Keith Fitz-Gerald's Blog

Bank bets now pushing Greece closer to ruin

Keith Fitz-Gerald — Fri, 26 Feb 2010 15:41:35 +0000

Turns out that all those credit swaps Greece placed to help hide its debts now threaten its very existence. In case you’re not familiar with ‘em, credit default swaps are essentially bets that a company – or in this case – the entire nation of Greece – will default. If that happens, the traders who bought these swaps will make a killing.

Here’s why – buying credit swaps is like buying life insurance on your wealthy neighbor – you now have an incentive to bump him off.

In exchange for its help, Goldman was paid $300 million which, naturally, it ran through a newly created London based shell company called Titlos. Meanwhile, across town another London based company called the Markit Group created the little known iTraxx SovX Western Europe Index. It was based on Greek swaps as well as those of other PIGS and gave global traders the ability to bet on Greece’s pending failure.

Turns out that the Markit Group was backed by none other than Goldman Sachs, JP Morgan Chase and more than a dozen other banks all of whom were making similar bets against Greece.

So to recap…Goldman rakes in $300 million in fees by helping Greece do something that while not illegal, is certainly not honest. Then, the firm turns around and bets heavily on the country’s failure while standing to make billions if it goes belly up.

The bottom line is that not only has Wall Street become the world’s largest casino, but Goldman has house odds.

Don’t hold your breath that this will change any time soon…the guy named to head Greece’s banking system and provide oversight is George Provopoulos – a Goldman alumni. So to is Mario Draghi, who presently heads the Bank of Italy, Chairs the Financial Stability Board and who is the front runner to be the ECB’s new president starting next year. As for Goldman, evidently they can’t leave well enough alone and are busy denying rumors that the firm is helping pitch the sale of equity in the National Bank of Greece even as Greece struggles to fix its public financial woes.

My Take: Biden to announce retirement safeguards

Keith Fitz-Gerald — Fri, 26 Feb 2010 15:02:01 +0000

AP – hot off the presses this morning - VP Biden is going to announce proposed regulations to protect workers from conflicts of interest on the part of financial advisers. The proposals reportedly will include: a) basing investment advice on objective computer models certified by independent experts and b) restrain advisers from self dealing by referring workers into funds from which they receive a commission.

My take: If this weren’t so laughable it’d be traffic. First, I suppose these are the same certified computer models that missed the crisis to begin with and which failed to protect investors to the tune of more than $15 trillion that’s been vaporized. And, second, receiving commissions from sales is part of the process. Wall Street has never been in the advice business and has, since its very founding, been there to sell stuff. Brokers are no different from appliance salesmen in that regard.

What Washington needs to do is clamp down on Wall Street and align their interests with investors rather than allowing them to smile while betting against them as is the case today. This proposal is yet more evidence that Washington not only doesn’t understand the game, but either cannot or will not take on the Street.

We cannot borrow our way out no matter what Washington wants us to beleive

Keith Fitz-Gerald — Fri, 26 Feb 2010 00:12:07 +0000

Try paying your Mastercard bill with your American Express card. It won’t get you anywhere for two reasons. First, it forces you to pay for money you’ve already spent with money you don’t have. And, second, doing so digs you further into debt. Yet, this is exactly what Washington is doing with each new stimulus dollar and each new bailout bill.

I can’t say I’m surprised either…according to a J.P. Morgan research report, a mere 8% of President Obama’s cabinet has real world experience…no wonder the policy wonks and academics think the bailout is such a great idea. Yeesh.

Chinese Hummer bummer

Keith Fitz-Gerald — Wed, 24 Feb 2010 22:46:51 +0000

It’s official – the Hummer brand is dead. While there are no official reasons being given today, I’m hearing from sources that the Chinese government balked at the last minute for the same reasons that consumers did last year when the beleaguered GM maker sold a mere 9,046 vehicles – gas mileage stinks. And it’s easy to see why. Such Chinese ownership of such gas guzzling behemoths would run directly in opposition to Beijing’s stated goals of environmental consciousness and efficiency.

Toyoda’s testimony holds the key for Japan, Inc.

Keith Fitz-Gerald — Wed, 24 Feb 2010 14:08:45 +0000

To my point on Fox News yesterday, I sure hope Toyota’s President, Akio Toyoda, has good translators especially since he’s stepping into a circus the likes of which he’s not even remotely prepared to deal with. Not only does his reputation and leadership standing come into play with regard to Toyota, but what’s really at stake is Japan, Inc. And the reason is very simple – most of Japan’s global exporter reputation rides for better or for worse on the Toyota brand. Should Toyoda fail to get a grip on this crisis, what was once a relatively simply recall could turn into global distrust for Japanese products in general.

Fed rate hike is a change in policy even though the Fed says it’s not

Keith Fitz-Gerald — Fri, 19 Feb 2010 20:15:35 +0000

By raising the discount rate, the Fed is telegraphing a change in policy even though it says it’s not. Naturally people interpret this as a sign that the dollar will strengthen - which it did following the announcement – but what’s really happening is that Team Bernanke is caving in to pressure from banks, insurance companies, and indeed virtually the entire fixed income market over artificially low rates that are destroying their portfolios. It’s also a sign that the Fed will likely end asset purchases shortly – perhaps as early as March.

You are a victim of opportunity – not a conspiracy

Keith Fitz-Gerald — Thu, 18 Feb 2010 00:01:59 +0000

There’s over $15 trillion in tax favored retirement plans including some $4 trillion in IRAs. This represents over 35% of all private assets and a massive target for Washington’s inept politicians who desperately need the money to fund their hair brained, half arsed decision making. The country is broke and the deficit is soaring which is why Washington wants to get its meat hooks into this stockpile. But don’t expect there to be outrage – the vast majority of unemployed, underemployed, unionized in failing unions and government employees will think this is a great idea because they get to raid the accounts of successful productive Americans who have saved responsibly.

This is going to be the greatest theft in recorded history promulgated by nothing more than a mob based democracy “where 51% of the people take away the rights of the other 49%” as warned by none other than Thomas Jefferson.

World credit markets wake up to the possibility of a double dip

Keith Fitz-Gerald — Wed, 17 Feb 2010 14:27:42 +0000

Default risks in Dubai and Greece have apparently slammed the door on fragile global credit markets bringing the best credit markets seen in a century to a screeching halt. According to the London Telegraph Sixteen companies worldwide have pulled new debt issues worth more than $7.3 billion since mid January following an unexpected “material” rise in borrowing costs particularly among lower grade debt in the Eurozone. I expect stronger companies to weather the storm but concerns are certainly mounting as credit conditions deteriorate. This is particularly disturbing to me as it is to bond traders because private companies have been using the debt markets to raise money as an alternate to the EU’s shattered banking system.

Japan maintains its lead after all

Keith Fitz-Gerald — Wed, 17 Feb 2010 14:14:19 +0000

Not apparently ready to stomach losing the world’s No 2 slot to China, Japan’s latest figures showed – ta da – growth that allowed it to keep ahead of China by a hair…for now. But the point is really moot. China is on the rise and savvy investors not wanting to get left behind should pay attention.

China will become world’s No 2 economy on February 14th

Keith Fitz-Gerald — Sat, 13 Feb 2010 15:05:23 +0000

China will report GDP figures on Feb 14th and overtake Japan as the world’s second largest economy – something I predicted way back in 2005 only to be tarred and feathered by dubious investors who thought they knew better. Despite the population edge, China’s still only 1/3rd the size of the US economy, but expect that to change no more than 20 years from now when it surpasses the United States. – 2/13/10