Zombie Company AIG in need of more brai....err billions

From NYT

After Rescue, New Weakness Seen at A.I.G.
In the months since A.I.G. received its $182 billion rescue from the Treasury and the Federal Reserve, state insurance regulators have said repeatedly that its core insurance operations were sound — that the financial disaster was caused primarily by a small unit that dealt in exotic derivatives.
But state regulatory filings offer a different picture. They show that A.I.G.’s individual insurance companies have been doing an unusual volume of business with each other for many years — investing in each other’s stocks; borrowing from each other’s investment portfolios; and guaranteeing each other’s insurance policies, even when they have lacked the means to make good. Insurance examiners working for the states have occasionally flagged these activities, to little effect.

Here's the kicker:

"An organization like this one relies on constant, ever-growing premium volume, so it can cover and pay for the deficits," said W. O. Myrick, a retired chief insurance examiner for Louisiana.
If A.I.G.'s incoming premiums shrink, he warned, "the whole thing's going to collapse in on itself.

I don't really have much else to add....

Ho Hum. dollar down buy stocks...

The S&P has been almost perfectly inversely correlated with the dollar for the past couple of weeks if not more. (chart to come soon)



Today we have a break to new lows in the dollar yet the S&P is unable to make new highs.




Is this signaling the end of this rally?

here's a comment by one of my TA friends

we've gotten expansion bars on the dollar down into a test of june's low...on a friday no less...in any other market in my lifetime this would be freaking people out...ho hum dollar down buy stocks

Thank you Mr. Denninger

Politicians: Wake The Hell Up
from Market Ticker by Karl Denninger

From Yahoo News:

On the eve of the August recess, members are reporting meetings that have gone terribly awry, marked by angry, sign-carrying mobs and disruptive behavior. In at least one case, a congressman has stopped holding town hall events because the situation has spiraled so far out of control.

“I had felt they would be pointless,” Rep. Tim Bishop (D-N.Y.) told POLITICO, referring to his recent decision to suspend the events in his Long Island district. “There is no point in meeting with my constituents and [to] listen to them and have them listen to you if what is basically an unruly mob prevents you from having an intelligent conversation.”

Really?

Well Tim, guess what: you work for your constituents, not the other way around.

It would appear to this commentator that the Reps and Senators who feel "besieged" by their constituents in town hall meetings might have paid better attention in September and October when they were told by 300:1 margins not to pass the EESA/TARP bill.

Or when they were told repeatedly to NOT try to advance amnesty for illegal aliens and refuse to enforce our immigration laws.

Or when they were told repeatedly to quit bailing out the irresponsible, looking the other way while the populace is looted systematically by those in the banking and other "coddled" industries.

There are a whole host of issues like this, and Congress seems to think (because it has gotten away with it for years) that ignoring the voters is not only acceptable, but is indeed a good idea.

Let me remind Mr. Bishop, along with the other Congressfolk, that the entirety of our government serves at our pleasure, not the other way around. Specifically, let me cite The Declaration of Independence:

....That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form,uiop as to them shall seem most likely to effect their Safety and Happiness....

Loud voices of dissent and sign-waving constituents are an unmistakable sign that our government has pressed the line of tolerance, and may, if it does not reverse course, exceed it.

And before someone claims that I am some sort of "right-wing nut" or similar, let me point out that the above text is not mine - they are the words of the founders of our nation, who believed that absent consent government does not exist - that's tyranny, not government.

Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.

How close to the line has our government come?

I have no idea, but this much I do know: I do not want to discover that the line has been crossed.

Again:

• Stop the looting and start prosecuting. The bankers, lenders and others in the "bizness side" have been literally robbing the people for over two decades. This includes both so-called "captains of the banking industry" and government officials who have looked the other way and in some cases (e.g. OTS) actively conspired to conceal the truth. Taxpayers have lost hundreds of billions as a consequence yet nobody has gone to prison for it nor are there even outstanding indictments. There is no reason on God's Green Earth why Goldman Sachs should be allowed to keep the roughly $13 billion in AIG pass-through money, nor why they should, having elected to become a bank holding company, be able to keep using their "VaR" risk model (instead of the more-stringent BANK risk limits.) There are dozens of examples; Goldman is hardly alone in this regard.



• Quit voting FOR bills you did not read - end to end! There's no excuse for this. The Stimulus Bill, EESA/TARP and more - this is absolutely common behavior and it's outrageous. Sorry, there is no emergency that demands passing a 1,000 page bill until every member has read it from one end to the other, personally. If you need to pass something fast then it needs to be simple enough that it can be read in the hour you get before the vote! I don't care what the emergency is - if you haven't read the bill cover-to-cover the only acceptable vote is NO.



• Quit spending more than you make. We are here because we have turned into a nation of Madoffs, and nowhere is it more evident than in Washington DC. We cannot have a sustainable economic recovery until the debt-to-GDP ratio is restored to a rational and sustainable ratio. This means much less spending; promising that which cannot be paid for is how we got into this mess.



• Represent your constituents and TELL THE TRUTH. We're tired of being lied to, and government has done a LOT of lying. The idea that "the economy is improving" is just one example; go ask your unemployed constituents what they think of this claim. Fact: The economy stinks and it stinks because Washington DC conspired to blow a bubble after the 2000 tech implosion. You're culpable; take responsibility and do the right thing instead of trying to blow air into a popped balloon!

Our government has become an unacceptable and unaccountable den of liars and thieves, and the people are getting damn tired of it. The evidence of extreme dissatisfaction, which may rise beyond the soapbox and ballot box if this trend is not reversed and soon, is clear. Nobody with a shred of intelligence wants to see the inevitable outcome of a government that refuses to follow the law itself, refuses to prosecute criminal wrongdoing by favored parties, and refuses to listen to the electorate on the issues of the day, instead mollycoddling those who have committed massive fraud upon the public and giving them hundreds of billions of dollars in hand-outs funded by the very people they ripped off in the first place!

Just in Bad Taste

W.H. makes CEOs pay for lunch

From Politico:

Four of the most powerful business leaders in America arrived at the White House one day last month for lunch with President Barack Obama, sitting down in his private dining room just steps from the Oval Office.

But even for powerful CEOs, there’s no such thing as a free lunch: White House staffers collected credit card numbers for each executive and carefully billed them for the cost of the meal with the president.

The White House defended the unusual move as a way to avoid conflicts of interest. But the Bush administration didn’t charge presidential guests for meals, one former official said, and at least one etiquette expert found the whole thing unseemly – suggesting it was a serious breach of protocol.

“I’m sure they have their political reasons for doing that, but I think it’s not what quote, hospitality, unquote is all about,” said Letitia Baldrige, who headed Jacqueline Kennedy’s White House staff in the early 1960s. “We’ve got to relax about this. To have people to the White House and worry about the price of things is laughable.”

Read more: http://www.politico.com/news/stories/0709/25627.html#ixzz0MqmrNESC

Same News 2 Different Headlines

Recession Worse Than Prior Estimates, Revisions Show

Recession eases; GDP dip smaller than expected

Recession worse than estimates (surprise)

GDP Dropped 1.9% vs expectations of a 0.8% decline

Bloomberg

Consumer spending, which accounts for 70 percent of the economy, decreased 1.8 percent in last year’s fourth quarter from the same period in 2007, exceeding the prior estimate of a 1.5 percent drop. Purchases also began sinking sooner than previously projected, registering their first decline at the start of 2008 rather than in the second half.

Residential construction fell 21 percent during the period, almost 2 percentage points more than previously reported, aggravating what was already the worst slump since the Great Depression.

Higher incomes and less spending translated into bigger savings. The savings rate for 2008 was revised up to 2.7 percent from 1.8 percent. The rate shot up to 5.2 percent in the second quarter, the highest level since 1998.

Morning Charting- The Island

I am a Technical Analyst. I don't believe that fundamentals really offer as much insight into the short/medium/long term prospects of a company as Technical Analysis. So with that said, time for some knowledge.



The Island is a fantastic charting pattern in my opinion due to the high predictability of it. An island requires it to be retested at some point in the future and how the market goes about testing the island gives you a great look at who is in control of the market. It is a reversal pattern, so there are a couple of ways you can interpret outcomes when it comes to an island.



-The first is where sellers extend down a little bit and then allow buyers back in to test the islands range much too optimistically before taking back control and extending downward to the origin of the pattern




-The next is when sellers get ahead of themselves without testing some part of the range of the island, leaving that test outstanding. This creates a magnetic attraction to those prices and if sellers take the downleg too far, to fast, that excessive pessimism gets exploited by buyers and the retest of the island is a mere blip before powering to higher highs.

There are more outcomes and there are a lot more variables to consider but this is not a TA blog and I thought a little bit of TA knowledge can't hurt.

Cash for clunkers Halted. Plan Already Broke!

This just in. The cash for clunkers program has been halted. Apparently the plan might already go broke due to how immensely popular it was.

From USATODAY

The government suspended the explosively popular "cash for clunkers" program, fearing it would go broke before it could pay what it still owes dealers for a huge backlog of sales, according to congressional offices and a dealer group.

........

"The thing has exploded. It has exceeded everyone's expectations," said Miller, who was involved in writing the original legislation, known as CARS, for Car Allowance Rebate System. "Throughout our history, it has been auto sales that have pulled us out of recession. People are more likely to buy cars than houses. Not to be too Pollyannaish, but we're gettin' our mojo back. This could be the pivot" that begins an economic recovery.

Wow apparently Miller is getting ahead of himself. all this is doing is incentivising people to take their cars that are already on the road (everyone knows used cars are the most eco friendly cars out there) and exchange them for new cars. This puts more money into the carmakers pockets and takes business away from local repair shops. Onece again the government is helping out big business at the expense of little ones.

Just another personal comment. If they can't even manage this simple plan effectively then how am I to expect them the immensely complex healthcare system?

Citi Trader Due to make $100 Million Bonus... or is he?

So I am actually surprised that people (read-the media) aren't making a very big deal over this Citigroup trader named Andrew Hall (That's a picture of the castle that he owns) who is suing Citigroup for non-payment of his compensation package of $100 Million. It is for this specific reason why I think this compensation czar is an absurd idea. This guy makes over a billion dollars for Citi and then they have the gall to not pay him? I'm usually not one to jump to a judgment but this is a little unnerving. We bail out these companies and then refuse to pay the talent??? Guess where they will go? To non-bailout firms leaving the bailout firms mere skeletons, causing more taxpayer losses.

From WSJ:

A top Citigroup Inc. trader is pressing the financial giant to honor a 2009 pay package that could total $100 million, setting the stage for a potential showdown between Citi and the government's new pay czar.

The trader, Andrew J. Hall, heads Citigroup's energy-trading unit, Phibro LLC -- a secretive operation, run from the site of a former Connecticut dairy farm, that occasionally accounts for a disproportionate chunk of Citigroup income.

Mr. Hall's pay package puts Citigroup in a tight spot. Ripping up the contract could trigger Mr. Hall's departure and a potentially messy legal fight. But making any large ...

Well apparently we'll find out sooner or later when Mr. Pay Czar has his say...

The White House will leave decisions about a Citigroup trader’s potentially $100 million bonus in the hands of Special Master Kenneth Feinberg, the Treasury Department official in charge of compensation for executives who work for companies that received tens of billions in government aid.

Here's the rub

The Treasury Department spokesman noted that “Mr. Feinberg can't force companies to break a contractual obligation that is grandfathered in the statute. If the contract is not grandfathered by the statute (i.e. entered after the Feb 12 date), and is inconsistent with the limitations in the statute, then it is the statute that would require the contract not be followed, not Mr. Feinberg.”

What are your thoughts... do you really think that this guy doesn't deserve to be paid his bonus that was signed by both parties in legally binding contract?

Why trying to curb oil speculaion by forcing deliver might create another Hunt Fiasco

interesting article in Fortune discussing the potential ramifacations from Obama's plan to try and stop people buying oil who have no plan on taking delivery:

Curb oil speculation? Why that's folly

Yes, oil companies also faulted speculators for high prices last year, but who can blame them for wanting out of the political firing line? Oil company traders knew full well that the commodity funds that buy and sell futures contracts are not equipped to take or make delivery of oil. Oil refiners understood that speculators must sell their futures contracts before they expire. That's why the near-future price of oil -- the price of oil for September delivery, say -- cannot get too far away from the realities of supply and demand in the physical market. No oil company trader worth his salt is going to pay an above-market price to a commodities fund manager who is under time pressure to sell.

His conclusion

My response: Be careful what you wish for. If you tell investors that they have to take delivery in order to invest in oil, that's exactly what they will do. They will store oil in every onshore oil tank or offshore supertanker they can get their hands on, thereby siphoning off oil that would otherwise be available to consumers. It will be a replay of the late 1970s, when the Hunt Brothers took delivery of 10% of the world's silver supply, causing silver prices to quadruple.

Don't believe me? Consider what happened in January, when the price of oil futures four months out was $15 a barrel higher than the spot price, which incentivized oil companies and investment banks to store oil like crazy.

So if Congress and President Obama really want to enact regulation that encourages hoarding, I say go right ahead. It will prove my point -- albeit at the expense of 300 million American consumers.

Recovery? I think not. Just ask your parents/grandparents

A fantastic piece by David Welch in Business Week explaining how baby boomers are the economy and what their new found frugality means to this so-called recoveryt

Mercedes is the quintessential boomer brand. Drive down an American highway, and odds are good that the person piloting the Benz in the next lane was born between 1946 and 1962. And Mercedes-Benz has prospered right along with America's huge postwar generation. Back in 1986, when the first baby boomers turned 40, Mercedes sold 99,000 cars in the U.S. In 2006, when those boomers hit 60, the automaker moved almost 250,000 vehicles, a fifth of its global total.

Not so long ago, boomers were never going to die. Filled with a self-confidence born of unprecedented prosperity, many thought rising markets would assure their future. If the economy faltered, well, it would rebound more strongly than ever, as it had so many times before. And so boomers spent — and borrowed — as if there were no tomorrow.

Meet Tim Woodhouse, 56. He owns Hood Sailmakers in Middletown, R.I., a business that helped finance a plush life. Woodhouse owns a boat, five Ducati motorcycles, and every few years treated himself to a new Porsche 911. He figured he'd retire when he felt like it. Then the markets crashed, the economy tanked, and suddenly Woodhouse felt a lot poorer. In April, with business slowing and his real estate holdings leaking value, Woodhouse hit the brakes. "I was scared," he says. "My net worth took a real hit." Woodhouse sold the Porsche and bought a Mini Cooper. The boat spends more time tied up these days than out on the water. He and his wife dine out less often, and they don't entertain at home much either.

Woodhouse and millions of boomers like him are doing what people normally do when they near retirement: They're living more frugally. Companies have long factored in this actuarial reality, gradually tweaking their products and marketing to appeal to the next generation. With boomers, however, many companies became complacent. It wasn't that they ignored younger consumers but that they counted on boomers to keep spending longer. And why not? Until recently boomers typically reached their spending peak at age 54, according to McKinsey. Contrast that with the previous generation — a thriftier bunch whose consumption typically peaked at 47.

Now many companies are scrambling to appeal to Generations X and Y. You can already see this thrust in the stores. Clothing designer Vera Wang is selling a casual line called Lavender aimed at twenty- and thirtysomethings. It's fashion, but not the pricey garments the company typically has sold. Meanwhile, says Wang, her namesake brand needs to get a lot less expensive. In one instance, Wang made a high-end dress using fabric that costs $5 a yard instead of $12 but used the fabric in several layers to give the garment a richer look. As a boomer herself, Wang, 60, feels her generation's pain. "You don't have 30 years to reinvent yourself," she says.

Now after enjoying the article, I want you to pay closer attention to these McKinsey statistics that relate to the aging baby boomer population.


* $400 Billion: Amount that will come out of annual U.S. consumption as thrifty boomers push savings rate from 1% to nearly 5%.

* 47%: Boomers share of national disposable income in 2005 before the bubble burst. Boomers contributed only 7% to national savings.

* 2.4%: Forecasted GDP growth over the next three decades as boomers ratchet back. GDP has grown 3.2% a year since 1965.

* 69%: Portion of boomers aged 54 to 63 who are financially unprepared for retirement.

* 78%: Boomers' share of GDP growth during the bubble years of 1995 to 2005

This doesn't exacly scream inflationary pressure now does it. How are we to expect to grow GDP at 2.5% as Bernanke predicts (a level that curiously is supposed to keep unemployment at current levels) if the majority of our discretionary economy is becoming more frugal.

Guess what people... we haven't seen the end of the layoffs or the top of unemployment.

Wow totally didn't see this coming!

Courtesy of the WSJ: GSEs Unlikely to Repay U.S. in Full

WASHINGTON -- Fannie Mae and Freddie Mac are unlikely to repay the government in full for all the capital it has pumped into the companies, according to their regulator.

"My view is that some assets in the senior preferred will have to be left behind as they come out of conservatorship," Federal Housing Finance Agency Director James B. Lockhart said Thursday in response to a question at a panel discussion in Washington. "That will mean that some of the losses will never be repaid."
.....
One of the studies found that Fannie and Freddie have been using fees they collect for guaranteeing less risky single-family mortgages to subsidize the fees for backing riskier loans.

As a result, borrowers with 15-year fixed-rate mortgages and adjustable-rate mortgages were subsidizing borrowers with 30-year fixed-rate mortgages, which are more risky for the mortgage giants to guarantee.

"The riskiest loans were not fully charged for the additional expected costs associated with them," Federal Housing Finance Agency Chief Economist Patrick Lawler said at the panel discussion.
.....
Mr. Lockhart said Fannie and Freddie would likely see their reserves continue to decline next year, but could return to strong profits in two to three years. But he cautioned that the companies' thin capital and huge exposure to the mortgage market make it unlikely they will be able to repay the government in full.

"The book is so large that it is hard to see that they could actually repay all that," he said.

Just goes to show that government intervention perpetuates the flawed practices that caused the bailed out entity to need the bailout in the first place.

The Disappearing Male

IMO A must watch for everyone

Commercial Real Estate... Getting closer to Implosion

FT Lauderdale, FL

This is someone's photo essay of the commercial real estate carnage in Ft Lauderdale
Has to be seen to be believed: you will not see these pictures anywhere in traditional media.

He also provides the following color:

I took a drive this evening from 5.30 pm - 7.30 pm and shot over 200 pictures of Florida real estate in crisis. What is really amazing if you notice the time and date on each picture . I was able to shoot a picture about every 45 seconds while all alone driving in traffic including stopping for traffic lights and gas and parking in a safe place each time for each shot . Everywhere you turn something is for lease or rent.

All these headlines in the media dont seem to have any effect on people so here is one road in one town ( out of thousands ) in Fort Lauderdale Florida up to Pompano Beach ( about 8 miles ) I pretty much only shot the right side of the street because I did not want to do any u turns . Some pics I shot across the street . This does not even include office buildings .

There is something for lease or rent in almost every single plaza or strip mall without exception . I also missed a lot more because of traffic and buildings set back from the street. This does not even include offices , homes , condos etc, this is just stuff abandoned or had a sign in front of it and I missed a LOT of signs . This is not even all the empty lots that sit because the developer abandoned the project after buying up the whole neighborhood .

This is Fort Lauderdale Florida . The Gold Coast , The Venice of America the Yachting capital of the world folks.The pictures start at the Fort lauderdale beach on Sunrise Blvd. and go west to federal Highway ( rte 1 ) north to Pompano Beach about 8 miles and finish in a random warehouse district off the main road . After that it got dark and I had to stop .

You will see Exotic car dealerships Burger King, Wendys , Fuddruckers , Hooters , Pier one , furniture stores , restaurants , clubs boat dealers, Business that have been there 20 + years , Supermarkets , Saks 5th avenue ( big white building in beginning ) Macks groves , Flaming Pit , the old 50's diner . A Ford dealer and a Dodge dealer . A golf course in beginning of slideshow . All GONE in just one 8 mile strip . Folks this is the good side of town with the money I did not even go to the other side of the tracks or to other streets just one !!!

Why this multi-week rally has me on the sidelines awaiting more violence

I would like to take a moment to explain a little bit about how my TA theory comes into play in identifying sustainable vs unsustainable moves in the market.

IMO the current rally was a lot of things, just not sustainable. It is violent, enticing (who doesn't want 3% daily gains), and lengthy (going on a couple weeks now). But the key to identifying what kind of buyers are able to maintain moves such as we are currently experiencing are the manner to which they allow sellers to get ahead of themselves and go "top hunting". Similar to "bottom fishing" top hunting is something that all rallies have and they are healthy in that they allow buyers to take a breather and suck in some gullible sellers into lowering prices for these sustainable buyers to come back in with more bids. These "top hunting" events usually occur at relevant technical levels.

The key to any sustainable rally are healthy pullbacks and they have been suspiciously absent over the last couple of weeks. Buyers can do a couple things to maintain a rally

(sustainable) healthy pullbacks allowing price action to "refuel" buyers for another higher leg

(unsustainable) buyers swarm in at key technical levels with bids, overwhelming sellers and powering upward

(bubble-type) buyers attempt to entice "top hunters" but are strangely absent which creates a void causing buyers to propel price even higher

Given the recent price action over the last 3 days, I'm starting to move towards the Bubble type scenario. This rally was unsustainable and over this 3 day period it indicated that the buyers that started this rally were gassed. This should have resulted in either the unsustainable or sustainable scenarios occurring. Neither did. 3 days of nothing leads me to the conclusion that sellers are strangely absent. This is likely creating a void in price action and although I would not put money on it, it seems to me like we might end up with buyers coming in and filling this void propelling prices higher. Sellers need to Act and soon.

So currently my position is to wait and see. I'm a lot happier waiting for selling to start picking up steam under the prior high (SPY close under 95.50) before getting short. I can only play these bubble scenarios with very tight stops and even then I am not all that comfortable chasing them.

So be warned. Charts this violent usually remain violent continuing in the same direction or reversing just as violently.

The Daily Show's Hilarous Take on Geithner's Housing Woes

The stuff with Schiller is hilarious!

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Home Crisis Investigation
www.thedailyshow.com
Daily Show Full Episodes Political Humor Joke of the Day