Et tu, Brute?

Morgan Stanley now less attractive than Italian sovereign debt, didn’t see this one coming.   

http://www.bloomberg.com/news/2011-09-30/morgan-stanley-seen-as-risky-as-italian-banks-in-swaps-market.html

Late To The Party

Unemployment a national crisis? I think somebody missed a meeting.

http://www.google.com/hostednews/ap/article/ALeqM5iZnSwdnOO-tXItIrfqxTRwjfk1pw?docId=66690cd132e04cb2b67091765ae93317

The Gloves Come Off

Did he say $50 billion? Can’t see how this ends well for Bank of America.

http://www.cnbc.com/id/44700101

Bad Moon Rising

Paulson’s on the phone. Paulson? What’s he done for me lately?

http://online.wsj.com/article/SB10001424052970204010604576597271507239998.html?mod=WSJ_article_forsub

The 10 most expensive streets in the U.S.

2. Fifth Avenue, Midtown Manhattan, New York

It’s one of the priciest shopping streets in the world, and it costs a pretty penny to rent office space here — $97 per square foot, according to Jones Lang LaSalle. Office tenants, including a number of hedge funds, will pay a premium for the location and its amenities. “Location is everything in real estate and this study proves it. Despite economic conditions, demand for these prime and often prestigious addresses continues to be high,” said John Sikaitis, senior vice president of research at Jones Lang LaSalle, in a news release.

Twist and Shout ....

Dallas Federal Reserve Bank President Richard Fisher on Tuesday slammed the central bank’s decision last week to extend the maturity of its balance sheet, calling Operation Twist “jujitsu on the yield curve” that is “likely to prove ineffective” and could actually work against job creation. Until Congress can get its act together and put in place policies that encourage businesses to take advantage of low interest rates, “further monetary accommodation - be it in the form of quantitative easing or performing “jujitsu” on the yield curve through efforts such as Operation Twist — will represent nothing more than pushing on a string,” Fisher said in a speech in Dallas.

Fisher added that his regular business contacts gave him an “earful” of arguments against a Twist-like plan before the Fed meeting. The business executives argued it would scare consumers, hurt banks and pension funds and make the Fed’s eventual exit from ultra-easy monetary policy more difficult, he reported. Fisher was one of three Fed regional-bank presidents who voted against Operation Twist, under which the Fed will sell $400 billion of its current holdings of short-term Treasurys and buy an equal amount of longer-maturities over the next nine months. The idea of the plan is to drive down long-term interest rates and hopefully boost business spending and job creation.

Fisher said the program might indirectly come to the aid of money-market funds by mildly raising short-term rates. This might allow the money-market funds to stop buying European bank debt in search of higher yields to cover costs. European bank debt is “now considered by many analysts to be somewhat toxic,” he dryly noted. Fisher also said he did support the Fed’s decision to reinvest maturing agency debt and agency mortgage-backed securities into agency MBS as “a tactical way to provide limited assistance to the mortgage market at little cost.”

Lockhart differs on Twist

In a separate address Tuesday, Atlanta Fed President Dennis Lockhart said he supported Operation Twist, but thought it might only have a “modest positive impact” on the economy. No one seems to fully understand what a leveraged rescue fund for the euro zone would mean, but the hint of a new plan in the works is clearly supporting the currency. “It is not a fix for everything that ails the economy, but it should help,” Lockhart remarked in a speech in Jacksonville, Fla. Operation Twist won’t result in “large gains” because the normal channels though which Fed interest-rate cuts affect the economy are blocked, he added.

Lockhart also said he has trimmed his growth forecast for the next 15 months but doesn’t expect a double-dip recession. Inflation has been “higher than desired and higher than expected” this year, but should “fall back” in the next few months, according to Lockhart, who will vote on interest-rate decisions in 2012. Potential spillover from the European debt crisis is the biggest threat to the recovery at the moment, he said. Lockhart commented that the market should not take the decision to launch Twist as signaling further action was likely, or conveying that central bankers were done easing.

The direction of policy going forward will be data-dependent, he elaborated.

Gold Flush

The market reminds us once again, hedge funds are always faster than individual investors.

http://finance.yahoo.com/news/A-Gold-Rush-Wanes-as-Hedge-nytimes-3711546516.html?x=0

Fistful of Dollars

Bruce Berkowitz pushes the boundaries of portfolio management, again.

http://www.marketwatch.com/story/fairholme-fund-lands-in-foul-territory-2011-09-23?siteid=YAHOOB

All That Glitters

Gold and Silver take a dive this week, hard not to see this coming.

http://blogs.wsj.com/marketbeat/2011/09/23/silver-has-its-worst-day-since-1987/

Blowing Bubbles

Already at record highs, Morgan Stanley suggests gold isn’t finished yet. Really? Did we learn anything from the

tech/housing/credit bubbles?  

http://wallstcheatsheet.com/gold/morgan-stanley-heres-why-gold-will-go-higher.html/

We've Met The Enemy

Financial Sense suggests it’s the Fed that needs an intervention, it’s hard to disagree.

http://www.financialsense.com/contributors/vitaliy-katsenelson/2011/09/20/fed-is-measuring-u-s-economic-health-by-the-wrong-number

Broken Record

The Broker Dealer model doesn’t work when markets aren’t going up. Clients should know the facts.  

http://www.investmentnews.com/article/20110918/REG/309189965/-1/INIssueAlert01

Blue State Premium

The bond market gives the Obama jobs bill a reality check. Well played.

http://online.wsj.com/article/SB10001424053111904353504576568352231645730.html?mod=WSJ_Opinion_LEADTop#articleTabs%3Darticle

Zero Value Add

Zero Hedge takes Bank of America to the woodshed, and clients should be paying close attention.

http://www.zerohedge.com/news/and-then-there-were-four?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29

Goldman Sachs vs. Big Labor

$850 millon shareholder AFSCME says Blankfein has to go, this won’t be pretty.

http://motherjones.com/mojo/2011/09/afscme-goldman-sachs-lloyd-blankfein

US IPO pipeline exceeds 200 companies for the first time in adecade

•             Filings continue to surge despite a spike in withdrawals in August

•             Financials and technology sectors continue to account for almost 50% of the US pipeline

•             Venture capital- and private equity-backed firms now represent 55% of the US pipeline, up from 49%

•                Global IPO pipeline holds ample dry powder, particularly in the Asia Pacific region

Fail, Too Big

Further proof banks shouldn’t be in the wealth management business.

http://www.investmentnews.com/article/20110911/REG/309119951

Destination, Seen Unclearly

I thought the idea was to take care of clients. They might try asking the clients what they think.

http://www.investmentnews.com/article/20110911/REG/309119973/-1/INIssueAlert01

House Of Cards

BAC announces 40,000 jobs could be eliminated. Is there anybody that didn’t see this coming?  

http://finance.yahoo.com/news/Moynihan-Tries-to-Keep-BofA-bloomberg-2017110396.html?x=0

RIP, Fair Housing Act

Banks may have gouged borrowers for mortgage insurance, Obama’s Department of Justice looks the other way.

http://www.cjr.org/the_audit/american_banker_shows_doj_sat.php

Divorce Court

Say Goodnight, Gracie. The only surprise is that it lasted this long.

http://www.theatlanticwire.com/business/2011/09/its-time-break-bank-america/42208/

Opinion: BofA must hang Sallie ....

By Joshua Brown, Fusion Analytics Investment Partners

September 7, 2011 1:29 pm ET

Sallie Krawcheck's firing is yet the latest example of a grand tradition dating back thousands of years - tossing a sacrificial maiden into the volcano to calm the angry god of the island. With few moves left, Bank of America (BAC) CEO Brian Moynihan chose to "send a message" with an absurd restructuring that included the marquee-name firing of the Merrill Lynch President.  But unfortunately for Brian and the rest of the B of A brass, the island is still angry and the gods won't be satiated with either offerings from Buffett or the hanging of Ms Krawcheck, as they will soon find out for themselves.  I'm going to go on the record here and say publicly that despite anything you may read about Sallie Krawcheck this week, the truth is that she did her best but never really had a shot. Krawcheck was lured away from Citi a few years ago to do the impossible - take the melting iceberg that is Merrill Lynch and somehow turn it into the statue of David. Yes, she went after the job, one of the biggest positions in finance to be sure. But there was never any chance that she could make it work - because no one could have.

Sallie couldn't change the fact that the brokers at Merrill want to be thought of as wealth managers, not salesmen, not anymore.  Sallie couldn't change the fact that these "wealth managers" had zero interest in being affiliated with the banking giant from Charlotte in any way once the rescue was accomplished in the wake of Lehman's failure.  Sallie couldn't change the fact that the brokers have no interest in peddling bank products or making referrals to other divisions within the slimeball supermarket. She also couldn't change the fact that the clients are wise to game as well and that they are not very excited about having their retirement accounts be "synergized" either.  Sallie couldn't change the fact that the jig is up, and everyone knows that Merrill Lynch's fiduciary responsibility is to the shareholders of Bank of America first and the clients second.  Sallie couldn't change the fact that once the brand name is tarnished, there is little reason for the salesforce to stay.  Sallie couldn't change the fact that when retail brokers lose out on all the best banking deals to the firm's hedge fund clients, there is little reason for the salesforce to stay. Sallie couldn't change the fact that with no IPOs and no solid reputation, there is nothing to justify working at Merrill for an industry-worst payout and that the only thing keeping talent there had become contract bondage and inertia. Sallie couldn't change the fact that the best of the best were not waiting for BofA to spin off Merrill, they were content to spin themselves off into their own RIA firms or undergo the prisoner exchange process to join Morgan or UBS. Sallie couldn't change the fact that there will probably be room for only two or three big brokerages and that the four-way death match between Morgan Stanley Smith Barney, Wells Fargo Wachovia Pru and JPMorgan Chase would probably have killed them all in the end - UBS sees the writing on the wall, look no further than all their denials about putting Wealth Management up for sale. Sallie couldn't change the fact that once Merrill customers began asking their brokers about whether the parent company could survive, morale was bound to lead to someone's ouster.

And lastly, Sallie couldn't change the fact that Wall Street Culture is and has always been primarily about saving one's own behind. And in the end, that's why the President of the most profitable and stable business within BofA had to be fired.

Sallie, you tried, but the game was unwinnable from the moment you took the job. The Age of the Big Brokers is over and the shrinking of Merrill was inevitable.

Joshua Brown is a financial adviser and vice president of investments at Fusion Analytics Investment Partners. This opinion piece first appeared on Mr. Brown's blog,TheReformedBroker.com. The opinions expressed here are his own.

New Job Openings trending hire ... but the pace is anemic ....

As seen in the chart below NEW job Openings are trending upward but not at anywhere near as rapid a pace as one would suspect two years into an economic recovery.

An Ugly Picture ....

As this chart below shows the top 10 percent of earners continue to better while the bottom 90% see their earnings steadily declining ....

Charts via Washington Post and Big Picture ...

Too Little, Too Late

Bank of America rearranges the deck chairs after hitting the iceberg.

http://finance.yahoo.com/news/Struggling-Bank-of-America-apf-991309440.html?x=0

Nowhere to Run baby, nowhere to hide ....

Satyajit Das take on the current environment from his blog, Fear and Loathing in the Financial markets  ....

The crisis threatening to engulf world financial markets has been brewing since 2008. Until recently, markets were Dancing in the Streets. Increasingly, another Holland-Dozier-Holland standard also made famous by Martha and the Vandella’s is relevant: “Nowhere to run to, baby/ Nowhere to hide.”

The recovery from the first phase of the crisis was based on “botox economics”. Clostridium botulinum - “botox”- is commonly used to improve a person’s appearance, but its effects are temporary with toxic side effects. “Financial botox”, money from central banks and governments to prop up demand, temporarily covered up deep-seated problems, rather than resolving the real issues. As chastened individuals and companies reduced debt, governments increased their borrowing to limit the effects of the crisis on the broader economy.

The new phase of the crisis is different to 2008 and the “Lehman moment”. Then, governments had the financial capacity to backstop the private sector, especially affected financial institutions, and support the wider economy.  The crisis now involves entire nations and the ability of sovereigns to finance themselves is in question. Ultimately, there is no one to backstop the governments themselves. Contagion from sovereign debt crisis is especially pernicious and very different to that of 2008.

Europe’s debt problems provide an insight into the problem. While smaller nations can be bailed out by other stronger nations, the financial commitment required weaken the saviours and threatens their own survival. Saving Greece, Ireland, Portugal, Spain and Italy would probably require a facility of at least Euro 3.0 trillion with an effective lending capacity of around Euro 2 trillion dictated by the fact that maximum lending capacity is limited by the guarantee commitments of AAA rated countries.  As more countries need support, the burden of the guarantees becomes concentrated on stronger Euro-zone members - German, France and the Netherlands. In effect, the creditor nations rapidly become debtors themselves, ultimately affecting their credit ratings, cost of funds and causing financial problems if the contingent liabilities are triggered.

International Monetary Fund (“IMF”) support may spread the potential contagion to other countries. In effect, rather than containing risk, support for weaker nations spreads the crisis to the stronger countries. Government bonds are traditionally safe-havens as well as the preferred form of collateral used very widely to secure borrowing and other obligations. If the quality of stronger government issuers were to be contaminated, then this would lead to far reaching effects on financial activities.  Most banks have substantial holdings of government bonds, which have increased since 2008 as they have increased levels of liquidity. Any fall in the value of these holdings would affect the solvency of the affected banks.

For some European banks, lack of access to commercial funding has forced reliance on money from their central banks and the European Central Bank (“ECB”), generally against government bond collateral. Credit rating downgrades or fall in the value of government bonds would create liquidity problems, as banks are unable to finance themselves. If the banks need government support, then this further weakens the government. If individual national governments require external support, then this weakens the ultimate guarantors.  Falls in the value of government bonds or a loss of confidence in their value as surety would lead initially to a global “margin call”, as the value of the collateral is marked down setting off a “dash for cash”. In an extreme case, where governments bonds are not accepted as collateral, it would lead to a contraction of liquidity and financial activity generally.

Central banks, sovereign wealth funds, pension funds and insurers have significant investment in government bonds. A significant proportion of China’s substantial foreign exchange reserves (over $3 trillion) are invested in US and European government bonds. A loss in value in these holdings would reduce China’s wealth and financial flexibility, ultimately affecting its economic performance.  In reality, the crisis has returned to its starting point -debt levels and the reliance of the global economy on borrowing to fuel growth. The level of debt depends on the value of the assets or investment that supports it and the income or cash flows available to service the interest and principal. Many nations have debt that is above the level that can be sustained in a lower growth world - the “new normal”. The new crisis is part of the de-leveraging with governments now joining individuals and companies in being forced to reduce levels of debt. But if not managed properly, sovereign debt problems may escalate rapidly with the risk of a major disruption in financial markets.

In his pamphlet Gravity - Our Enemy Number One, investment analyst Roger Babson, who anticipated the 1929 stock market crash, argued that gravity was an evil force. In the credit boom, prices rose, defying gravity. At the commencement of the crisis, governments flooded the system with money to the keep the game going for a little longer. Now, financial gravity is reasserting its malevolent power.

An earlier version was published in the Financial Times

Satyajit Das is author of Extreme Money: The Masters of the Universe and the Cult of Risk (published in August/ September 2011)

Lawyer Up

Big Banks to get some unpleasant legal correspondence shortly, wait by the phone.  

http://finance.yahoo.com/news/US-Is-Set-to-Sue-a-Dozen-Big-nytimes-2146208815.html?x=0&sec=topStories&pos=2&asset=&ccode=