Municipal bond defaults on the local level are likely and investors would be better off avoiding them, according to Kyle Bass, managing director of Hayman Capital.
Bass said he generally agrees with the call by famed banking analyst Meredith Whitney, who said as many as 100 defaults are likely that will cost more than $100 billion in damage.
"There are going to be a number of muni defaults, but it’s where you draw the line. Will states be allowed to default? Will legislation be introduced to allow states to restructure? I don’t believe that’s the case. I believe states will not default."
The hypocrisy of treasury secretary Tim Geithner would be stunning except for the fact hypocrisy from Geithner is pretty much an every day occurrence.
Geithner is blasting Congress for politicizing the Fed, while doing the same thing himself. To top it off, the Fed itself is politicizing the Fed by interfering and commenting on Fiscal policy while bitching about Congress commenting on monetary policy.
U.S. Treasury Secretary Timothy F. Geithner warned Republicans against politicizing the Federal Reserve and said the Obama administration would oppose any effort to strip the central bank of its mandate to pursue full employment.
“It is very important to keep politics out of monetary policy,” Geithner said in an interview airing on Bloomberg Television’s “Political Capital with Al Hunt” this weekend. “You want to be very careful not to take steps that hurt our credibility.”
Fed Chairman Ben S. Bernanke defended the monetary stimulus in a speech in Frankfurt today and in a meeting with U.S. senators earlier this week.
The best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke said in his speech.
The asset purchases will be used in a way that’s “measured and responsive to economic conditions,” Bernanke said. Fed officials are “unwaveringly committed to price stability” and don’t seek inflation higher than the level of “2 percent or a bit less” that most policy makers see as consistent with the Fed’s legislative mandate, he said.
In a speech delivered at the annual meeting of the Rhode Island Public Expenditure Council and devoid of comments on monetary policy, Bernanke said that fiscal rules might be a way to impose discipline, particularly if those rules are transparent, ambitious, focused on what the legislature can control directly, and are embraced by the public.
“A fiscal rule does not guarantee improved budget outcomes; after all, any rule imposed by a legislature can be revoked or circumvented by the same legislature,” Bernanke said,
A bill sponsored by Ron Paul and Alan Grayson to thoroughly audit the Fed, passed the House. However in a brazen move that ought to offend the sensibilities of every citizen, the Fed is lobbying Senate members to water down the bill so that it is meaningless.
The Federal Reserve is privately lobbying against a bipartisan Senate amendment that would open the central bank to an audit by the Government Accountability Office, according to documents distributed to Senate offices by a Fed official.
In order to obtain the documents, HuffPost agreed not to reveal the name of the Federal Reserve official who did the specific lobbying in question.
"As I mentioned, we believe that the bipartisan Corker-Merkley provision in the Dodd Bill is quite strong and addresses issues of transparency and disclosure without impinging on the independence of monetary policy," the official goes on.
Merkley teamed with Sen. Bob Corker (R-Tenn.) on an audit provision, but Merkley himself says he’d prefer to go further. "I appreciate Representative [Alan] Grayson’s concerns over accountability at the Federal Reserve. I have been a strong proponent of Fed reform and voted against the re-confirmation of Ben Bernanke because the Fed has been so lax in using its regulatory powers," Merkley said in a statement to HuffPost, responding to an analysis from Rep. Alan Grayson (D-Fla.) showing that the Senate bill did not meaningfully expand transparency.
The Fed argument is a replay of a tactic that the bank tried in the House. Instead of outright opposition, the Fed backed an amendment in the lower chamber from Rep. Mel Watt (D-N.C.), which the bank said would expand transparency but not interfere with monetary policy. It became clear, however, that the amendment would not expand transparency and was an attempt to defeat the audit in general. The Watt amendment was soundly defeated.
The Corker-Merkley amendment is the Senate version of the Watt amendment and the Fed is once again arguing that the broader amendment will impinge on the independence of monetary policy.
"The Sanders amendment, however, would directly interfere with monetary policy," argues the Fed official. "The amendment removes the current statutory protection for core monetary policy activities from GAO audit and would permit the GAO to
Can we do it again? Maybe but we got the pullback we were looking for and, as I said about cashing out our bullish plays at 300% this weekend – GREED KILLS! In fact, the title of this weekend’s Wrap-Up was "Why Does this Rally Give Me The Creeps," where I posted a Free TZA Disaster Hedge which made 90% in 48 hours – Bernanke is not the only one who can give away FREE MONEY!
We were already bearish coming into yesterday morning as my Monday post told you we were going to flip bearish at 10 am that morning (and you can read these things pre-market if you subscribe) and I told you in yesterday’s post that Greece and Goldman concerns can vanish in a puff of smoke when the Fed announces that money is still free in America (as long as you are Greece or GS) and that we would be doing one of our famous 566% upside plays on the downturn.
In my 10 am Alert to Members, I laid out a very nice SSO spread that came in very cheap in the afternoon. We took our profits from our 3 major short plays (TZA calls, DIA puts and Oil shorts) off the table and we did a little bottom fishing with TBT, DIA, Oil and XOM so pretty aggressively bullish as we got down to that 11,000 line. We would love to have more of a sell-off but it’s not like we haven’t seen this movie before – the bears ALWAYS get their heads chopped off every time they think it’s safe to leave the cave so why not bet on it happening? Just to be safe, though, I did lay out 5 plays that make 500% or more if the market falls in a special post for Members this morning, our famous "disaster hedges." Hopefully, we won’t need them…
Yesterday wasn’t a disaster at all - just a simple pullback after a huge run. If Greece gets worse, we can fall more, but I doubt the EU will let it and if Goldman gets worse, it can take down the financials but I doubt that will happen and if the Fed tightens policy and stops giving the banks free money which the banks only use to lever up into new derivative plays to destroy what’s left of our economy… I’m sorry, that last one was so ridiculous I have to stop. The…
Should you care that he just had to withdraw $5Bn from reserves, sending them to a 10-month low and down 19% to $28.35Bn? Well it’s not just Venezuela but they are a good example of what’s happening around the World as even oil-rich nations can no longer prop up their economies and will have to begin competing with the US, Europe and Japan to borrow money on the international markets. Venezuela may have external debt financing needs this year of as much as $19 billion and as much as $22 billion in 2011 should authorities choose not to use non-reserve savings estimated at $41.1 billion, according to Morgan Stanley. “Short of some break in Venezuela’s current dynamic, the economy may be faced with a severe dollar crunch as early as this year,” Pardelli and Volberg said. “The dollar crunch may prompt the authorities to attempt to buy time by drawing down their hard currency savings, issuing debt or significantly ratcheting up policy heterodoxy.”
Greece needs $15.6Bn by the end of May and that much again in August and November. Seven-year notes sold by the government this week fell even after the European Union and the International Monetary Fund crafted an aid package that would be triggered should the nation be unable to raise sufficient cash from capital markets to cover its financing needs. Greece may pay about 13 billion Euros more in interest on the debt it sells this year than it would have to had yields stayed at their pre-crisis levels relative to Germany’s.
The UK will be spending 10% of their tax revenues just to pay the interest on their debt as debt itself soars to 90% of GDP with debt now costing the UK more than their Defence and Transportation budgets combined. Neighboring Ireland is looking at a $110Bn bill over the next 12 months to stabilize it’s bad banks – and that’s AFTER giving the banks a 47% haircut on the value of the assets the government will be picking up. This will not be counted as an addition to Ireland’s already $95Bn in debt for 2010 because, technically, they are buying an asset - even if the asset is toxic. It’s the same trick our Fed uses every month to pretend things are fine…
The dollar is diving and the futures are flying this morning!
Word is that the Fed will remain doveish in their 2:15 statement today with no sign of tightening in the near future. That has (as of 7:30) rallied gold 1.5% to $1,115 and oil is back over $80 and copper is $3.35 again while the Euro jumps back to $1.375 and even the British Pound squeezes the hell out of the shorts as it flies from $1.497 at 3:30 to $1.514 (1%) in 4 hours, which is a pretty big move for FOREX!
The EU also helped themselves by laying out a groundwork for a financial lifeline to debt-stricken Greece, breaking a taboo against aid to cash-strapped governments in order to avert a crisis for the euro. Officials from the 16 countries using the currency worked out a strategy for emergency loans in case Greece’s plan for 4.8 billion euros ($6.6 billion) in tax increases and wage cuts fails to stave off fiscal disaster. “We clarified the technical arrangements that would enable us to take coordinated action which could be swiftly put into place in the event it is necessary,” Luxembourg Prime Minister Jean-Claude Juncker told reporters late yesterday after leading a meeting of Euro-area finance officials in Brussels.
The EU is also meeting to discuss ways to reign in hedge funds and credit-default swaps but the revised bill from Chris Dodd is now so watered down by compromise that it no longer requires regulators to agree that excluding a swap from being cleared “is necessary and appropriate for the reduction of systemic risk.” So what’s the point? The problem is that there are $605 TRILLION Dollars of CDS’s written against a Global GDP of $50Tn. Usually, it’s a red flag for the police when a person insures their home for 12 times what it’s worth, right?
Hexagon Securities LLC and at least 19 other financial firms are pressing regulators to force swaps clearinghouses to lower entry barriers in order to improve competition in a $605 trillion derivatives market dominated by the world’s biggest banks. They also seek tougher conflict-of-interest laws to ensure that a bank’s derivatives desk doesn’t influence clearinghouse decisions that could shut out new competitors. ROFL – move to Russia, you Commies! This is America, where big banks rule and "firms with less than $5Bn net worth" drool! See, my daughters taught me that one…
Will he be able to restore confidence today? He’ll be speaking to the House Committee on Financial Services in a hearing titled: "Monetary Policy and the State of the Economy," which used to be called the Humphrey Hawkins Testimony - and that means it’s time for another episode of my favorite TV show – something I call "When Ron Paul Attacks." Ron Paul has been on a roll lately and today is the perfect day for him to use his 5 minutes to build a platform for his 2012 run at the White House.
Yesterday was disappointing, to say the least as we blew all of our bounce levels EXCEPT the Russell, which finished right on our 625 line. That makes the RUT our canary in the coal mine today as we’ll use it to see which way the market winds are blowing. We didn’t mind yesterday’s sell-off as it was led by a 2.2% drop in Basic Materials and Energy – two sectors we were betting against anyway and we just upped our bets against CRE after skipping most of February as the timing hadn’t seemed right.
Now we are getting a flood of bad new in the Commercial Real Estate space including a report from Real Capital Analytics that shows the Commercial Mortgage Default rate more than doubled in Q4 – from 1.8% to 3.4% and is projected to hit 5.4% this year. “The level of distress continues to rise irrespective of improving economic trends,” Sam Chandan, Real Capital’s global chief economist. Almost $1.1 trillion in commercial loans and $211 billion in apartment loans were held by U.S. banks on Dec. 31, according to Real Capital. “With the concentration of commercial mortgages in small and community banks, there is a potential spillover that will impinge on their ability to make loans to small businesses and families,” Chandan said.
The Congressional Oversight Panel on the financial system bailouts said in a Feb. 10 report that “the ultimate impact of the commercial real estate whole loan problem will fall disproportionately on smaller regional and community banks” that have higher concentrations of such loans. “Some community banks seemed to have abandoned, or never really practiced, sound risk management” by lending too much on real estate in their local markets, David A. Hendler, New York-based analyst for CreditSights Inc., said in a Feb. 22 note.
As I said in my Weekly Wrap-Up, recessions are for wimps and kudos to the Fed for finally pulling out the stick after all the soft talking they’ve been doing. Meanwhile, I do not see what all the fuss is about – I did the math for Members last night and banks borrow about $89Bn at the discount window on a good day and 0.25% of $87Bn is a grand total of $22M – this is NOT going cause the fall of Western Civilization people! What it does do is stop making the Fed the lender of first resort, which was never supposed to be their function in the first place.
The MSM should be more concerned with the end of the TALF, which is where the Fed buys up toxic assets from the banks at face value (we’ll all be paying for that later) and they just announced that the Fed’s holding of Mortgage-Backed Securities went over the $1Tn mark yesterday, bringing the Fed’s Balance Sheet to $2.25Tn of very questionable assets that they’ve bought for us from the banksters.
Speaking of banksters – Kudos to Matt Taibbi for his excellent Wall Street’s Bailout Hustle. As I said to Members, if it wasn’t for Matt and Dylan Ratigan, I would have to be writing about this stuff instead of following the markets. Thank goodness there are a few top-notch people investigating this nonsense with the ability to communicate their findings in a way that makes it interesting:
The nation’s six largest banks — all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry — set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007.
The question everyone should be asking, as one bailout recipient after another posts massive profits — Goldman reported $13.4 billion in profits last year, after paying out that $16.2 billion in bonuses and compensation — is this: In an economy as horrible as ours, with every factory town between New York and Los Angeles looking like those hollowed-out ghost ships we see on History Channel documentaries like Shipwrecks of the Great Lakes, where in the hell did Wall Street’s eye-popping profits come from, exactly? Did Goldman go from
The people at the Council on Foreign Relations speculate that US interest rates on Treasury debt will be increasing around the end of the first quarter if the Fed discountinues its monetization of mortgage debt.
As the Fed has essentially purchased ALL new US Treasury issuance since 2009, that seems to be a reasonable bet.
"The Federal Reserve plans to stop buying securities issued by government housing loan agencies Fannie Mae and Freddie Mac by the end of the first quarter.
This is not only likely to push up mortgage rates; Treasury rates should rise as well. Throughout 2009, the private sector sold a portion of their agency holdings to the Fed and used those funds to buy Treasurys.
Once the Fed’s agency purchases stop, this private sector portfolio shift will end, removing a major source of demand in the Treasury market.
As the chart shows, since the start of 2009 the Fed has bought or financed the entire increase in Treasury issuance. As Fed purchases slow and Treasury issuance continues at a high level, interest rates will have to move up to attract new buyers."
The futures were drifting along until 3 am and the Shanghai Composite had closed down 2.3% at 2,897. At 3:23 the Hang Seng was looking to close down as well but then Gordon Brown, the UK Prime Minister, on his way to the G20 meeting in Pittsburgh this week said:
The stimulus that we have still got to give the world economy is greater than the stimulus we have already had. What we want to do is safeguard a recovery from a recession we feared would develop into a depression… By meeting at Pittsburgh, we are looking at how we can put in place for the future the mechanism or path that can lead us to either making decisions about better ways of creating growth that is sustainable in the future, a better early warning system for the world economy about potential crises, a better way of resolving difficulties or imbalances around the world.. I have been talking to many countries in Asia as well as in Europe, and I have been talking to President Obama and others, and I believe that there is support for that framework.
WooEee! More free money!!! No sooner did the words come out of Mr. Brown’s mouth than the Hang Seng began to climb, reversing a down day to finish up 228 points, right at the 21,700 line they have been struggling to hold since last Thursday. Gold flew up to $1,020 and oil jumped to $71 worthless-looking dollars and, as usual, once Asia closed, the dollar was free once again to drift down to 91 Yen (Japanese markets were closed today). But, despite his performance, Gordon Brown may not win today’s Globey Award for blatant market manipulation.
Brown’s performance was great – make a bold statement that indicates another $13Tn or more may be dumped on the Global economy and insinuate the the whole G20 is behind him before jumping on a plane, leaving the British tabloids (owned by Gang of 12 member Rupert Murdoch) to boost the market for 2 days in a row – BRILLIANT!
But, he does have serious competition this morning by not one, not two but THREE Gang of 12 members as UBS, GS and JPM triple teamed up and all issued reports saying "Russian stocks are poised to surge, extending an 88 percent rally this year, as the economy’s recovery spurs profits." "Earnings growth is set to be…
Ray Dalio has created a machine at hedge fund Bridgewater – not only have assets surpassed $120B, the fund continues to churn out some fantastic results for investors. Through end of August last year, the fund was up 25% YTD (and that was after an awful August for markets, and before the stampede upward of October); this after a 44% gain in 2010. Longer term, ...
The US Dollar was up and the market was down on minimal volume. And yup, that's about the extent of today's action. The biggest gainer on my watch list of 125 securities was Bankrate (RATE) with a paltry +0.8% return. Updated market charts below. See you tomorrow!
Major US Markets including (NYSEARCA:DIA), (NYSEARCA:SPY), (NASDAQ:QQQ), and (NYSEARCA:IWM) dropped over 3% each on Italian bond fears and an increased worry that Europe will not be able to bail out its 4th largest economy. Furthermore, the iShares MCSI Italy Fund (NYSEARCA:EWI) wiped out over 9% today, further illustrating the dire situation in Italy and the European Union: ...
Markets dropped slightly lower today on G-20 news, mixed economic reports, and Grecian woes.
After the confusing market action on Wall Street this week, it seems that markets cannot make up their minds after last week’s euphoric rally and Euro-zone compromise. It appeared that markets were on a meteoric rise that could have possibly carried us into Christmas, however Prime Minister Papandreou’s referendum call for Greece and MF Global’s bankruptcy soured the mood.
The SPDR Gold Trust (NYSEArca:GLD) dropped half a percent today; the fall likely represents the current troubles of MF Global Holdings (NYSEArca:MF), which filed for bankruptcy earlier this week. MF Global has ...
The second economic disappointment of the day comes from the Dallas Fed, which dropped from -2.0 to -11.4 on expectations of -9.0- this was the 4th consecutive negative print month. The report was, in a word, horrible, with just 2 of the 15 constituent indices posting an increase, and the bulk solidly in the red, led by Unfilled and New Orders which dropped 16.8 and 11.2, respectively: not good for economic growth. On the employment side there was nothing good either, with both employment and hours worked declining by -...
Bloomberg reports that Diana Containerships (NASDAQ: DCIX) files to offer stock up to $172.5M. Diana Containerships says that Diana shipping will also buy $20M of stock.
Top 5 RisersStockRatingAnalysisVLOSTRONGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make Valero a good prospect for high returns.KROSTRONGBUYKronos Worldwide has been gaining recognition from analysts as a good canditate for achieving higher than expected earnings along with higher overall projected valuation.SFIBUYiStar is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.AMATSTRONGBUYApplied Materials has been...
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February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
 
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation wit...
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...
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Wheee, that was fun! 
Yesterday wasn’t a disaster at all - just a simple pullback after a huge run. If Greece gets worse, we can fall more, but I doubt the EU will let it and if Goldman gets worse, it can take down the financials but I doubt that will happen and if the Fed tightens policy and stops giving the banks free money which the banks only use to lever up into new derivative plays to destroy what’s left of our economy… I’m sorry, that last one was so ridiculous I have to stop. The…
Hugo Chavez is 
The dollar is diving and the futures are flying this morning!
The EU is also meeting to discuss ways to reign in hedge funds and credit-default swaps but the 
Yesterday was disappointing, to say the least as we blew all of our bounce levels EXCEPT the Russell, which finished right on our 625 line. That makes the RUT our canary in the coal mine today as we’ll use it to see which way the market winds are blowing. We didn’t mind yesterday’s sell-off as it was led by a 2.2% drop in Basic Materials and Energy – two sectors we were betting against anyway and we just upped our bets against CRE after skipping most of February as the timing hadn’t seemed right. 
The Congressional Oversight Panel on the financial system bailouts said in a Feb. 10 report that “the ultimate impact of the commercial real estate whole loan problem will fall disproportionately on smaller regional and community banks” that have higher concentrations of such loans. “Some community banks seemed to have abandoned, or never really practiced, sound risk management” by lending too much on real estate in their local markets, David A. Hendler, New York-based analyst for CreditSights Inc., said in a Feb. 22 note. 
The Fed raised the discount rate – Big Deal! 
The nation’s six largest banks — all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry — set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007.
What a morning already!
WooEee! More free money!!! No sooner did the words come out of Mr. Brown’s mouth than the Hang Seng began to climb, reversing a down day to finish up 228 points, 
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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
(
