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

Pretty cool application of Google Maps to the current outbreak:

US

Europe

via Google

This AM I was on CNBC discussing the banks with Paul Miller of FBR.  Paul is a first rate analysts, IMHO.

I suggested that the big banks should not be allowed to repay TARP equity to long as the government is guaranteeing their debt. That is, if a bank wants to repay TARP capital, they must end the use of debt guarantees AND be able to refinance all guaranteed debt before the TARP capital is repaid.  Link below:

We will develop this further.  Look forward to your comments.

Best,

Christopher Whalen
Managing Director
Office: 914-827-9272
www.institutionalriskanalytics.com

Pretty neat idea .  . . twittering stock charts:

Chart.ly Intro from timtv on Vimeo.

Brian over at Alpha Trends posts this terrific technical chart of the 1929-32 Rallies. These are more than mere bear market rallies — these are Depression Rallies!

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Historical perspective of bear market rallies

“I don’t think that Tim Geithner was motivated by anything other than concern to get the financial system working again. But I think that mindsets can be shaped by people you associate with, and you come to think that what’s good for Wall Street is good for America . . . [This] led to a bailout that was designed to try to get a lot of money to Wall Street, to share the largesse with other market participants, but that had deeply obvious flaws in that it put at risk the American taxpayer unnecessarily.”

-Joseph E. Stiglitz, Nobel-winning economist at Columbia

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There is a huge, 5,000 word, front page article in the NYT today on Treasury Secretary Timothy F. Geithner. The article on the former president of the New York Federal Reserve Bank is your required reading today.

You may note that many of the media’s most knowledgeable banking experts are not quoted in the piece;  (Though a few of them will be discussing the foibles of our banking system at our TBP conference in June)

Now for a little inside baseball stuff:   I cannot say for sure, but I have a sneaking feeling that several analysts were the ones who helped build the case against Geithner.  Note the extensive usage of the former NY Fed Prez’ schedule in the online version of the article.

I also have to point out the Stiglitz quote above.  The assumption referenced by the Columbia Prof and Nobel winner, is that the unusually close relationship between Geithner when he was NY Fed President and the C-level execs of Wall Street’s giant financial institutions has put him in the mindset of Wall Street, and not the taxpayers. That was my very same argument about Larry Summers earlier this month.

This is a huge piece, one that I imagine was over 3 months in the making. It appears to have been painstakingly assembled. One would hazard a guess that a few smart banking analysts would be helpful to any writer who was putting together such missive as to the foibles of the Tres Secy.

Go read it . . . !

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Previously:
Larry Summers: Wrong Man for the Job (April 4, 2009)

http://www.ritholtz.com/blog/2009/04/summers/

Stiglitz: Blame Summers (April 17th, 2009)

http://www.ritholtz.com/blog/2009/04/stiglitz-blame-summers/

Sources:
Geithner Forged Close Ties to Finance Club
JO BECKER and GRETCHEN MORGENSON
NYT, April 26, 2009

http://www.nytimes.com/2009/04/27/business/27geithner.html

Geithner’s Calendar at the New York Fed

http://documents.nytimes.com/geithner-schedule-new-york-fed#p=1http://www.nytimes.com/2009/04/27/business/27geithner.html

Geithner Calendar PDF

http://graphics8.nytimes.com/packages/images/nytint/docs/geithner-schedule-new-york-fed/original.pdf

As if the global economy, let alone the world itself, needed another thing to worry about, swine flu comes along. Having lived through the experience of SARS 6 years ago, the Hang Seng and Shanghai stock markets were hard hit. Economically sensitive commodities such as crude and copper are also weak.

The Mexican peso is having its biggest one day decline vs the US$ since Oct 22nd also in response as businesses where people congregate temporarily close. Most global bond markets are the sole beneficiary of the nervousness.

May German consumer confidence was a touch better than expected but the Euro is lower as two ECB members over the weekend said they will support another rate cut next week. The only question over the next few months is if they stop at 1% or not from 1.25% now. Earnings, auto restructurings, bank stress test capital raises and US Treasury supply will again be the focus this week.

“Regulators are supposed to tell you to obey the law, not to disobey the law. If you’re the CEO, your first obligation is not to your regulator, it’s to your institution and shareholders.”

-Jonathan R. Macey, deputy dean of Yale Law School

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I have not commented on the allegations by Bank of America CEO Ken Lewis that he was forced into making a disastrous acquisition of Merrill Lynch.

Why? Because they appeared to me be utter and shameless nonsense, an attempt to worm out of responsibility.  Indeed, the very statements by Bank of America CEO Ken Lewis appeared to be excuse-making for a lousy acquisition (which Bof A has quite the history of). Its the sort of weasely responsibility evading CEO speak we have come to expect these days. To be blunt, I was astonished anyone took them very seriously.

Yet they were taken seriously, by quite a few people — including a huge front page Wall Street Journal article. The mere accusation means that we are likely to see former Treasury Secretary Hank Paulson — a major cause of the credit crisis and a horrific bailout steward — up for a major grilling in Congress.

This morning, in the same WSJ venue, we learn that many of the statements Ken Lewis made under oath were directly contradicted by former Merrill CEO John Thain (but not under oath). Thain claims these understandings were in in writing.

One of these  two CEOs is lying, and if its the guy who was doing so in sworn testimony, he may have a very big problem on his hands.

Read the rest of this entry »

I am pleased to direct your attention to the Think Tank this morning, where you can find Wall Street veteran Bill King’s missive.

Bill is a Wall Street veteran who has been watching the Street of dreams (and occasional nightmares) for over 35 years.

Bill’s background is in institutional equity, proprietary and derivatives trading. He has a unique perspective on market conditions. You will find his observations quite candid — this is not the usual garden variety tripe issued by the financial media and Wall Street. The King Report refutes the conventional rant about Wall Street activity, and articulates the real factors and impetuses that drive market activity.

Be sure to check it out . . .

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Today – SPMs are down 14.60 in Sunday night trading because Obama’s chief economic adviser, Larry Summers, asserted while appearing on Fox News Sunday, that the economic freefall is over but, “I expect the economy will continue to decline… [with] sharp declines in employment for quite some time this year.” (Reuters)

• “The anticipation over the white paper appears to be much ado about nothing,” said Josh
Rosner…“The most significant numbers provided by the Fed in the paper appear to be the page
numbers.”…
• “A lot of triple talk,” said Jim Glickenhaus… “I think they’re going to say while things are bad, the end is not at hand. Maybe.”
• “The question I have, by using fourth-quarter numbers, is this skewed positively?” said Lawrence Kaplan, an attorney with Paul Hastings, who served as a senior attorney in the chief counsel’s office at the Office of Thrift Supervision. “Because January and February were pretty lousy, and as a result that’s when it hit the fan.” (Bloomberg)

As most people guessed, the ‘stress test’ is an innocuous exercise based on rosy economic projections. Besides, why is a ‘stress test’ needed when there are already three agencies (Fed, FDIC, OCC) that apply metrics to measure banks’ solvency and financial condition?

A major problem with the ‘stress test’ is it depends on modeling and it’s the precise practice responsible for much of this economic and financial mess. It’s extraordinary that so many people believe that the Fed and Treasury, after missing the financial disaster, housing debacle, recession and derivative implosion, can now extrapolate economic conditions and resultant financial affects from its models. How did all that rocket-science modeling for subprime defaults and securitization workout? Yet many people already forget or ignore this reality.

Here’s another reality that most investors are missing – banks must raise more capital. So who’s the patsy in recent days that has been driving financial stocks higher? The FT: Fed will seek bank capital increase. Some of the country’s biggest banks will be asked to raise more capital by US authorities following the completion of bank stress tests, senior Federal Reserve officials said on Friday. (Financial Times)
Banks May Need $1 Trillion After U.S. Tests, KBW Says (Bloomberg)

What few analysts realize is that economic ‘muddling’, the best case scenario for the next two years, gives no relief to an economy burdened with record debt. If you lose a high paying job and you are struggling to pay your debts, you will not suddenly be able to pay your debt with a job a Wal-Mart.

What analysts should do is quantify the US private and public sector debt load and then extrapolate the needed income and GDP to service the debt. And then they should calculate how much debt will implode with little or no income and GDP growth.

The ‘real budget deficit’, “Treasury Gross Public Debt”, is now $1.85 Trillion (Barron’s p. M70).

The most disturbing aspect of the current scheme to manipulate markets, economic data and industrial data into something benign enough to increase consumer confidence and reinflate assets is that it is the precise scheme that Easy Al and others perpetrated over many years. And it created the current mess.

Solons again are trying to inflate assets to a level that is a huge disconnect with economic reality in
the misguided belief that they can paper over structural US economic problems and fostering
‘confidence through asset bubbles’ that will translate into economic activity. We are back to square one in ‘the new economy’ gambit.

And because we are back to square one in ‘the new economy’ of inflating assets to paper over problems, the markets are diving back into inflation mode. Commodities are soaring; bonds are struggling even with Fed support and the dollar is finally buckling.

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Bill King is a Wall Street veteran with 35 years of institutional equity, proprietary and derivatives trading experience, giving him a unique perspective on current market conditions and forecast. As author of The King Report, Bill’s candid observations and forecast on the economic, financial, and political forces that are impacting the markets is read by major institutions and hedge funds. However, this report is not the usual garden variety tripe that is issued by the financial media and Wall Street. Bill, in plain language, refutes conventional rant about Wall Street activity and articulates the real factors and impetuses that drive market activity. The inside world of Wall Street is far different than what is disseminated to the masses. Wall Street insiders seldom adorn their own portfolios or trading accounts with ‘recommended list’ issues.

To be filed under “Are you shitting me?”:

“Workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began, because of the strong start of the year for bank profits.

Even as the industry’s compensation has been put in the spotlight for being so high at a time when many banks have received taxpayer help, six of the biggest banks set aside over $36 billion in the first quarter to pay their employees, according to a review of financial statements.”

Astonishing . . .

click for larger chart

via NYT

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Source:
After Off Year, Wall Street Pay Is Bouncing Back
LOUISE STORY
NYT, April 25, 2009

http://www.nytimes.com/2009/04/26/business/26pay.html