Nearly a year after Lehman Brothers collapsed, hedge funds are still waiting for the return of money held in prime brokerage accounts by Lehman Brothers International (Europe). More than $35 billion of hedge fund assets were frozen when the bank collapsed. For months the hedge funds have argued that the money needed to be returned to them promptly to avoid their own collapse. Around $13 billion has already been returned. Now PricewaterhouseCoopers, the administrators for bankrupt Lehman’s London-based unit, have put forth a plan that would let hedge funds recover up to $11 billion of those frozen assets. The proposal requires approval by 90 percent of Lehman’s clients, who have until December 2 to vote on the plan. If the plan is approved, PwC hopes to set a deadline for funds filing claims for the end of February. The assets could be returned by the end of March. An earlier attempt to speed up the return of the hedge fund assets was struck down by British courts. The long delay in getting assets out of Lehman demonstrates the wisdom of the modern day runs on the banks that we saw last year, when funds tried to pull money out of firms that were rumored to be in trouble. That was often described as a panic. But, with hindsight, we can now see that leaving money inside a failing financial firm can have serious costs. Reuters has more on the latest developments . Read the original post: Hedge Funds May Get $11 Billion Out Of Lehman Brothers As Early As March
FOMC MINUTES
No big surprises in today’s FOMC minutes. The Fed sees the economy rebounding and will remain accommodative. I did find this line somewhat amusing, however: “As in June, nearly all participants judged the degree of uncertainty surrounding their projections of output growth and unemployment as higher than historical norms.” Ben Bernanke’s already broken crystal ball is even more cloudy than usual. That likely means further dollar devaluation and ultra low interest rates until we recreate the next great financial crisis. Ben’s reactive approach continues…. Read the original post: FOMC MINUTES
RISK AVERSION TAKES A BACK SEAT
Tough words from Chinese bank regulators sent the Shanghai Index toppling 3.5% last night and also sent the dollar soaring as investors poured out of the risk trade. The dollar carry remains a focal point of the rally. Today’s FX View from IB : A slew of overnight woes concerning the health of banks around the world was limited in its support for the U.S. dollar. One year ago that evidence would have been enough to raise the heartbeat of the bears and send the pre-market futures down by 2%. Today, equity index futures continue to point to another positive North American session and the net impact is to provide a prop for the euro rather than the U.S. dollar. The euro also rose after the strongest reading for 15 months in a poll of investor sentiment. The euro is back to unchanged on Monday’s close at $1.4975. Asian markets felt the full impact of a fresh health-scare for Chinese banks. Shanghai stocks slumped 3.5% overnight after the mainland banking regulator warned banks to meet industry capital requirements or else be prepared to face its sanctions. According to media reports, a source with knowledge of the plans says that at least four Chinese lenders have submitted capital raising plans to regulators. An S&P report used in-house metrics to look at risk-adjusted capital ratios of European banks and served up a warning to several houses including UBS, Allied Irish and BBVA. In the meantime, Lloyds Banking Group announced terms of its attempted largest-ever domestic rights issue with a near-60% discount to where its shares are trading. Finally, WestLB – the state-owned regional German lender is reportedly going to be allowed to fail by its majority owners according to a major Frankfurt-journal. The bank said later that it is in discussions with SoFFin, the German financial market stabilization fund to isolate its toxic assets. Yet while all of the above continues to unwind negative news about the health of the financial sector we have to point out that as much as it is newsworthy today, it’s hardly new news. So some major banks are enacting plans to raise capital. Isn’t this a good thing? It is in our minds. Failure to accomplish the feat could be taken as a negative in the event that these entities fail to attract fresh cash and at the same time prevailing investors walk away. Hence our headline today that risk aversion is taking a back seat. The euro rebounded from an overnight low at $1.4888 after a report showed that German business confidence rose in November to a 15-month high. The IFO institute’s reading of sentiment from 7,000 business executives came in strong with a reading of 93.9 and above the expected 92.5. Third quarter manufacturing demand has boosted prospects for growth especially at a time when inventories were allowed to slip. The most significant component of today’s report comes from the 98.9 reading for expectations about the future for the economy. This confirms what we note above that current perceptions reflect buoyancy after the measures aimed at dealing with the stability of the financial sector. While today’s warnings might be necessary to keep a tight rein on the financial sector, it is ultimately beneficial for the ongoing recovery process. The dollar continues to lose ground against the Japanese yen at ¥88.68 with the yen refusing to cede ground against the dollar after as the initial bout of risk aversion appeared to subside. It very much confirms that the dollar’s loss of status is set to continue. The British pound continues to pare earlier losses against the dollar and is up to $1.6583 from an overnight low at $1.6504. Bank of England data shows a modest rise in the number of mortgage approvals while lending to consumers and businesses dropped again. In a quiet Australian session the Aussie dollar came under some selling pressure, reacting quickly to the latest bout of risk aversion as investors continued to lighten the load somewhat on long Aussie positions. At 92.06 U.S. cents the Aussie is firmly off its overnight low of 91.55 cents. Source: IB Follow this link: RISK AVERSION TAKES A BACK SEAT
Get Gold Exposure For Just $940 An Ounce
RBC has calculated that gold-related shares are currently pricing in a long-term gold price of $940, according to a chart highlighted by FTAlphaville . While such excel-model calculations always need to be taken with a grain of salt, by RBC’s numbers Barrick Gold (ABX) appears as relatively under-valued. It would be interesting to see by what model RBC arrives at these valuations. Barrick, for example, doesn’t only produce gold. See the rest here: Get Gold Exposure For Just $940 An Ounce
INSTITUTIONS TURN NEUTRAL ON THE RALLY, CONFIDENCE FADES
After buying into the rally late last year, institutions have been selling into the rally since August according to the latest investor confidence survey from State Street. At a reading of 100 institutions are no long allocating capital towards equities and have clearly moved to a more defensive posture since late summer. Investors in Asia have turned decidedly more bearish as institutions reallocate capital from stocks to less risky assets. The reading of 91.2 in the Asia represents a high level of pessimism regarding the recent move in equities. This change in risk tolerance has also been evident in the underperformance of small cap stocks compared to large caps . The founders of the index, Ken Froot and Paul O’Connell had these comments on this morning’s reading: “Across all regions, institutional investors are largely treading water; neither increasing nor reducing their aggregate holdings of risky assets,” commented Froot. “However, the aggregate figures mask some country- and region-specific views. This month, for example, institutional investors aggressively pared their holdings in selected markets, such as Australia, while continuing to add to their emerging markets holdings. Overall, investors are displaying some caution about the current level of equity valuations, and a desire to see more evidence of real economic activity and aggregate demand, particularly in the US, before adding to equity exposures.” “European investors displayed some increased optimism this month, but elsewhere the evidence is that investors are in a consolidating mood,” added O’Connell. “There is an awareness that structural issues such as the US current account deficit, the Asian current account surplus, and the long-run decline of manufacturing employment will need time to be worked out. In the interim, governments continue to support demand, but investors have an eye on both the temporary nature of the stimulus, and its impact on the overall debt burden.” The big money is becoming skeptical of the rally. Along with the recent increase in insider selling this data becomes difficult to ignore particularly considering their prescience in allocating capital in late 2008 and early 2009. Original post: INSTITUTIONS TURN NEUTRAL ON THE RALLY, CONFIDENCE FADES
Emerging Stock Report Initiates Independent Research Coverage on NexMed, Inc. (GlobeNewswire)
CALGARY, Alberta, Nov. 24, 2009 (GLOBE NEWSWIRE) — Emerging Stock Report, a leading provider of sector specific independent investment research, today initiated coverage on NexMed, Inc. (Nasdaq: NEXM – News ). Emerging Stock Report is currently offering a complimentary trial subscription to the investment community. To view the Report in its entirety visit: http://www.emergingstockreport.com To get our alerts AHEAD of the market follow us on Twitter: http://twitter.com/EmergingStockRe About ESR: Emerging Stock Report is a leading provider of independent investment research for North American companies. Our services include research analysis on emerging growth companies, sector specific research, real-time news and financial data, market commentary and the ESR newsletter. Emerging Stock Report’s staff of investment professionals are dedicated to providing the the tools and resources necessary to help make important investment decisions. To view our research reports on a complimentary trial basis and take advantage of our other services, visit http://www.emergingstockreport.com and click on the complimentary trial subscription button on our home page, or go directly to our registration page at http://emergingstockreport.com/register.php About NexMed, Inc.: NexMed’s pipeline includes a late stage terbinafine treatment for onychomycosis, a late stage alprostadil treatment for erectile dysfunction, a Phase 2 alprostadil treatment for female sexual arousal disorder, and an early stage treatment for psoriasis. For further information, go to www.nexmed.com . ESR Disclosure: Emerging Stock Report is not a registered investment advisor and nothing contained in any materials should be construed as a recommendation to buy or sell any securities. Emerging Stock Report has not been compensated by any of the above mentioned companies. Please read our report and visit our Web site, http://www.EmergingStockReport.com , for complete risks and disclosures. Follow this link: Emerging Stock Report Initiates Independent Research Coverage on NexMed, Inc. (GlobeNewswire)
Emerging Stock Report Initiates Independent Research Coverage on AgFeed Industries, Inc. (GlobeNewswire)
CALGARY, Alberta, Nov. 24, 2009 (GLOBE NEWSWIRE) — Emerging Stock Report, a leading provider of sector specific independent investment research, today initiated coverage on AgFeed Industries, Inc. (Nasdaq: FEED – News ). Emerging Stock Report is currently offering a complimentary trial subscription to the investment community. To view the Report in its entirety visit: http://www.emergingstockreport.com To get our alerts AHEAD of the market follow us on Twitter: http://twitter.com/EmergingStockRe About ESR : Emerging Stock Report is a leading provider of independent investment research for North American companies. Our services include research analysis on emerging growth companies, sector specific research, real-time news and financial data, market commentary and the ESR newsletter. Emerging Stock Report’s staff of investment professionals are dedicated to providing the the tools and resources necessary to help make important investment decisions. To view our research reports on a complimentary trial basis and take advantage of our other services, visit http://www.emergingstockreport.com and click on the complimentary trial subscription button on our home page, or go directly to our registration page at http://emergingstockreport.com/register.php About AgFeed Industries, Inc.: AgFeed Industries ( www.agfeedinc.com ) is a U.S. company with its primary operations in China. AgFeed has two profitable business lines — animal nutrients in premix and blended animal feed and hog production. AgFeed is one of China’s largest commercial hog producers in terms of total annual hog production as well as one of the largest premix feed companies in terms of revenues. China is the world’s largest hog producing country that produced over 625 million hogs in 2008, compared to approximately 100 million hogs produced annually in the U.S. China also has the world’s largest consumer base for pork consumption. Over 62% of total meat consumed in China is pork. Hog production in China enjoys income tax free status. The pre-mix feed market in which AgFeed operates is an approximately $1.6 billion segment of China’s $40 billion per year animal feed market, according to the China Feed Industry Association. ESR Disclosure : Emerging Stock Report is not a registered investment advisor and nothing contained in any materials should be construed as a recommendation to buy or sell any securities. Emerging Stock Report has not been compensated by any of the above mentioned companies. Please read our report and visit our Web site, http://www.EmergingStockReport.com , for complete risks and disclosures. See the rest here: Emerging Stock Report Initiates Independent Research Coverage on AgFeed Industries, Inc. (GlobeNewswire)
The FDIC Is Broke
Yes, really. Off the wire this morning: FDIC Deposit fund had negative $8.2B balance in Q3 That’s broke. Bankrupt. Kaput. Gone. Poof. Dead. Rotting. A corpse. Yes, yes, I know, Treasury has their back. But let’s not forget – The FDIC does not have a legal “full faith and credit” guarantee from the US Federal Government and Treasury. It has a “sense of Congress” resolution, but not a formal, legally-binding guarantee. I am not, by the way, predicting an actual FDIC failure to pay. Should such an event happen it would be tantamount to a declaration of revolutionary war (by the government about to be deposed!) as if there is one thing that would cause Granny to reach for her shotgun, it would be getting screwed out of her life savings after Sheila Bair and everyone else in our government has trotted out how their money is “fully safe” and that “nobody has ever lost a penny of insured deposits and never will ” for more than 20 years, including lots of pronouncements of exactly that mantra over the last year. Nonetheless this outlines the underlying problem the FDIC has – it has willfully and intentionally ignored the fact that banks have mismarked their “assets” to overstate their values, it has refused to demand that accounting be done on a strict “mark to market” basis by bank examiners, and indeed, it has backed the “extend and pretend” commercial real estate “rollover” provisions of recent months, all of which is manifestly unsound and intentionally misleading . The result? THE FDIC IS BROKE . Let’s put this in common-man terms: YOUR SO-CALLED “DEPOSIT INSURANCE” AND THE SEVERAL TRILLION IN CITIZEN BANK DEPOSITS ARE BACKED BY THE SAME AMOUNT OF CAPITAL THAT AIG HAD TO BACK THEIR CREDIT DEFAULT SWAPS: BUPKIS . Congratulations Sheila – is that your resignation I see in your hand or is that your promotion from Obama – after all, we all know that in Government the more you screw up and screw the taxpayer, the better the job you’re offered. See the rest here: The FDIC Is Broke
GDP: 20% Miss (Yes, Really)
GDP 3Q 2009 “Second Estimate” is out and it is 2.8%. But let’s remember – it was 3.5% on the “preliminary” report. That’s a 20% decline. Was that an error, or was that an intentional overstatement to pump the markets and “confidence” in the original “preliminary” estimate? Oh, and cash-for-clunkers? It was responsible for half of the so-called “advance” in the 3rd quarter (1.45%), it was a one-time deal, and it was and is just more pulled-forward demand. Government expenses? Up 8.3%. State and local governments? They were essentially flat (down 0.1%) The GDP report also claims that real domestic purchases were up 3.5%, but the sales tax report says otherwise. Where did the “error” come from? The second estimate of the third-quarter increase in real GDP is 0.7 percentage point lower, or $23.7 billion, than the advance estimate issued last month, primarily reflecting an upward revision to imports and downward revisions to personal consumption expenditures and to nonresidential fixed investment that were partly offset by an upward revision to exports. Commercial Real Estate and actual personal spending. Both not what they claimed. Gee, such a shock, given the sales tax data from the states. NOT . PS: The claimed numbers are still, in my opinion, BS, as the sales tax numbers from the states do not support the claimed “expansion.” Link: GDP: 20% Miss (Yes, Really)
Housing: Yes, That Was (And Is) A Train Wreck
The WSJ is starting to “get it” when it comes to housing: Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif. …. Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home’s value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American. …. Homeowners in Nevada, Arizona, Florida and California are more likely to be deeply under water, according to the analysis. In Nevada, for example, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth, said First American. More than 40% of borrowers who took out a mortgage in 2006 — when home prices peaked — are under water. Prices have dropped so much in some parts of the U.S. that some borrowers who took out loans more than five years ago owe more than their home’s value. This is the consequence of making loans that you have no reasonable expectation can and will be paid on the original terms. Folks, this is really quite simple when you distill it all down. It comes down to the underlying free-market principle of sound lending: The check and balance for both borrowers and lenders against making or taking out bad loans – that is, loans that you will not be able to pay as agreed – is that both lender AND borrower will go bankrupt . The gross injustice in our nation today is that over the last twenty years we have increasingly forced borrowers who take out bad loans to not only go bankrupt but be unable to discharge their debt, so long as they are individuals . The corporate bankrupt, however, maintain their “corporate veil” and thus can file Chapter 11 – or 7 – with impunity. This is the root of the problems in our economy. It is the root cause of the credit bubble. It is the root cause of the housing bubble and the ridiculously-pumped pulled-forward demand curve that is now inexorably collapsing, despite the protests of The Fed, Treasury and The Administration. We will not return to a balanced economy capable of organic growth so long as this imbalance exists. We are precisely emulating the idiotic and in fact criminally-insane stupidity that was practiced in Japan when their property bubble imploded. Desperate to protect the politically-connected banking interests that had become entrenched as a result of structural decisions within the Japanese Central Banking system the Japanese government knelt before the banking interests and allowed them to sweep their bad debt under the carpet. But that bad debt constrained lending and business activity, just as it has and is here. This in turn prevented real economic expansion, just as it is here. GDP growth was all government spending, but constrained in the ability to tax by weak consumption and pricing power, the government found itself on the business end of a debt ratio spiral – just as we are now here. The root cause in both cases is the concept of “primary dealers” – favored banks that in our case are the “agents” of The Federal Reserve and who deal with The Fed and Treasury in the market for federal debt. By creating these “Super Banks” the government and Fed have put the bank before the nation, and allowed themselves to be led around by the nose – literally. What other explanation is there for UBS, for example, retaining its banking charter after admitting that it helped Americans intentionally evade taxes? For Goldman being able to securitize and sell debt – without civil or even criminal consequence as documented in my November 20th Ticker relating to certain “subprime” loans? For Citibank being bailed out from bankruptcy at least three times (and maybe four?) in the last 20 years? Let’s face reality folks – the “primary dealer” concept and implementation is nothing other than government capture. It is a scam. It is a device intended to profit a handful of ultra-large multinational firms at the direct expense of the American People – not just every day as they skim off their margin for “distributing” Treasury debt, but to an even larger degree whenever they decide to ignore the requirements of safe and sound lending and put the entire economy and indeed the government’s viability in jeopardy. This piece of embedded corruption provides cover for criminal conduct (felony tax evasion by American taxpayers) and knowingly unsound lending, with these firms confident that the US Taxpayer will be obligated to bail them out should there be trouble. But in this case the bailout has embedded structural trouble into the system, just as it did in Japan. And let’s not kid ourselves – all we’ve done when it comes to housing is shift where the risk is. Recent analysis has shown that the FHA’s “AUS TOTAL” decision-making program (computer-based underwriting) has been intentionally calibrated to produce unsustainable loans. Indeed, as I have documented FHA will provide an “approve” return on DTIs (when one includes the FHA “fudge factors”) as high as 49% of gross income. This is clearly an unaffordable loan and is reflected in the current FHA delinquency and foreclosure rate which stands, at this point at more than one in five loans . The true ugliness here is that these stats are far worse than they first appear. Why? Because more than half of the FHA total loan portfolio has been originated in the last two years. Consider what this default ratio means given the portfolio composition, as there are only two possibilities – either the FHA is intentionally making loans that are defaulting quickly, within the first 24 months, or the older FHA loans are defaulting at an astronomical rate. FHA is less-than-forthcoming when it comes to testimony before Congress on this point, and apparently, Congress has buried its head in the sand as well. Indeed, we have Congresspeople making statements that making dangerously-unsustainable loans is a “policy” intended to head off housing price declines. But does and will it? Does giving someone a loan that will foreclose in a year or two actually head off housing declines? Or does it simply bankrupt more Americans and defer the inevitable house price decline by a short period of time – a year or two at most, perhaps as little as a few months? If the latter then this sort of institutionalized rape of our citizens, this time under explicit Congressional authorization as a matter of “policy”, is in fact nothing more than yet another scam to allow those “primary dealers” (and others) to unload their deeply-underwater and compromised MBS into the government – where they will then detonate, forcing the taxpayer to bear a loss that should have been taken by those who lent money without a reasonable expectation of being paid back on the original terms. Continue reading here: Housing: Yes, That Was (And Is) A Train Wreck