by ilene - January 3rd, 2012 1:43 pm
Courtesy of Patrick Chovanec
As the year comes to a close, and we look forward to 2012, I continue the tradition I started last year and offer a brief look at the top stories that shaped China’s business and economic climate in 2011:
1. High-Speed Rail. It was the best of times, it was the worst of times — China’s ambitious high-speed rail program embodied the highest highs and the lowest lows the country experienced this year. In January, President Obama cited the planned 20,000km network in his annual State of the Union address as a prime example of how America need to catch up to the Chinese. As if to prove his point, June saw the grand opening of the much-heralded Beijing-Shanghai line, timed to coincide with the Communist Party’s 90th anniversary celebrations. But even before then, there were signs of trouble on the horizon, starting in February when the powerful head of China’s railway ministry — the project’s godfather — was abruptly fired as part of a massive corruption scandal. Then a crash on a line near Wenzhou, in which at least 35 people were killed, unleashed a wave of fury on the Chinese internet, forcing the government to re-think the entire project amid charges of cover-up and sloppy construction. By November, with high-speed trains running at chronically low capacity and construction debts piling up, the railway ministry was asking Beijing for a rumored RMB 800 billion (US$ 126 billion) bailout just to pay the money it owed suppliers.
2. Inflation. Few issues preoccupied the average Chinese citizen — or Chinese policymakers — this year as much as rapidly rising prices. The consumer inflation rate, which began the year just shy of 5%,rose to 6.5% by July. The increase was led by food prices, particularly pork – a staple part of the Chinese diet — which skyrocketed by more than 50%. Keenly aware of the potential for popular unrest, Beijing made containing prices its top economic priority — even if that meant reining in growth. Throughout the year, the central bank repeatedly raised interest rates and bank reserve requirements, in an effort to bring the pace of credit expansion back under control. The powerful state planning bureau leaned heavily on Chinese companies not to raise prices, and even hit consumer goods giant Unilever with a stiff antitrust fine for publicly discussing possible price hikes. While CPI did decline to 4.2% by…
by ilene - October 19th, 2010 11:56 pm
The mortgage fraud cost estimates for banks are a bit like QB Ryan Leaf - all over the place and without any accuracy whatsoever.
We’re hearing estimates of anywhere from a few hundred million bucks to as much as $200 billion! And in the meantime, Bank of America ($BAC) is telling us that they’ve found nothing wrong in their foreclosure process and that after halting all activity in 50 states, they are now back in business in half the country.
There are currently 7 million foreclosures in the housing market that need to be worked through and any delay will be costly for large lenders like B of A.
Should the states or the courts decide that many of these securitized mortgage-backed bonds are structured fraudulently (no one knows which mortgage is owned by whom), there is a possibility that the banks may have to buy them back due to a clause on most of this paper called the Put-Back.
In the absence of anything even resembling a consensus on how big the costs of mortgage put-backs may be, the temptation is to simply say, Who Cares? Well, I’ll tell you who cares…
For starters, how about hedge fund manager John Paulson? With a stake in Bank of America of 167 million shares, Mr. Paulson has about 2 billion reasons to care about how big their put-back exposure is.
Mutual fund monster Bruce Berkowitz (Fairholme) has about 667 million reasons to give a damn (54 million shares held).
Hedgie David Tepper of Appaloosa Management, no slouch himself in the "reflation trade", has about 337 million reasons to care (27 million shares).
These three investors make up the Triumvirate of the Reflationista Trade. These are the ultimate Don’t-Fight-The-Fed-ers.
That they are all in the same trade, BAC, is not a surprise – it is the quintessential call option on housing and employment. But they may not have bargained for the foreclosure mess that has hit the media with the gale-force wind of 2007′s sub-prime storm. Whether or not this particular storm blows over – or spills over – is very much of interest to Paulson, Berkowitz and Tepper, make no mistake.
by ilene - August 2nd, 2010 7:36 pm
Courtesy of Jim Quinn at The Burning Platform
We have arrived at critical juncture in the ongoing financial crisis. Have the government actions of the last year successfully spurred the animal spirits of Americans, resulting in a self-sustaining recovery?
The Obama administration and most of the mainstream media would answer yes. GDP has been positive for the last four quarters. Consumer spending has increased in five consecutive months. Corporate profits have been relatively strong. The country has stopped losing jobs. The missing piece has been a housing recovery.
No need to worry. Famous or infamous (depending on your point of view) $15 billion man John Paulson has assured the world that house prices will rise 8% to 10% in 2011. His basis for this forecast is that California prices have rebounded 8% to 10% in the last year, and this recovery will spread to the rest of the nation.
Maybe Paulson has teamed up with his buddies at Goldman Sachs to develop a product that guarantees a housing recovery. I tend to not believe anything that comes out of the mouth of anyone associated with Wall Street, but let’s assess the facts and see if they point to an impressive housing recovery in 2011.
The man who has been right on housing for the last ten years has been Yale Professor Robert Shiller. His analysis of U.S. housing prices from 1890 until present, which he first published in 2005, unequivocally proved that we were in the midst of the greatest housing bubble in history. At the same time, David Lereah, the chief economist (shill) for the National Association of Realtors, was pronouncing it was the best time to buy. He published his masterpiece of market tops, Are You Missing the Real Estate Boom? at the 2005 housing peak. He called a bottom in January 2007, and the NAR has continued to tell Americans it is the best time to buy for the last five years as prices have dropped 36% nationally.
Dr. Shiller continues to be the voice of reason when it comes to the housing market. He is doubtful that the recent “recovery” will continue:
- “Recent polls show that economic forecasters are largely bullish about the housing market for the next year or two. But one wonders about the basis for such a positive forecast. Momentum may be on the forecasts’
by ilene - April 30th, 2010 6:53 pm
William talks about fraud, or "control fraud" and the criminogenic environment of the Wall Street-Washington world. The regulators themselves were a huge problem because when regulators who hate regulation are appointed, it leads to a self-fulfilling prophecy of failure, "anti-regulation." There’s much more in this interview, click on the picture to watch. Transcription’s below. - Ilene
H/tip Barry Ritholz
BILL MOYERS: Welcome to the JOURNAL. We’ll get to two big battles in Washington in just a moment — financial reform and the future of the internet. But first, I want to thank those of you who wrote after you heard me say last week that the JOURNAL will come to an end with next Friday’s broadcast. It’s true, and all of us here were touched by your messages of regret.
I will miss the virtual community of kindred spirits that has grown up around this broadcast — viewers like you, as we say, whose unseen but felt presence reminds me of why I have kept at this work so long. But it has been a long time, and that’s why I can assure you that my departure is entirely voluntary. Many of you wrote to say you were alarmed at the possibility that we are being pushed off the air — that higher ups or dark powers pointed to the door and said, “Go.”
You can relax; it didn’t happen. I’m leaving for one reason and one reason alone: it’s time. Believe me, it wasn’t an easy decision: I like what I do, cherish my colleagues and enjoy your company. But I’ll be 76 in a few weeks, and there are some things I want to do that the deadlines and demands of a weekly broadcast make impossible. So for me, it’s now or never. I informed public television of my decision more than a year ago, intending to leave back in December. But my colleagues at PBS asked me to extend the series four more months to give them time to prepare a new public affairs series. More on that next week.
Now to the big rumble of this week — and I’m not talking about that volcano in Iceland. I’m talking about the fight to reform our financial system.
The Mainstream Media Doesn’t Know Sh*t About Securities Law or the Goldman Case- with Barry Ritholtz of The Big Picture
by ilene - April 30th, 2010 3:44 pm
The Mainstream Media Doesn’t Know Sh*t About Securities Law or the Goldman Case- with Barry Ritholtz of The Big Picture
Last week Barry Ritholtz had an excellent post 10 Things You Don’t Know (or were misinformed) About the GS Case in which Barry noted that 99% of the mainstream media commentary regarding the strength of the SEC’s case is, of course, completely uninformed conjecture.
I sat down with Barry, who is a lawyer with experience in securities law, to get an insightful take on the SEC’s case against Goldman Sachs (GS):
Damien Hoffman: Barry, what annoys you most regarding the media’s commentary on the Goldman case?
Barry: The rule on securities fraud and misrepresentation is straight forward. You cannot make material misrepresentations when selling a security. You can’t say black when it’s white. You can’t say up when it’s down. John Paulson can’t say he’s long 200 million when he’s short 200 million. You just can’t and yet that’s what was done.
It doesn’t matter if Goldman lost money. So what? You can lose money. If I rear-ended a guy with my car and banged up my fender, I lose money. It has nothing to do with fault or guilt. State of mind on all that other stuff is irrelevant. The question is whether Goldman is guilty of committing some form of violation of these rules. It’s either yes or no. It’s amazing people get it so very wrong.
Damien: Which people or publications got it very wrong?
Barry: There are a lot. But, for example, the New York Times got it wrong when they talked about the loss. Market Watch got it wrong when they talked about “Mens Rea” which is mental state. There are just a few who got it wrong and misinformed the public.
You don’t have to be a specialist in this area. You just have to understand that there’s certain specifics of securities rules and litigation. If you are not familiar with that area, then, as I mentioned, pour yourself a big glass of shut-the-fuck-up and sit quietly in the corner.
At first, Jim Cramer, who’s usually smarter than this, lost his objectivity and said, “Goldman lost $90 million, how can there be a crime.” Are these people trying to put forth the legal standard that anyone…
by ilene - April 21st, 2010 11:16 pm
Courtesy Adam Warner at Daily Options Review
Breaking news on CNBC! This, from Clusterstock.
According to CNBC’s Steve Liesman, the SEC has evidence that contradicts its own argument that ACA was mislead on the nature of John Paulson’s intent.
Specifically, in interviewing Paulson lieutenant Paolo Pellegrini, ACA was informed that Paulson intended to go short the CDO.
Not surprisingly, this was left out of the SEC complaint.
The SEC really needs to answer for this.
Remember always, this is a PR fight. Certainly at this juncture. And in any PR fight, you want to get your story out as if it’s not from you, but channeled through some independent "news" source. CNBC could not provide a better venue. They’re naturally sympathetic to your side to begin with, and they’ll funnel any "news" you want through their mouth’s. And Clusterstock….well, judge on your own, all I’ll say is they rarely meet an attack on Goldman that they don’t seek to diminish.
Look, this might be an accurate account, the SEC is certainly not above reproach, to say the least. But it just reads like a calculated PR offensive. Paulson’s lietenent saying ACA knew? Is he exactly unimpeachable? Doesn’t he have every incentive in the world to just say this? He can easily couch that as his understanding, that ACA was informed. Perhaps Fall Guy Fab forgot to tell ACA, we don’t know, neither does Paulo.
Here’s another way to look at it. The SEC has this info, it it becomes demonstrable fact that ACA knew Paulson was shorting it, it clearly destroys their case. Whatever SEC’s motivations are here, they’re not bringing a case out that will get shot down that simply. So I suspect the "ACA Knew" defense is a "he said, she said" thing. You can’t prove a negative, i.e., you can’t prove ACA didn’t know. But you can prove they did know if there’s some evidence that shows they were informed. Perhaps that evidence is out there, but I don’t believe "Paolo Says So" is that evidence.
by ilene - April 16th, 2010 12:15 pm
Courtesy of Trader Mark at Fund My Mutual Fund
I have no idea the implication but for those of you around a decade ago you know what this parallels… Eliot Spitzer made his career on almost the same exact thing a decade ago. Investment banks bringing product (IPOs) public, their analysts cheerleading the stocks to the public while writing internal emails about how the companies were complete trash.
Well this London based VP looks like the sacrificial lamb.
- The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment
As usual the snake oil never really changes… but in the past the snake oil salesmen would be run out of town. Now they are protected by government, backstopepd by our Federal reserve, and glorified. We’ve really evolved as a society
- According to the complaint, Goldman created Abacus 2007-AC1 in February 2007, at the request of John Paulson, a prominent hedge fund manager who earned an estimated $3.7 billion in 2007 by correctly wagering that the housing bubble would burst.
- Goldman let Mr. Paulson select mortgage bonds that he wanted to bet against — the ones he believed were most likely to lose value — and packaged those bonds into Abacus 2007-AC1, according to the S.E.C. complaint. Goldman then sold the Abacus deal to investors like foreign banks, pension funds, insurance companies and other hedge funds.
- But the deck was stacked against the Abacus investors, the complaint contends, because the investment was filled with bonds chosen by Mr. Paulson as likely to default. Goldman told investors in Abacus marketing materials reviewed by The Times that the bonds would be chosen by an independent manager.
Fascinating to see John Paulson’s firm involved as well – I don’t see any wrong doing on his part but apparently one of his former lieutenants, Paolo Pellegrini was the ‘snitch’. [Oct 2, 2009: Paolo Pellegrini, Formely of John Paulson's Hedge Fund, on Bloomberg]
Full pdf file of SEC complaint here.
p.s. bought some SPY puts to get some hedging going on.
by ilene - March 11th, 2010 1:59 pm
QB Partners fits the description of hedge funds that Rick Bookstaber accused of pumping the gold bubble and — even worse — of fueling the bubble with publicity.
The New York fund leapt to the defense of gold by sending an email to Business Insider with a message for Bookstaber.
Attached was the point-by-point rebuttal they gave to Nouriel Roubini in December when he had the nerve to diss gold.
Here are the highlights of QBAMCO’s Message To The Gold Haters >
The economic cycle is definitely not the right framework for determining when to be in gold. Gold bull and bear markets can extend across economic upturns and downturns.
Absent an "economic meltdown" as you call it, the best tool for determining when the gold price will advance (at least since Nixon broke the last vestiges of the gold standard) is real interest rates:
Gold bull markets happen in an environment of negative real interest rates…This is the closest thing to an one-variable indicator for the gold market. But as you point out, it only good over longer periods of time and not a perfect correlation. The way I like to look at it is, when you have negative real interest rates, the odds are strongly with you that gold prices will go up.
by ilene - March 9th, 2010 4:13 pm
The SEC’s Rick Bookstaber can hardly watch as sheep-like investors chase the gold bubble straight off a cliff.
Although his employer doesn’t give market advice, the SEC’s senior policy adviser shows his personal frustration in a post on Roubini Global Economics. First, he drops this great line about how people don’t even pretend that gold isn’t a bubble:
Even if a guy is just after sex, he at least has the decency to act like there is some substance behind his interest.
Second, Bookstaber thinks hedge funds managers like John Paulson have a pump and dump scheme on gold.
Given that “hedge fund” and “highly secretive” are usually said in the same breath, don’t you get suspicious when so many of the top managers are so vocally out there about their gold investments? And when their positions are structured in a way that make them open to view? Paulson and Soros have huge positions in gold ETFs. We know that, because if you buy ETFs, they show up in your 13-F filing. Granted, with an equity investment you can’t help putting that information out into the market, but with an asset there are plenty of ways to take the position without signaling it.
That they are taking a highly visible route to their positions suggests the game that is being played is one of leading the herd. The 13-F reports positions with a big lag, so no one will notice if they quietly slip out the side door while the party is still hopping. And how about when the view is backed up by none other than Goldman Sachs? Will they let everyone know when they think it has gone too far before they get out. Or before they go short? Maybe they already have.
by ilene - February 9th, 2010 9:24 pm
Karl Denninger discusses an article posted here several weeks ago, John Paulson and the Greatest Pump and Short Fraud Ever, by Mark Mitchell at Deep Capture. - Ilene
Courtesy of Karl Denninger, The Market Ticker
As Fiderer explains, Paulson asked the banks to create those CDOs “so that they could be sold to some suckers at close to par. That way, Paulson’s hedge fund could approach some other sucker who would sell an insurance policy, or credit default swap, on the newly minted CDOs. Bear, Deutsche and Goldman knew perfectly well what Paulson’s motivation was. He made no secret of his belief that the CDOs subordinate claims on the mortgage collateral were close to worthless. By the time others have figured out the fatal flaws in these securities which had been ignored by the rating agencies, Paulson could collect up to $5 billion.
Let’s step back a second.
A "CDO", or "Collateralized Debt Obligation", is in theory a very simple instrument. It is, at it’s core, a collection of income-producing "assets" that have a cash flow that can be diced up paid to people who have purchased components of the CDO.
The usual thought process when someone says "CDO" is that some bank bought a bunch of bonds, compiled them into a CDO and then sold off the tranches.
The CDO itself is typically held off-balance sheet in a SIV/SPV, lest the bank be forced to recognize it as part of it’s "assets." This is permissible because the bank doesn’t own the assets, the legal entity does, and it got the money to buy them from the people who bought the tranches that were issued. The banks do this because they get a nice fee for filing the papers to establish the entity along with a management fee to act as the servicer – that is, the "guy in the middle" who takes the money that comes in from the debt instruments and slices it up, paying out those funds to the buyers of the CDO’s tranches.
So you can think of a CDO, in it’s simplest form, as a way of taking a