Data Day

by Larry Levin
There was a lot of news today, from the garden variety morning data to the how-can-we-fool-them-today type of news. After this morning’s gap open and early rally, the market turned as mixed as the news.

Weekly unemployment claims rose again, along with yesterday’s ADP employment report of private businesses. Of course, the big one is tomorrow’s monthly data which didn’t seem to deter the bulls today. Since tomorrow’s report is supposed to be very poor, I wonder if the excuses as to why unemployment is bad and getting worse are in place - ready to be used after the data is released in the morning.

The European Central Bank surprised the market today by cutting interest rates less than expected. The result of this was a rally in the Euro vs. the dollar, which also helped spike oil prices. A weaker dollar tends to push up dollar-denominated commodities prices and oil is priced in dollars.

Today’s dollar/oil move shows just how vulnerable we are to oil spikes if the US dollar plummets because of Washington’s insane spending. At one point today the dollar was down 1% and oil was up almost $4, which is fairly normal for a 1% move in the dollar. To be sure, there are other factors that affect the price of oil but dollar weakness is one of the important factors. Because oil is priced globally in dollars, sharp moves in the dollar changes the price even if demand doesn’t change.

Some alarmists say the dollar will could drop 45% or more if the Fed’s monetizing debt scheme goes terribly wrong. Carrying today’s ratio forward we could see a $180 rise in oil prices even if the rest of the world doesn’t pay any more than they are now. That is just another reason why what the Fed and Congress are doing is so dangerous. They can crash the economy with these moves if they make any mistakes - and although I have been bearish for a long time now, I certainly would not want to see that day.

The market rallied a bit further this morning after a G20 communique was released. Leaders of the Group of 20 nations agreed today to provide more than $1 trillion to the International Monetary Fund and other international institutions in an effort to reverse the deep global economic downturn. This might be a good thing if most of these countries weren’t broke. I don’t have all of the facts, but I’ll bet 80% of the G20 currently run an annual deficit and will need to borrow funds in order to provide the IMF with the promised funds. Money will need to be siphoned from a productive area in order to be given to another. Madness.

“We have agreed on a series of unprecedented steps to restore growth and prevent a crisis like this from happening again.” - President Barack Obama

The President is referring to the G20 ideas of reigning in banker’s salaries and new regulations over hedge funds. Hmm, have any hedge funds received a bailout? I don’t recall any. That being said, I am not a defender of hedge funds - I just don’t think that will accomplish much. Banks are and have been HEAVILY regulated yet they were still able to bring global economies to their collective knees.

Mr. President, anything short of abolishing the Federal Reserve and other central banks is not taking unprecedented steps to restore growth and prevent a crisis like this from happening again. It is simply more piecemeal regulation, which may be needed - but it’s not unprecedented.

“Overall, the communique is long on lofty principles and short on concrete commitments,” said Marco Annunziata, chief economist at UniCredit MIB.

Finally, the how-can-we-fool-them-today news was the FASB accounting rule change. We want clarity in banking information - the government wants opacity and more obfuscation.

Responding to pressure applied by lawmakers on Capitol Hill, the Financial Accounting Standards Board (FASB) voted unanimously today to give auditors more flexibility in valuing illiquid mortgage assets that may have long-term value. In my opinion, auditors will now be applying whatever the banks claim the assets are worth - and why not? The banking corral of “quants” (mathletes) have done such a good job at pricing assets with their prior mark-to-myth models that this should have been done a long time ago (sarcasm!).

Why would this be done now? This change, along with all of the AIG TARP money that has been funneled to the banks, will be a boon for banks’ first quarter earnings. Additionally, banks have complained that they have viable assets with strong cash flows that can’t be sold because there is no market for them.

Of course that’s bulls#!* but what do we expect from a banker these days? The truth is - the assets can’t be sold at a price that the banks want to sell them so they claim there is no market. There are sales occurring now at 30-cents on the dollar, so there is a market. I’ll agree it’s a very low price - but umm - isn’t the market supposed to always be right?

So with the help of the clown-posse in Congress our banking system is going back to mark-to-myth accounting standards. That may be good for investors today, but isn’t having an explicit rule for assigning asset values important? Doesn’t that keep the banks and investors disciplined? Haven’t we learned ANYTHING? The lack of accounting standards on these Level III assets created the poor decisions about risk and value were key drivers that helped trigger the global financial crisis.

The key aspect of a balance sheet is that it shows a true value at a specific point in time. It is not allowed to show what you think things might be worth in a few years, or what you think they are worth but know they are not. That is not a balance sheet. So, this is terrific, there will be no more balance sheets in the banking industry - what a great way to solve the financial crisis. No surprise this idea came from Washington.

We are now in the George Orwell era of banking, and by law, 2 + 2 = 5.


Previous Day's Trading Room Results:

Trade Date: 4/2/09

E-Mini S&P Trades*
(before fees and commissions):


1) IDVA sell @ 9:10am at 830.25 = -1.25 (1 lot)

2) IDVA sell @ 1:40pm at 838.25 = b/e (1 lot)

3) Algorithm positions (3)…combined Secret’s and Algo total…-4.75


Electronic (YM) Mini-Dow:

1) Sell @ 2:15pm at 7,985 = +9 & +35 (2 lot)…+$220.00 net



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