Term Deposits at the Fed

Voltron says: so the fed's plan for sopping up all the money they've injected into the system before it causes all kinds of inflation is to offer the banks term deposits of up to one year. Basically selling CDs to the banks so they can earn interest. They have also pledged to keep short term interest rates low, so the banks can borrow money from the fed - basically for free - then give it back to the fed and earn interest. Well, that's one way to keep the banks profitable. The fed issuing debt puts them in direct competition with the Treasury which would raise interest rates. Unless of course, the fed continues to buy treasuries themselves. At the end of a year, the term deposits are returned to the bank (plus interest) so how exactly does this remove the money from the system? It comes back . . . plus interest. So they're just kicking the can down the road (again).

So to recap: The fed is going to lend money overnight at zero interest to banks that will use it to buy one year term deposits from the fed, who will use the money to purchase treasuries from the government to fund the deficit and push long term interest rates low. follow? make sense? no? good. That's because it doesn't make sense. The inmates are running the asylum.

http://www.cnbc.com/id/34616046

2010: Walking away will gain cachet

http://blogs.reuters.com/rolfe-winkler/2009/12/31/2010-walking-away-will-gain-cachet/

Shorting the Economic Recovery

Excerpt:

PERHAPS ONE OF THE greatest failings in the run-up to the financial meltdown was a lack of perspective -- an inability by many market participants to see the big picture. Not so with Kevin Duffy and Bill Laggner, principals of the Dallas-based hedge fund Bearing Asset Management. With the help of their proprietary credit-bubble index, developed in 2004, the managers sounded early warnings on housing and credit excesses, and capitalized handsomely on their forecasts by shorting Fannie Mae, Freddie Mac, money-center banks and brokers, builders, mortgage insurers and the like.

Students of the Austrian school of economics, which espouses a free-market philosophy that ascribes business-cycle booms and busts to government meddling with interest rates, the pair is solidly in the contrarian camp, believing that the worst for the markets may be yet to come.

The two established Bearing in June 2002 after running their own money and, before that, a stint by Duffy at Lighthouse Capital Management and by Laggner at Fidelity. Bearing now has about $60 million under management, and they have returned on average an impressive 18.28% annually since setting up shop. They hold refreshingly against-the-grain views on what's ahead.

Voltron says: They are short Goldman Sachs, the S&P500 and US and Japanese bonds and long Gold, consumer staples, discount retailers and pharmaceuticals (GRX and WMT)

http://us.rd.yahoo.com/finance/external/barrons/SIG=11vh3n8h5/*http%3A//online.barrons.com/article/SB126167812677704659.html?ru=yahoo&mod=yahoobarrons

Morgan Stanley: Interest Rates Set To Soar 40% As Bond Vigilantes Make Geithner And Obama Pay For Their Mess

Excerpt:

If Morgan Stanley is right, the best sale of U.S. Treasuries for 2010 may be the short sale.

Yields on benchmark 10-year notes will climb about 40 percent to 5.5 percent, the biggest annual increase since 1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The surge will push interest rates on 30-year fixed mortgages to 7.5 percent to 8 percent, almost the highest in a decade

http://www.bloomberg.com/apps/news?pid=20601087&sid=aiGQrHp46pc4&pos=2

Hat tip to clusterstock.com

Economy: Should You Default On Your Debts?

http://www.newsweek.com/id/227941

Fannie and Freddie even worse

Voltron says: The government is removing all limits on bailouts to Fannie Mae and Freddie Mac and pays six million in hush money to the CEOs.

http://finance.yahoo.com/news/Treasury-uncaps-credit-line-rb-3614762079.html?x=0&.v=3

http://www.bloomberg.com/apps/news?pid=20601087&sid=ad2b8bETXV8s&pos=6

Gold wins in the the naughty aughties

Goldman, Deutsche, and the Destructive Use of Synthetic CDOs Come Into Focus

Voltron says: A Collateralized Debt Obligation (CDO) is a bundle of mortgages that is sliced up and sold. The problem was that demand for CDOs exceeded the number of mortgages, after all, the "boom" in home ownership was only a few percentage points. In order to satisfy demand without having to go through the trouble of actually selling real mortgages, dealers created a derivative called "synthetic CDOs" where the cashflows of a CDO were mimiced by using Credit Default Swaps. The problem is that the sellers of the Credit Default Swaps were often the dealers themselves, so they would benefit from mortgages going bad. Yves Smith at Calculated Risk spins a more sinister plot, claiming that Synthetic CDOs were created specifically by dealers to short the housing market. She weaves together a New York Times article and the book "The Greatest Trade"

The point is just how gigantic this fraudulent derivatives house of cards has become.

http://www.nakedcapitalism.com/2009/12/goldman-deutsche-and-the-destructive-use-of-synthetic-cdos-comes-into-focus.html

Wells Fargo repays government bailout

Voltron says: Just in time to pay themselves big bonuses.

http://finance.yahoo.com/news/Wells-Fargo-repays-government-rb-4254656597.html?x=0&.v=1

The Modern Dark Ages

If our economy ever truly collapses the consequences will make fifth-century Britain seem like a picnic.

http://www.ft.com/cms/s/0/4b44d88e-ef39-11de-86c4-00144feab49a.html

Top hedge funds bet on big rise in yields

Excert;

The recent rise in long-term US interest rates comes as good news for several leading hedge fund managers, including John Paulson, who have positioned their trading books to benefit from higher yields on US Treasury securities.

Mr Paulson, who made big gains earlier this decade by betting against the subprime mortgage market and whose firm, Paulson & Co, manages $33bn, has said he believes that government stimulus efforts would inevitably lead to higher inflation and a corresponding rise in rates.

Bond prices fall as yields rise, and Mr Paulson told the Financial Times last week that he has been hoping to benefit in the Treasury market by buying options that would become profitable if rates headed higher. TPG-Axon's Dinakar Singh has been making similar options trades, according to a person familiar with the matter."It will be difficult for the government to withdraw the economic stimulus," Mr Paulson said in a speech. "An increase in the monetary base leads to an increase in the money supply, which leads to inflation."

http://www.ft.com/cms/s/0/e590e35e-ef45-11de-86c4-00144feab49a.html

"Conservative" college savings plan lost 38%

Voltron says: This is why you should do the pre-paid tuition plan and not the 529 college savings plan.

http://www.chicagotribune.com/news/chi-wed-bright-start-dec23,0,7275727.story

Mint reveals how it lost a fortune in gold

Voltron says: maybe now they will be able to finish their "system upgrades" and begin opening new gold storage accounts through kitco.

Excerpt:

OTTAWA — More than $3 million in government gold was unwittingly sold off at a fraction of its value as refinery slag, while $8 million more was miscounted and never left the Royal Canadian Mint, the Crown corporation revealed Monday in a full accounting of how it lost track of a fortune in gold for a year.

A series of miscalculations and blunders in the mint's gold refinery dating back to 2005 were responsible for 17,500 troy ounces — a system of weights for precious metals — of gold going missing from the mint's Ottawa inventory count last October, the mint announced in a 12-page report.

That's the equivalent of almost 44,400-ounce bars, worth more than $20 million in today's prices.

http://www.timescolonist.com/Mint+reveals+lost+fortune+gold/2367398/story.html

VA home loan useful, but watch for snags - MarineCorpsTimes.com

http://www.marinecorpstimes.com/news/2009/12/army_military_housing_121909w/

Oil supplies shifting to Canada from Saudi Arabia

http://www.businessinsider.com/the-us-is-relying-heavily-on-canada-for-crude-oil-2009-12

Target-Date Mutual Funds Take Huge Risks In Junk Bonds

Voltron says: Target Date mutual funds (such as TSP "L" funds) are an easy way to automatically carry out conventional investing practices with your money. They move money over time from what is considered a risky investment (stocks) into what is considered more stable (bonds) as you approach the target date when presumably you will need the money. This doesn't work well if the bonds they choose are risky (junk bonds). Apparently some of these funds are charging quite high fees for funds that really is not much more difficult to manage than an index fund.

http://globaleconomicanalysis.blogspot.com/2009/12/target-date-lifestyle-retirement-funds.html

Oh Brother!

Wells Fargo Gets Special Treatment

http://seekingalpha.com/article/178361-wells-fargo-gets-special-treatment?source=yahoo

Wells Fargo is repaying the government bailout

"Wells is not making money on an operating basis," said Paul Miller, managing director over at FBR Capital Markets (Underperform). "Most of their gains are from trading, and if rates ever go up, they could be in a precarious position."

http://www.cnbc.com/id/34435902/site/14081545

'Substantial’ Bank Losses Are Needed to Fix Housing

Voltron says: Only principal reductions will stem foreclosure, but banks are unwilling because that would wipe out any second mortgages, such as home equity loans. Banks currently have $855 billion in home equity loans at risk.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a6D57m4TPGvs&pos=6