Sunday, May 31, 2009
It's Science....
Voltron says: There is some new academic research supporting my new strategy.
http://seekingalpha.com/article/140487-do-inverse-etfs-do-what-they-re-supposed-to
http://seekingalpha.com/article/140487-do-inverse-etfs-do-what-they-re-supposed-to
Mortgage convexity behind the fall in treasurys?
Voltron says: according to a recent article in Barron's, the recent drop in treasury prices is due to banks selling a trillion dollars worth of treasurys they were using to hedge mortgage pre-payment risk. In typical Barron's style they declare that this adjustment is over (so there is no way to profit from this information at this point). I think that the treasurys used as hedges were also sold as mortgages defaulted. This is due to resume shortly and continue for the next couple of years. Even more reason to be short TLT...
http://online.barrons.com/article/SB124351952511562631.html
http://online.barrons.com/article/SB124351952511562631.html
Friday, May 29, 2009
Thursday, May 28, 2009
New Fed rules hurt Wells Fargo
Voltron says: The Fed has decided that banks cannot use made up estimates of
future earnings that they pull out of their rear ends to satisfy new capital
reserve requirements. According to Tom Brown from bankstocks.com, this will
dilute Wells Fargo by 4%, or around $1 a share.
future earnings that they pull out of their rear ends to satisfy new capital
reserve requirements. According to Tom Brown from bankstocks.com, this will
dilute Wells Fargo by 4%, or around $1 a share.
PPIP is dead and so is Wells Fargo
Voltron says: There are two things I worry about with respect to my short
Wells Fargo position. One is an overly generous government bailout that
would, for some reason, bailout the common share holders. The other is
massive inflation, which we are starting to see signs of as Treasurys
collapse. I'm basically betting that Wells Fargo will crash before either
one kicks in. The banks have been trying to game the Public Private
Investment Partnership by both buying and selling toxic assets at inflated
prices and put the government on the hook for 93% of the losses. It looks
like the FDIC is not playing ball, so that avenue is closed. It will
probably take Treasury a few months to concoct another bailout, which they
will probably do over a weekend of all-nighters when Citigroup and/or Wells
Fargo are on the brink of total collapse.
Wells Fargo position. One is an overly generous government bailout that
would, for some reason, bailout the common share holders. The other is
massive inflation, which we are starting to see signs of as Treasurys
collapse. I'm basically betting that Wells Fargo will crash before either
one kicks in. The banks have been trying to game the Public Private
Investment Partnership by both buying and selling toxic assets at inflated
prices and put the government on the hook for 93% of the losses. It looks
like the FDIC is not playing ball, so that avenue is closed. It will
probably take Treasury a few months to concoct another bailout, which they
will probably do over a weekend of all-nighters when Citigroup and/or Wells
Fargo are on the brink of total collapse.
Greenlight's Einhorn says shorting Moody's
Voltron says: Triple-A credit rating have become a GUARANTEE that a company
will go bankrupt, because hedge funds will seize on that credit rating as an
opportunity to leverage up and buy cheap insurance on it UNTIL IT BLOWS UP
IN THEIR FACES. I'm no longer short Moody's but for what it's worth . . .
will go bankrupt, because hedge funds will seize on that credit rating as an
opportunity to leverage up and buy cheap insurance on it UNTIL IT BLOWS UP
IN THEIR FACES. I'm no longer short Moody's but for what it's worth . . .
http://www.reuters.com/article/marketsNews/idINN2831697120090528
Wednesday, May 27, 2009
Monday, May 25, 2009
Saturday, May 23, 2009
Obama: "We are out of money."
Voltron says: Top story on drudgereport.com right now.
In a sobering holiday interview with C-SPAN, President Obama boldly told Americans: "We are out of money."
C-SPAN host Steve Scully broke from a meek Washington press corps with probing questions for the new president.
SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?
OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we've made on health care so far. This is a consequence of the crisis that we've seen and in fact our failure to make some good decisions on health care over the last several decades.
So we've got a short-term problem, which is we had to spend a lot of money to salvage our financial system, we had to deal with the auto companies, a huge recession which drains tax revenue at the same time it's putting more pressure on governments to provide unemployment insurance or make sure that food stamps are available for people who have been laid off.
So we have a short-term problem and we also have a long-term problem. The short-term problem is dwarfed by the long-term problem. And the long-term problem is Medicaid and Medicare. If we don't reduce long-term health care inflation substantially, we can't get control of the deficit.
So, one option is just to do nothing. We say, well, it's too expensive for us to make some short-term investments in health care. We can't afford it. We've got this big deficit. Let's just keep the health care system that we've got now.
Along that trajectory, we will see health care cost as an overall share of our federal spending grow and grow and grow and grow until essentially it consumes everything...
SCULLY: When you see GM though as “Government Motors,” you're reaction?
OBAMA: Well, you know – look we are trying to help an auto industry that is going through a combination of bad decision making over many years and an unprecedented crisis or at least a crisis we haven't seen since the 1930's. And you know the economy is going to bounce back and we want to get out of the business of helping auto companies as quickly as we can. I have got more enough to do without that. In the same way that I want to get out of the business of helping banks, but we have to make some strategic decisions about strategic industries...
SCULLY: States like California in desperate financial situation, will you be forced to bail out the states?
OBAMA: No. I think that what you're seeing in states is that anytime you got a severe recession like this, as I said before, their demands on services are higher. So, they are sending more money out. At the same time, they're bringing less tax revenue in. And that's a painful adjustment, what we're going end up seeing is lot of states making very difficult choices there...
SCULLY: William Howard Taft served on the court after his presidency, would you have any interest in being on the Supreme Court?
OBAMA: You know, I am not sure that I could get through Senate confirmation...
Developing...
In a sobering holiday interview with C-SPAN, President Obama boldly told Americans: "We are out of money."
C-SPAN host Steve Scully broke from a meek Washington press corps with probing questions for the new president.
SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?
OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we've made on health care so far. This is a consequence of the crisis that we've seen and in fact our failure to make some good decisions on health care over the last several decades.
So we've got a short-term problem, which is we had to spend a lot of money to salvage our financial system, we had to deal with the auto companies, a huge recession which drains tax revenue at the same time it's putting more pressure on governments to provide unemployment insurance or make sure that food stamps are available for people who have been laid off.
So we have a short-term problem and we also have a long-term problem. The short-term problem is dwarfed by the long-term problem. And the long-term problem is Medicaid and Medicare. If we don't reduce long-term health care inflation substantially, we can't get control of the deficit.
So, one option is just to do nothing. We say, well, it's too expensive for us to make some short-term investments in health care. We can't afford it. We've got this big deficit. Let's just keep the health care system that we've got now.
Along that trajectory, we will see health care cost as an overall share of our federal spending grow and grow and grow and grow until essentially it consumes everything...
SCULLY: When you see GM though as “Government Motors,” you're reaction?
OBAMA: Well, you know – look we are trying to help an auto industry that is going through a combination of bad decision making over many years and an unprecedented crisis or at least a crisis we haven't seen since the 1930's. And you know the economy is going to bounce back and we want to get out of the business of helping auto companies as quickly as we can. I have got more enough to do without that. In the same way that I want to get out of the business of helping banks, but we have to make some strategic decisions about strategic industries...
SCULLY: States like California in desperate financial situation, will you be forced to bail out the states?
OBAMA: No. I think that what you're seeing in states is that anytime you got a severe recession like this, as I said before, their demands on services are higher. So, they are sending more money out. At the same time, they're bringing less tax revenue in. And that's a painful adjustment, what we're going end up seeing is lot of states making very difficult choices there...
SCULLY: William Howard Taft served on the court after his presidency, would you have any interest in being on the Supreme Court?
OBAMA: You know, I am not sure that I could get through Senate confirmation...
Developing...
Friday, May 22, 2009
Sunday, May 17, 2009
Will China still bankroll us?
excerpt:
The most obviously worrisome part of the situation today is that the Chinese could decide that they no longer want to buy Treasury bonds. The U.S. government’s recent spending for bank bailouts and stimulus may be necessary to get the economy moving again, but it also raises the specter of eventual inflation, which would damage the value of Treasuries. If the Chinese are unnerved by this, they could instead use their cash to buy the bonds of other countries, which would cause interest rates here to jump, prolonging the recession. Wen Jiabao, China’s premier, seemed to raise this possibility in March, in remarks to reporters at the end of the annual session of China’s Parliament. “We have lent a huge amount of money to the U.S.,” Wen said. “Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” In all likelihood, this was mostly posturing. Were China to cut back sharply on its purchase of Treasury bonds, it would send the value of the bonds plummeting, hurting the Chinese, who already own hundreds of billions of dollars’ worth. Yet Wen’s comments, which made headlines around the world, did highlight an underlying truth. The relationship between the United States and China can’t continue on its current path.
...So putting the global economy onto a more sustainable path will require dealing with the imbalances between China and the United States. In the broadest terms, this will mean that Americans must consume less and that Chinese must consume more. Domestically, Obama’s economic agenda is organized around the first half of this equation. He has said that economic growth must rely less on consumer spending than it has, and he is pushing for a series of investments — in education, science, medicine and alternative energy — the fruits of which are meant to replace consumption. But those fruits won’t mature as quickly as American households are paring back. For the sake of the global economy, persuading China to consume more will be crucial, too. It will also make a big difference to China’s 1.3 billion citizens. Most are still poor enough that consumption doesn’t mean yet another Barbie or iPod; it means basic comforts, like medical care and transportation.
Moving to an economy based more on consumption and less on exports happens to be the policy of the Chinese government, and has been since 2003. Its latest five-year economic plan, announced in 2006, was organized around the idea.
http://www.nytimes.com/2009/05/17/magazine/17china-t.html
The most obviously worrisome part of the situation today is that the Chinese could decide that they no longer want to buy Treasury bonds. The U.S. government’s recent spending for bank bailouts and stimulus may be necessary to get the economy moving again, but it also raises the specter of eventual inflation, which would damage the value of Treasuries. If the Chinese are unnerved by this, they could instead use their cash to buy the bonds of other countries, which would cause interest rates here to jump, prolonging the recession. Wen Jiabao, China’s premier, seemed to raise this possibility in March, in remarks to reporters at the end of the annual session of China’s Parliament. “We have lent a huge amount of money to the U.S.,” Wen said. “Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” In all likelihood, this was mostly posturing. Were China to cut back sharply on its purchase of Treasury bonds, it would send the value of the bonds plummeting, hurting the Chinese, who already own hundreds of billions of dollars’ worth. Yet Wen’s comments, which made headlines around the world, did highlight an underlying truth. The relationship between the United States and China can’t continue on its current path.
...So putting the global economy onto a more sustainable path will require dealing with the imbalances between China and the United States. In the broadest terms, this will mean that Americans must consume less and that Chinese must consume more. Domestically, Obama’s economic agenda is organized around the first half of this equation. He has said that economic growth must rely less on consumer spending than it has, and he is pushing for a series of investments — in education, science, medicine and alternative energy — the fruits of which are meant to replace consumption. But those fruits won’t mature as quickly as American households are paring back. For the sake of the global economy, persuading China to consume more will be crucial, too. It will also make a big difference to China’s 1.3 billion citizens. Most are still poor enough that consumption doesn’t mean yet another Barbie or iPod; it means basic comforts, like medical care and transportation.
Moving to an economy based more on consumption and less on exports happens to be the policy of the Chinese government, and has been since 2003. Its latest five-year economic plan, announced in 2006, was organized around the idea.
http://www.nytimes.com/2009/05/17/magazine/17china-t.html
Friday, May 15, 2009
Roubini: Chinese renminbi will replace the dollar
"While the dollar’s status as the major reserve currency will not vanish overnight, we can no longer take it for granted. Sooner than we think, the dollar may be challenged by other currencies, most likely the Chinese renminbi. This would have serious costs for America, as our ability to finance our budget and trade deficits cheaply would disappear."
http://www.nytimes.com/2009/05/14/opinion/14Roubini.html
http://www.nytimes.com/2009/05/14/opinion/14Roubini.html
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