Thursday, April 2, 2009

Rewind Then Press Play

And...... I am back! Thanks so so so so much to reader Edward and his suggestions for cleaning out the computer! I had full faith in my Norton Antivirus software, and repeated scans turned up only 2 items that were flagged as "issues". After trying out the recommended malware site offered by Edward, there were over 50 items found that were constantly running!!!!! I was shocked.

I am very disappointed with the Norton product, and will not renew. Thanks to Edward for getting me back online! Thanks to all for the computer suggestions as well, I will be looking to upgrade anyways pretty soon.

Suffice to say, a ton has transpired over the past 4 days. There is no way to get all caught up. I will go through some items from earlier in the week that I flagged and cover the days current issues as well.

GM's "Scorched Earth" Possibility?
Note: This story was started on Tuesday and updated on Yahoo all week.
I was confused that GM would roll out a plan offering to pay for a car buyers payments for up to one year in spite of their current probable bankruptcy possibilities. If GM is hemorrhaging cash at such a rate that not even the bailout brigade can help them, it seems beyond all common sense that they would initiate this program. From Yahoo Finance:
GM to make payments for customers who lose jobs
New GM CEO says automaker to take over car payments for some customers who lose their jobs
DETROIT (AP) -- General Motors says it will make car payments for some customers who lose their jobs.
The automaker's new CEO Fritz Henderson says under GM's new "Total Confidence" program, the company will make up to nine car payments of $500 each for customers who have lost their jobs through no fault of their own.
Customers must qualify for state unemployment to be eligible for the program. The program starts April 1 and runs until April 30.
The news comes hours after rival Ford Motor Co. said it would take over customers' payments of up $700 for a year in the event of job loss.
Henderson, formerly chief operating officer of General Motors Corp., replaced Rick Wagoner who stepped down Monday at the government's request as the Detroit automaker seeks more federal aid.

Ford is in on this too but as of now is not in the bailout game too deep.

After considering this program on Tuesday, there was more disclosures that GM had their "best day in over 7 months" on March 31st or thereabouts. Then things finally clicked.

GM is flailing away in an effort to stay alive. They are desperate. The boasting of one day sales numbers and offering non-recourse car loans to buyers is a last ditch effort.

Let me ask this: Faced with a unwind and feeling they were not helped enough, what would happen if GM extended car loans to any and all under the protection of this new program? How much damage could they do? As a final parting shot they could leave some thousands (tens of thousands?) of soon to be sour car loans on the books. I think you can guess who is going to pay for all that defaulted debt can't you?

Bond Avalanche
The US is looking to sell some debt, and the amount is a show stopper. England has plenty to sell, as well as many other countries. It seems the state of California is getting set to unleash their own bond avalanche on the debt markets as funding for the fiscally strained state seems to have to end.

Now California is no dummy. Why go out and try to compete in the markets when you have the US Government to back you up:
California may tap U.S. Treasury, Europe for credit
Lockyer: Trouble getting bank credit may prompt need for federal bond aid
SAN FRANCISCO (MarketWatch) -- California's "liquidity problems" may force the state to seek federal backstops for sales of its short-term notes this summer, even though it received heavy demand from retail buyers in a recent bond sale, its state treasurer said Tuesday.
California Treasurer Bill Lockyer said in an interview that the state is talking with Treasury Department staff, including Secretary Timothy Geithner, about getting federally issued letters of credit to back upcoming issues of short-term securities known as revenue anticipation notes.
Lockyer also said the state will probably issue about $12 billion to $16 billion revenue anticipation notes this summer.
But it may have trouble getting private banks to issue letters of credit to secure the notes, a possibility that's prompted it to seek government backup.
"What we're starting to talk to them about is ... short-term liquidity problems" at the state and its municipalities, he said.
Like many municipal bond issuers, California has seen its access to credit severely hampered in the last year as financial shocks have turned away institutional investors from parts of the bond markets.
Lockyer said that while rates on some commercial paper have come down after spiking to 9.5% in October, after the collapse of Lehman Brothers, it can only borrow a sliver of what it had in the past. It's now able to tap $100 million to $200 million a day in this ultra short-term debt, down from about $1 billion to $2 billion before the credit crunch.
To widen its investor base, the state is also planning to tap European investors in an April bond sale that utilizes a new federal subsidy program for municipal issuers.
Lockyer said the state could issue $3 billion to $4 billion in bonds under what's known as the Build America program, which is part of the February economic-stimulus package signed by President Barack Obama in February.
There are huge banks and insurance pools. We're hoping it will be a door to European investors," Lockyer said in a MarketWatch interview. "Maybe some day we'll need to figure out how to access Middle Eastern and Asian investors."

Long excerpt, but very important.

California is a future glimpse of the US as a nation. Credit dependant, fiscally insane, and totally dependant on outside help to survive. California would like to tap the Europeans for debt sales? They already have when all those mortgage backed securities that went to zero had a huge base on California. I think Europe may take a pass.

Not to worry, California has another option for funding. Can you guess who that is?

Japan's Quantitative Easing: Total Failure or Spectacular Success?
I was just barely awake this morning at around 5am and I switched from the local weather news to CNBC to see what was shaking. (I apologise in advance that I cannot remember the analysts name nor could I find a transcript on CNBC. For the record the interview was on April 2nd, 2009 at 5:10am-5:20am eastern standard time.)

The analyst I saw had an interesting take on Japan's quantitative easing strategy. It was the first time I had heard it and it struck me as a great insight.

It is accepted dogma that Japan used quantitative easing to no real avail to help their economy in the early 2000's. Progress, as measured by GDP, was flat to slightly negative for most of this decade.

What was a new wrinkle to me at least was the idea that the ultra low interest rates of the Bank of Japan, topped by quantitative easing, provided a rich reserve of "free" cash through the process known as a carry trade. Through this mechanism banks, brokerages, and other investment vehicles had access to a vast pool of liquidity. This liquidity was sent around the world, though a large part of it was used to buy up mortgage backed assets during the housing boom.

So why do I bring all this up? As the US embarks on their own path of quantitative easing I think I might have missed a key cautionary tale. While Japan was aiming to help their struggling economy by QE, the results were a ransacking of cash from the Japanese banks that was plowed into other areas over which they had no control. the US may want to keep that little tidbit in mind. Or maybe that is the plan after all.

Rewind Then Press Play
The almost unreal rocket ship that is the stock market keeps going up no matter what the news or data. 2 weeks ago we were in the midst of Great Depression 2.0, and today we are well on the way to total recovery. Quite the whirlwind. Your humble author was not able to escape the wild market gyrations without change.

I was stopped out of my two most recent gold miner positions in Goldcorp (GG) and Kinross Gold Corp (KGC) today. I had set sell stops to preserve about a 13% gain on the two holdings and both a lack of computer access and a gold price pounding today resulted in my positions being sold (Total disclosure: I was stopped out of those two positions but I still hold a position in Gold and Silver (physical, miners,ETF's) that was put in place from 2002-2006. This is my core metals holding and have not changed). There was a great piece over at Seeking Alpha about some very fishy ECB gold sales related to COMEX that you can view here. Also, the IMF is selling gold to raise cash to lend out "countries in need". What a waste of bullion. While my long term view on the precious metals is not changed, I was short term bumped due to the market action.

The long awaited change to "mark to market" came to pass today. What this will mean to the Treasury's PPIP idea will be interesting. Why sell assets that are bad if you can just hold them and remark them?

The G20 meeting, long a total non event for the markets, was greeted with glee and happiness that the foreign representatives will "do something" to help the world's economy. The "We are the World" moment for some reason had markets giddy that the same folks that had no idea and no control over the economies world wide now j=know just what to do.

The big news was this item from Housing Wire which cover PMI insurance company Triad Guaranty Inc (TGIC) and their basic temporary default policies to the tune of 40%. Of course PMI insurance policy holders must still pay 100% of the policy for 60% coverage and Triad will pay later if you default. Promise.

The early unemployment numbers were obscene again, but that is a lagging indicator, so no worries.

As of writing I see nothing standing in the way of DOW 10,000 and S&P 500 1000 over the next 2 months. Interested parties may want to try SSO, a double S&P 500 ETF to capture gains. I may do that next week but I had no time to trade, I wanted to write now that I am online again!

We are at a strange market juncture. There is little resistance to stocks going up, but if they fall again there is nothing underneath them either. Treacherous indeed.

In a macro sense I think the worst result of the last weeks market action is that we are now a good distance form the area where real change might happen. My market targets of 10,000 and 1000 stand and I think we get there by the end of May.

In a movie you may have seen before, this summer will bring revelations that the structural issues are still bad and getting worse. This will start another leg down. Rewind and press play indeed. It may stretch into the fall before another "crisis" unfolds. And all the same questions and all the same issues will be waiting for us.

Glad to be back.

Have a good night.


getyourselfconnected said...

ImplodeOmeter forced to give up sources:

This is bad stuff.

Anonymous said...

Corrupt Bailout Is Destroying Trust In The Financial System

Kind of the way I see it.


watchtower said...


You made an excellent comment over at "The Mess That Greenspan Made"
and I hope you don't mind if I repost it here concerning your 6:24 post:

"Can we get this judge to have a say on:
-AIG; emails detailing that they had NO intention to pay off insurnace bets? (via BArry Ritholtz, Chris Whalen)
-The FED saying where all the bailout money went?"

Anonymous said...


My view is the US is little more then a banana republic and freedom and liberty will come under more and more attacks. As far as assets it's buyer beware.


Anonymous said...

... Blizzard Warning in effect from 1 PM Saturday to 1 PM CDT

The National Weather Service in North Platte has issued a
Blizzard Warning... which is in effect from 1 PM Saturday to 1 PM
CDT Sunday. The Winter Storm Watch is no longer in effect.

Rain is expected to change over to snow Saturday afternoon across
the central and eastern sandhills... as well as portions of north
central Nebraska.

Ah crap.


watchtower said...

"President Obama urged Americans not to let their fears crimp their spending. It would be unwise, he argued, for Americans to let the fear of job loss, lack of savings, unpaid bills, credit card debt or student loans deter them from making major purchases."

Well that pretty much says it all.
If we stop spending it's game over.
Same thing "W" said after 9/11.

Anonymous said...

“My administration,” the president added, “is the only thing between you and the pitchforks.”

With then fleecing of the public this guy is nothing more then a bodyguard. I imagine the campaign money coffers for this protection will be overflowing.


GawainsGhost said...

I watched the Bill Moyers interview with Bill Black that Naked Capitalism links to.

I found very little to disagree with Black on, because I've seen a lot of outright fraud over the last few years. A manufactured home monstrosity that sold for $280,000 in 2006, was foreclosed on and resold for $45,000 in 2007. Don't tell me that declining properties had anything to do with that--this was loan verification fraud, appraisal fraud, brokerage fraud flat out, plain and simple.

I've also seen new homes that sold and were foreclosed on in six months. These homes have never been lived in. The builder, desperate to get out of the debt he'd incurred, and unable or unwilling to pay the taxes on the property, forged documents, set up some phantom buyer, and sold the house to no one, then disappeared. That's fraud, deceit and theft right there.

I can't even imagine what went on with all the securities and derivatives deals at AIG and the major banks.

Then I read a subsequent guest post by Leo Kolivakis on his coversation with Tom Naylor, who was not impressed.

Money Quote: "Black is missing the bigger point thinking you can regulate a better system but the problem is that the whole financial system, and the perverse incentives that feed it, are corrupt."

I can't go where Naylor goes, ending all incentive bonuses, because I don't believe the system itself is corrupt. The people who are running the system are corrupt and should be prosecuted to the fullest extent of the law.

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