The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Wryly amusing:

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Hat tip Bradman!

via XKCD

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And — Are you kidding me? — its frickin’ snowing in NY . . .

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Yes, its the final mile, the last chapter, the time nearing when we tear the book from the author’s hands whether its ready or not.

While I am slaving away on this, what am I missing? What exciting stuff is going on — monetarily, market-wise, economically, politically — what is capturing your attention

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What say ye?

Your Quote of the Day:

The human mind cannot grasp the causes of phenomena in the aggregate. But the need to find these causes is inherent in man’s soul. And the human intellect, without investigating the multiplicity and complexity of the conditions of phenomena, any one of which taken separately may seem to be the cause, snatches at the first, the most intelligible approximation to a cause, and says: “This is the cause!”

-Leo Tolstoy
War and Peace
Book IV, Part 2, Chapter 1, first paragraph

The AIG bonus hearings on executive compensation the current “bonus bill” is a sideshow that avoids addressing the lack of enforcement of existing law.

To the layman it appears, had the law (below) been enforced, we would get to the root of the problem. Of course Congress has no interest in reducing the lobbying dollars they can collect from firms that rely on those TARP dollars. They would rather pretend to be ineffective populists than effective legislators and responsible public servants.

Doesn’t anyone feel that we could get more accomplished if we enforced the following law?

§ 1352. Limitation on use of appropriated funds to influence certain Federal contracting and financial transactions

continued below

Read the rest of this entry »

click for video

via Forbes

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Previously
Wait a Second, Monkey Boy . . . (March 14th, 2009)

http://www.ritholtz.com/blog/2009/03/monkey-theory-of-investing/

Sources:
Intelligent Investing with Steve Forbes
Forbes, March 6, 2009

http://www.forbes.com/2009/03/13/barry-ritholtz-recession-intelligent-investing-video.html

Transcript

http://images.forbes.com/media/pdfs/2009/ii/Ritholtz_Briefing_Book.pdf

With B52 Ben carpet bombing us with more money and credit (are there any bombs left?) from his new suped up plane, turbo charged by the US Bureau of Engraving and Printing (didn’t his mother teach him that patience is a virtue and price fixing is against the law), it begs and screams the question of what would our Founding Fathers think of what’s going on in our country right now:

What would they think of the Fed?

Of the influence of Congress?

Of earmarks?

Of Keynesian economics?

Of FNM, FRE, AIG and Citi?

Of our tax code and its use of it?

Of our country being run by politicians and bureaucrats instead of the private sector which the US Constitution was supposed to protect?

Of buying a home with no money down?

Of gold at $900+ and the treatment of the sacred US dollar?

Of the SEC, OTS, FDIC, FTC, FHFA, and OCC?

Of steroids in baseball?

Sorry for the digression. Jobless Claims at 8:30, Leading Economic Indicators and the Philly Fed are out at 10:00.

Dan Greenhaus is at the Equity Strategy Group at Miller Tabak + Co. where he covers markets and portfolio theory. He has contributed several chapters to Investing From the Top Down: A Macro Approach to Capital Markets (by Anthony Crescenzi).

This is his most recent commentary:

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Suspending Mark to Market Remains Unlikely
Decreasing transparency has never, and will never, be the answer
MARCH 18, 2009

I will reserve comment about the proposed changes/amendments/guidance regarding FAS 157 until such adjustments are implemented, but I wanted to make a few quick observations regarding FAS 157 and related topics:

To begin with, FAS 157 does not establish the concept of fair value accounting. Companies have been
reporting assets at fair value for years. What FAS 157 did was establish an outline for how companies
should value assets through the Level 1, 2, 3 system with Level 1 assets being the most accurately valued and Level 3 being the least accurate, the so called “mark to model” assets. Suspending that system would, in my mind, unquestionably increase market uncertainty by increasing management input with respect to the valuing of assets. How in the world anyone thinks reducing transparency, which is absolutely what would occur, is a good idea is beyond my understanding. I do not subscribe to the belief that the perceived lack of transparency now, the effect of distressed markets, excuses further reductions in transparency by removing the guidelines, outlines and disclosure requirements as laid out in FAS 157.

Secondly, I also do not subscribe to the belief that somehow these assets are not being priced to their “true” value. While there is certainly some temporary impairment due to market volatility and perhaps some underpricing relative to hold-to-maturity value as we believe it to be today, the fact remains that an asset trading at a significant discount to its true value would attract buyers in larger numbers than we’re seeing. The truth is that these assets are not seeing the interest they otherwise might be for a variety of reasons, not the least of which is that the “true” value of these assets are in contention right now. Could the value be higher than, say, 30 or 40 or 50 cents on the dollar? Sure. But I don’t know that and with high levels of macroeconomic uncertainty hanging over our heads, I believe that many market participants are staying away for fear of incurring losses on these positions.

Read the rest of this entry »

Oh, this is going to get the Sith Lords all hot & bothered!

Both the WSJ and Bloomberg have articles this morning about Naked Shorting. The Bloomberg article more explicitly suggests that Lehman was “brought down,” in part, by naked shorting:

Naked Short Sales Hint Fraud in Bringing Down Lehman

“The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts.

As Lehman Brothers Holdings Inc. struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30. The SEC has linked such so-called fails-to-deliver to naked short selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn’t settle within three days.”

This is one of those things that is easy to allege, hard to disprove, has coincidental supporting data, and provides just enough plausability to make people forget (albeit temporarily) the cold hard facts of the day.

If I were at Bloomberg, here is how I would have written this article:

Over-Leverage, Under-Capitalization Brings Down Lehman (Update)

“The biggest bankruptcy in history might have been avoided if Wall Street had been sufficiently capitalized, used only moderate leverage, and avoided making false assumptions in their econometric models.

As Lehman Brothers Holdings struggled to survive last year, it was using as much as 40 to 1 leverage to purchase AAA securities that turned out to be no where near as safe as the triple A ratings assigned to it by Moody’s and S&P made them appear. Lehman, the second largest securitizer and trader of mortgage backed securities behind the also defunct Bear Stearns.

Wall Street continued practicing one of its darkest arts — the over rating of securities, bonds and derivatives — by self-interested parties in exchange for fees. In the 1999-2000 tech boom, the analyst community vastly over rated stocks with “Buy” and “Strong Buy” ratings. Sell wa hardly in their vocabulary. These were mostly profitless “dot com” companies built on the merest of concepts. The underwriting fees were substantial, however, and the analysts firms were well paid via large syndicate and IPO banking fees.

The same conflict of interests remained on the Wall Street, even after the dot com collapse. This time around, it was the ratings agencies — Moody’s, S&P, and Fitch — that slapped triple A grades on paper that turned out to be junk in exchange for huge fees from the underwriters.

The SEC has yet to seriously investigate how and why so many triple A rated issuances have collapsed and failed. These highly rated papers are linked to “payola” ratings, a practice that involved Ratings Agencies selling their highest seal of approval in exchange for large fees.”

When we were short Lehman at the time, from $30 and higher — it was an easy borrow, and there was no need for anyone to short naked. That was not why they went bankrupt.

My biggest regret about Lehman Brothers — aside from all the unfortunate souls who lost their jobs when the company imploded — was that I lacked the cojones to buy a big slug of Puts when we went short . . . They seemed kinda pricey at the time.

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Previously:
Financial Sector: Beware LEH, CIT (June 3rd, 2008)

http://www.ritholtz.com/blog/2008/06/financial-sector-beware-leh-cit/

Gasparino vs Einhorn, Kohn & Ritholtz (June 5th, 2008)

http://www.ritholtz.com/blog/2008/06/gasparino-vs-einhorn-kohn-ritholtz/

Source:
Naked Short Sales Hint Fraud in Bringing Down Lehman
Gary Matsumoto
Bloomberg,
March 19 2009

http://www.bloomberg.com/apps/news?pid=20601109&sid=aB1jlqmFOTCA&

Naked Short Sales Provoke Complaints but No Cases
KARA SCANNELL
WSJ, March 19 2009

http://online.wsj.com/article/SB123742141942278703.html