down all bailout requests). Finally, CIT received $2bn in financing from existing bondholders. However, the terms have come out and they are a doozy (technical term).

First off, the guys who ponied up (another technical term) get a 5% upfront fee. That's $100mm on $2bn for you scoring at home. CIT will pay these guys 13% annual interest. Also, the collateral CIT pledges has to have a book value of more than 5x the amount of the loan. Mr. Egan said even if CIT does go bankrupt, which they said is STILL possible in August AFTER getting the $2bn yesterday, these new lenders will probably MAKE money. But that wasn't his quote of the day.

"This is called Don Corleone financing. You can't lose money on this deal." Now we being "Godfather" experts (and if you dont believe us, ask Gianni Russo who played Carlo in "The Godfather", who wins his annual Godfather trivia contest, but alas, that's for another time), aren't quite sure what Sean meant here. Perhaps it was an "offer they couldn't refuse" or that this deal was worse than what you might get with your local mobster or even your international mobster. We're not sure but it's an attention grabber for sure. Thus the quote of the day honors.

Now you are going to hear bondholders cry today about the terms of this deal which allows them to get pushed over a bit. Because this collateral is pledged to the new guys, the bondholders might get the proverbial shaft (yet another technical term) if CIT does go bust.

But hey, isn't this capitalism at it's best? CIT was/is at the brink of survival and needed money. Guys with money got together and offered them a deal. They could have said no. They didn't. Now they pay "the vig" (still another technical term!). But hey, they are still alive right? And for all those who complain, why didn't they propose a deal? Oh, they didn't have the money? Well that's too bad then now isn't it? Think of it like a bank with a house that it's going to foreclose on. It doesn't really want to foreclose on the house and go through all the crap to resell it. You come along and bid them something really low. They say done. Did they get a bad deal? Did you? Only time will tell, but they know they dont have a house anymore and you do. Only time will tell in this CIT deal too. If they go bust in August, it looks like these new lenders are taken care of. Which means somebody else won't be. If they don't go bust in August, maybe the stock flies up and some recent shareholders are the big winners.Who knows? This will be fun.

Now I'm going in to take a nap. If the $2bn is on the table when I come out, I'll know I have a partner. If it isn't. I'll know I won't. Heehee. Don Corleone Financing indeed!