It's getting better...

Everything is going better. Sales of new houses, the housing Price Case Shiller Index ticks up., and so on.

The less bad news was helped along by the steep drop in interest rates to 50-year lows. And the corresponding drop in mortgage rates, due to the Federal Reserve’s massive buying of $1.25 trillion worth of mortgage-backed securities and $200 billion in agency debt. Then there are Treasury subsidies and guarantees for Fannie and Freddie to the tune of $280 billion.

An $8,000 tax credit for new home buyers may seem small against the $150,000 average house price, but it is a noticeable part of 20% down on a $100,000 home. Has the economy really turned the corner? And what will happen once the US government is closing the money spigots…

Before getting too exited: loans at least 90 days past rose for the 13th quarter (that’s more than 3 years) in a row. We’re now at 4.35%, the highest level recorded in the last 26 year.

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Goldman Sachs: the never ending story

There are many stories about Goldman Sachs these days.
A good thing.

I ask myself, how can a banker play golf in a Saturday knowing his bank initiated an economic downturn by taking risks he never understood in the first place. People are suffering, there is rising unemployment and as a banker you deny any responsibility

About Goldman. From de NY Post:

Treasury Secretary Hank Paulson let the cat out of the bag when he confessed on a cable TV show that it was "my job to talk regularly to market participants . . ."
Paulson had been the chairman of Goldman right before taking the job as head of Treasury.
So, if he felt it was his "job" to talk with people on Wall Street then who else would he speak with if not his old friends at Goldman?
The head of the US Treasury would, of course, know lots of secrets. In the olden days, this would be called "inside information."
And despite Paulson's contention it would be entirely inappropriate for him to discuss sensitive matters with people who could profit from the information. It is, in fact, illegal. And the penalty could be jail time.
What has been of particular interest to me is whether Paulson contacted his friends at Goldman after a lunch with Federal Reserve Chairman Ben Bernanke on Thurs., Aug. 16, 2007.
That day Wall Street seemed to get wind of the idea that the Fed was planning to do something big, and stock prices rallied strongly at the very end of that trading session. The very next morning Bernanke cut interest rates, the first of many such moves.

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Holidays for politicians

Politicians are always in for funny things.
Take this graph about the spending of the American Congress on travel.
The busiest travel period is August when they are in recess.

Now this one is coming from Dan Ferris:

Remember when members of Congress chastised the Big Three auto executives for flying to Washington on private jets? The message the government was sending to big business was clear... "You will not squander taxpayers' money." Congress didn't want big business wasting government money because, of course, that's their job... And the government hates competition.In an ironic turn, the House just approved almost $200 million for the Air Force to buy three top-of-the-line Gulfstream 550 jets (at $65 million apiece) for transporting top government officials and congressmen.Here's the catch, the Air Force only asked for one jet as part of a routine upgrade to its passenger air service, but the House Appropriations Committee took it upon themselves to add another $132 million to the Defense bill for two more jets to be stationed in Washington, D.C. Nobody can waste our money like the U.S. government

I love Americans.

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Goldman Sachs

What if 2 men phone to each other?
They talk. About business, their families or other stuff.
What if men phone 24 times to each other between September 16 and 21st.
Ther’s an urgency somewhere.
That’s exactly what former Treasury Secretary Paulson did with Blankfein.
Paulson spent 32 years at Goldman and preceded Blankfein as CEO befor becoming Treasury Secretary in 2006.
Whatever they had to discuss, it was better something important.
Lehman of course. And AIG. LEHM was allowed to fail. AIG was following it. Then GS told them that they would fail too. So they bailed AIG to ‘save the system’.

Ok, enough said.
We agree with Paul Kedrosky of Infectious Greed:

Fair enough, I suppose. But I’m soon going to need a program to keep track of who is scoring points off whom in all of this. Can’t we all just agree that Goldman has way too much influence for a firm happy to trade around that influence and leave it at that? No?

Yes.

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Who's gonna pay?

The total exposure of the US government to the financial crisis could hit $23.7 trillion, according to a watchdog report. Neil Barofsky, overseeing the Troubled Asset Relief Programme (Tarp), made the estimate in prepared remarks to a House of Representatives committee. The worst-case estimate represents the maximum exposure if all parties offered support requested maximum assistance. The figure includes all government and Federal Reserve initiatives.
That’s a huge amount of assets the US government is now involved in.

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US govvies

US government bonds are not popular these days. Their price is sliding since the start of this year and although last weeks a reversal could be observed, we can see on the charts that another wave of selling is underway.
The P&F chart of the iShares Treasury Bond 20 years and + ETF (ticker: TLT) shows that prices are slipping lower.

And the 60 minutes renko chart is confirming this negative development

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has the Won won? Tibbids

South Korea issued a 50.000 won banknote. It took a while but the value of the 10.000 won note has shrunk to 7.80 USD. What with inflationary pressure?

The Banker published his top-1000 banks by Tier 1 standards.
Tier 1 is common stock, preferred stock and hybrid debt-equity instruments.
JP Morgan Chase ranks first and Bank of America second. Of course, with a little help a friendly government reaching the top is easy.

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When the reversal comes...

How high will long term rates in the US go? Nobody knows. But look out if the prices of long term bonds start to stabilize. this is a crowded, highly leveraged trade. A reversal can be swift and violent. Much lower seems more and more unlikely

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Figures and more figures

From Bloomberg.
More than 150 companies raised 82.2 bln USD this second quarter in new equity. A faster pace of equity issuance than at the height of the bubble in 2000.
The biggest issuer is the financial sector.
All these new shares are diluting shareholdership, the value of the existing shareholders and the earnings per share.
If the S&P500 is taken as a benchmark then the new shares have diluted corporate earnings by 3%. Total shares in this index have grown with 3.4% since March 31.

More figures. After paying back 68 bln USD in exchange for bonuses, there is still a long way to go. Western governments own roughly an estimates 450 bln USD in banks. Central banks provide generous collateral rules for borrowing in an effort to provide banks with liquidity. But the system needs to refinance some 25.6 trln USD of wholesale finding by 2011. No matter what happens, they never gonna succeed if there is no government back stop.

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