FN: On the way down there is volume. On the way up, there is less... waaaay less (especially for this time of the year).
Can you say algos?
"The unemployment assumptions used in both scenarios have in fact already been exceeded." -Oversight Panel
FN: The $301 billion federal guarantee on Citigroup's (C) crappy loan book is expected to cost taxpayers $43.9 billion in losses... IF the unemployment rate peeks at 9.5%. Doh. We're at 10.2% now and 13% is now being thrown around as a possible high.
Citigroup Asset Guarantees May Cost U.S. Taxpayers, Panel Says: " U.S. taxpayers may have to share in the losses on $301 billion of Citigroup Inc. loans and securities covered by federal guarantees after unemployment reached a 26-year high, according to the Congressional panel overseeing bank-bailout programs.
The Federal Reserve Bank of New York projected a year ago that the Treasury Department might have to pay $3.96 billion on the guarantees if unemployment hit 9.5 percent, the panel said in a Nov. 6 report. The jobless rate rose to 10.2 percent in October, the Labor Department said last week.
The government hashed out the guarantees over a weekend in November 2008 to help shore up confidence in New York-based Citigroup and head off a run on the bank’s deposits. The New York Fed analysis, which wasn’t previously disclosed, raises questions about whether the Treasury Department and regulators were tough enough in the negotiations, said Joshua Rosner, an analyst at investment research firm Graham Fisher & Co.
“It looks like Citigroup got the better end of that deal,” Rosner said.
FN: Citigroup one, taxpayers minus one.
The New York Fed estimated that losses on the assets would reach $34.6 billion under a “moderately adverse” economic scenario with unemployment at 8.2 percent in the fourth quarter of 2009, the oversight panel said in its report.
Under the “severely adverse scenario” of 9.5 percent, the losses would rise to $43.9 billion as more people became unable to pay the mortgages, auto loans and other obligations included in the guaranteed pool, the reserve bank projected. At that point, Citi would have exhausted its deductible, forcing taxpayers to begin paying out.
FN: Those fake stress tests coming back to haunt the administration. But now for the really fun part...
"The bank’s employees are benefiting from the rescue. Citigroup plans to give 19 top executives annual salaries of about $500,000 along with more than $100 million in stock awards, according to an Oct. 22 report by the Treasury Department’s special paymaster, Kenneth Feinberg."
FN: So with an unemployment rate greater than 10% these asshats get to take your hard earned tax dollars and award themselves great bonuses for their complete lack of ability.
Thats right, guess who gets the bread? The really fat big bird.
“This is going to be the mother of all jobless recoveries.” -David Rosenberg
U.S. Joblessness May Reach 13 Percent, Rosenberg Says (Update1): "The U.S. unemployment rate may rise to a post-World War II high of 13 percent in the aftermath of the recession, said David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto."
FN: This is no ordinary recession. This is a balance sheet recession where banks, business and individuals are all forced to reduce leverage even as they suffer huge losses.
"Rosenberg said the recession, the deepest since the Great Depression, “is truly secular in nature” and said the economy is “in a post-bubble credit collapse.”
A 13 percent unemployment rate would be the highest since monthly records began in January 1948, according to Labor Department data. The previous postwar high was 10.8 percent in December 1982. Yearly records, which began in 1929, show joblessness climbed to almost 25 percent in 1933 during the Great Depression."
FN: Sounds like Japan v2.0 to me...
The recent change in U.S. and U.K. monetary policy is very similar now to what the Japanese tried, where Quantitative Easing (QE) was forced onto a captive debt market. The full consequences of which will only know become obvious: De-facto sovereign default.
It is Japan we should be worrying about, not America: "Japan is drifting helplessly towards a dramatic fiscal crisis. For 20 years the world's second-largest economy has been able to borrow cheaply from a captive bond market, feeding its addiction to Keynesian deficit spending – and allowing it to push public debt beyond the point of no return."
Some angry ninja quotes from about the same time last year:
I Give You The Stupidity Trap... Errr... Liquidity Trap (11/10/08):
"Awesome. Just awesome. What could possibly go wrong in a zero rate world? Oh wait, all those under funded pension plans can’t earn the yields they need to fund the outrageous promises that were made to indignant, arrogant Baby Boomers during this Age of Entitlement."
Japan v2.0: GLOBAL Liquidity Trap (09/18/08):
"We are heading for a Liquidity Trap. Believe it. I see Japan v2.0… on a GLOBAL scale."
Japan v2.0 (09/18/09):
"Think ZERO percent interest rates and think DEFLATION. Think LOST DECADE. Think DEPRESSION. Now make all that GLOBAL.
That is what we have to look forward to."
FN: Upon closer inspection, yesterday's rally was not nearly as impressive as it first seemed. Four up days in a row could not re-capture one down day. Volume on the way up has continued to decrease. Breadth was not strong either. There was no Major Accumulation day. The two Major Distribution Days still stand.
Yesterday I wrote that we were Passing Thru the Eye of the Storm.
Evidence that the sky is darkening once again with financial storm clouds is the sudden increase in bailouts. While a bailout is in itself disheartening and just the absolute wrong policy choice in general, what really hurts is that they are done so poorly. Failed bailed out companies are coming back for second and third rounds and the government is throwing additional good money after bad.
GMAC May Receive Third Government Bailout in November (Update3): "GMAC Inc., the lender that received two government bailouts totaling $13.5 billion, is negotiating with the Treasury Department for a possible third lifeline next month, people familiar with the matter said."
RBS, Lloyds Get $51 Billion in Second Bank Bailout (Update3): "Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc will receive 31.3 billion pounds ($51 billion) in a second bailout from the U.K. taxpayer as the two banks agreed to cap bonuses.
The Treasury will inject 25.5 billion pounds of capital into RBS, for a total of 45.5 billion pounds, making it the costliest bailout of any bank worldwide. The government will fund about a quarter of Lloyds’s 21 billion-pound fundraising. Both banks said they won’t pay cash bonuses to workers earning more than 39,000 pounds this year."
Eventually somebody will say something... somebody will do something and stop this madness... right?!
This can't go on. Right? How is all this supposed to work out later? This is some terrible math isn't it?
We've been in the eye of the storm for months now.Last Saturday afternoon I accidently crossed paths with a reporter... and managed to get myself into the news.
Rise of the Kitchen Trable Traders
“ This world is not for the casual guy who thinks he can beat Wall Street, because he can't. ”— Ben Bittrolff, CFO of Cyborg Trading Systems
Mrs. Ninja and I are expecting our first Ninja baby. As this is our first, things have been pretty hectic...
To complicate matters, I've been involved in a financial software technology startup. We've now gone from 3 to 7 employees and officially launched our product in September. Starting your own business means insanely long hours. (www.CyborgTrading.com)
Pregnant wife + Insanely long hours = No blog.
Hence my rather sudden disappearance.
However, I think I'm back. I've established some sort of "new normal"...
FN: The highlighted area is the "stupid zone". Over a three year period between 2006 and the end of 2008, copper went parabolic several times before finally breaking down. Copper has now rallied back to the underside of the "stupid zone". Resistance should be significant.
Note: Real Estate is one of the largest sources of demand for copper.
FN: I couldn't agree more. The Chinese economy is swamped with overcapacity. Overcapacity was already a problem in 2007 BEFORE the world economy imploded. Now with exports cut in half and not likely to recover for many many years, the number of idle factories, equipment and people are at critical levels.
China’s Market ‘Should Be 2000 or Less,’ Xie Says (Update1): "China’s economy isn’t “sustainable” and the Shanghai Composite Index, now at 2667.75, “should be 2000 or less,” former Morgan Stanley Asian economist Andy Xie said in an interview.
Xie, who correctly predicted in April 2007 China’s equities would tumble, told Bloomberg Television that the stock market remains “in bubble territory.”
China’s stocks plunged today, with the Shanghai index falling the most since June 2008 and entering a bear market, on concern a slowdown in lending growth may derail a recovery in the world’s third-largest economy.
The Shanghai gauge slumped 22 percent this month as banks reined in lending to avert asset bubbles and policy makers advised industries such as steel and cement to curb overcapacity.
The decline stopped a rally that had sent the measure up 103 percent from a November low on prospects the government’s 4 trillion yuan ($586 billion) stimulus program and a record amount of new loans will ensure the economy grows at least 8 percent this year."
FN: The Chinese growth miracle has morphed into an easy credit mirage. After both credit creation and stock prices went parabolic the last two months, Chinese authorities ordered their banks to "tighten". Since most of the credit was flowing straight into stocks, the bid disappeared.
China’s Stocks Slump Most Since June 2008, Cap Monthly Loss: "China’s stocks plunged, with the Shanghai Composite Index falling the most since June 2008 and entering a bear market, on concern a slowdown in lending growth may derail a recovery in the world’s third-largest economy.
The benchmark index tumbled 6.7 percent to 2,667.75, capping its biggest monthly loss since October. The gauge has slumped 23 percent from its 15-month high on Aug. 4 and is the worst performer this month among 89 benchmark indexes tracked by Bloomberg globally.
“The local market bears are convinced that tightening is already underway,” said Howard Wang, head of the Greater China team at JF Asset Management, which oversees $50 billion. Only “a very strong set of macro numbers in August” or “stronger statements from central authorities” would change this trend, Wang said.
At least 150 stocks on the 898-member index dropped by the daily 10 percent limit. Industrial Bank Co. and Aluminum Corp. of China Ltd. tumbled by the permitted cap after Caijing magazine reported new loan growth this month may be almost half that of July. Lower profits dragged Baoshan Iron & Steel Co., the nation’s biggest steelmaker, and China Southern Airlines Co. down at least 7 percent."
Related Posts:
China Trying to Talk Its Way out of a Bubble
China: Back in a Bear Market
Shanghai: Parabolic Moves Always End in Tears
FN: This is an update on the divergence of both semiconductors and energy from the rest of the market from the post Semiconductors and Energy: Major Divergence from Rest of Market.FN: The Chinese government has finally caught on to the fact that they've created a bubble and are trying to "talk it down". As long as the central bank and the rest of the banks continue to provide liquidity, Wen Jiabao is going to be as successful as Alan Greenspan was when he warned of "irrational exuberance" while having his foot placed firmly on the monetary accelerator.
China Stocks Decline as Wen Says Economy Faces ‘Uncertainties’: "Chinese stocks, the world’s worst performers this month, extended declines after Premier Wen Jiabao said the economy faces many “uncertainties” and China Construction Bank Corp. warned of asset bubbles."
Asian Stocks Fall on Lower China Earnings, U.S. Credit Concern: "Asian stocks dropped, led by mining and finance companies on lower profit at Chinese companies and amid speculation loan losses in the U.S. will increase."
FN: After losing a Freedom of Information Act lawsuit, the Federal Reserve must now reveal exactly where $2 trillion in emergency money went... Finally shining a light onto the rot in the financial system could prove to be interesting. The information must be revealed withing five days.
Court Orders Federal Reserve to Disclose Emergency Loan Details: "The Federal Reserve must for the first time identify the companies in its emergency lending programs after losing a Freedom of Information Act lawsuit.
Manhattan Chief U.S. District Judge Loretta Preska ruled against the central bank yesterday, rejecting the argument that loan records aren’t covered by the law because their disclosure would harm borrowers’ competitive positions.
The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programs, most put in place during the deepest financial crisis since the Great Depression, saying that doing so might set off a run by depositors and unsettle shareholders. Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued on Nov. 7 on behalf of its Bloomberg News unit.
“The Federal Reserve has to be accountable for the decisions that it makes,” said Representative Alan Grayson, a Florida Democrat on the House Financial Services Committee, after Preska’s ruling. “It’s one thing to say that the Federal Reserve is an independent institution. It’s another thing to say that it can keep us all in the dark.”
The judge said the central bank “improperly withheld agency records” by “conducting an inadequate search” after Bloomberg News reporters filed a request under the information act. She gave the Fed five days to turn over documents it told the reporters it located, including 231 pages of reports, and said it must look for more at the Federal Reserve Bank of New York, which runs most of the loan programs. "
FN: Chinese stock hit that magical 20% peak to trough decline and are now in a "Bear Market"... again. Like I said yesterday: Parabolic Moves Always End in Tears.
Stocks Fall as China Slumps; Commodities Drop, Yen, Bonds Rise: "China’s stocks dropped, briefly dragging the benchmark index into a so-called bear market and triggering declines in equities and commodities worldwide. The yen and Treasuries rose as investors sought less risky assets.
The MSCI World Index of 23 developed nations sank 0.4 percent at 8:54 a.m. in New York and futures on the Standard & Poor’s 500 Index slid 1.1 percent. China’s Shanghai Composite Index slumped as much as 5.1 percent, extending its drop from a 2009 high to more than 20 percent, the common definition of a bear market. Copper fell 3.3 percent. The yen strengthened against all 16 of the most-traded currencies tracked by Bloomberg and the pound weakened. The 10-year Treasury yield dropped to its lowest level since July 14.
The U.S. and Chinese governments pledged more than $13 trillion to combat the worst financial crisis since the Great Depression, helping to fuel a nine-month rally in the Shanghai Composite that pushed the index’s price-to-earnings ratio to almost double the valuations for the S&P 500, according to data compiled by Bloomberg. Earnings for Chinese companies that reported since July 8 have trailed analysts’ estimates by 12 percent on average, Bloomberg data show."
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