Larry McDonald on Lehman Examiner's Report, Greatest Hide The Salami Move In The History of Wall Street (Repo-105, Counterparties, Videos)

Larry McDonald (a former bond trader at Lehman who helped make the firm $2 Billion in 2007) was on Bloomberg talking about the Lehman Chapter 11 Examiner's Report and called Lehman the "greatest hide the salami move in the history of Wall Street". According to the report Lehman hid assets through the use of off balance sheet Repo-105 transactions which painted a misleading picture of their financial condition. Lehman had 7 counterparties involved in the Repo-105 deals who could have "squeezed" Lehman given their exposed weakness (read Zero Hedge post: Lehman's Repo 105 Counterparties Barclays, Mizuho, UBS, Deutsche Bank, And KBC May Have Attempted To "Squeeze" The Bank).  Sounds like Repo-105 in this case was desperation + auditing (via Ernst & Young) gone amok. The video is from BloombergTV on Youtube.

Citigroup Call Options Triple With Pandit's Bullish Estimates At 2010 Citi Financial Conference, $C

This week saw big call option activity in Citigroup ($C) at the $4 strike. A few days ago CEO Vikram Pandit testified before the TARP Oversight Committee and said commercial real estate was not an issue on their books and they wouldn't come back for aid [Full video here].  After Citigroup paid back TARP funds, US taxpayers still own 27% of the common stock at $3.25.  Today Vikram Pandit made a presentation at the Citi 2010 Financial Services Conference.  From the full PDF file here are a few bullish estimates or goals he made [Source: Citigroup].
  • Citicorps "Global Revenue Pool" could grow 21.8% to $3.9 Trillion with emerging markets representing 55% revenue growth [Page 12].
  • Goal to increase managed assets 5% annually (compound annual growth rate) from $1.38 Trillion in 2009.
  • Goal to see 1.25%-1.50% Return on Assets from 1.15% in 2009. 

Full Examiner Report of Lehman Brothers Bankruptcy, Repo-105

Here are links to the "Report of the Examiner in the Chapter 11 proceedings of Lehman Brothers Holdings Inc." by Anton R. Valukas of the Jenner & Block law firm.  It looks like Lehman hid some assets look at Volume 3 - "Repo 105".  Zero Hedge blog has a detailed post on it and check out this Bloomberg story (JPMorgan, Citigroup Helped Cause Lehman Collapse, Report Says).  For Volume 6-9 Appendices visit http://lehmanreport.jenner.com/.

Volume 1 - Introduction, Executive Summary & Procedural Background; Risk
Volume 2 - Valuation; Survival
Volume 3 -  Repo 105
Volume 4 - Secured Lenders; Government
Volume 5 - Avoidance Actions; Barclays Transaction

Here's a look back at Lehman's last moments before bankruptcy during the weirdest time in financial history.

Lehman Disaster Sending Index Futures Lower, BAC Buys MER (September 14, 2008)
Lehman Brothers In Play, South Korean Bank Buy Out? (Option Analysis) (August 24, 2008)
Freddie Mac, Lehman hit in the Fannie Mae, Dow! (July 11, 2008)

Hedge Fund Managers Are On Your Side (Hugh Hendry), CDS Thoughts

Hugh Hendry, hedge fund manager at Eclectica Management, wrote an interesting piece in the Daily Telegraph (h/t Trading Trophies).
"You don't know me; we've never met. But I fear you are being encouraged to dislike me. Let me explain: I'm a speculator. I manage a hedge fund. Apparently I profit from your misery. Accordingly, our political leaders are keen to see the back of me.

Only yesterday, Germany and France were calling for the "fastest possible" adoption of new rules to put an end to financial speculation. But before you write me off I ask that you listen to my side of the story." [read full article at Daily Telegraph]

How long will this debate go on for?  I agree with him that speculators are not to blame for anything.  In my opinion, if there was more price transparency when dealing with credit default swaps and/or other over-the-counter hedging vehicles on public company debt (now sovereign/munis), nobody would have an excuse to blame anybody for anything.  I remember Soros made a speech that CDS should be outlawed because bond investors had a bigger incentive to bankrupt a company than reorganize ["It's like buying life insurance on someone else's life and owning a license to kill him"-Soros].  Soros, John Paulson and Burry of Scion Capital made a lot of money buying CDS on subprime mortgage portfolios.  CDS gave signals of the coming mortgage slowdown -> meltdown in 2006.  When things start to turn for the worse, price signals in the private financial insurance market matter to not only the hedge fund manager hedging or speculating on a $2B default, but as we've seen, everybody who lives on planet Earth who has a job or owns a business/investment.  If CDS started trading on the secondary market would the market become too efficient?

Hugh Hendry also spoke recently at the 2010 Russian Forum with Marc Faber, Nassim Taleb etc (link).

US Graduation Rate Ranked 18, School Budgets Squeezed (NBC Videos)

NBC's Nightly News talked about the public finance and education crisis in the US.  "Four decades ago America had the best high school graduation rate in the world but by 2006 it had slipped to 18th out of 24 industrialized countries" (Brian Williams).  What the hell happened?  This is happening when school funding is scarce and schools are closing down.  Kansas City might shut down half their schools (700 jobs would be cut) and Illinois could cut school spending by 17% if they can't raise taxes.  Regarding those students who do graduate, James Altucher says don't send your kids to college, it's a scam (lol).  Watch the videos.

Updates: OPEC Oil Forecasts, El-Erian on Sovereign Debt, China Inflation Higher, Argentine Soy Producer US IPO, Foreclosures Down 2% From January, Miami-Dade Hospital System Needs $67M Advance From County

Distressed Volatility Global News of News Wire for 3/10/2010  
OPEC Raises Forecast for Oil Demand on Lower NGL Estimate (BusinessWeek)
OPEC, EIA lift demand views, but U.S. data still seen bearish (MarketWatch)
"Opec Warns Members to Reign in Production as Next Meeting Looms" (EnergyIntelligence)
Front running China Mobile's 20% acquisition of Shanghai Pudong? (BusinessInsider)
Foreclosures saw 2% decline from January -RealtyTrac (ZeroHedge)
Pimco’s El-Erian Says Public Finance Shock May Deepen (Bloomberg)
Opinion: How to handle sovereign debt explosion -El-Erian (FinancialTimes) h/t @Zerohedge
Senate passes $149 billion for jobless aid, tax breaks (Reuters)
Big Miami-Dade hospital system nears insolvency, needs $67M advance from County (AP)
China inflation at 16-month high, consumer prices up 2.7% on year (Reuters)
China Tightens Land Purchase Rules, Bans Villas (Bloomberg)
Hedge Fund-Backed Argentine Soy Producer Tejar Weighs U.S. IPO (BusinessWeek) h/t @SoybeanWatch
Citi, AIG, leap with other bailed-out firms (Reuters)
Wholesale inventories drop 0.2 pct in January while sales advance for 10th month (AP)
REGIONAL AND STATE EMPLOYMENT AND UNEMPLOYMENT — JANUARY 2010 (BLS.gov) h/t @GregorMacdonald

iPad Release Date April 3, Apple Leads QQQQ Above January Highs, SPY Yet To Clear Resistance, iPad Commercial ($AAPL, $SPY, $QQQQ, $TLT, $GLD, $USO Charts)

Apple ($AAPL) led the Nasdaq ($QQQQ) above resistance today.  $SPY (S&P ETF) tested resistance but sold off.  Will high beta tech lead the S&P like last year?  People are trying to game the iPad launch on April 3 [Apple iPad Sales May Approach 7 Million in 2010, Says Report, Eweek].  I also charted out USO, GLD and TLT below.  I just bought a Macbook and now I kind of want an iPad.

Crude Oil at Resistance, OVX Higher High, Dollar/Oil Narrowing in Lockstep, Oil Futures In Contango ($WTIC, $OVX, $USD, USO) Will There Be Blood?

Crude oil looks ripe here for a catalyst.  It's been trading in a sideways channel since September of 2009 (7 months).  The Oil Volatility index ($OVX) is making a higher high which is interesting because crude is testing upside resistance again.  OVX measures volatility on the Oil Fund ETF ($USO) so the relationship is similar, USO and OVX are converging (higher high in USO volatility vs. lower high in USO itself).  So why is oil implied volatility not testing the lows, like the VIX, as the underlying (Oil or USO ETF) tests upside resistance?

If a positive oil catalyst presents itself (cut in inventories, Asia/China demand, Middle East battles, inflation, dollar dump?) and Skynet Terminator trading bots rush oil over resistance it could head to $90-$100 (9/09-3/09 ceiling resistance respectively).  Oil is at $81.72.  Oil has also been moving in lockstep with the US Dollar recently which is hard to figure out.  The Euro is probably forcing the marriage at the moment but something has to give.  On the other side of the trade, as with the S&P, if there's a double dip recession, China tightens too hard or a deflationary safe haven bid knocks out risk/commodities, demand for oil could see a double dip and price would sense it with a $70 breakdown.  A stagflation scenario would be interesting.  Looking out on the oil futures curve I see that it's in contango.  A year out oil is trading at a 4.5% premium, just think a year ago January crude oil was trading at a 30% premium to February 2010!

$WTIC (Light Crude Oil - Continuous Contract) 

Reads: US States, Greece, Portugal Austerity, Vineyard Defaults, CMBS Delinquencies 6.29%, Chicago Unfunded Retirement Deficit

Depressing and somewhat interesting news from today and last night.  Mostly state and sovereign related since that's where the volatility is.  Get ready for my 13D war post..

Mutual funds saw quickest decrease in cash since 1991 (BusinessWeek, also see Prechter's explanation)
Papandreou warns of crisis "domino effect", driving up borrowing costs, reign in speculators (Reuters Video)
Portugal follows Greece with austerity measures, European Monetary Fund coming? (Reuters)
Chicago unfunded retirement deficit up 4.4 fold in 10 years -Civic Federation (ChicagoTribune)
Also read..  Illinois has $5.1 Billion unpaid bills (Comptroller)
States’ Payrolls Lag as U.S. Austerity Sets In: Chart of Day (Bloomberg)
Another Record In CMBS Delinquencies, 6.29% -Fitch (ZeroHedge)
AIG sells Alico to MetLife for $15.5B in ongoing bid to payback government (AP)
China cautions against expecting fast yuan rise (Reuters)
Can California Declare Bankruptcy? (Slate)
Vineyard Defaults Surge as Bargain Wines Hurt Napa (Bloomberg)
US taxpayers on the hook for $5 Trillion Fannie Mae, Freddie Mac debt (Tech Ticker Video)



Barney Frank Asks Top Four Banks To Write Down Second-Lien Mortgages.. (ZeroHedge)
Worlds biggest hedge fund is JPMorgan (High Bridge Capital), Pensions & Investments Says (Bloomberg)
FDIC prodding pension funds to invest in failed banks: report (Reuters)
Oil traders end petrol supplies to Iran as US pressure pays off (FT.com)
March 3:  Energy Supply and the Individual States (Gregor.us)
Can we roll out the Bloom Box already....  We need an energy revolution right now.

Is S&P 500 Ready To Hit Abby Cohen's 1250-1300 Target, 50 Month Moving Average? 10-40 Year Monthly Charts, $SPY $SPX, $VIX

The S&P 500 definitely pierced through the downtrend line which is bullish structurally if it can hold.  In the 10 Year S&P chart below, every time the S&P broke above or below the trend line it switched directions.  That's why I think this particular downtrend is so important.  It's currently in process of confirmation and needs to take out the highs from January (top of channel) to attempt a decent long to possibly the 50 month moving average or 1230.  Every time the S&P closed above or below the 50 month moving average the trend was confirmed for a few years. What's interesting is on the 40 year S&P chart (exhibit 2) the last time the index traded well below the 50 month moving average was in 1973 (before 2001 and 2008).  The MACD needs to close above zero which is currently at -32.4 on the monthly.

A few weeks ago Goldman strategist Abby Cohen said S&P fair value was between 1250-1300 [video] so that's another possible target.   If I attempted to pull the trigger to ride an upside breakout I'd buy some cheap puts for downside protection just in case there's a catalyst that fakes the break (which Marc Faber thinks could happen). The Volatility Index (VIX) is testing lows again, however if history repeats itself volatility (option or insurance premium bids) could rush into S&P index options and bring down the S&P or SPY, which would make your puts more valuable.  The same would hold true if I wanted to get short and hedge with calls if the S&P broke back below the ultimate downtrend and channel support.  It's all risk management.  Learn more about buying index puts to hedge at the Chicago Board of Options Exchange (CBOE.com).  It appears that crude oil, the S&P and gold are all testing major resistance levels (except gold which is minor resistance below the December 2009 peak).  I'll update tomorrow.  All eyes are on any sign of a double dip recession, the market will lead the data.  Watch out for catalizadores.

S&P 500 - 10 Year Chart [FreeStockCharts.com]

Vikram Pandit to TARP Panel: Won't Need More Aid, CRE Not An Issue (Taxpayer Still Owns 27% $C Common Stock)

Since the American Taxpayer now owns 27% of Citigroup common stock according to CEO Vikram Pandit, if you haven't seen it yet Vikram testified before the TARP Oversight Committee.  He said commercial real estate was not an issue for Citigroup and there will be no need for additional aid.  If you short Citi you are short yourself folks.  How is the yield curve looking, nice and steep?  Video below is courtesy of Cspan.org.

Reads: Regulators vs. Forex Leverage, SAC Golf Outing, Detroit Strategic Defaults, Cali Job Losses, Panasonic and Best Buy 3D TV Discounts

Link pimping for 3/7/2010, my twitter stream is on fire.

Metro Detroit:  Owners walk from homes, values erode - DetroitFreePress
California job losses grow - ContraCostaTimes (h/t @GregorMacdonald)
Regulators about to limit forex leverage?  - Business Insider
BlackRock's Doll says China not a bubble - Bloomberg (h/t @Asiablues)
SAC had golf outing at Bear Lakes Country Club - Bloomberg
Zero Hedge gets email from Greek Embassy to attend US briefing - Zerohedge
In 3D TV push, Panasonic and Best Buy give 50% discount - WSJ (h/t @bored2tears)
Buy Russian stocks on ‘symbiotic’ ties with China (HSBC) - Bloomberg
China "nullifying" guarantees on local Governments - Bloomberg (h/t @bored2tears)
3.1M Cablevision/ABC feud could leave 3.1 Million without Oscar broadcast - AP
RBS branch sale may be hit by funding gap: report - Reuters
Goldman conviction buy/sell list - Zerohedge
China’s Bank Chief Says Currency Is Unlikely to Rise - NYT
Zhou Xiaochuan:  Days of "special yuan" policy numbered (Dollar peg) - Telegraph