Good news coupled with a bad news.. But since the good should always triumph over bad, the market ralied well over 50 points in market action today.

The good signs came from the housing front - existing home sales. Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 7.4% to a seasonally adjusted annual rate of 6.54 million units in November from 6.09 million in October, and are 44.1 % higher than the 4.54 million-unit pace in November 2008. Current sales remain at the highest level since February 2007 when they hit 6.55 million. Though much of the data is fabricated by weak seasonality in '08, housing credit and extra low interest rates.

On the bad news front - According to the third estimate of GDP growth in the second quarter, the real GDP growth is revised down to 2.2% from a prevoious estimate of 2.8% which inturn was revised from 3.5%. Analyst estimates were at 2.8%. THis simply implies that the US economy is not growing as much as it was/is expected to grow. Weak consumer spending, Unemployemtn is going to make the challenage even worse in Q4 and forward.. I guesss.

Its almost an anniversary of ZIRP( Zero Interest Rate Policy), and today FED has decided to keep the interest rates at the same 0-0.25% level, for the foreseeable future. In the policy statement today, there were some subtle remarks that the economy has stablized in many fronts esp in housing and consumer spending, yet the labour and credit markets continue to be strained. Well, the statement in itself would bode well for the future direction of the economy, and Dollar would some part gain some of its lost value over the last two months - and that woudl be why gold be a shortterm sell.

Another reason why C is a good long term buy.. Fed, Treasury, tax payer have always been backing C, as it was and still is (after cutting its business to nearhalf, and diluting its share holders by an additional 17Bn issue) too big to fail.. IRS followed the suit in support of bolstering the 'finances' of C.. The IRS today "quietly" agreed not to collect billions of dollars in potential taxes from Citigroup Inc as part of its deal to allow the bank to repay its taxpayer bailout. Lst q, C had about $38 Bn in past losses and going forward if C was profitable, this provision by the IRS would enable C to skip taxes on the next 38Bn in profits.. Thats about 0.35*38 Bn in earnings, potentially over the next 10-20 years!!

Headlines:

GS had changed its compensation 'provisions' preemptively, inlight of 50% tax on the walst bonuses slapped by UK govt... Now much of the executive bonus compensation would be in the form of stock, that cannot be exercised for the next 5 years.

Its long been spoken about CMBS taht it is going to be the next shoe. Todays Moody's published the delnquency rates of CMBS, and yes, nothing to cheer about. the aggregate rate of delinquencies among US CMBS loans stood at 4.47 per cent as at the end of November, an increase of 46 basis points compared with the prior month. Just to give a notion to compare - the same figure stood at 0.22% in Jul 2007. However to purport this view on CMBS, offlate, a couple of CMBS issues were over subscribed in US. In my opinion, the current price on a CMBS does reflect the elevated delinquencies.. the question is whether the banks had marked their assets to these market prices or not.

Again.. back.. after a long long long heitus.. I do not want to talk about the shit that spread over the last 8 or so months. Well,, I am still in deep pile of it. though, now I see signs I can swim out of it!! :)

Anyways, The market over the last 4-6 months has been stable trying to break both ways. Economic data has both been supporting and negating the investor sentiment. All the while, Fed, US Govt has been on its toes to prop up the sentiment on the smallest sign of weakness.. So far so good. But the real question is - Would the same plot be the game saver over the next year!!

Gold - has been my single best investment over the last 6 months.. (I got out of it when it is at 1200 ). I think Gold is poised for a breather or a correction here.. The bull story for gold has been that the sovereign nations are piling on gold as part of re-balancing their reserves, for the fact that dollar has lost its lusture as a safe haven. However, India, Russia are two countries which are shifting their reserves to Gold.. and China doing the same is a mere expectation. Infact CHinese Central Bank personnel did mention that they would not BUY any gold at these elevated prices. Next.. Dollar I guess will never lose its sheen as a reserve currency, and thus a safe haven.. It will simply not.. not in my lifetime!! I guess!!

No.. I am not contending that Gold is not poised for a rally here.. But, over the shortterm it might as well headed for a correction.. May be $1000..

A double dip recession in sight.. May be.. Investors are concerned about the deluge of dollars into the economy.. and thats the primary reason for the dollar being on the fall (in addition to high budget deficit, low interest rates).. and typically a flood of dollars shoudl lead to inflation, and yes, in that environ gold is the best hedge. However.. look at ydays KR earnings. a miss of 10 cents and a lowering of guidance of about 30 cents.. the reason being - defaltionary pricing pressure.

Next, Mexico, a commodity producer and sixth largest producer of Oil, has sought insurance policy (1 Bn) against oil price falling below $57 next year. A sign that the consumer demand for commodities would generally be weak, and the dollar might as well turn its trend here!!

I was almost at the rock bottom when I started the day,, but now, after a random talk with Harish and Vishal for just 10 min, I am all excited and pumped up..

I feel so lucky to have such friends around me, all the while!!

Sometimes I wonder, how much longer/further can I go before I snap!!

Green shoots?


This phrase has been coined to describe a possible recovery situation in the economy, and this has been teh driving force behind this bear market rally. Today reports do substantiate the argument against any green shoots and in my opinion, the economy is no way near a sustained recovery phase.

The Conference Board’s sentiment index decreased to 49.3 from a revised 54.8 in May. Economists forecast confidence would rise to 55.3 from 54.9 in the prior month. this low confidence number reflects a weak labor market sentiment and high energy prices. This is a striking contrast to the May number, which clocked in at a (revised) 54.8, well above the expected 42. Equity markets rather obligingly fell in the aftermath of the release. Though tis number is well above the 25 figure in March, it is well below the average figure of 87 during end of recessions.


Shall continue tomorrow..


Markit launched the first global family of sovereign credit default swaps. Well, think about it.. CDS on COMPANIEs (LEHMAN, Bearstearns likes) are balmed to be one of the causes of this current global financial melt down.. Imagine, with the levels of debt that is being raised by the nations, what if, a country goes down because of the speculation over its solvency a,d Credit Default Swaps???

unedited post after a l;ong time..
Hope i will be back to normal and post regly..

THE SAVINGS RATE IS NOW ON A CLEAR UPTREND

for every dollar that is coming out of Washington to support a 70% consumption/GDP ratio, it is getting barely more than 8 cents worth of new spending activity.not even the most aggressive monetary and fiscal policy since the 1930s is going to stop consumer spending in volume terms from rolling over in the second quarter.

Wage Deflation:
Wages and salaries fell at a 1.6% annual rate in May and are either flat or down for nine months in a row. The YoY trend is now -1.1%, which is the most that organic wages have deflated by since the data were first collected 50 years ago.

Jobless claims may not be a good metric:
Companies are not just downsizing their payroll, but have also cut the workweek to a record low of 33.1 hours. Fewer people are working and those that are still working have seen their hours dramatically cut this cycle.

What makes this cycle “different” is that three-quarters of the workers that were fired over the last year were let go on a permanent, not a temporary basis.There may well be job growth in the future in health care, infrastructure, energy technology and the like, but we can say with a reasonable amount of certainty that there are a whole lot of jobs in a whole lot sectors where jobs lost this recession are not going to come back. For example, the 580k jobs lost in financial services; the 320k jobs lost in residential construction; the 1.7 million jobs lost in durable goods manufacturing; the 1.1 million jobs lost in the wholesale/retail sector; and the 380k jobs that were lost in the leisure/hospitality industry. That is over four million jobs that were shed this cycle that are not likely to stage a comeback even after the recession is over. To show you how big a number four million is, we didn’t create that many jobs in the prior expansion until it reached its fourth birthday towards the tail end of 2005.

Home foreclosures:
RealtyTrac announced that default notices still went up 18% YoY in May. It is not just Florida or California any more either, the foreclosure crisis has spread right across the country and is no longer just a problem in areas where home prices have deflated sharply.

Deteriorating credit quality of consumer:
Credit card charge-off rates hit a record high for the sixth time in as many months in May — to 10.62% from 9.97% in April.


The full brunt of the credit collapse may be behind us, but, the other two shocks, namely deflating labour markets and deflating home prices, are very much still front and centre.

Thanks to ZeroHegde. 

Below are some of the key points contained in Stree Test Methodology:

(1) “more than 150 senior supervisors, on-site examiners, analysts and economists” spent a month reviewing the 19 BHC’s that hold two thirds of the country’s bank assets and account for one half of the loans

Ten trillion dollars in assets and five hundred trillion dollars in derivatives in one month? A typical single bank examination utilizes hundreds of examiners and takes several months. 

(2) ”the firms were asked to project…..the firms were asked to provide…etc.”

In other words, the banks tested themselves and the 150 examiners took their word for it. Any wonder they passed?

And my fave:

(12) “Supervisors evaluated firm loss estimates using a Monte Carlo simulation that projected a distribution of losses by examining potential dispersion around central probabilities of default.”

Ah…smells like Gaussian distributions. The old standard. We have seen how well that assumption works in these unusual times. An example of the dependability of using Gauss, taken from stock market movements in October, and calculated by Nassim Nicholas Taleb of Black Swan fame, showed that the price movements seen in October 2008 could be expected to occur---using estimates based on Gaussian distributions---once every 73,000,000,000,000,000,000,000 years. For those of you not tied to Biblical strict constructionism, the Universe is around 18,500,000,000 years old. Looks like it will be a few quintillion years before we see October again.

Thanks to ZeroHegde.

Fuck this,.. Leaked stress test results!!

1) Of the top nineteen (19) banks in the nation, sixteen (16) are already technically insolvent. (Based upon the “alternative more adverse” scenario which had a 3.3 percent contraction of the U.S. Economy in 2009, accompanied by 8.9 percent unemployment, followed by 0.5 percent growth of the U.S. Economy but a 10.3 percent jobless in 2010.)

2) Of the 16 banks that are already technically insolvent, not even one can withstand any disruption of cash flow at all or any further deterioration in non-paying loans. (Without further government injections of cash)

3) If any two of the 16 insolvent banks go under, they will totally wipe out all remaining FDIC insurance funding.

4) Of the top 19 banks in the nation, the top five (5) largest banks are under capitalized so dangerously, there is serious doubt about their ability to continue as ongoing businesses.

5) Five large U.S. banks have credit exposure related to their derivatives trading that exceeds their capital, with four in particular - JPMorgan Chase, Goldman Sachs, HSBC Bank America and Citibank - taking especially large risks.

6) Bank of America`s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank`s was 278 percent; JPMorgan Chase`s, 382 percent; and HSBC America`s, 550 percent. It gets even worse: Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital! (HSBC is NOT in the top 19 banks undergoing a stress test, but is mentioned in the report as an aside because of its risk capital exposure to derivatives)

7) Not only are there serious questions about whether or not JPMorgan Chase, Goldman Sachs,Citibank, Wells Fargo, Sun Trust Bank, HSBC Bank USA, can continue in business, more than 1,800 regional and smaller institutions are at risk of failure despite government bailouts!

The debt crisis is much greater than the government has reported. The FDIC`s "Problem List" of troubled banks includes 252 institutions with assets of $159 billion. 1,816 banks and thrifts are at risk of failure, with total assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in total assets in prior quarter.

Put bluntly, the entire US Banking System is in complete and total collapse.

More at: http://turnerradionetwork.blogspot.com/2009/04/leaked-bank-stress-test-reults.html