Fed Reveals Bear Stearns Assets It Swallowed in Firm’s Rescue - Bloomberg.com

You'll want to read all of this article.

It shows the types of assets in the Fed's portfolio, and for which they paid hard cash.

Interestingly, they own some CDSs that made them some money.

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San Francisco

April 1 (Bloomberg) -- After months of litigation and political scrutiny, the Federal Reserve yesterday ended a policy of secrecy over its Bear Stearns Cos. bailout.

In a 4:30 p.m. announcement in a week of congressional recess and religious holidays, the central bank released details of securities bought to aid Bear Stearns's takeover by JPMorgan Chase & Co. Bloomberg News sued the Fed for that information.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZA_RWY3IJ2I&pos=3

Chevron Wins $700 Million Oil Case Against Ecuador (Update2) - BusinessWeek

How rare is this?

Now they've got to collect.

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San Francisco

March 30 (Bloomberg) -- Chevron Corp. has been awarded about $700 million by an international arbitration court that ruled in favor of its claim against Ecuador over past operations at its Texaco unit, the company said.

The tribunal found that Ecuador's courts delayed rulings on a contract dispute between Texaco and the Ecuadorian government, violating international law, Chevron said in a statement. The Hague-based Permanent Court of Arbitration awarded Chevron principal damages and interest as of Dec. 22, 2006, pending further proceedings to determine taxes, interest and costs, the San Ramon, California-based company said.

http://www.businessweek.com/news/2010-03-30/chevron-says-it-won-arbitration-claim-in-ecuador-update1-.html

Europe Inflation Jumps More Than Economists Forecast (Update2) - Bloomberg.com

And this is from a currency that did not increase the monetary base.

How can the US avoid inflation?

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San Francisco

European inflation accelerated more than economists forecast on higher oil prices, while the unemployment rate reached double-digits for the first time since 1998.

Consumer prices in the 16-nation euro region increased 1.5 percent in March from a year earlier, after a 0.9 percent gain in February, the European Union statistics office in Luxembourg said today. That is the fastest inflation since December 2008 and topped the median forecast of 1.1 percent in a Bloomberg survey of 36 economists. Unemployment rose to 10 percent in February, the highest rate since August 1998, a separate report showed.

http://www.bloomberg.com/apps/news?pid=20601068&sid=arrsXM4KpmGs

Reform in Congress Lacking Cash Clause to Stop Lehman-Like Runs - Bloomberg.com

The problem is not liquidity, but rather government incompetence and corruption.

These problems would not exist if the Congress had not lowered Fannie and Freddie's standards.

There's where the reform must begin.

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San Francisco

March 29 (Bloomberg) -- In 2,615 pages of financial reform legislation introduced in the U.S. Congress, there are no rules to ensure that banks keep enough cash-like assets when credit disappears.

Guidelines on liquidity risk management, which were published March 17 by the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corp., also avoided spelling out how much banks need to hold, and in what form, to make sure they don't collapse if short-term lending dries up. International efforts to do that for the global banking system could take years to implement.

Citigroup Inc., which came close to a funding shortfall in 2008 and received a $45 billion government infusion, is among U.S. lenders that have hoarded cash since credit markets seized up two years ago. Even so, the banks continue to rely on overnight borrowing for their funding needs. While down from its peak in 2007, the U.S. repo market, which provides banks with short-term lending backed by collateral, is still $2 trillion.

"The temptation always is to lower liquidity levels when times are good," said Baylor Lancaster, an analyst at CreditSights Inc. in Miami. "That's why we need rules. In three years' time, are people really going to care about liquidity as much as they do now?"

http://www.bloomberg.com/apps/news?pid=20601109&sid=aN8ApDdiCwcA&pos=12

Supply fears start to hit Treasuries

I have two problems with this scenario.

1. When everybody knows about a problem, it doesn't happen.
2. When everybody understands a problem, it gets solved fast.

I'm betting on 2.

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San Francisco

The bond vigilantes are finally flexing their muscles. A long period of stability for the US government bond market showed signs of cracking this week as a lack of investor appetite for new debt sent the benchmark 10-year yield to its highest level since last June.

For more than a year, analysts have been warning that record sized debt sales by the US Treasury were at odds with a 10-year yield sitting comfortably below 4 per cent. This week, the yield on 10-year notes jumped from 3.65 per cent to a peak of 3.92 per cent on Thursday. On Friday it was 3.87 per cent.

Chart: TreasuriesFalling inflation, rising unemployment, the housing market slump, the Federal Reserve's policies of a near zero overnight borrowing rate and its purchase of up to $1,700bn in bonds have all helped keep Treasury yields near historic lows.

But this week the mood shifted as yields for $118bn of new US debt were much higher than forecast, sparking overall selling of Treasuries. Sentiment also deteriorated in the UK bond market after the government's budget ahead of a general election expected in May failed to resolve doubts over future spending and debt reduction.

http://www.ft.com/cms/s/0/c51fbbce-3908-11df-8970-00144feabdc0.html

Economy in U.S. Preserves Biggest Gain in Six Years (Update1) - Bloomberg.com

Only a minor adjustment in GDP.

But look at the earnings report.

Is there any doubt why the stock market roared ahead last year?

Now we have to deal with rising interest rates.

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San Francisco

March 26 (Bloomberg) -- The U.S. economy expanded at a 5.6 percent annual rate in the fourth quarter of 2009, and corporate profits climbed, setting the stage for gains in employment that may broaden and preserve the expansion.

The rise in gross domestic product, while smaller than the government's previous estimate issued last month, marked the best performance in six years, figures from the Commerce Department showed today in Washington. Company earnings increased 8 percent, capping the biggest year-over-year gain in a quarter century.

"Profits are a leading indicator of the economy and suggest continued growth and likely job gains in the second quarter of this year," John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said in a note to clients after the report.

http://www.bloomberg.com/apps/news?pid=20601068&sid=a8CxLvnMYlY4

Ackman’s Greatest Short - MBIA - Bloomberg.com

The mortgage insurance companies were the canaries in this coal mine. MBIA, MGIC, and PMI.

To anyone who was watching, it was obvious that there were too many adjustable rate loans made to people with insufficient down payments, bad credit, and low income.

All that was necessary for the cave-in was a sustained increase in short-term interest rates. The idiot Greenspan provided the impetus when in 2004 he started raising Fed Funds from 1% to 5.25%.

By the time it was over, all the mortgage insurance companies were destroyed, as were Fannie and Freddie, the mortgage market was in ruins, CDS issuers were bankrupt, and the economy was collapsing.

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San Francisco

"Our newest and largest [short] investment is on an extremely highly levered, yet AAA-rated financial institution, which we believe has inadequate reserves, undisclosed credit- quality problems, aggressive accounting and substantial unconsolidated indebtedness contained in off-balance-sheet special-purpose vehicles," he wrote. The position had the potential to generate a return of about five times the fund's total assets if it was successful.

Though little known outside of Wall Street circles in 2002, MBIA ranked as one of the five biggest financial institutions in the country in terms of outstanding credit exposure. It shared that distinction with Bank of America Corp., Citigroup Inc. and government-sponsored mortgage lenders Fannie Mae and Freddie Mac.

http://www.bloomberg.com/apps/news?pid=20601108&sid=aLmOb9zzVZ9A