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Banning Gravity?

"The nine most terrifying words in the English language are: I'm the government and I'm here to help"
-Ronald Reagan

Maybe John McCain should have read the Republican history playbook before he jumped right back to where he has been for the last 30 years and removed all doubt that his strengths do not lie on the economic side of the intellectual debate.

Obama knows at least as little as McCain on the most important economic questions of our generation. This isn’t about being political. This is about being right. Who is going to get this right for this country and when? Who has a proactive risk management process, and who does America’s most relevant “Perpetually Preferred” (www.researchedgellc.com, 9/24) investor, the tax payer, trust with his/her money?

These are simple questions that do not have simple answers. Launching what Henry Paulson calls a “Bazooka” of $700B of your hard earned money at t-minus 72 hours alongside a “Fear Mongering” (www.researchedgellc.com, 9/25) threat that the “alternative” of not launching the weapon hurriedly is “financial panic” (George W. Bush, 9/24/08) is both emotionally rash and intellectually absurd.

Plenty of my critics won’t take my word for it – and I don’t expect them to this morning. Maybe they can dial up the 3 Nobel Prize winning economists and the other 166 academic economists who sent a letter to the ranking Republican yesterday, Senator Shelby, stating the same. Maybe they can dial up BB&T Bank’s CEO, John Allison, who’s stock price has not been penetrated by the “evil doer” short sellers, because he proactively managed his $136B bank like a fiduciary of this great country should.

In his memo, Allison hammered home what is such an obvious point: “Treasury is totally dominated by Wall Street investment bankers. They do not have knowledge of the commercial banking industry. Therefore, they cannot be relied on to objectively assess all of the implications of government policy on all financial intermediaries.” Objective fact finding is crucial here John; let me thank you for your better judgment on this matter. Patience pays.

In 2004, there were 5 investment banks that were freed up by the US government (Bush) to lever their brains out: Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns. One, two, three – you don’t have to be a Nobel Laureate in math to count how many of the famed five flamed out. More interestingly, what have we learned lately about the remaining two? Goldman and Morgan Stanley need capital, and their alumni are steering the SEC into scaring the public into a short seller witch hunt. Last night, Paulson’s fellow Goldman alum and hedge fund PM, Ed Lampert, was able to get his stock, Sears Holdings (SHLD), on the no short sale list. Yes, they are a retailer. No that’s not a typo.

While CNBC is myopically drawn to the tree here again this morning, keep the forest in mind. Next week’s macro calendar is critical to respect. Next Tuesday, September 30th, is month and quarter end for the asset management industry. Wednesday, October 1st is day one of what could potentially be the beginning of the largest fund redemption cycle we have ever seen. October 2nd, is the last day that the short sellers are out of the game. And Friday, October 3rd (see my Beware note from 9/19/08) is what it is… it’s a Friday in October… and it’s also the day you’ll see the US unemployment report. Beware.

Self serving politicians and investment bankers cannot stop time or gravity. The Nobel laureates have my back on that too.

Enjoy your weekend – we all need it.
KM



Jeff Macke: "We're Making This Up As We Go Along"

Jeff just fired that off to Dylan Radigan on CNBC's "Fast Money"... at least the guy is telling the truth!

This show was the birth child of a global stock market mania, and will likely go away... as all fads do.
KM

PPC: This Chicken Is Done!

On 9/6/08 I wrote a note titled "TSN and PPC: Stay Short The Chickens"... we hope you did. The stock was down another -40% today. Howard Penney posted a note this morning titled "Big Bird De-Boning". Too bad Lehman Brothers isn't accountable for their August 13, 2008 "Overweight" initiation, when the stock was at $16 and they slapped a $38 target on it!
  • My short term target for PPC is $1.48/share. Howard thinks it could be a zero.
    KM
Chart courtesy of stockcharts.com

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Eye on Leadership: John Allison, CEO of BB&T Bank

Below I have attached what is the most sane depiction of reality in the US Financial System, from someone with credibility. In a "Dear Senator/Congressman" note, CEO, John Allison walks through 14 reasons why he thinks "it is inappropriate that the debate is largely being shaped by the financial institutions who made very poor decisions" rather than companies like that which he heads up throughout the mid-Atlantic and southeast states ($136B multi state banking company with 1500 branches).

Here are three points he makes that should not and cannot be ignored:

1. "There is no panic on Main Street and in sound financial institutions. The problems are in high risk financial institutions and on Wall Street"

2. "Protecting the banking system, which is fundamentally controlled by the Federal Reserve, is an established government function. It is completely unclear why the government needs to or should bail out insurance companies, investment banks, hedge funds, and foreign companies"

3. "Treasury is totally dominated by Wall Street investment bankers. They do not have knowledge of the commercial banking industry. Therefore they cannot be relied upon to objectively assess all the implications of government policy on all financial intermediaries."

John Allison doesn’t need a short selling ban in BBT. He’s getting the job done.
KM

Taiwan: What happens to stocks when they cut rates?

I asked Andrew Barber to put this data set together, and I was actually expecting a different conclusion. I am looking for reasons to get positive on Chinese and Taiwanese Equities, but being data dependent has it's realities.

One reality is this chart's output. The 1st cut in a cycle doesn’t call the bottom in stocks. Quite the opposite actually - look back at the rate cut cycle in 2000.

This morning Taiwan cut rates for the 1st time since 2002. They unexpectedly cut their benchmark rate to 3.5%, and the stock market sold off on the news, closing down -1.2% on the day.

After we get through this domestic tsunami of economic issues in the US, the masses will be forced to get back to business and realize that it is global this time, indeed.
KM

The chart that the Street will focus on next week...

This morning's jobless claims number was a large one. Coming in at 493,000 (see chart), this is the highest print we have seen since the 4th of July.

Notwithstanding the disclosure in the report (that the government attributes 63,000 of the claims to hurricanes), the number is the number, and it takes the 4 week moving average up yet again to 463,000.

This week, next week, and the weeks after that, the proverbial hurricanes in the US Financial Services industry will have to be accounted for as well don’t forget.

Come "bailout day", there is an economic cycle underneath this financial crisis that will not stop trending in its current direction. Conversely, it will worsen throughout Q4. The September employment report looms next week (after the short sellers are allowed back into the game).

KM

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