Fed Ends Treasury Buys That Capped Rates, Stabilized Housing

Excerpt:

Oct. 29 (Bloomberg) -- The Federal Reserve completed its $300 billion Treasury purchase program today amid signs the seven-month buying spree helped stabilize the housing market and limited increases in borrowing costs.

Yields on the benchmark 10-year note, which help determine rates on everything from mortgages to corporate bonds, never rose above 4 percent after the central bank began acquiring the debt. They are less than half a percentage point higher than the day before the program was announced on March 18, even though the U.S. sold a record $1.25 trillion in notes and bonds, more than double the amount in the year-earlier period.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aogAIdJC8sRc

A Sham GDP for a Sham Economy

Voltron says: Government spending goes straight to GDP even though it's adding to the debt.

http://blogs.wsj.com/deals/2009/10/29/mean-street-a-sham-gdp-for-a-sham-economy/?mod=yahoo_hs

Gold Frauds

GLD, a leading gold ETF, which publishes its bar-list every Friday at the close of business, reporting the serial number of every bar in inventory. The list is customarily well over a thousand pages long. But, lo and behold, on Friday, October 2, and on Friday, October 9, the bar-list shrank to a mere couple hundred pages, with no explanation offered.

Reports are circulating that similar audits of certain Asian depositorieshave already produced "good" delivery bars (400 oz or 12.5 kg gold bricks) that have been gutted and stuffed with tungsten - a metal whose specific weight approximates that of gold

http://www.businessinsider.com/mystery-why-did-glds-published-list-of-gold-bars-shrink-2009-10

Even The U.S. Treasury Is Betting On Higher Inflation

Voltron says: The U.S. Treasury is planning to issue more long-term debt, which will lower 30-year bond prices.

http://www.businessinsider.com/us-effort-to-issue-higher-mix-of-long-term-bonds-says-they-know-rates-are-too-low-2009-10

Wells Fargo's funny numbers

Excerpt:

• The volatility in the mortgage servicing fee is impossible to explain. In the past five quarters this fee has moved around as follows: $525 million, negative $40 million, $843 million, $753 million, and $1.9 billion. Mortgage rates in these five quarters have been as follows: 6.31%, 5.87%, 5.06%, 5.03%, and 5.15%. These rates would argue for a constant decline in the value of mortgage servicing until the third quarter this year.
• This is not what is depicted in the Wells Fargo numbers. The reason is that Wells hedges its servicing portfolio. These hedges are very large. For example in the second quarter, the bank lost $1.3 billion on its MSR hedges. In the third quarter, it made $3.6 billion on these hedges. The swing from quarter to quarter was $4.9 billion. The earnings per share impact was $0.68 per share. This is more money than the bank earned, overall, including the hedge profit, in the third quarter.
• Despite the fact that this is the most compelling earnings event in each quarter, the bank never spends much more than 5 seconds discussing it. It is an unsustainable profit but MSR hedges keep coming through for the company when it needs to bolster earnings.
• The remaining businesses of the bank were very mixed in the quarter. Most disturbing is that loan losses seem to be accelerating on the negative side.

Voltron says: I thought the point of hedges was to decrease earnings volatility, not attempt to manufacture earnings.

http://ftalphaville.ft.com/blog/2009/10/23/79401/the-perils-of-instant-analysis/

First time home buyer credit is inflating home prices by $228k not $8k

Voltron says: The government's $8,000 first time home buyer credit can be used toward the minimum 3.5% down payment which means it can be leveraged up to $228,571.

http://theautomaticearth.blogspot.com/2009/10/october-24-2009-greatest-theft-in.html

Without dollar fall, U.S. will repeat crisis

"A dollar devaluation is needed of at least 25 percent from here, but resistance will be so great that this is not feasible," said Connolly, managing director of UK-based Connolly Global Macro Advisors.

Without substantial dollar depreciation or a resurgent private sector, "the Fed will have to buy another $2 trillion in debt, including Treasuries and agency debt" to reflate the economy, running up dangerous asset bubbles in the process.

But Connolly said there is "a real disconnect between the rebound of risky assets and the real economy, and added that "financial markets are working their way up to ... a renewed bubble, which will burst again."

http://www.reuters.com/article/ousivMolt/idUSTRE59J66820091020

Irrational Exuberance

PBS Frontline: The Warning (video)

Voltron says: Worth watching.

http://www.pbs.org/wgbh/pages/frontline/warning/view/

Wall Street's Naked Swindle

Voltron says: pretty much 100% accurate.

http://www.rollingstone.com/politics/story/30481512/wall_streets_naked_swindle/print

Dick Bove gives Wells Fargo a "sell" rating

Voltron: Dick Bove is usually pretty bullish, so this is a (pleasant) surprise.

"I think the loan loss reserve has to go to a lot higher and I also think that they'll be writing off a minimum of $6 billion in bad loans every quarter for the next four to six quarters"

http://www.foxbusiness.com/story/markets/industries/finance/bove-downgrade-wells-fargo-pulls-market-lower/

Behind the Numbers At Wells Fargo

Excerpt:

Wells' Fire Engine Red Flags

Dig deeper into Wells Fargo's third quarter report, and here's what you'll find. It's got a massive consumer loan portfolio that it picked up when it bought Wachovia a year ago.

Wachovia had been brought low by its disastrous decision to buy the damaged Golden West Financial, which popularized the now excoriated 'pick-a-payment' loan program, which essentially let borrowers defer interest payments and add them to the loan's principal.

Many of these loans carry low initial rates that are just now starting to reset higher, backfiring on Wells as the recession continues.

Pick-A-Payment Losses

Ok now this is where it gets to be a funhouse hall of mirrors. Amidst the pie charts and graphics and footnotes, you'll see this in Wells Fargo's report: $107.3 billion in pick-a-payment loan principal still due and owing at the bank.

Now, a new accounting rule that just took effect this past summer says banks must book the value of those loans as of the time they're reported to shareholders. It's part of the 'fair market' rules you may have heard about.

So now Wells says these loans are really only worth, watch this: $87 bn. It calls this the carrying value of these loans.

That $20 billion could potentially come out in the wash as a future writedown-and $20 billion is nearly half Well's $53 billion in Tier 1 capital, Tier 1 being the capital cushion bank regulators says all banks must have to support their businesses.

But where did that $20 billion swing downward come from? Dig deeper into Wells' disclosures, you'll see that of those $107.3 billion in pick-a-payment loans, Wells says $57 billion are what's called 'impaired,' meaning, they're either not paying any interest, they're in default, or they are flat out delinquent.

Out of that pile of rotten apples, Wells says it thinks just $37.9 billion are worth anything at all.

What do you want to bet that it's not actually $37.9 billion, but the full $57 billion are worth nothing at all, given that home foreclosures are rising, wages are falling, as unemployment continues to rise?

Wells' Souring Commercial Real Estate Loans

It gets, well, worse at Wells. The bank says it also has $135 billion commercial real estate loans, much of which it picked up from Wachovia--$43 billion of this sum is at risk. About a third of Wells Fargo's commercial real estate loan book is tied to properties in California or Florida, two states slammed hard by downturn in real estate.

Wells' Off-Balance Sheet Uglies

There's more. Wells also has $174.4 billion in off balance sheet assets, with some $109 B that could come back onto its balance sheet if a new accounting rule takes effect next year.

And Wells executives are staring morosely at a mountain of rotten paper, $55 B in other toxic assets, called level 3 assets. Supporting all of this is its $53 billion in Tier 1 capital, as well as $98.1 billion in net worth on a hard asset, or tangible, basis.

Cookie Jar Reserves Swamp Interest Income

Meanwhile, Wells' loan loss reserves have grown to $24.5 B, double its $11.7 B in net interest income for the third quarter. Net interest income is the lifeblood of any bank, it's the money that comes in the door from loans, mortgages, credit cards, you name it.

When cookie jar reserves swamp interest income, watch out, that's a fire-engine red flag. Wells' credit reserve ratios are also well below what JPMorgan Chase and BofA have now.

http://emac.blogs.foxbusiness.com/2009/10/21/behind-the-numbers-at-wells fargo/

U.S. Hyperinflation

Excerpt:

Peter Bernholz (Professor Economics in Basel) studied the world's 12 most important periods of hyperinflation and discovered that the tipping point occurs when deficits amounted to 40% of the expenditures.

For the United States we have arrived at exactly that point. The deficit of $1.5 trillion amounts to 41.7% of the $3.6 trillion in expenses.

http://wallstreetpit.com/11369-us-hyperinflation

Wells Fargo fails to beat "whisper number"

Voltron says: Wells Fargo fails to concoct enough fraudulent phantom "earnings" to beat the "whisper number" (i.e. the real earnings estimate of stock analysts as opposed to the lowball number they publish in order to manipulate the stock so they can profit from an upside "surprise")

http://www.bloomberg.com/apps/news?pid=20601206&sid=arm1bqFn5sy8

Einhorn Goes for Gold, Slamming U.S. Policies

Excerpts:

Mr. Einhorn reportedly likened Treasury Secretary Timothy Geithner's regulatory reform plan to trying to stop terrorism by "frisking grandma and taking away everyone's shampoo."

"Although our leaders ought to be making some serious choices, they appear too trapped in the short term and special interests to make them," Mr. Einhorn said.

Last week when Federal Reserve Chairman Ben Bernanke, Mr. Geithner and White House economic adviser Larry Summers spoke in interviews and on panel discussions, Mr. Einhorn said, "My instinct was to want to short the dollar but then I looked at other major currencies - euro, yen and British pound - and they might be worse."

Mr. Einhorn added, "Picking these currencies is like choosing my favorite dental procedure. And I decided holding gold is better than holding cash, especially now that both offer no yield."

http://dealbook.blogs.nytimes.com/2009/10/20/einhorn-goes-for-gold-slamming-us-policies/

Inflation Will Kill Stocks

Voltron says: One way of valuing stocks is to add up the discounted expected dividends. The key word is here is "discounted", i.e., adjusting for time, interest rates and inflation. If inflation goes up, future dividends are worth less in today's dollars.

http://www.businessinsider.com/dont-kid-yourself-inflation-will-kill-stocks-2009-10

Wells Fargo sees credit losses peaking next year

Voltron says: isn't that what they said last year?

http://www.marketwatch.com/story/wells-fargo-sees-credit-losses-peaking-next
-year-2009-10-21

Wells Fargo 3rd Q results tomorrow

http://www.thestreet.com/_yahoo/story/10614210/1/well-fargos-credit-book-in-the-spotlight.html

China Is Already Dumping the Dollar

"The idea they don't have anywhere else to go or would shoot themselves in the foot if there were a steep decline in the dollar or appreciation of their currency reassures many people in Washington 'we can relax'," he says. "An appreciation of the renminbi may reduce value of their international reserves but increases the value of every other asset the Chinese own," most notably the commodity assets they have been buying all over the world.

Perhaps most importantly, China's massive stimulus program is helping to generate internal consumption in the People's Republic, meaning local manufacturers are less dependent on exports. Because of the "rapid growth" of Chinese domestic consumption, Ferguson predicts China's international trade surplus could be gone by next year.

http://finance.yahoo.com/tech-ticker/article/357648/Wake-Up-Washington!-China-Is-Already-Dumping-the-Dollar-Niall-Ferguson-Says

Gold may not follow the crash next time

Voltron says: when the stock market crashed last year, gold prices went down with it because hedge funds were forced to sell any assets, including gold, to raise cash for margin calls. Do not expect this to happen next time because one of the major exchanges is now allowing gold to be used as margin collateral. And, oh by the way, the gold will be stored outside the U.S., in London.

http://www.marketwatch.com/story/cme-to-allow-gold-as-collateral-for-all-exchange-products-2009-10-19

John Browne on Inflation

Russia Prepares To Short $18 Billion

Voltron says: Usually banana republics are unable to raise money in their home currency and are "forced" to denominate their bonds in other currencies such as the US dollar. In this case it would seem that Russia is issuing debt in dollars not because they have to, but because they can . . . they will benefit from low interest rates and any crash in the dollar. Which would give them every reason to engineer a crash of the dollar. Imagine if China did this!

http://www.businessinsider.com/russia-preparing-to-short-eighteen-billion-dollars-2009-10

The FHA Is A Looming Disaster

• The FHA has expanded from guaranteeing just 2% of mortgages to over 20% in just a couple of years, dramatically raising its exposure to the still declining US housing market.
• The FHA still backs toxic, almost-no-money down mortgages. It will currently guarantee mortgages with as low as 3.5% downpayments.
• The FHA's mission is political: it is still trying to "expand home ownership."
• The discredited ideology of home ownership is the most toxic ideology since communism.
• The number of mortgage companies whose loans are backed from the FHA has grown from around 1,000 to over 3,300 but the FHA hasn't grown its ability to analyze these companies.
• A recent audit of FHA applications found only 5% included all the necessary documents.
• The leadership of the FHA is completely oblivious to its coming ruin.
• The FHA is in even worse shape than Fannie Mae and Freddie Mac.

video: http://www.businessinsider.com/the-fha-is-a-looming-disaster-2009-10

Daily Show: Dow 10,000

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Dow Jones Rebounds to 1999
www.thedailyshow.com
Daily Show Full Episodes Political Humor Ron Paul Interview

Chinese drywall problems

http://www.google.com/hostednews/ap/article/ALeqM5gD4avarflIqeq856bkEM8jMJRR_wD9BBMB980

When Big Returns Aren't That Big

http://www.smartmoney.com/investing/stocks/when-big-returns-aren-t-that-big/

Word on the street: TARP money used to buy US Treasuries

Voltron says: Rumor has it that much of the $700 Billion TARP bailout money was used to buy Treasuries (which is a typical form of collateral) which would explain how the new Treasury debt was absorbed so easily by the market. It's going to be a mess when all those treasuries eventually get sold while the Treasury Dept is simultaneously issuing more debt.

Foreclosures hit record

http://money.cnn.com/2009/10/15/real_estate/foreclosure_crisis_deepens/?postversion=2009101507

Dollar to fall by half

Voltron says: Hat Tip to "Jeep"

Oct. 15 (Bloomberg) -- The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.'s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy.

"The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger," said Daisuke Uno at Sumitomo Mitsui, a unit of Japan's third- biggest bank. "The dollar's fall won't stop until there's a change to the global currency system."

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_A5nqmw9Dq8

Wells Fargo's shadyness

http://www.businessweek.com/bwdaily/dnflash/content/oct2009/db20091014_008314.htm?campaign_id=yhoo

DOW 10,000, 7537 or 3,333

Voltron says: since the dollar has gone down about 25% and gold has trippled sine the Dow first hit 10k, the rise in the dow is merely nominal.

http://www.zerohedge.com/article/dow-10000-oh-wait-make-7537

Harrods to sell gold bullion

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/6328823/Harrods-to-sell-gold-bullion-for-first-time.html

How Marc Faber And John Paulson Are Playing The Inflation Trade

http://www.businessinsider.com/how-marc-faber-and-john-paulson-are-playing-the-inflation-trade-2009-10

60% of borrowers underwater

http://ftalphaville.ft.com/blog/2009/10/14/77561/majority-of-current-rmbs-borrowers-underwater-fitch-says/

Housing risks still lurk even as buyers return

http://news.yahoo.com/s/nm/20091012/ts_nm/us_usa_housing

Home values expected to fall 10% nationally

David H. Stevens, head of the Federal Housing Administration, told a panel at the Mortgage Bankers Association convention at the San Diego Convention Center that all signs point to a further 10 percent drop in home values by the first quarter of next year.

Many economists believe unemployment will continue to grow until next year, even if the recession is ending.

http://www3.signonsandiego.com/stories/2009/oct/13/home-values-expected-fall-10-nationally/?business&zIndex=181662

Dollar loses reserve status to yen & euro

"[Federal Reserve Chairman Bernanke] is in a crisis worse than the meltdown ever was," said Peter Schiff, president of Euro Pacific Capital. "I fear that he could be the Fed chairman who brought down the whole thing."

http://www.nypost.com/p/news/business/dollar_loses_reserve_status_to_yen_hFyfwvpBW1YYLykSJwTTEL

US home rescue plan delaying, not solving crisis

http://www.reuters.com/article/marketsNews/idCNN1249572220091013

Single Best Investment in History = 258,449%

By Barry Ritholtz - October 12th, 2009, 11:00AM
The single best investment -- in terms of greatest return on invested dollars -- has been the lobbying efforts of the major banks and finance firms.

They spent $114.2 million dollars in contributions toward the 2008 election, according to the the nonpartisan Center for Responsive Politics. The companies that have been awarded taxpayers' money from Congress's bailout bill spent $77 million on lobbying and $37 million on federal campaign contributions, the Center finds.

These firms political activities have yielded them $295.2 billion from Recapitalization, TARP and other assorted bailouts.

The return on investment: 258,449 percent.

http://www.ritholtz.com/blog/2009/10/single-best-investment-in-history-258449/

It's Official, Central Banks Are Fleeing The Dollar

http://www.businessinsider.com/its-official-central-banks-are-fleeing-the-dollar-2009-10

Americans Still Delusional About House Prices

http://www.businessinsider.com/henry-blodget-americans-still-delusional-about-house-prices-2009-10

Besides The Fed, Nobody Is Buying Agency Debt

http://www.businessinsider.com/chart-of-the-day-who-bought-us-government-deb-2009-10?utm_source=Triggermail&utm_medium=email&utm_campaign=Clusterstock+Chart+of+the+Day%2C+Thusday%2C+10%2F8%2F09

34 Banks Miss TARP Dividends

http://www.nakedcapitalism.com/2009/10/34-banks-miss-tarp-dividends-and-almost-no-one-notices.html

Commercial Real Estate May Be Next Victim of Recession

data suggests that the $3.5 trillion in outstanding commercial real estate debt could be what some fear: the other shoe about to drop . . . There have been estimates of $800 billion to $1 trillion of commercial mortgage defaults over the next several years, if we don't find a solution to our current troubles.

Transcript: http://www.pbs.org/newshour/bb/business/july-dec09/realestate_10-06.html

FHA may need a $54 billion bailout

voltron says: too bad there is no way to short this (it's a government agency)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aOmu318hOZr4

Union Bank of Switzerland says sell Wells Fargo

http://www.dividend.com/blog/?p=14677

The Dollar Collapse Is A Huge Part Of This Rally

Voltron says: about 50% of the stock market recovery is due to the dollar crashing.

http://www.businessinsider.com/chart-of-the-day-sp-500-in-dollars-and-euros-2009-10

Whalen: Q4 “Going to Be a Bank Bloodbath”

http://www.ritholtz.com/blog/2009/10/whalen-real-economy-is-dying-q4-going-to-be-a-bloodbath/

On the Edge with . . . Janet Tavakoli (video)

“meltdown risk today is greater than in 2007″

http://maxkeiser.com/2009/10/03/ote21-on-the-edge-with-janet-tavakoli/

When Banks Start Lending... Watch Out!

http://www.businessinsider.com/chart-of-the-day-us-monetary-base-2009-10

Report on Bailouts Says Treasury Misled Public

http://marketplace.publicradio.org//display/web/2009/10/05/pm-tarp

http://www.nytimes.com/2009/10/05/business/economy/05bank.html?_r=1&scp=2&sq=tarp&st=cse

End of the "petro-dollar"

Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

Military home buyers find VA loans a roadblock

Voltron says: VA loans are sometimes not accepted because the home does not meet VA loan requirements (especially in the case of a trashed foreclosure), they take longer to close and can involve extra costs to the seller.

http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2009/10/05/MN0D19UPNL.DTL

Search working again

Voltron says: There is now a search box at the bottom on the blog.

Unemployment outlasts benefits

Weak Dollar Helps Bulls Erase Losses

http://www.businessinsider.com/weak-dollar-helps-bulls-erase-losses-2009-10

Options activity on Wells Fargo, Moody's and Morgan Stanley

http://www.forbes.com/2009/10/02/morgan-stanley-bearish-personal-finance-investing-ideas-wells-fargo.html?partner=yahootix

Whitney: Small Business Will Be Strangled By Credit Crunch Part II

http://www.businessinsider.com/whitney-the-credit-crunch-is-about-to-suffocate-small-businesses-2009-10

Unemployment rate officially 9.8% (really 17%)

Voltron says: Over a quarter of a million jobs were lost last month.
If you include people forced to work part time and "discouraged
workers" who have been unemployed so long that they no longer get
counted, one million jobs were lost and the true unemployment rate is
17%.

http://finance.yahoo.com/news/US-jobless-rate-reaches-98-apf-93159528.html?x=0&.v=13

Daily Show: High Frequency Trading Cash Cow (video)

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Cash Cow - High-Frequency Trading
www.thedailyshow.com
Daily Show Full Episodes Political Humor Ron Paul Interview