Maybe they just don’t have anything really to write about, but NY Times reporter Michael Grynbaum’s suggestion that a few day’s rally is the start of a turn around completely takes the cake.
Seriously, why on earth do these guys write that every uptick on the market is a sign of the financial equivalent of the Rapture?
Normally, I don’t comment on market daily moves, there is too much noise there, but today’s stock market rally, particularly in the morning, bears note, because much of it appears to have been driven by an April Fools gag.
Dedicated short fund manager Doug Kass, of Seabreeze Partners Short LP, put out an early morning, tongue-in-cheek commentary, titled Time to Buy the Bull? The long time Bearish market pundit and writer for The Street.com and Real Money announced that he was raising his year end price targets for the S&P500 to 1,666, which would reflect a yearly gain of 26%.
This was picked up by:
Mr. Kass subsequently apologized, “I apologize to my partners, and to my friends, and especially to the SEC, for whom I have the greatest possible respect. I never intended markets to be manipulated in this manner. I was only trying to make some traders, who have been having a tough year, break a smile.”
You gotta love Wall Street. I wish I had chosen it as my career. I would already have made my millions, gotten busted, done my 22 months at Club Fed, written a book about it, and now I’d have a 2 day a week job as a pundit on CNBC.
I already have a trophy wife though, so I can’t complain.
Paul Krugman blogs today and wonders if, “Iceland the victim of a financial conspiracy. Really, seriously.
There are reports that hedge funds are trying to break the bank of Iceland for a few bucks.
As Krugman notes:
Such things really do happen. During the 1997-1998 financial crisis there was, almost certainly, a financial conspiracy against Hong Kong. According to the Hong Kong Monetary Authority, several major hedge funds engaged in a “double play”, shorting both the city-state’s stock market and its currency. The alleged plan was to put the HKMA in a double bind: it would be forced either to raise interest rates to defend the Hong Kong dollar — driving stocks down — or to devalue the currency. Either way the hedge funds thought they’d make a killing. They were, however, caught in a bear trap when the HKMA did the unexpected and bought up a large fraction of the HK stock market.”
According to Krugman, who is in a position to know, Bear Stearns figures prominently in what is going on in Iceland.
I would not be surprised if Bear were also involved in the 1997-8 machinations too. They have always had a rep as being the most brutal of the large investment banks.
This is yet another case for greater regulation of the financial markets.
A tax on currency transactions might be a bad idea either. Even a tax of less than 1/10% would eliminate much of the currency speculation that leaves a path of poverty and destruction around the world.
Reference my previous post.
In any case Richard Band, publisher of a well respected Wall St Newsletter is saying that the Dow will hit 16,000 by late 2008 or early 2009.
Dow 36,000 writ small, I guess, because the only way I see it hitting that number that soon (a 33% appreciation) is inflation hits 50%.
I dunno, maybe he’s banking on some sort of Bush is not the President rally, but this still makes him stupid.
Thornburg Mortgage’s bond sale at 12% just failed, so now they are trying to sell bonds to stay solvent at an interest rate of eighteen percent.
They could not get buyers at 12% and they are trying to sell bonds at 18%???
The people who think that this is going to get better soon are morons.
It’s interesting how often financial reporters miss the forest for the trees.
Case in point, we have California Treasurer Lockyer telling Warren Buffet’s new bond insurance business to go pound sand.
The core of the dispute is that bond ratings agencies have low rated municipal debt as compared to commercial debt for years.
This has meant that entities like the state of California have had to buy bond insurance to get AAA rates, despite the fact that the risk of default is negligible:
“We’re selling water in a desert; we should be rated to reflect that,” said Cary Casey, who oversees bonds at the Southern Nevada Water Authority in Las Vegas that have a AA+ rating from Standard & Poor’s. Casey said he’s not interested in Buffett’s insurance. “He’s no savior.”
The first municipal bond insurance policy was sold in 1971 by Ambac. The near bankruptcy of New York City in 1975 bolstered demand for the industry, said Richard Larkin, research director at brokerage Herbert J. Sims & Co. in Iselin, New Jersey, and a former chief municipal rating officer at S&P.
New York City creditors were paid in full. When Orange County, California, filed the largest municipal bankruptcy in 1994, only one issue defaulted and no principal or interest payments were missed, according to Moody’s.
“The legalized extortion has been going on since before I became mayor of Somerville in 1990,” said U.S. Representative Michael Capuano, a Massachusetts Democrat on the House Financial Services Committee. Capuano said he was forced to buy bond insurance, even though his town of 80,000 had never defaulted and the state provided backup guarantees.
Emphasis mine.
Bond insurance to municipalities have been a protection racket for years, and not it turns out that the insurers, not the municipalities, are the ones with the problem.
I think that as we tease out the credit collapse, we will find many more examples of systemic corruption and extortion by Wall Street firms.
The FSM may be wrong, these guys are pirates, and global warming proceeds unabated.
In honor of March Madness:
Click image for source
You may recall that Monoliner insurer FGIC having problems. Now it is saying that was saying that it would not honor its insurance contract withCredit Agricole SA and IKB Deutsche Industriebank, because they deceived the insurers about their financial health.
Seeing as how IKB seems to be facing villagers with torches, this may very well be true.
It’s in court.
And of course, because it’s a day of the week ending with “y”, the Federal Reserve is giving away another $100 billion to the banks.
No wonder noted bear, and Oppenheimer analyst Meredith Whitney is predicting that Citi will be cutting its dividend again soon.
In economic matters for the rest of us, personal income did better than expected, but personal spending remained weak, and the head of Freddie Mac is saying that he does not expect recovery in house prices until 2010.
I say that he is an optimist. The regional crashes we have seen, which have been much less severe, have all lasted at least 5 years, which puts the date at 2012, though I would take 2015 in the over/under in non-inflation adjusted dollar terms.
I don’t think that we will be back to the 2006 highs adjusted for inflation in my lifetime.
And in the world of collapsing economic institutions, we have former sub-prime lender Fremont General ordered to find a buyer by the FDIC, in addition to restricting interest it can pay to depositors, payments to senior executives, and transfers to its parent company.
This does make the fact that the Office of Federal Housing Enterprise Oversight has told Fannie Mae and Freddie Mac that they are free to raise another $20 billion a bit nonsensical.
The taxpayers will end up on the hook for all of this.
It now appears that KPMG systematically helped New Century Financial, a mortgage lender, conceal its financial troubles.
New Century Financial, whose failure just a year ago came at the start of the credit crisis, engaged in “significant improper and imprudent practices” that were condoned and enabled by auditors at the accounting firm KPMG, according to an independent report commissioned by the Justice Department.
This is what killed Arthur Anderson.
The specifics:
FWIW, I disagreed with the Supreme Court decision exonerating Arthur Anderson.
The only we get honest audits is if there is a threat of a corporate death penalty hanging over these folks heads.
It appears that in response to JP Morgan and UBS cutting earnings estimates on Merrill Lynch, Merrill Lynch has cut its ratings on Bank of America, PNC, and SunTrust.
At least that’s how I read the article….Weird Kabuki dance this.
South Korea’s National Pension Service will no longer invest in US Treasuries. They are saying that the rates of return are too low.
Note that this is the 5th largest pension fund in the world, so this is a decision with consequences.
I have noted on a number of occasions that the Fed would find itself torn between keeping the economy afloat, and keeping the dollar strong, and this is the first leak in the dam.
This does not necessarily mean that they won’t be investing in the US though. While the rates treasuries are low, other interest rates are rising, with the London interbank offered rate (LIBOR) up about 1%. Mortgage rates are also not responding to Fed Rate cuts.
Search for the term “pushing on a string” in my archives. It’s a quote from Keynes.
The weekly jobless claims numbers are less than were expected, which is good news, but there is a lot of noise week to week, so I’m more concerned about Commerce Department’s final GDP numbers, which show the inflation adjusted growth of the GDP being 0.6% annually.
Additionally, investors initial reaction was to flee long term treasuries following the unemployment numbers, which implies an expectation of increasing inflation.
In terms of the market recovering trust, not so much, with asset backed commercial paper, short term asset backed debt, falling. There are no buyers for it.
Finally, Merrill will write down $4.5 billion on CDOs (collateralized debt obligations), and post a loss in Q1.
Except, of course when they are not, as has been the case in what the Wall Street Journal so evocatively calls the Lost Decade, where stocks have provided no return over the past decade.
This is not surprising, seeing as how we are coming off a bubble, tech stocks segueing into real estate, and this is when stocks don’t do well.
Dean Baker asks the question the WSJ won’t, “What if your social security was invested in this?
The answer is that we, and our parents and grand parents, would be completely screwed.
He’s saying that, “leavint the door open“, but that really means that he doesn’t know what to do.
Not surprising, since his number one and two economic buddies are Alan Greenspan, whom McCain once famously said that if he died, he put sun glasses on him and do the Weekend and Bernie’s thing, and Phil Gramm, who spent his career making wall street safe for scam artists.
They are numbers one and two on the “who f%&$ed Wall Street up” hit parade.
We are not talking Chinese toys, or Mexican lettuce, we are talking about “Anglo-Saxon” financial products.
Increasingly the rest of the world is looking at the US and UK system of regulation, more accurately a system of no regulation, and seeing the downside, and becomind disenchanted with the US-UK model.
Henry Farrel cites articles by Wolfgang Münchau, and Steve Clemons about the change in attitude.
They both make the point that this is an ongoing, and IMHO accelerating, loss of power for the US, though Münchau is rather more stark, first because he has been an unabashed fan of what I call US style klepto-capitalism, but also because of his the points that me makes:
What happens when your bank starts demanding Euro denominated mortgages?
The first two bits are easy to understand, New home sales are the lowest since 1995, which matches with the horrid existing home sales data that I posted yeaterday, and Factory orders fell off a cliff in February.
First, things are simply getting even weirder in the never-dull world of monoliner insurers, with the Federal Home Loan Banking looking at offering bond insurance for municipal infrastructure project bonds.
It’s a dull, but very profitable racket, because there has been some sort of freaky deal between the monoliners and the rating agencies for years that has them offering artificially low ratings to muni bonds, which pretty much forces said governmental agencies to buy bond insurance.
If it works, it kills the monoliners, because this business is the only thing keeping them afloat on a sea of collateralized debt obligations (CDO).
Additionally, we have monoliner insurer FGIC notifying regulators that due to some “dodgy” dept that it is ensuring, that it is insolvent under New York State law, “FGIC in notes to its consolidated financial statements said it plans to submit a plan to the New York superintendent to reduce its risk. FGIC also said it has voluntarily ceased writing new business to preserve capital.”
This means that, theoretically at least, regulators could seize the FGIC, though they are in litigation with the borrower of the aforementioned debt, and they are filing a recovery plan.
Paul Kurgman notes that the actuarial numbers for Social are better now than they were 15 years ago.
And that’s with the Social Security board being populated by Bush’s Evil Minions&trade, who are being as alarmist as they can.
Yes, Secretary Paulson is saying that we need to take immediate action to “fix” Social Security.
They are, of course, using the word “fix” much in the same way that my veteranarian does.
We are (run around and scream like a little girl) about 41 years from insolvency! Ten years ago we were 42 years from insolvency! Think about what this means?
Ummmm…that in 410 years we will be down to zero years? But what do I know about math…I’m an engineer.
I think that the earnings cap should be removed and a portion of the amount collected needs to be diverted to medicare, where there is a problem, but my main reason for wanting the cap raised is the same is Warren Buffett. We both find it completely absurd that his secretary pays more of her salary in taxes than he does.
The Republicans want to kill Social Security. There is no crisis, and it does not need to be fixed, but it is a Federal program, it does not kill people, and it helps ordinary people, so they hate it for philosophical reasons.
The response to Republican attempts to kill Social Security should be, “Over the Elephant’s dead rotting body”.
It appears the deal for private equity firms Thomas H. Lee Partners LP and Bain Capital Partners LLC to take Clear Channel Communications’ Private is in the process of imploding.
The banks that are supposed to back the deal, “Citigroup Inc., Morgan Stanley, Deutsche Bank AG, Credit Suisse Group, Royal Bank of Scotland PLC and Wachovia Corp”, appear willing to eat the termination fees, and the private equity firms aren’t to interested in going forward either.
The only folks looking eagerly toward closing the deal are the founders, the Mays family.
The article describes the process as, “The negotiations have turned into a bizarre “kabuki” dance, said one person familiar with the situation. To protect against litigation, neither the private-equity firms nor the banks want to leave any doubt that they are committed to closing the deal. But their public actions have little to do with what’s going on in private, say a number of people involved in the matter.”
Basically, the first person to blink gets sued.
The deal is supposed to be for $19 billion, and a breakup fee is likely to be around $600 million, and if the banks repackage and resell the loan, which they really have to do, they are saying that it would have to be at around a 15% discount, which seems to me with my imperfect non-MBA math to show that it is cheaper to back out.
I wish that there was a way for all of them, particularly the Mays family, the creator of the cancer of the airwaves, Clear Channel, to lose.
Video below:
Well, we have the WaPo reporting on the increased share price, and calling it “a good deal” since the stock was selling for $70 two weeks ago.
Then again, you have a noted stock analyst saying that the true cost, which includes all the debts owed, will be close to $65/share, and you have Market Watch reporter Greg Robb calling the Fed and JP Morgan’s actions putting lipstick on a pig.
People are not feeling confident right now, Conference Board’s consumer confidence index fell to 64.5, and the expectations index fell to 47.9, the latter being the lowest since December 1973.
Not surprisingly, the dollar is down as a result, though the fact that the Federal Reserve continues to run those printing presses like they were making toilet paper for rancid burrito day may have contributed.
In real estate, Freddie is seeing mortgage delinquencies increasing.
We are also seeing an explosion in payday loans, which means people are being abused by the system just as Bear shareholders are getting a freebie courtesy of the Federal Reserve.