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Overallotment: April 30

Tyler Durden’s Overallotment: April 30

  • Stress test results delayed as conclusions debated (Bloomberg)
  • Fed likely to offer 5 year TALF loans soon (Bloomberg)
  • Buffett faces a grilling from investors (FT)
  • Banks believed to be holding 600,000 foreclosure properties off market (InvestorCentric)
  • P&G forecasts "buyer’s market" in advertising (FT)
  • Swiss bank refuses US tax request (BBC)
  • The 1980 Chrysler bailout (Ritholtz)
  • Swine flu breaks out in 11 countries, shutting schools, offices (Bloomberg)
  • SEC probing Schering trades (WSJ)

Lastly, some good late day thoughts from BTIG’s Mike O’Rourke

“One great problem that we have before us is to preserve the rights of property; and these can only be preserved if we remember that they are in less jeopardy from the Socialist and the anarchist then from the predatory man of wealth. It has become evident that to refuse to invoke the power of the nation to restrain the wrongs committed by the man of great wealth who does evil is not only to neglect the interest of the public, but is to neglect the interests of the men of means who acts honorably by his fellows."

Teddy Roosevelt, May 30, 1907

While Roosevelt’s comments made in the months preceding the panic of 1907, were not responsible for the panic itself, they fueled investor fears in the midst of a bear market a century ago. Today, following six months of vilification of the banking industry it appears there may be a new target for the Administration’s populist ire “While many stakeholders made sacrifices and worked constructively, I have to tell you, some did not. In particular a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout.” Apparently, the talks between the Administration and Chrysler’s lenders were acrimonious and unsuccessful. From the moment the news [hit] the wire that Chrysler would be filing for bankruptcy, the Administration immediately directed the blame at the hedge funds who were senior creditors.

At least in the case of banks a large degree of the Presidents statements were simply rhetoric. As we’ve seen several times in recent months the problem is that once the President commences a populist campaign Congress begins stampeding out of control. In the midst of a recession the investor class becomes easy targets for populist outrage. The financial markets were already preparing for a new era of regulation. Now there is legitimate concern developing within the marketplace that regulatory retribution may be in the offing for the hedge fund industry. It was only Monday we noted the tone of GM creditors indicated they believe they would get a better deal in bankruptcy court. The simple fact is the creditors are operating within their rights under the rule of law and following their fiduciary responsibility to get what they believe to be the best deal for their investors. The President’s stance was disappointing from this perspective. Although the President may disagree with an individual, but he supports their right to freedom of speech and protest his policies in front of the White House. You have to respect an investors rights as well, even if you disagree with them. After having seen the government change so many deals in an ex-post manner, bankruptcy court may have been the only level playing field for the creditors from the beginning.

Circling back to Teddy Roosevelt in 1908, Roosevelt did change his attitude towards business in the midst of the Panic. The Trustbuster himself personally provided antitrust approval for US Steel’s acquisition of Tennessee, Coal & Iron (TCI) in order to prevent the failure of TCI’s majority shareholder, brokerage firm Moore & Schley. Typical of any deal with the government, in 1911 President Taft (who had been Roosevelt’s protégé) filed antitrust charges against US Steel for the acquisition of TCI.

Mike O’Rourke, CMT
Chief Market Strategist


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