1--25th Sequential Stock Fund Outflow, $81 Billion Year To Date, zero hedge
Excerpt: Today, Investment Company Institute (ICI) reported the 25th outflow in a row. Total YTD money redeemed is now $81 billion. From the market bottom in July, all the way to the current 2010 highs, the market has seen $51 billion in 16 sequential outflows. So to recap: mutual funds are not buying, pensions are not buying, retail is no longer even remotely interested in touching stocks... yet the market surge won't end. Some 2010 market highs money can't buy. For everything else, there's Bernanke Card. It is clear now that in the Fed's pursuit of chasing the "wealth effect" of the 1,000 or so remaining traders, logic will simply not stand in the way. (Retail investors no longer trust US markets. They are withdrawing their money and exiting)
2--Insider Selling To Buying Update: 2,019 To 1, zero hedge
Excerpt: Just when everyone thought we may see some moderation in the wholesale dumping of equities by those who actually know what their companies are worth better than moronic stock pumpers on stations that are rapidly losing their viewership, here come the same insiders and pull the rug right from underneath the latest batch of hot potato recipients... last week ... selling outpaced buying on the S&P by a factor of 2,018. Insiders in Oracle, GameStop, Google, CSX and General Mills appear to be particularly partial to the new black. Something tells us CNBC will not pick up this particular piece of news.
3--Goldman Advises Clients To Front Run The Fed Via POMO, zero hedge
Excerpt: After a few months of breaking down what the simplest trade in the world is, that would be frontrunning the Fed for the cheap seats, Zero Hedge is happy to advise our readers that finally Goldman Sachs itself has capitulated and is now indirectly telling its clients to frontrun Ben Bernanke via POMO. No complicated value investor nonsense, no pair trades, no cap structure arbitrage, no hedging, no levered beta plays. Buy ahead of POMO. Sell. Rinse. Repeat.
From a GS distribution to clients:
"On the interplay between the FED and STOCKS: Since Sept 1 – when QE was becoming a mainstream focus – if you only owned S&P on days when the Fed conducted Open Market Operations (in US Treasuries), your cumulative return is over 11%. in addition, 6 of the 7 times when S&P rallied 1% or more, OMO was conducted that day. this compares to a YTD return of 5.8%. the point: you would have outperformed the market 2x by being long on just the 16 days when – this is the important part – you knew in advance that OMO was to be conducted. The market's performance on the 19 non-OMO days: +70bps."
And there you have it - the top in frontrunning the Federal Reserve is now in. (Truly amazing. The Fed buys Treasuries and--presto--the market goes up)
4--Junk Bond Sales Set October Record; Mortgage Bonds Rally: Credit Markets, Bloomberg
Excerpt: Sales of junk bonds in the U.S. set a record for October as returns topped investment-grade debt and more borrowers were raised than cut. Government-backed mortgage bonds may beat Treasuries by the most in at least 10 years.
Fortescue Metals Group Ltd. and Calpine Corp. led speculative-grade companies issuing $33 billion of debt this month, according to data compiled by Bloomberg. The notes have gained 2.32 percent on average in October, compared with a loss of 0.16 percent for high-grade securities, Bank of America Merrill Lynch Index data show. Not since March have high-yield, high-risk securities outperformed by such a wide margin.
Investors have driven relative yields down to the lowest in five months on confidence the Federal Reserve will flood the economy with money, allowing the neediest borrowers to access capital and refinance debt. (The Fed is pushing investors into risky assets by keeping interest rates low)
5--Double Dip Delayed, Not Derailed; Understanding Consumer Spending, Mish's Global Economic trend Analysis
Excerpt: (From David Rosenberg's "Breakfast with Dave")U.S. REAL FINAL SALES 60 BASIS POINTS SHY OF DOUBLE-DIPPING
The major problem in the third quarter report was the split between inventories and real final sales.... If we do get a slowdown in inventory investment in Q4, as we anticipate, it would really not take much to get GDP into negative terrain....
The recession may have technically ended, but outside of inventories, and the best days of the re-stocking process look to be behind us, this has been a listless recovery....Here is the bottom line: the double-dip has been delayed but not derailed; despite widespread cries from the economic elite to the opposite. The economic recovery is extremely fragile and unless we get an improvement in real final sales, all it would take would be a modest inventory drawdown to pull real GDP back into contraction mode.
6--A big smooch for the stimulus bill, Salon
Excerpt: From Santa Cruz, Calif., with love: A demonstration of how government can create demand. (An outstanding 2 minute video on how Obama's stimulus really worked for small business startups. Why isn't the Democratic party using this to get votes in the midterms?)
7--Foreclosuregate Explained: Big Banks on the Brink, Truthout
Excerpt:In the wake of mounting public outrage, attorneys general of 50 states and the District of Columbia have launched a joint investigation into what financial writers are calling "Foreclosuregate." Industry spokespersons have downplayed the controversy surrounding foreclosure mills and "robo-signers."...."The bottom line is not that those properties won't be repossessed. They simply won't be repossessed as quickly," said Rick Sharge, vice president of RealtyTrac. But others predict that if GMAC and Bank of America stick to their guns, they just might go down in smoke....
"When they tried to industrialize the loan securitization market, which is really what they did, they tried to automate everything they could. They started digitizing loan documents and shredding originals.... and, of course what that means is, we have no clue who owns what," foreclosure expert Walter Hackett told PBS "Newshour."...
One foreclosure expert estimates that just 6 to 7 percent of the loans made in the last three years can produce properly recorded title transfers from borrower to final lender..... On many mortgages, the loan owner's name was routinely left blank, the titles never recorded and title transfer fees not paid.
"This is not simply a glitch in paperwork," wrote Iowa Attorney General Tom Miller, who is heading up the states' joint investigation into the mortgage paper fraud mess.
"This was an industry wide scheme designed to defraud homeowners," Florida attorney Peter Ticktin told The Associated Press.
They hired foreclosure mills to retroactively produce documents showing the chain of ownership ended with them. In many cases, foreclosure mills provided affidavits of lost mortgage notes attempting to prove banks' control of mortgages in hopes of winning a favorable judgment.
Banks are in a big pickle. If they can prove they own the title to properties they want to foreclose on, they are liable to the IRS for unpaid taxes and penalties. If they don't, the are liable to be sued by bond holders for lack of due diligence in the bundled mortgages they sold to investors. (Must read)
8--Desperate Measures, The New Republic
Excerpt: Still, a deal on infrastructure spending may not be entirely out of reach, at least if the White House is ruthless enough. One idea along these lines comes care of David Shulman, a senior economist at UCLA’s Anderson Forecast center. Shulman proposes a several-hundred-billion dollar infrastructure package in which the administration agrees to suspend Davis-Bacon, the law requiring contractors for government-funded construction projects to pay locally prevailing wages, as deemed by the Labor Department. (while gutting environmental laws)...
Launch a massive, unilateral homeowner bailout. ...By far the biggest source of household debt is, of course, houses. Mortgages represent about three-quarters of the total, according to the most recent numbers from the New York Fed—or about $9 trillion out of $12 trillion. If the government were able to slice $1 trillion off of this sum, it could dramatically accelerate the timeline for consumers to resume their spending.....The good news is that the administration could do it without congressional approval. Fannie Mae and Freddie Mac basically have an unlimited credit line with the U.S. Treasury, and the government has controlled Fannie and Freddie since it seized them in 2008.... Fannie and Freddie eat the whole cost themselves, or do they split the losses with banks? Etc., etc. But the bottom line is that it can be done. (GOP "wish list")
9--Tax Shortfalls Spur New Fear on Europe’s Recovery Bid, New York Times
Excerpt: With economic conditions weaker than expected, tax revenue is coming up short of projections in parts of Europe. As a result, countries struggling with high deficits are now confronting the prospect that they will miss the budget deficit targets forced upon them this year by impatient bond investors.
Greece, for one, looks as if it will run a budget deficit for 2010 greater than the 8.1 percent of gross domestic product it agreed to as part of a rescue package from the International Monetary Fund and the European Union that amounted to more than $150 billion, according to a person briefed on the matter but not authorized to speak about it....
But after the latest upward revision in Greece’s 2009 deficit — to about 15.5 percent from 13.5 percent of output — the miss has spurred investor fears that the Greek government will be unable to close the gap and that Greece may ultimately be forced to restructure its mountain of debt with foreign investors.
As word seeped into the market on Wednesday, Greek 10-year bond yields jumped to 10.3 percent, from 9.3 percent.....
In Ireland, which is expecting its third consecutive year of economic contraction this year, the government says it will need an additional 15 billion euros in budget cuts to reduce its deficit from 32 percent of gross domestic product to 3 percent by 2014.
And in Portugal, the government is struggling to meet its deficit target of 9 percent of output as the economy continues to weaken.
Spain also faces a difficult task in slicing its deficit to 6 percent next year, from 11 percent last year, in the face of a slumping economy. (Austerity programs are failing everywhere. Keynes still "Rules")
10--Cheap Debt Fuels Private-Equity Revival, New York Times
Excerpt: The Blackstone Group and the Carlyle Group demonstrated on Thursday that the private-equity industry is thriving amid a weak economy.....cheap corporate debt is fueling the recovery of the private-equity business. While it remains difficult to get a mortgage to buy a home or to get a loan to finance a small business, yield-starved investors are creating a robust market for corporate bonds and loans.
Private-equity firms are seizing upon the corporate-debt boom in myriad ways. For the debt-heavy companies they already own, Blackstone and Carlyle are improving their balance sheets through aggressive refinancing. Corporate loans are now available to do multibillion-dollar buyouts, too, but the easy lending environment has created fierce competition for takeover targets, driving up prices. The corporate loan market “is almost hard to believe,” Mr. James of Blackstone said.
Private equity’s outlook is certainly brighter today than it was one year ago. Buyout firms have made $173 billion worth of deals so far this year, up 95 percent from last year, according to data from Thomson Reuters. (The parasites are back in full-force, thanks to the Fed's low interest rates. Onward to Bubbleland!)
11-The Moral Equivalent of Stagflation, Paul Krugman, New York Times
Excerpt: So what’s the parallel with the Nipponization of the U.S. economy? Well, like the stagflation of the 1970s, our current predicament was predicted well in advance. Liquidity-trap theorists...told you what would happen if the economy suffered a sufficiently severe negative shock, one that pushed us up against the zero lower bound. We predicted, specifically, that:
1. Increases in the monetary base would fail to increase broad monetary aggregates, let alone boost the economy
2. Despite large monetary base expansion, the economy would slide toward deflation, not inflation
3. Despite large budget deficits, interest rates would stay low, because short-term rates would stay pinned at zero...
Everything that has happened these past two years has fit that basic model; meanwhile, those who failed to accept the implications of the liquidity trap have been wrong over and over again.
But here’s the thing: I see no signs of a rethink among most players. The slide toward deflation despite huge increases in the monetary base hasn’t shaken either the paleomonetarists who still predict hyperinflation or the it’s-all-the-Fed’s-fault crowd.
12-Eurozone worries rising, Naked Capitalism
Excerpt: Irish bonds declined this week, pushing the extra yield that investors demand to hold the nation’s 10-year debt instead of benchmark German bunds to within two basis points of a euro- era record yesterday. The so-called spread widened 20 basis points in the week to 425 basis points. The Portuguese 10-year spread over bunds widened to as much as 355 basis points yesterday from 339 basis points at the end of last week...
Greek, Irish and Spanish banks are falling behind their counterparts across Europe in reducing their dependence on emergency central bank funding because they can’t find investors willing to buy their bonds.
Lenders from those three nations took 61 percent of the loans supplied by the European Central Bank at the end of September, up from 51 percent the previous month, data from their respective central banks show. Overall, the region’s banks cut their funding to 514.1 billion euros ($716 billion), the least since Lehman Brothers Holdings Inc.’s collapse in September 2008, according to ECB figures.
Deutsche Bank AG, HSBC Holdings Plc and Societe Generale SA have sold new debt since regulators stress-tested 91 of the region’s lenders in a bid to rebuild confidence in their creditworthiness. By contrast, bonds of all lenders in Portugal, Ireland and Greece are trading as though junk rated, as are a third of banks in Spain, according to data compiled by Bank of America Corp. Their struggle to sell debt will make it harder for the ECB to curb loans to banks on Europe’s periphery. (Bloomberg) (The EU's problems persist although mainly out of the mainstream news)