RGE Monitor caught an interesting snippet out of the Sueddeutsche Zeitung, which claims to have seen a report out of BaFin, the German regulator made famous for allowing Volkswagen to become the world’s most valuable company in the world with no repercussions. The article (here for the original, and here for the translated version for those who need to brush up on their Bavarian accent) claims that regulators see toxic assets in the German banking system at over €816 billion, which is well over $1 Trillion. From RGE:
A report by Sueddeutsche Zeitung, citing an internal paper by the banking regulator that puts the total of bad assets in the German banking system at €816bn, caused outrage among German officials (in particular as the report appears to be true). The number includes toxic securitized assets, and also bad loans, and unlike previous lists, this one names and shames the banks. In one case, half of all assets of a particular Landesbank are classified as toxic, Commerzbank is also on the list with a huge depot of toxic waste.
In addition to Commerzbank, is of course Hypo, which has been evaluated to hold €268 billion in toxic assets, as well as an additional 17 banks which will likely need a gentle interventional hand from the government soon, including Westdeutsche Landesbank and Landesbank Baden-Wurttermberg.
And here is the link to the rather boisterous response SZ article has generated (original and translated).
However, with trade between the US and Europe (and maybe the world) soon to hit 0, it is feasible that none of this data is relevant. After all America is fully self-dependent for all aspects of its economy. Or, if not, there are many foreclosed homes in California that can be purchased to generate the perception that the economy is turning around as consumers max out their credit cards in anticipation of the same leniency as mortgage defaulters are getting.
Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time. Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance
Here’s an update on Swine Flu, courtesy of Don Miller at Money Morning. – Ilene
Swine Flu Pandemic Threatens Global Economic Recovery
The delicate state of the global economy could be rocked by an outbreak of swine flu, which has killed over 100 people in Mexico and infected many others in the United States, Canada, Spain and New Zealand.
Underscoring the serious nature of an outbreak is a study conducted by the World Bank in 2008, which estimated a major swine flu pandemic could cost $3 trillion and cause worldwide gross domestic product (GDP) to plummet almost 5%.
"The threat of the pandemic will add further weakness to global trade – we saw with SARS tangible percentage points knocked off the index and that was in a buoyant time. Put that in a weaker time and it is likely to be more unpleasant," he said.
The SARS outbreak cost the Asia Pacific region an estimated $40 billion when it disrupted travel and trade for six months in 2003. It killed 775 people in 25 countries.
The Mexican outbreak of swine flu comes just as world policymakers began to see signs that the global economy might finally be stabilizing after being hammered by a withering recession for more than a year.
"Six or eight weeks ago, there were no positive statistics to be found anywhere. The economy felt like it was falling vertically,” Lawrence Summers, economic adviser to President Barack Obama told reporters on Sunday. "Today, the picture is much more mixed. I think that sense of unremitting freefall that we had a month or two ago is not present today."
Swine flu is a respiratory disease of pigs caused by type-A influenza that regularly leads to outbreaks in swineherds, according to the U.S. Center of Disease Control (CDC). The three main human flu strains cause 250,000 to 500,000 deaths a year in seasonal epidemics, according to the World Health Organization (WHO). Pandemics occur when a unique strain of influenza emerges and begins spreading, mainly because almost no one is naturally immune to the virus, according to Bloomberg News.
Heading the list of sectors that may feel the impact is the travel and tourism industry. Travelers may cancel trips and many businesses have plans…
John Carney writes on the corruption in our financial system preventing fixing it. When the regulators and the players are the same, there is no meaningful oversight and without changing that, corruption persists. That’s what have now. – Ilene
Everyone talks about implementing serious reform of the financial system, starting with the way we regulate large, complex systemically important financial institutions. Unfortunately, we lack even the basic political equipment to implement any worthwhile reforms.
As Thomas Frank points out in the Wall Street Journal, the reforms that were implemented following the crash of 1929 were the product of the famous Pecora Commission. Led by a former New York attorney general named Ferdinand Pecora, the Senate Banking Committee delved deep into the practices of Wall Street to discover what was working, what was thoroughly corrupt and what needed to be reformed.
While there are grounds to critique the Pecora Commission, it was a sober and sane affair. It exonerated some publicly loathed business practices, such as short-selling, and concluded that some of the biggest financial institutions needed to be broken-up. The public nature of the hearings, closely covered by journalists at the time, provided something of an education for the citzenry on the structure of the financial system. This created broad political support for reforms, most of which were relatively straight-forward rules easily understood by at least the more informed members of the public. The Glass-Steagall Act, the Securities Exchange Act, and other financial regulations of the Roosevelt era were all products of its investigation.
None of that is likely to happen this time around. Our lawmakers are too throughly involved in this crisis too hold anything as comprehensive as the Pecora Commission. The head of the Senate Banking Committee, Chris Dodd, is widely viewed as thoroughly compromised by the financial sector. Barney Frank, who leads the House’s financial oversite board, was one of the greatest defenders of Fannie Mae and Freddie Mac, those housing bubble centers of corrupt accounting, dangerous securitization and politicized lending.
Here’s Frank (Thomas, not Barney):
The crisis today is not solely one of bank misbehavior. This is also about the failure of the regulators — the Wall Street policemen who dozed peacefully as the crime of the century went
An interesting analysis from the team over at Innovative Quant Solutions looking at the persistence of key quant factors such as Momentum, Value, Balance Sheet, Improving Financials, and Sentiment.
Cutting to the chase, here are IQS’ observations and conclusions:
Observations:
One-Week factor persistence for very few factors in the past, but persistence is now realized for all 5 factor categories! Four-Week and Eight-Week factor persistence was positive in the past, but now they are negative!
Improving Financials is expected to have longer-period persistence, which it consistently had at four-week and eight-week, but not recently. Momentum does not have persistence over long periods, and wouldn’t expect it to. Value is expected to have persistence over long periods, and did so in the past, but not recently.
Conclusions:
Quantitative weighting schemes need to look back at the past to help forecast the future, with the assumption that persistence exists. With negative persistence recently, the better plan is to weight factors opposite what has performed well by incorporating the persistence information above into the process.
Based on the results above, shorter-term trading models would have performed well since June 2007, while longer-term models would have performed better previously.
The pain for Momentum and Sentiment factors is getting higher and higher, as evidenced by the beta covering rally in the market.
Wave of bullishness? Call the squeeze for what it is.
Last week was characterized by unprecedented rerisking in financial names, to the tune of $145 billion in notional change, representing over 28 thousand contracts. This was caused by an imbalance in New Trades ($173 billion) versus Full Terminations ($297 billion). Was the credit market a little trigger happy to say all green shoots in financials are in place? Or merely the equity driven short squeeze has forced even the usually cooler fixed income heads to push the "cover" button. With relative weakness in financials this week from the impending additional massive dilution at both C and BAC, this week’s CDS marks will be interesting to keep track of at the next weekly update.
Total rerisking was just north of $100 billion, due exclusively to the financial segment. Some additional notable rerisking occurred in Basic Materials, offset by rerisking in Consumer Services, Utilities and Residential Mortgage Backed securities. State/Sovereign bodies was very quiet this week, ending the trend of significant volatility in the space over the past 3-4 weeks.
Gross outstandings week over week were $700 billion lower at $27.5 trillion, consisting of $15.1 trillion in single-names and $12.4 trillion in index and index tranches, the last metric dropping substantially ($600 billion) from a week ago.
In the weekly single name change category, Daimler shot up to the top Derisked position, after not even making the top 20 last week. Arcelor is a top three name yet again, with the Finance group making the inverse section again, indicating the hedge is still on. Curious is the presence of Mexico in the third position: maybe CDS traders had an inkling about the Swine Flu development ahead of time. In the meantime, the monkeyhammering of BofA CDS continues, with the company making the top 10 of CDS purchasing for a second week in a row. In the flip side, IAC/Interactive saw the biggest amount of net CDS selling, followed by BAA, Turkey, and the US also making the list of biggest net reriskers for the past week.
GDP fell 6.1% q/q annualized in 1Q well below consensus expectation of -4.6% and even below BAS ML forecast of down 5.5%. All investment-related segments of the economy showed significant pullback reflecting the global recession and the ongoing credit crunch that is making it difficult to complete projects. Commercial construction fell 44.2% in 1Q, which is the largest quarterly decline ever recorded going back to the late 1940s. The BEA noted significant declines in energy related drilling projects as well as sharp downturns in commercial, healthcare, power and communication building. Capex investment fell 33.8%, the 5th quarterly decline in a row and the deepest decline to date. The residential building sector fared just as poorly, down 38% in 1Q continuing a string of declines that stretch back to early 2006, but again the 1Q drop was the deepest decline so far in the cycle. Inventories were cut by $103.7B in 1Q and took 2.8ppt from top line growth, however this was far short of our expectations and combined with the weaker than expected final sales pace suggests businesses will need to slash far more inventories in the months to come.
Consumers gain
The one bright note in the report was the consumer which posted a 2.2% quarterly annualized gain, in the first upturn since 2Q 2008. Early tracking into 2Q however, suggest that this positive pace will not be sustained – not surprising amid the steadily climbing unemployment rate. The saving rate continued to climb, resting at 4.2% in 1Q — a full percentage point higher than in 4Q. On the price side, the GDP price index increased by 2.9%, above consensus but in line with BAS ML expectations. The more important consumer price index fell by 1.0% as expected and the core PCE advanced by an anemic 1.5% q/q annualized and the yearly pace slowed to a 4-year low of 1.8%.
(Compliments of David Rosenberg, the only person who has not signed a lifetime cheerleading contract with the US Gov’t.)
Bloomberg reports that the former bastion of massively mismarked distressed loans and crazy CDS trades, DB Zwirn is to be taken over by Fortress Management. And by taken over we mean liquidated. With Zwirn still likely marking its Linens N Things bond inventory at or around par, the process will be an amusing one to watch.
Zwirn’s board and some of its biggest investors chose Fortress, a New York-based private equity and hedge-fund manager, to liquidate the assets. Fortress was picked from nine candidates including a group headed by Irish financier Desmond Dermot, the people said. They asked not to be identified because the discussions are private.
Daniel Zwirn, 37, who runs the New York-based company, told investors in February 2008 he planned to wind down his flagship D.B. Zwirn Special Opportunities Fund LP. The fund makes loans to companies including those that have trouble getting financing elsewhere. Zwirn decided to close the fund when investors asked to withdraw more than $2 billion after a delay in the release of the fund’s 2006 financial audit.
Fortress’s takeover would mark the end of Zwirn’s involvement with his seven-year-old firm, which managed $5.5 billion at its peak. Zwirn, who will be paid $1.95 million by the fund in deferred compensation from 2008, used $13 million of his own money to run the company since October, the people said.
The only winner out of this arrangement is undoubtedly Fortress, which by many accounts, has some amusing MTM issues of its own.
Fortress will be reimbursed for costs of winding down the fund, plus 1 percent of the fund’s net assets, the people said. It also will get 5 percent of any profit it makes. Zwirn’s investors will pay more than $21 million in one- time fees associated with the liquidation of assets.The fund also will set aside $15 million to pay any future claims or fines.
Nothing like an upcoming $2.5 billion BWIC to force more short squeezes across the credit universe (remember, this is Bizarro world). Our condolences to the DB Zwirn back office who had hoped to keep on "liquidating" assets well into the 2020′s. Maybe as consolation they can all take one last jaunt in the corporate jet, which the SEC may or may not have seized by now.
I could not help noticing that China’s imports from Japan fell 16.2pc in December. Imports from Taiwan fell 6.2pc. The strong yen strikes again: Honda decides to build a high-performance hybrid Acura in Ohio – instead of its home nation of Japan. The firm’s continued shift in p...
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To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...
In an effort to reach the angry mob, CNBC's Rick Santelli goes all Sesame Street on the numbers behind the US Debt Ceiling Rise. Focusing for two minutes on what this practically means for every man, woman, child, and politician, the shouting Chicagoan points out that when the US breaches this new limit then the world's entire population will be on the hook for $2,346 each (and $52,409 per US person).
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -6.5 in its latest reading, data through January 20. The latest public data point is a reduced contraction from last week's -7.6 (a slight downward revision from -7.5). This is the highest level (i.e., least negative) since early September. However, the underlying WLI declined fractionally from an adjusted 123.3 to 122.8 (see the third chart below).
Early last December Lakshman Achuthan, the Co-founder of ECRI, spoke with Tom Keene on Bloomberg Television's Surveillance Midday. You can watch the video on the ECRI website here, with bold heading Recession Update. The eight-minute video is well worth watching in its...
Some combination of better made cars, and less Americans able to pay new car prices has conspired to push up the average age of U.S. vehicles to a new record high. Reflecting this sea change, one of the best investment g...
Shares of battered tech company Research in Motion (NASDAQ: RIMM) are seeing much strength during Friday's trading session.
Fairfax Financial Holdings released a 13G filing with the SEC this morning, in which they disclosed a 5.12% stake in Research in Motion.
Currently, shares of Research in motion are up over 4% at $16.85. Over the last year, Research in Motion is down over 72%.
Research In Motion Limited is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market. RIM provides platforms and solutions for access to information, including e-mail, voice, instant messaging, short message service.
Top 5 RisersStockRatingAnalysisASBCBUYMany analysts are expecting higher than previously expected long term growth from Associated Bancorp, and its near-term earnings outlook is also improving.CZZSTRONGBUYThe recent earnings history for Cosan Ltd shows significant improvement while projected valuation continues to rise.STLDBUYProjected value continues to rise for Steel Dynamics while long term increases in earnings growth are also becoming more widely expected.PSESTRONGBUYAn increasingly attractive expected long term growth rate and a significantly higher projected valuation from just a fe...
Major markets and major index ETFs corrected slightly today after the stock market’s euphoric party yesterday
Major markets suffered a slight hangover today, as the S&P 500 dropped .57%, the Dow Jones Industrial Average dropped .18%, the NASDAQ dropped .46% and the Russell 2000 Index dropped .34%, after yesterday’s crazy Fed and Tech Sector induced Wall Street Party. The NASDAQ, in particular, partied very hard, so hard in fact that the NASDAQ reached its 11 year record high.
The major market index ETFs were hungover too as the SPDR S&P 500 ETF lowered .51%, the SPDR Dow Jones Industrial ...
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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
Here is the virtual portfolio weekend update. Basically a recap of the positions and some notes about the trades. As usual, I'll post the previous week's P&L for comparison. Not the greatest of week in general!
AA Money
Only transaction last week as we bought back the AA Feb 9 puts on Tuesday for close to a 70% profit. The idea is to sell another set of put as soon as we get a chance.
Previous week P&L - $400.00
We lost some ground this week, but we'll keep on selling premium!
FAS Money
We also lost some ground in this virtual portfolio, but we have sold plenty of premium for the coming week. A little correction would go a long way to help! On Wednesday we sold the FAS Feb 72 puts (already good for 50%), on Thursday we added the Jan4 78 calls and on Friday we had to roll the Jan 78 puts to the Jan 80 puts. We were hoping for these ones to expire worthless on Friday, but a late stick killed that hope.
Previous week P&L - $4372.00...
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Here's the latest Stock World Weekly. We discuss the Fed's next move, and it's new policy for more QE-cating. Brief review of Sabrient's trade ideas for 2012 (already doing well) and a few new buy-writes from Phil and Pharmboy. Enjoy! (Feedback appreciated - give some life to the comment section below.)
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Finding new and exciting Biotech companies that target novel mechanisms is like trying to find a needle in a haystack. Sure there are many companies working on cutting edge science, but investing in those companies to reap the rewards of their work is a very dangerous game. More often than not, companies fail because the mechanism does not pan out, the compound(s) do not have pharmacokinetics (get into the body or last very long in the body), or an adverse event happens that knocks years off a development timeline. In addition, the stock can be manipulated by market makers so investors don't know which way is up. I approach investing in biotechs as a long term prospect. I continue to like our current portfolio of biotech companies (join in chat for many of those plays), and we continually add/subtract shares and sell/buy options on ...
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The delicate state of the global economy could be rocked by an outbreak of swine flu, which has killed over 100 people in Mexico and infected many others in the United States, Canada, Spain and New Zealand. 
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(