Geithner, Wilbur Ross on PPIP (Public-Private Investment Program)

I wanted to touch on the Public-Private Investment Program because now that the stress tests are out there could be some interesting asset exchanges between the quasi-nationalized banks and private sector using FDIC leverage. Wilbur Ross plans to commit $1 billion to scoop up toxic financial assets. He explains the art of the PPIP (low interest, non-recourse, levered transaction) which is attractive on a risk/reward basis (Bloomberg video below). This leverage allows for higher bids on the assets.

"For example with 6-to-1 leverage, which is fundamentally being talked about, what would've been a 9% unleveraged IRR suddenly becomes a 26% IRR after fees", "It's not only a high degree of leverage it's non-recourse so you've limited your exposure and it's at a very low interest rate."

Here's a recent press release from the US Treasury saying they received 100 unique applications for the program. I also provided a Council on Foreign Relations interview with Tim Geithner explaining the program on 3/25/09 and a fact sheet from Treasury.gov. This should get interesting.

"FOR IMMEDIATE RELEASE: April 29, 2009
CONTACT: Treasury Public Affairs (202) 622-2960
tg-109

Treasury Announces Receipt of Applications to Become Fund Managers under Public Private Investment Program

Washington, DC -- The Treasury Department today announced the receipt of more than 100 unique applications from potential fund managers interested in participating in the Legacy Securities portion of the Public Private Investment Program (PPIP). A variety of institutions applied, including traditional fixed income, real estate, and alternative asset managers.

Successful applicants must demonstrate a capacity to raise private capital and manage funds in a manner consistent with Treasury's goal of protecting taxpayers. Treasury will also evaluate the applicant's depth of experience investing in eligible assets. Finally, the applicant must be headquartered in the United States.

Treasury expects to inform applicants of their preliminary qualification around May 15, 2009. Once a fund receives preliminary qualification, it can begin raising the expected minimum of $500 million in private capital that will serve as the investment that, pending further approval, will be matched with taxpayer funds. As we have stated previously, Treasury anticipates opening the program to smaller fund managers in the future, which may result in a lower minimum private capital raising requirement.

Since announcing the program details on March 23, Treasury has encouraged small, veteran, minority and women owned private asset managers to partner with other private asset managers. On April 6, Treasury extended the deadline for fund manager applications to provide more time to facilitate these types of partnerships. We are pleased to see a number of creative partnership proposals among the applications we are currently evaluating.

Today's announcement is the latest milestone in making operational the PPIP for legacy loans and securities, a key part of the Administration's efforts to repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery." (Source: FinancialStability.gov)









PPIP Fact Sheet PPIP Fact Sheet dvolatility

Roubini- Race Between Bank Earnings & Write Downs

The stress test results just came out. "The Federal Reserve said Bank of America Corp. needs $33.9 billion in capital; Wells Fargo & Co. needs $13.7 billion; and Citigroup Inc. needs $5.5 billion." Stress test results: what it all means (AP). Roubini thinks it will be hard to get private capital because of dilution risk.

SPY 2002 Market Bottom v. May 2009 (Charts)



Look how the S&P ETF (SPY) bottomed out during the 2002 recession and how it compares to today. Even though today's recession is much worse than 2002 look how SPY based out with a double bottom and a higher low retest. It looks like we are due for a correction unless the black swan is a very steep V shaped recession. SPY volume has been weak but relative strength is breaking out hitting levels not seen since May, 2008. We're around ceiling and 200 day resistance at $95. Quiero dinero efectivo ahora. May puts getting killed!


SPY 2 Year Chart (Stockcharts.com)

SPY 10 Year Chart (Bigcharts.com)


SPY 2002-2003 Bottom (Bigcharts.com)

Liesman vs. Santelli Regarding "Dumb Things"

Hat tip to Zero Hedge.





Steve Liesman: "But Dennis, ask the question in a more compelling way, I want you to save the world and not disclose".

Rick Santelli: "Come on Steve, are we going to come up with excuses to break the rules? To break the law? You sound like Richard Nixon! Who did you vote for, Steve?"

Steve Liesman: "All I was posing was the ethical issue here. If it helps out to stabilize the system, is there a compelling reason to not disclose? I am not advocating that."

Rick Santelli: "You don’t break rules in a crisis condition!"

Steve Liesman: "If you want to blow a gasket on that, Rick, well then blow it on somebody else, not me."

Rick Santelli: "Well, then don’t open your mouth and say dumb things!"
Great idea Steve!

Natural Gas Price/Volume Converging, Fundamentals

Here's a look at the Natural Gas 2009 June (NGM9) and July (NGN9) future and $UNG (Natural Gas ETF). Look how volume has been converging with price on each security. The June future pierced through near term downtrend resistance and could head toward the $3.75 - $3.98 range (50 day moving average resistance) if it can follow through. Natural Gas is still in a long term downtrend but should be monitored for relief rallies or a structural reversal. As you can see from all of the charts below natty gas failed to break out on multiple occasions so stops and/or protection are mandatory imo (for example).

As for fundamentals, working gas in storage is at a very high level (chart at bottom) and rig count is declining, however according to Baker Hughes the decline slowed down a bit last week. We'll see if that trend sticks. I'm trying to hunt for the bottom here. Supply/demand tightening or hurricane anticipation could bring some volatility going forward. I also provided the April 30 AGO Natural Gas Update via Scribd and a bearish article: Natural gas prices on the verge of a deeper slide (Purchasing.com).


Natural Gas June Future (NGM9) (Optionsxpress)


Natural Gas July Future (NGN9) (Optionsxpress)


Put Buying On Index ETFs, Plunge Protection? (XRT, XLY, XLI, KRE, FAZ)

Bearish put strategies or hedges are popping up on a variety of Index ETFs. First here's what Jim Fitzgibbons of Susquehanna Intl. Group had to say on the floor at the CBOE. He saw people buying protection on the Retail and Industrial ETFs as well as the S&P 500.

Larry Page U of M Commencement Speech Video

Larry Page, co-founder of Google, gave a great speech at U of M's 2009 commencement. Follow your dreams!

US Dollar vs. Oil, S&P Chart; 374.6M Barrels in Inventory, IEA World Oil Demand.

Is oil vs. S&P and USD converging here or is this just a bear market head fake? Oil, the USD and S&P pierced through trend resistance and support levels. The USD has been moving inversely with the S&P and it's been acting like "a fever chart" during the financial crisis. (Soros).

But the S&P is up 30% since the March 666 lows and oil has been following the equity market, even with a higher inventory reading. US Crude Oil inventories (excluding SPR) are at 374 million barrels, levels not seen since 1990 (chart below). There is also oil inventory being stored offshore utilizing the contango spread which will eventually be dumped on the market soon. Read these articles.

4/30 -Floating oil lake likely to curb future oil prices (Reuters)
4/28 -Crude oil contango may flatten in second quarter (Reuters)
4/10 -IEA Cuts 2009 Oil-Demand Forecast (WSJ)


So is the oil market pricing in favorable inventory/production/demand levels going forward? Read Price Pop? by Gregor.us. If lower demand eats up existing inventory combined with lower production wouldn't that translate into higher prices eventually? The IEA predicts world oil demand will bottom out in Q2 2009 (Chart below). Also don't forget inflationary pressures and Treasury yields breaking resistance levels. We'll see what happens from here. Check out the futures curve, you can make 19% storing oil from June 2009 - June 2010 ($53-$63) so go hoard some oil on the Detroit River.