By popular request, this thread is a place to post weekend observations and have discussions with others on wide-ranging topics.
Merrill on September CPI
3 hours ago
World View & Market Commentary.
Forest first; Trees second.
Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.
Today's flash smash comes courtesy of microcap company LiveDeal (Nasdaq: LIVE, market cap around $3 MM) where thanks to a rogue (presumably - there are no news in the name) algorithm the stock shoots up from an opening price of $4.79 all that way to $22.25 in about one minute: a gain of 365%, which is too rich even for KKR's new prop group. And no, this is not a fat finger as the QR screen below shows: the algo was busted enough to lift every single offer in a row - there were virtually no downticks for the span of over 15 seconds. The result: 1,679 shorts end up with an almost 400% loss (one of the benefits of unlimited downside shorting). And as the stock has very little liquidity it is very likely that assorted brokers took matters into their own hands and force covered all those who were underwater and losing substantially. And the cherry on top: not a single trade has been busted. In other words, exchanges are more than happy to unwind trades immediately when an algo loses money, but when an algo creates thousands of forced buy ins and retail investors are left with huge losses, then no luck on the DK. What is scariest is that HFT has now gone microcap: with Apple, Amazon, BofA and Netflix bled dry, it is about time the robotic scalping crew found new pastures.
Oct. 21 (Bloomberg) -- The Federal Reserve Bank of New York’s effort to recover taxpayer money used in bailouts during the crisis may be at odds with its mission to ensure the stability of the financial system.
The New York Fed, which acquired mortgage debt in the 2008 rescues of Bear Stearns Cos. and American International Group Inc., joined a bondholder group including Pacific Investment Management Co. that aims to force Bank of America Corp. to buy back some bad home loans packaged into $47 billion of securities, people familiar with the matter said this week.
Concern that Bank of America may be forced to buy back soured mortgages helped send its stock down almost 5 percent in the last two days, wiping out $5.92 billion of its market value. The decline runs counter to the Fed’s goal of strengthening the banking system after the worst crisis since the Great Depression.
“This is an inherent conflict,” said former Atlanta Fed research director Robert Eisenbeis, now chief monetary economist at Cumberland Advisors Inc. in Sarasota, Florida. “They’re transferring the loss from what would have been Bear Stearns through the Fed to the originators of the mortgages. That’s an odd chain, and I don’t know how you manage that.”
…The Fed has no choice except to shield the assets it acquired as it stepped in to prevent a collapse of the financial system, said Joseph Mason, a finance professor at Louisiana State University in Baton Rouge.
“The New York Fed is, acting along with other institutional holders, trying to preserve the value of their securities holdings,” Mason said. “To act otherwise would be inappropriate and would be viewed as a waste of the government’s money that was invested in this bailout.”
A big 13,000 upward revision to the prior week more than cuts in half the 23,000 decline in initial jobless claims for the October 16 week. Still, the results are positive with the four-week average down 4,250 to 458,000, more than 6,000 below the month-ago comparison for its lowest level since July.
Continuing claims are at their lowest level of the recovery, down 9,000 in data for the October 9 week for a four-week average of 4.478 million. Improvement here reflects new hiring and, unfortunately, the expiration of benefits as workers fall out of the insured pool. The unemployment rate for insured workers is unchanged at 3.5 percent.
Today's data are free of distortions and point to incremental improvement in the labor market. There was no initial reaction to the results.
Purchase applications fell steeply for a second straight week, down 6.7 percent in the October 15 week following an 8.5 percent drop in the prior week. The declines point to new trouble for the housing market where indications had finally started to stabilize. Refinancing applications swung 11.2 percent lower following the prior week's 21.0 percent jump. Rates popped back up in the week, 13 basis points higher for 30-year fixed mortgages to an average 4.34 percent.
Third-quarter profits fell 67% from a year ago, Morgan Stanley (MS) said Wednesday morning. The culprit: weak volume in the trading businesses that only a year ago were fueling Wall Street's resurgence.
Morgan Stanley made $313 million, or 5 cents a share, from continuing operations for the quarter ended Sept. 30. That compares with a year-ago profit of $936 million, or 50 cents a share. Revenue tumbled 20% from a year ago, to $6.8 billion.
Even that modest profit was bolstered by a tax gain, without which the firm would have lost 7 cents a share for the latest quarter.
Analysts surveyed by Thomson Financial were looking for a 15-cent profit at Morgan Stanley. But Wall Street's profit expectations for Morgan Stanley and Goldman Sachs (GS), which reported a 40% earnings decline Tuesday, have been falling sharply for about three months.
NEW YORK (CNNMoney.com) -- Wells Fargo reported its highest quarterly profit ever Wednesday, and said its "sound and accurate" practices meant it does not need a freeze on foreclosures.
Third-quarter earnings for the bank came in at $3.34 billion, or 60 cents per share, compared to $3.24 billion, or 56 cents, a year earlier.
… In its release, the bank reiterated that it has no plans to institute a foreclosure moratorium because its "practices, procedures and documentation" in its housing business are sound.
Osborne Deficit Cuts to Slash Jobs, Levy Banks, Curb Debt Costs
(Bloomberg) -- Chancellor of the Exchequer George Osborne detailed the deepest budget cuts ever in Britain, eliminating 500,000 public-sector jobs and imposing a levy on banks to extract the “maximum sustainable” revenue.
“Today’s the day when Britain steps back from the brink,” Osborne told lawmakers in the House of Commons in London today as he outlined plans to virtually eliminate a 156 billion-pound ($245 billion) budget deficit. It’s “a day of rebuilding when we set out a four-year plan to put our public services and welfare state on a sustainable footing.”
Housing starts surprised on the upside while permits went in the other direction. Importantly, the single-family component is the one showing unexpected modest strength. Housing starts in September rose 0.3 percent after jumping 10.5 percent the prior month. The September annualized pace of 0.610 million units came in significantly above the market forecast for 0.580 million units and is up 4.1 percent on a year-ago basis. The boost in September was led by a 4.4 percent gain in single-family starts, following a 1.4 percent rise in August. The multifamily component dropped 9.7 percent after spiking 42.3 percent in August.
Permits fell back in the latest month, declining 5.6 percent after rebounding 2.1 percent in August. Weakness was in the multifamily component as single-family permits edged up in the latest month. Overall permits came in at an annualized rate of 0.539 million units and are down 10.9 percent on a year-ago basis.
Today's report indicates that housing may have hit its post-tax credits bottom. The multifamily component for starts has been a lot more volatile than usual but the single-family component is somewhat encouraging with two consecutive monthly gains. However, the level remains quite weak.
Geithner: U.S. will not engage in dollar devaluation
(Reuters) - U.S. Treasury Secretary Timothy Geithner on Monday sought to ease fears the United States was actively weakening the dollar to gain an export edge, saying no country could devalue its way to health.
"It is not going to happen in this country." Geithner said of dollar devaluation to Silicon Valley business leaders here.
"It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to (be) competitive," Geithner added. "It is not a viable, feasible strategy and we will not engage in it."
Geithner broke his silence on the dollar's slide in recent weeks as the Federal Reserve considers more monetary easing. In response to audience questions from the Commonwealth Club of California, he said the United States needed to "work hard to preserve confidence in the strong dollar."
Housing mess: You can't stay if you don't pay
NEW YORK (CNNMoney.com) -- Just because a lender screwed up your foreclosure paperwork doesn't mean that you get to stay in your house for free.
Of course, plenty of enterprising lawyers will try to tell distraught homeowners otherwise.
But the best that most delinquent borrowers can hope for is that the current flap over foreclosure documents will prompt financial institutions to grant more affordable loan modifications, experts said.
Even if the banks didn't have the paperwork required to foreclose, "that doesn't mean you'll get a free house at the end of the day," said Ira Rheingold, head of the National Association of Consumer Advocates. "There is no panacea here."
… Meanwhile, lots of lawyers are trying to capitalize on the confusion by promoting their foreclosure rescue services to troubled borrowers. But homeowners should beware of scams, Rheingold said, because if you can't make your payments, they ultimately can't help you.
Industrial production was disappointing in September, declining 0.2 percent, following a 0.2 percent gain in August. The September decrease came in notably below analysts' median projection for a 0.2 percent advance.
By major components, manufacturing dipped 0.2 percent after a 0.1 uptick in August. Assemblies of motor vehicles & parts, however, provided some lift, rebounding 0.5 percent, following a 6.3 percent drop in August. Excluding motor vehicles, manufacturing posted a 0.2 percent decline in September, following a 0.5 percent boost the prior month.
For other major industry groups, utilities output dropped 1.9 percent while mining gained 0.7 percent.
Capacity utilization edged lower to 74.7 percent from 74.8 percent in August. Analysts had expected 74.8 percent for the latest month.
The latest production numbers show manufacturing to be on the weak side. However, that may be temporary as a weaker dollar will likely boost exports. Also, the latest Empire State manufacturing survey for October was notably more positive. And durable goods orders excluding transportation picked up recently.
'The Liars and Thieves Are Moving Ahead in This Country'
By Michael J. Panzner
I've lived though more than five decades thinking that people are basically decent but after all that has happened and the many facts that have come to light in recent years, I guess I'm pretty naive.
Indeed, a post by Charles Hugh Smith, author of Survival+: Structuring Prosperity for Yourself and the Nation and publisher of the Of Two Minds blog, entitled "The Rot Within: Our Culture of Financial Fraud and the Anger of the Honest," features commentary by an accountant with decades of experience in high-level global consulting firms and Fortune 50 U.S. corporations that suggests things have truly reached a low point."I belong to a large number of finance organizations and sometimes I even assist clients with hiring a finance person. Since I have a lot of experience with finance and accounting, when I am interviewing these people I know when I am getting a BS answer and unlike most BS recruiters I do not steer away from controversy since I am truly looking for the most qualified for my clients and not who is just most marketable to them. After I start drilling down you would be amazed (or maybe you wouldn’t) how many of these CFO’s and Controller types were basically dismissed because they would not cook the books in some manner.
Now maybe I have told you that I was asked to resign from one of the nations largest companies (a company that I worked hard for and saved from bankruptcy and due to my actions had created) in the US because I refused to book a revenue entry for over a million dollars which was unsupported and the CFO (I had been the CFO up until a merger) blew up with me when I asked him to send a memo telling me to record it. Funny, a few years and one acquisition later it melted down as one of the biggest accounting frauds in US history.
My next gig as the CFO for a NYSE company I basically walked in and found what I would consider a $60 million dollar accounting fraud in one day (once again a mark to market issue draining cash flow and sucking the company into a dark hole). Corrected that accounting problem and the company began to prosper but since I thought the board and upper management was so corrupt I left (Chairman of the Audit Committee was found guilty at another large company for back dating options).
The next public company where not only was I the CFO but prior to that a board member, I was basically asked to resign for BS reasons a couple of weeks later after I pointed out what the board was asking me to do was basically wire fraud and of course they backed off quickly and said they would get a legal opinion from our law firm (one of the top 10 in the US) to cover me. In the same meeting our outside legal counsel said he had a problem giving such an opinion and I pointed out that a legal opinion did not keep me from being both civil and criminally liable. It should be noted that this was another company that 2 years before I came in and took the reins as CFO/COO and pulled the company out of black hole of looming bankruptcy and made it profitable in the first time in its history since it went public and then refinanced the company. In summary a year after I left the company had burned through the money I raised and the Board sold the company for nothing.
There is lots of bitterness out there with the straight shooting finance people. Many of them find themselves unemployable. This stretches from banks, Private Equity, Investment Banking, through the large accounting firms (the average partner in the large accounting firms any more is a pathological liar) to senior finance people in organizations. Right before Enron and MCI blew-up, I actually had a BS HR person tell me I was not flexible enough. I wanted to tell this idiot that I knew where flexibility got me and it was an orange jumpsuit. Bankers and Companies only hire the weakest and most pliable senior finance executives they can find.
One other short story. A while back I was at a networking meeting with a large group of CFO and ex-CFO’s. I asked this group how many thought that most CEO’s wanted a weak CFO working for them. Approximately 70% of the attendees raised their hand! You have to remember that the only person who had steady access to the Board is the CFO.
The point, the middle class is becoming torn and frayed and there is real anger out there. The common belief is that only the liars and thieves are moving ahead in this country."
Michael J. Panzner is a 25-year veteran of the global stock, bond, and currency markets who has worked in New York and London for such leading companies as HSBC, Soros Funds, ABN Amro, Dresdner Bank, and J.P. Morgan Chase. He is the author of When Giants Fall: An Economic Roadmap for the End of the American Era, Financial Armageddon: Protecting Your Future from Four Impending Catastrophes, and The New Laws of the Stock Market Jungle: An Insider’s Guide to Successful Investing in a Changing World. He has also been a columnist at TheStreet.com’s RealMoney paid-subscription service and a contributor to AOL’s BloggingStocks.com. Panzner has appeared on or been quoted by CNBC, Bloomberg, The Wall Street Journal, USA Today, Barron's, Reuters, CNN, MarketWatch, BusinessWeek Online, TheStreet.com, Slate, CFO.com, and other print, radio and television outlets. His articles have appeared in Buyside, Stocks, Futures & Options, Management Review, and Business Credit. He is a New York Institute of Finance faculty member specializing in Equities, Trading, Global Capital Markets and Technical Analysis and is a graduate of Columbia University. He regularly speaks to a diverse range of audiences, from small groups of individuals with little specialized knowledge about money matters to gatherings of the world’s top financial professionals, on a variety of economic, business, and investment-related themes.