Links 1/7/08

Diamond clues to beasts’ demise BBC

Old Gastrointestinal Drug Slows Aging PhysOrg

Judge doesn’t buy state secrets privilege, OKs wiretap suit Ars Technica

State’s jobless claims systems overwhelmed WTVN (hat tip reader Jim)

Merrill’s financial advisers’ loyalty questioned Financial Times. The headline is a bit weird. Retail brokers are loyal to their book, which they can take with them; where they put up their shingle is incidental. Orgainzations that forget that do so at considerable cost to their bottom line. Which is precisely why BofA will botch this. They made a complete mess of their acquisition of US Trust, and seemed unable to fathom that just about everything they did (like charging ATM fees to customers whose balances average over $7 million) was wrong.

A Bubble in Bonds? Pension Pluse. A wee confession: your humble blogger’s worst trade of 2008 was a long bond short (we did have a good year overall). It was a painful reminder of the lesson of the dot-com era: even when a bubble looks obvious, it can go on much longer and to much greater heights than any sensible party could ever predict (remember, if we go into deflation, yields can go lower, just look at Japan).

FAILS John Jansen. He put it in all caps for a reason…

I ♥ Risk Macro Man

Madoff Tried to Stave Off Firm’s Crash Before Arrest Wall Street Journal. With a friend like Madoff, who needs enemies?

How to tackle foreclosures and unemployment at the same time Justin Fox. Makes a point near and dear to my heart: the data about loan mods stinks, and what a lot of servicers are defining as mods are not what you and I would put in that category. Do read it.

A homely parade in the currency ‘ugly’ contest FT Alphaville

More Money for Robert Rubin Dean Baker. The real beneficiary of the Obama tax cuts.

Chapter 11s Rise 62% in 2008 Bob Lawless, Credit Slips

Asia to Have ‘V-shaped’ Recovery, BNP Paribas Says Bloomberg. This strikes me as an awfully convenient forecast.

Where Is Our Ferdinand Pecora? Ron Chernow, New York Times (hat tip reader Don)

Antidote du jour:

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  1. Anonymous

    Is Justin Fox saying that no one, especially the government, is really trying to moderate the housing crash through cramdown and loan mod ?

    Everything I see from the foxhole suggests that the stinking cess pool of New York is still playing games, jockeying for position to unload their poo poo on the taxpayers. The bet seems to be that a bailout will be much more profitable than a viable modification program. If the bad mortgage problem goes away too soon, the piggy banks will get less money. Better to stall, collect the bailout and scoop up market position at uber-low prices.

    As we scrape along, two standard deviations below normalcy, I get the sense that no one in power really wants to take on a difficult work out. Watching Harry Reid perform in public the other day, I had the oddest feeling that I was listening to a closet republican. Maybe that’s a major reason this Congress doesn’t seem to be able to address, let alone cleanup, the underlying mess to complement the proto-Keynsian stimulation.

    I can’t decide. Does the Keynesian stimulus recommendation apply to a debt ridden, deficit economy like the US in 2009 ? Or would Keynes recommend austerity ?.

  2. John Rosevear

    Credit or blame where due dept.: it looks like the Time piece was written by Barbara Kiviat, not Justin Fox.

  3. fresno dan

    Read the article on loan modifications. Long story short – somebody has to eat the losses. If the banks REALLY write down the loans to where people who are living in the homes reside, many of those banks will be insolvent (I mean, more insolvent). Of course, if they try to sell the repossessed homes, the banks will get dimes (or pennies) on the dollar (and be EVEN more insolvent). My view is that investors first take the loss (investing should not be heads I win, tails you lose, although Bernanke and Paulson seem to think so). Than we do the Swedish thing.

  4. Paul

    Yves & Co….
    I appreciate you trying to be men of the world, but you should be careful of what Google ads are displayed as a result of your posts!!!
    A combination of the oh-so-huggable bear pic plus whatever textual reference brings up a totally NSFW alt-lifestyle ad for "bear men".
    Is our overarching collective pessimism pushing us to abandon our etherosexuality?

  5. Richard Smith

    Sounds more zingy than “Karl Marx Capitalism” and “Gasification Training”, which is what I get.

  6. River

    Momma bear is training baby bear. ‘pretend sleep, let the photographer get closer, then we have lunch.’

  7. Independent Accountant

    Don’t feel so bad. I went short 30-year Treasuries when they got to 3.20%. Ouch.

  8. River

    Off Topic: ‘Krugman’s interventionist crusade’

    Pater Tenebrarum’s new offering is out today and well worth the read.

    Yves…great catches on Ferdinand Pecora and China hot money flows. Everytime I think about what is going on in the Far East I feel queasy.

  9. john bougearel


    I did same on Dec 1 moments b4 Bernanke said he intended to to buy 30 yr treasuries. :-)
    The saving grace is I did with a 10 yr note and not a 30 yr.

  10. Tiago

    Where will nations finance their debt increase?

    Reading this, I am starting to suspect they will not finance it at all. Moreover, rolling debt might be hard… Crash?

  11. Timo

    So many nations are going to issue new bonds that together they will crash the market this year.

    $3000 billion dollars according to FT. US government rollover debt whopping $6000 BILLION dollars for this year!

    This is one long train wreck and bond markets are the gasoline wagons.

  12. Kevin Smith

    Yves — here in Canada your pic of a bear just elicits “Get it Now … free credit report!”

    Or maybe the ads the Googleplex serves are customized to each browser, so in that scenario only those whose overall surfing pattern suggests NSFW tastes will get NSFW ads!

  13. bg


    I entered a short long interest trade about a week ago. After seeing your post and reading the analysis you linked to on the bond bubble, I had to ask myself why. It has been a good trade for a week, but that could be dumb luck.

    What triggered this deflationista to bet on long interest rates even in the short run?

    I was convinced by the argument that in the short/medium term that high bond prices were inconsistent with a strong dollar, and that the forces for a strong dollar remained compelling, absent continued volatility. With so many forces in play, this was a more complicated play than I am usually comfortable with. But with recent strong pressure in both treasuries and the dollar, potential mean regression was also a bonus.

    I am taking seriously NDKs arguments about long interest rising in the medium term. I think it is possible to simultaneously believe in a high probability in deflation and believe in a the probability in long rates rising in the meantime.

  14. doc holiday in hiding

    That there polar bear must have taken a look at the new bond yield feature at Bloomberg, which offers a new sub-zero bond yield chart-thing for Treasury curves … the times they are a changing!

    friggn zero and below

    They are doing this for all markets and Germany looks to be winning the race to the bottom, thus far …

    I still love this bear history: It’s all relative
Zero coupon bonds have generated a return of 24% in the past year. “There is no security that we can think of that has come remotely close to matching that, risk-adjusted or not,” notes a Merrill Lynch report. 

Many U.S. institutions were the creditors of the Latin American countries, so in 1989, U.S. Treasury Secretary Nicholas Brady devised a plan to convert the Latin American bank debt into a new structure called a “Brady Bond.” Brady Bonds were U.S. Dollar denominated bonds which were collateralized by zero coupon U.S .Treasury bonds. The debtor nations would exchange their defaulted bank debt for Brady Bonds and then purchase the zero coupon bonds. The zero coupons were held in escrow by the U.S. Federal Reserve.

    See yet again: In estimating net present values, the discount rate shall be the average interest rate on marketable Treasury securities of similar maturity to the cash flows of the direct loan or loan guarantee for which the estimate is being made.

    Then think in terms of Treasury-backed TARP garbage that is not marketable, then continue to recall: FSP 157-3 comes on the heels of the joint guidance regarding Statement 157 that was issued by the SEC and FASB on September 30. The joint guidance was apparently intended to give companies more flexibility in valuing financial assets in inactive markets. While FSP 157-3 purports to be “consistent with and amplif[y]” that guidance, some observers believe that it does not go far enough in permitting illiquid assets to be valued by means other than the “mark-to-market” principles embodied by Statement 157.

    For this reason, on October 13, the American Bankers Association sent a letter to the Securities and Exchange Commission requesting that the SEC override FSP 157-3 and “address in a more meaningful way the problems of using fair value in dysfunctional markets.”

    Just saying…. and while I’m here:

    As we know,
There are known knowns.
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don’t know
We don’t know.

Department of Defense news briefing
Feb. 12, 2002

    Everyone say, huh?

  15. Anonymous

    That is a painfully cute photo. I try to resist, but the tendrils of cuteness throttle me to the ground.

    Bahh Humbugg, but I’m taken down.

  16. Anonymous

    The SEC would never hire a Ferdinand Pecora…no Ivy League degree, right??? Helllooooo Maggie Cheung.

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