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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

The FCIC, the Fed, and Shadow Banking

On January 28, 2011, in Banks, by Tim

The usually chatty former Fed Chief Alan Greenspan has been noticeably silent about the report issued by the Financial Crisis Inquiry Commision whose finger was pointed squarely in his direction, one of the reasons being the first chart in the report as shown below.

Those of you who were watching this mess unfold about five years ago no doubt remember how, at the time, Greenspan assured elected officials that banks were well capitalized with nary a distressed asset on the horizon. But, that’s not where the action was. The dramatic rise of the shadow banking system, detectable in gross terms as early as 2005, was where the trouble was, what you’d think would be of interest to the world’s most important banker, if for no other reason than that it was the Federal Reserve that collects this data.

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“Yeah, That Was Just Me”

On January 28, 2011, in Commodities, by Tim

Today’s gold investing oddity comes via this WSJ story($) in which one Daniel Shak ended a losing gold spread trade at a 70 percent loss, closing out futures contracts in the process that amounted to more than 10 percent of all gold contracts at the Comex.

A huge trade by a tiny hedge fund has sent shudders through the gold market.

Thanks to the nature of futures trading, Daniel Shak’s $10 million hedge fund held gold contracts valued at more than $850 million, more than 10% of the main U.S. futures market, and the equivalent of South Africa’s annual gold production.

But as gold prices started falling this year, the trade, which was a combination of being long and short gold contracts—bets that prices will both rise and fall—started going bad. Monday, he liquidated his position, and is returning money to clients.
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That Mr. Shak and his firm, SHK Asset Management, could control one of the largest positions in the gold market underscores how leverage can enable investors to control huge positions in many commodity markets.

“Yeah, that was just me liquidating my spread position,” Mr. Shak, 51 years old, said in an interview. “I had a significant, fully margined position. The dollar amount of the gold liquidation was very small, it was just a lot of contracts.”

Shak’s fund, which was up 100 percent last year after a loss of 12 percent in 2008 and a gain of 20 percent in 2009, probably won’t be missed, however, his soon-to-be former investors will probably miss the money corresponding to the 70 percent loss.

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U.S. Economy Grows at 3.2 Percent Pace in Q4

On January 28, 2011, in Economy, by Tim

The Commerce Department reported that economic growth in the U.S. rose from an annual rate of 2.6 percent in Q3 to 3.2 percent in Q4, the improvement coming from increased consumer spending and higher net exports of goods and services.

For all of 2010, the economy expanded 2.9 percent, up from a 2.6 percent contraction in 2009, and the best performance since 2005 when growth registered 3.2 percent.

(more…)

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Friday Morning Links

On January 28, 2011, in Uncategorized, by Tim

MUST READS
Egyptian Clashes Begin Again – WSJ
US, Japan told time running out to deal with debt – Reuters
Financial Crisis Panel’s Report Parsed Far and Wide – NY Times
They Shoulda Known! Financial Crisis was Avoidable – Fiscal Times
Mozilo Predicted U.S. Housing Collapse as Fed Overlooked Risk – Bloomberg
Wall Street’s Collapse to Be Mystery Forever: Jonathan Weil – Weil, Bloomberg
Insider: “I Can’t Believe They Suborned Brooksley Born” – Naked Capitalism
Excerpts from Financial Crisis Inquiry Commission’s report – USA Today
Bernanke: Fed Failed to See Broader Risks From Housing – Bloomberg
State pension + debt = big numbers – CNN/Money
Stocks and Butter – aucontrarian

MARKETS/INVESTING
Oil below $86 amid weak indicators, earnings – AP
Spot gold fall, physical buying may support – Reuters
Paulson profits $5 billion in 2010: Report – CNN/Money
The Gaping Gap Between Nymex and Brent. Which is Right? – WSJ
Gold no longer the top of the pops for Canada’s investors – Mineweb
Most speculative of traders betting market will fall – MarketWatch
Private gold demand surging in China – Commodity Online

ECONOMY/WORLD/HOUSING/BANKING
Q4 GDP accelerates to 3.2% pace from 2.6% – MarketWatch
99ers More Likely to Be Older, Married, Minority – WSJ
Companies pull hard in pricing tug-of-war – Reuters
UK consumer confidence suffers ‘astonishing collapse’ – Telegraph
China approves launch of pilot property tax reforms – xinhuanet
IMF: Imbalances May Worsen as U.S. Fuels Chinese Exports – Bloomberg
Foreclosure pain index: 10 cities – CNN/Money
Number of the Week: 492 Days From Default to Foreclosure – WSJ
Bernanke: All but one major firm at risk in 2008 – Reuters
Rand and Ron Paul Introduce Twin Fed-Audit Bills – WSJ
The Fed in La-La Land, Again – Jeff Matthews

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