29 June 2011
Huat Lai 1.98
Aeoncr 4.80
Lay Hong 1.98
CCk 0.81
Mflour 7.80
Scientx 2.70
Rexlot HKD 0.74
Wednesday, June 29, 2011
Friday, May 15, 2009
Intrigue over hedge fund bailout comments
Friday, May 15, 2009
http://themessthatgreenspanmade.blogspot.com/2009/05/intrigue-in-qatar-over-bailout-comments.html
An item included in the Friday morning links here earlier today, penned by blog-favorite Ambrose Evans-Pritchard, has become the hot topic du jour as it has been pulled by the Telegraph.
Titled "Buy-out chief accuses US over 'sham' bank bail-outs", it contained incendiary comments about the Treasury Department's bank bailout plan by Mark Patterson, chairman of buyout hedge fund MatlinPatterson Advisers.
MatlinPatterson Advisors apparently contacted the Telegraph, citing factual errors and other innacuracies, after which the story was taken down.
The original article is still available at the new uber-blog Zero Hedge for all to see in an important reminder that, once you post something on the internet, it really doesn't go away - if nothing else, you'll be able to retrieve it from Google since they cache just about everything these days.
Anyway, it's reproduced below, all highlights mine:
The US Treasury’s effort to stabilise the banking system through the TARP programme is a hopelessly ill-conceived policy that enriches speculators at public expense, according to the buy-out firm supposed to be pioneering the joint public-private bank rescues.There's lots more coverage at Zero Hedge and Naked Capitalism.
“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside,” said Mark Patterson, chairman of MatlinPatterson Advisers.
The comments are likely to infuriate Tim Geithner, the US Treasury Secretary, because MatlinPatterson took advantage of the TARP’s matching funds to buy Flagstar Bancorp in Michigan. His confession appears to validate concerns that the bail-out strategy is geared towards Wall Street.
Under the convoluted deal agreed earlier this year, MatlinPatterson has come to own 80pc of the shares while the US government has ended up with under 10pc.
Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable.
“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society,” he said, speaking at the Qatar Global Investment Forum.
Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. “At least the British are not hiding the bail-out,” he said.
MatlinPatterson said private equity and hedge funds were deluding themselves in hoping to go back to business as usual after the trauma of the last 18 months.
“This is not a normal recession and there will be no V-shaped recovery. The crisis has destroyed leveraged companies. We’re going to see a catastrophic increase in the number of LBO’s (leveraged buyouts) going into default because they’re knee-deep in debt and no solution exists since they can’t refinance,” he said.
“Alfa hedge funds have been making their money by gambling with excessive leverage, so the knife that cuts off leverage is going to cut off their heads as well,” he said.
Like many bears, Mr Patterson expects the great crunch to end in deliberate inflation, deemed a lesser evil than outright depression.
“The US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fed’s balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road,” he said.
Matlin Patterson, however, has missed the Spring rebound, the most powerful rise in equities in over 70 years. “We shorted the equity rally because we thought it was lunatic. We’ve kept adding positions seven times, and we’re still holding,” he said. Ouch!
Buyout Chief: “It’s a sham. The banks are insolvent”
Buyout Chief: “It’s a sham. The banks are insolvent”
Posted on 14 May 2009
It’s a rare thing when insiders speak their minds publicly against the powers-that-be. Today in a global investment conference held in Qatar, an insider accused the entire US bank bailout of being a “sham”, and said it publicly at a global conference of his peers. Meet Mark Patterson, chairman of MattlinPatterson advisers, a firm which utilized the TARP program’s ‘matching funds’ to buy Flagstar Bancorp in Michigan. Patterson certainly didn’t pull any punches in blasting US Treasury Secretary, Tim Geithner’s bailout as being a deeply flawed plan which will not only ultimately fail, but is enriching Wall Street insiders in the process.
The Telegraph UK reports:
Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable.
“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society,” he said, speaking at the Qatar Global Investment Forum.
Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. “At least the British are not hiding the bail-out,” he said.
Well said indeed, Mr. Patterson. We’d love to hear Mr. Geithner respond, but he’s off skipping through fields of green shoots, and worse yet, seems blissfully unaware that the US taxpayer is bearing most of the cost while seeing precious little of the upside. Perhaps when the last $100 billion of TARP funds has been magically transferred into private coffers, Mr. Geithner will make the hard choices we’re hoping for.
More from the Telegraph UK:
“This is not a normal recession and there will be no V-shaped recovery. The crisis has destroyed leveraged companies. We’re going to see a catastrophic increase in the number of LBO’s (leveraged buyouts) going into default because they’re knee-deep in debt and no solution exists since they can’t refinance,” he said.
“Alfa hedge funds have been making their money by gambling with excessive leverage, so the knife that cuts off leverage is going to cut off their heads as well,” he said.
Like many bears, Mr Patterson expects the great crunch to end in deliberate inflation, deemed a lesser evil than outright depression.
“The US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fed’s balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road,” he said.
We couldn’t agree more with Mr. Patterson, and he has our sympathies for exercising good judgment, but bad luck in choosing to short this rally from the start. As our colleague Tyler Durden at Zero Hedge once said, “Anyone with any common sense is losing money in this market”. Our only hope is that more insiders speak up like Mark Patterson did before the situation gets any worse than it already is.
Wednesday, May 13, 2009
Goodbye David Rosenberg
Thursday, May 7, 2009
Goodbye David Rosenberg
One of the few sane voices in the desert has left the (Merrill Lynch) building. David Rosenberg, on his way out, leaves everyone with an economist's dozen of rules to remember.
David, so long, and thanks for all the fish.
Rosie's rules to remember:
1) In order for an economic forecast to be relevant, it must be combined with a market call.
2) Never be a slave to the data – they are no substitute for astute observation of the big picture.
3) The consensus rarely gets it right and almost always errs on the side of optimism – except at the bottom.
4) Fall in love with your partner, not your forecast.
5) No two cycles are ever the same.
6) Never hide behind your model.
7) Always seek out corroborating evidence.
8) Have respect for what the markets are telling you.
9) Be constantly aware with your forecast horizon – many clients live in the short run.
10) Of all the market forecasters, Mr. Bond gets it right most often.
11) Highlight the risks to your forecasts.
12) Get the US consumer right and everything else will take care of itself.
13) Expansions are more fun than recessions (straight from Bob Farrell's quiver!). Sphere: Related Content
David, so long, and thanks for all the fish.
Rosie's rules to remember:
1) In order for an economic forecast to be relevant, it must be combined with a market call.
2) Never be a slave to the data – they are no substitute for astute observation of the big picture.
3) The consensus rarely gets it right and almost always errs on the side of optimism – except at the bottom.
4) Fall in love with your partner, not your forecast.
5) No two cycles are ever the same.
6) Never hide behind your model.
7) Always seek out corroborating evidence.
8) Have respect for what the markets are telling you.
9) Be constantly aware with your forecast horizon – many clients live in the short run.
10) Of all the market forecasters, Mr. Bond gets it right most often.
11) Highlight the risks to your forecasts.
12) Get the US consumer right and everything else will take care of itself.
13) Expansions are more fun than recessions (straight from Bob Farrell's quiver!). Sphere: Related Content
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Busy Day For REIT Analysts
Tuesday, April 28, 2009
Busy Day For REIT Analysts
Or at least for the ones that are still getting paid. Two more price target increases courtesy of Merrill Lynch, first SL Green, which "beat on one-time items", and second for AMB, which is "well positioned to weather the storm." With all the ML equity raises done on the past 3 weeks, aren't all REITs perfectly positioned to weather the storm? Oh wait, now that they will all survive post 2010, you will instead see a massive race to the bottom chasing the 3 retail tenants that have not gone bankrupt yet. About as smart as sneezing in the rush hour 6 train.
Who knows, maybe one can squeeze out a few last nickels out of this REIT rally.
Who knows, maybe one can squeeze out a few last nickels out of this REIT rally.
The Spin On -6% GDP
Wednesday, April 29, 2009
The Spin On -6% GDP
More sanity from David Rosenberg:
We have to keep an open mind and respect Mr. Market
There is an old adage that a market which does not respond bearishly to bearish news is clearly not a market in a bear phase. As financial economists, we have to keep an open mind and respect the verdict that is being turned in by Mr. Market as he continues to shrug off weak data and embrace whatever sprinkle of good news that can be gleaned from the incoming data releases.
Worst back-to-back GDP performance in 50 years
Indeed, the vast majority of economic data remain very soft even if treated by investors at this point as old news. Not only did 1Q real GDP contract sharply -- at a 6.1% annual rate versus consensus expectations of -4.6%, it followed on the heels of a 6.3% decline in the fourth quarter of 2008. That marks the worst back-to-back performance in 50 years.
A few reasons that the stock market is rallying on this news
1) The second derivative can only get better from here
The market believes that the back-to-back declines of 6%+ in real GDP is a cathartic event and that the 'second derivative' (i.e. change in the rate of growth) can only get better from here.
2) Investors like the knife companies took to inventories
Inventories were cut by $103.7B in 1Q and accounted for nearly half of the decline in real GDP last quarter. While demand was also soft, the view is that we entered the second quarter with an inventory/sales ratio that was quite a bit lower than many forecasts, including ours, and as such we should see a much 'less negative' 2Q print on real GDP. It is hard to argue with that point, and again, this is a market willing to trade off of 'second derivatives' in the economic data.
3) Government spending contraction, a one-off event
Government spending also contracted, mostly on defense, which subtracted 0.4 percentage points off of the headline GDP number. Again, a market that has been very selective in its interpretation of the data is viewing this drag as a one-off nonrecurring event.
4) Upside surprise to consumer spending
If there was an upside surprise in the data, it was consumer spending, which managed to post a 2.2% annualized advance. Many pundits are pointing to this as a sign of stabilization in the most critical segment of domestic demand. Then again, we know from the monthly retail sales data that the bulk of this first quarter growth took hold in January, which followed a record 30% annualized plunge as 2008 drew to a close.
We advise investors to view consumer rebound as a blip.
While most of the post-Lehman collapse in spending, output and credit supply is behind us, we would advise investors to view the consumer rebound in 1Q as 'noise' or a blip in what is still very likely going to be a secular (multi-year) downtrend. The process of liquidating debt and rebuilding depleted baby-boomer savings is barely one-third over (with a savings rate of barely more than 4% from 0.2% a year ago.).
Difficult to see recession ending anytime soon
So, we view the recovery in consumer spending that has the bulls rather excited as temporary and as we said, mostly reflecting a bounce in January. What we see in the data supporting the consumer in 1Q was a $193 billion (annualized) decline in tax payments by the household sector. Meanwhile, organic personal income (excl government benefits) contracted at a 5.9% annual rate (-$154 bln). In the absence of a recovery in wage and salary income, we think it will be very difficult to paint a picture of the recession coming to an end anytime soon.
Nominal GDP declines at a 3.5% annual rate
We must admit to being surprised at the bond market reaction as the yield on the 10-year note retests critical support around the 3% area, especially with NOMINAL GDP, which has the highest correlation with interest rates, in contraction phase. Nominal GDP declined at a 3.5% annual rate on top of a 5.8% slide in the fourth quarter of last year. This back-to-back slide dragged the year-on-year trend to -0.5% from +1.2% in 4Q and +4.7% a year ago.
As for equities, a client made a very key point to us this morning in the aftermath of the data. The left side of the V does not surprise anyone anymore -- it's a done deal. What investors will have to see for this market to reverse course is that the right side of the V will prove elusive and end up looking like an L, an elongated U or a series of W's.
We have to keep an open mind and respect Mr. Market
There is an old adage that a market which does not respond bearishly to bearish news is clearly not a market in a bear phase. As financial economists, we have to keep an open mind and respect the verdict that is being turned in by Mr. Market as he continues to shrug off weak data and embrace whatever sprinkle of good news that can be gleaned from the incoming data releases.
Worst back-to-back GDP performance in 50 years
Indeed, the vast majority of economic data remain very soft even if treated by investors at this point as old news. Not only did 1Q real GDP contract sharply -- at a 6.1% annual rate versus consensus expectations of -4.6%, it followed on the heels of a 6.3% decline in the fourth quarter of 2008. That marks the worst back-to-back performance in 50 years.
A few reasons that the stock market is rallying on this news
1) The second derivative can only get better from here
The market believes that the back-to-back declines of 6%+ in real GDP is a cathartic event and that the 'second derivative' (i.e. change in the rate of growth) can only get better from here.
2) Investors like the knife companies took to inventories
Inventories were cut by $103.7B in 1Q and accounted for nearly half of the decline in real GDP last quarter. While demand was also soft, the view is that we entered the second quarter with an inventory/sales ratio that was quite a bit lower than many forecasts, including ours, and as such we should see a much 'less negative' 2Q print on real GDP. It is hard to argue with that point, and again, this is a market willing to trade off of 'second derivatives' in the economic data.
3) Government spending contraction, a one-off event
Government spending also contracted, mostly on defense, which subtracted 0.4 percentage points off of the headline GDP number. Again, a market that has been very selective in its interpretation of the data is viewing this drag as a one-off nonrecurring event.
4) Upside surprise to consumer spending
If there was an upside surprise in the data, it was consumer spending, which managed to post a 2.2% annualized advance. Many pundits are pointing to this as a sign of stabilization in the most critical segment of domestic demand. Then again, we know from the monthly retail sales data that the bulk of this first quarter growth took hold in January, which followed a record 30% annualized plunge as 2008 drew to a close.
We advise investors to view consumer rebound as a blip.
While most of the post-Lehman collapse in spending, output and credit supply is behind us, we would advise investors to view the consumer rebound in 1Q as 'noise' or a blip in what is still very likely going to be a secular (multi-year) downtrend. The process of liquidating debt and rebuilding depleted baby-boomer savings is barely one-third over (with a savings rate of barely more than 4% from 0.2% a year ago.).
Difficult to see recession ending anytime soon
So, we view the recovery in consumer spending that has the bulls rather excited as temporary and as we said, mostly reflecting a bounce in January. What we see in the data supporting the consumer in 1Q was a $193 billion (annualized) decline in tax payments by the household sector. Meanwhile, organic personal income (excl government benefits) contracted at a 5.9% annual rate (-$154 bln). In the absence of a recovery in wage and salary income, we think it will be very difficult to paint a picture of the recession coming to an end anytime soon.
Nominal GDP declines at a 3.5% annual rate
We must admit to being surprised at the bond market reaction as the yield on the 10-year note retests critical support around the 3% area, especially with NOMINAL GDP, which has the highest correlation with interest rates, in contraction phase. Nominal GDP declined at a 3.5% annual rate on top of a 5.8% slide in the fourth quarter of last year. This back-to-back slide dragged the year-on-year trend to -0.5% from +1.2% in 4Q and +4.7% a year ago.
As for equities, a client made a very key point to us this morning in the aftermath of the data. The left side of the V does not surprise anyone anymore -- it's a done deal. What investors will have to see for this market to reverse course is that the right side of the V will prove elusive and end up looking like an L, an elongated U or a series of W's.
Are Fed And Markets On Same Page?
Wednesday, April 29, 2009
Are Fed And Markets On Same Page?
Last thoughts for today from D. Rosenberg. Furthermore, the fact that the WHO just raised the Black Swine pandemic to level 5 should force more SPY "deleveraging" compliments of JPM, DB and UBS. To paraphrase WHO chief Margaret Chan: "it really is all of humanity that is under threat in a pandemic."
Mr. Market is to be respected, but he is not always correct
We find it rather difficult to square today’s Fed press statement with the amazing reversal in investor sentiment towards euphoria over the past several weeks. The equity market is, as we all know, a forward-looking barometer, and now seems to have gone further than merely pricing in “green shoots”, to discounting the righthand side of the ‘V’. Mr. Market is to be respected, but he is not always correct.
Fed has a more somber forecast than Mr. Market
The Federal Reserve does possess the largest US macroeconomic model on the planet, and although the central bank acknowledged the obvious today (that “the pace of contraction appears to be somewhat slower”, which was hardly a resounding endorsement for the second-derivative viewpoint, in our view), it seems to have a much more somber forecast of the economy (that “economic activity is likely to remain weak for a time”) compared to Mr. Market.
Disconnect between Fed & market’s ability to sustain rally Although the “outlook has improved modestly since the March meeting”, the operative word is “modestly”. In addition, the “remain weak for a time” quote resonated with us even if the market has largely shrugged it off. The Fed certainly does not have a perfect forecasting track record , but let’s just say that there does appear to be a disconnect between the central bank’s choice of words to describe the economic backdrop and Mr. Market’s ability to sustain this vigorous rally.
Never in the past 60 years have prices dropped this much
As for Treasuries, the selloff continues unabated, and comes on a day when real GDP contracted at over a 6% annual rate with confirmation of a deflationary environment with the gross domestic purchase deflator (GDP deflator ex trade) declining at a 1% annual rate on top of a 3.9% annualized slide in the fourth quarter of 2008. In fact, at no time in the past 60 years have we seen domestic prices fall this much over a six-month span.
Fed views deflation as the primary risk
Perhaps the market was expecting that the Fed would announce more in terms of the size of its bond-buying program (which was not forthcoming) and viewed the press statement as a disappointment. But as we stated this morning, periods of deflation in the past were typically met with long-term yields in a 2-3% band with near consistency. The Fed may have tweaked how it portrayed the current climate in today’s statement, but what it did not change was its view that deflation remains a primary risk – “the Committee sees some risks that inflation could
persist for a time below rates that best foster economic growth and price stability in the longer term”.
Too much slack in the economy to worry about inflation
The fact that the Fed can state this view, knowing full well that it has dramatically expanded its balance sheet and the money supply, is a testament to the view that the central bank has been leaning against the winds of deflation rather than creating inflation. In our view, the latter will be practically impossible to do in an environment where the underlying unemployment rate is approaching 16% and capacity utilization rates are at all-time lows of 66%. There is simply too much slack in the economy, in our view, for us to be worried over the prospect of inflation or a sustained bear market in bonds. Sphere: Related Content
Mr. Market is to be respected, but he is not always correct
We find it rather difficult to square today’s Fed press statement with the amazing reversal in investor sentiment towards euphoria over the past several weeks. The equity market is, as we all know, a forward-looking barometer, and now seems to have gone further than merely pricing in “green shoots”, to discounting the righthand side of the ‘V’. Mr. Market is to be respected, but he is not always correct.
Fed has a more somber forecast than Mr. Market
The Federal Reserve does possess the largest US macroeconomic model on the planet, and although the central bank acknowledged the obvious today (that “the pace of contraction appears to be somewhat slower”, which was hardly a resounding endorsement for the second-derivative viewpoint, in our view), it seems to have a much more somber forecast of the economy (that “economic activity is likely to remain weak for a time”) compared to Mr. Market.
Disconnect between Fed & market’s ability to sustain rally Although the “outlook has improved modestly since the March meeting”, the operative word is “modestly”. In addition, the “remain weak for a time” quote resonated with us even if the market has largely shrugged it off. The Fed certainly does not have a perfect forecasting track record , but let’s just say that there does appear to be a disconnect between the central bank’s choice of words to describe the economic backdrop and Mr. Market’s ability to sustain this vigorous rally.
Never in the past 60 years have prices dropped this much
As for Treasuries, the selloff continues unabated, and comes on a day when real GDP contracted at over a 6% annual rate with confirmation of a deflationary environment with the gross domestic purchase deflator (GDP deflator ex trade) declining at a 1% annual rate on top of a 3.9% annualized slide in the fourth quarter of 2008. In fact, at no time in the past 60 years have we seen domestic prices fall this much over a six-month span.
Fed views deflation as the primary risk
Perhaps the market was expecting that the Fed would announce more in terms of the size of its bond-buying program (which was not forthcoming) and viewed the press statement as a disappointment. But as we stated this morning, periods of deflation in the past were typically met with long-term yields in a 2-3% band with near consistency. The Fed may have tweaked how it portrayed the current climate in today’s statement, but what it did not change was its view that deflation remains a primary risk – “the Committee sees some risks that inflation could
persist for a time below rates that best foster economic growth and price stability in the longer term”.
Too much slack in the economy to worry about inflation
The fact that the Fed can state this view, knowing full well that it has dramatically expanded its balance sheet and the money supply, is a testament to the view that the central bank has been leaning against the winds of deflation rather than creating inflation. In our view, the latter will be practically impossible to do in an environment where the underlying unemployment rate is approaching 16% and capacity utilization rates are at all-time lows of 66%. There is simply too much slack in the economy, in our view, for us to be worried over the prospect of inflation or a sustained bear market in bonds. Sphere: Related Content
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