How’s this for private? Over the last year, the Fed’s balance sheet has exploded as it opened various lending windows and programs to Wall Street banks. All told, the Fed’s balance sheet has ballooned by $1.3 trillion year over year. And the rate of expansion is increasing. Last week alone the Fed added $142 billion!!! Setting aside any specialized financial insights on these matters, you have to wonder whether it’s a good idea for a country’s central bank to buy up the garbage that rendered its private banking sector insolvent. Indeed, it is hard to believe, but a mere 10 months ago commentators—including yours truly—made a big deal about the Fed taking on $30 billion worth of crummy mortgages and derivatives from Bear Stearns. However, since September 14, the Fed has gone on what can only be described as an orgy of lending: in ...

Casinos Defaulting On Debt Las Vegas Sands Corp. plunged in New York trading after saying it may be in default of some loans if it can't raise capital, threatening its ability to keep operating "as a going concern.'' The casino company said in a regulatory filing today that it doesn't expect to meet a maximum leverage ratio covenant in the fourth quarter. That would trigger defaults that might force the company to suspend development projects and "raise a substantial doubt about the company's ability to continue as a going concern.'' http://www.bloomberg.com Retail Sales Sink Macy's Inc., Target Corp. and Gap Inc. posted October sales declines after the Wall Street meltdown and accelerating job losses discouraged consumer spending heading into the holiday-shopping season.

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Uh oh… If you’re looking for what the “crowd” is thinking, you can’t do better than Barron’s “Big Money” surveys. In a nutshell, the survey illustrates what money managers as a whole are thinking about the markets. As you’d expect, betting against these guys is an extremely profitably exercise. Back in late 2007/ early 2008, Barron’s surveyed 12 Wall Street strategists. Every one of them forecast that stocks would head higher in 2008. The forecasts ranged from an increase of 3% to 18%, with the group’s average forecast at 10%. How’d that work out? So it was with some concern that I noticed Barron’s latest “Big Money” survey revealed an overwhelming bullishness from money managers. All told 62% of money managers surveyed thought stocks were undervalued. 70% said stocks would be the best performing assets in 2009....

Over the last week, the media has been abuzz with numerous bailout plans to help homeowners in danger of losing their homes. The New York Times reports there are at least four plans in the works. The problem with virtually all of these plans is that they punish the prudent and reward the… Honestly it’s hard to phrase this appropriately. The American dream to a large extent entails homeownership. The problem with Dreams—American or otherwise—is that they’re not based in reality. We’ve now got a situation in which millions of Americans are living in homes they cannot afford. Many of them have simply stopped making mortgage payments and are essentially squatting. Banks which are already broke and don’t need to spend the extra money filling out foreclosure paperwork have helped facilitate this. The most recent example is JP Morgan which just announced it will ...

By Bill King How’s this for an odd bird? While the rest of the financial world is undergoing the process of deleveraging, one financial institution has actually been increasing its leverage and liabilities at a rapid rate. In the last 12 months alone, it’s doubled the size of its balance sheet, adding liability after liability. Simultaneously, it’s diminishing its percentage of quality assets and capital. This time last year it had roughly $800 billion in AAA-rated Treasuries on its balance sheet. Today, Treasuries comprise a little more than half of this—$476 billion—the rest are lower quality assets of greater risk. I am, of course, referring to the Federal Reserve. The Fed is allegedly meant to regulate Wall Street. I don’t have to remind you that they’ve done a terrible job. Under Greenspan they failed to regulate or promote the regulation of derivatives, the increase in leverage ...

In today’s market, a transparent balance sheet is perhaps the most coveted asset a company can have. With everyone from mortgage lenders to commercial banks, investment funds, and even food processors losing money due to derivatives, mortgage backed-securities, currency hedges, and other items, a clean balance sheet that is flush with cash and no hidden issues is a rare and wonderful thing. Indeed, this is precisely what made Wrigley’s and Budweiser so attractive from a buy-out perspective. It’s certainly what convinced the banks/ investors backing the deals to lend the necessary funds for the deals to go through—compare this to the Bank or America/ Countrywide deal in which it’s still not clear precisely what Bank of America is buying and what it’s not. However, in today’s financial crisis, it’s not merely enough for a company to be sitting on mounds of cash. ...

The Fed Moves to Backstop Money Market Funds… America's central bank, led by chairman Ben Bernanke, is to allow funds to sell assets such as commercial paper and certificates of deposits from highly-rated institutions into special purpose vehicles (SPVs) which it will fund. The central bank will lend as much as $540bn to five SPVs set up to buy the assets, which will be run by JP Morgan Chase. Each of the five will be allowed to purchase paper from 10 institutions – with a total of 50 in all – and the overall size of the plan is capped at $600bn, with the Fed funding 90pc of it. http://www.telegraph.co.uk ... Lends Record Amounts to Commercial Banks… Commercial banks borrowed a record of $105.8 billion a day, on average, from the Federal Reserve's emergency lending window over the past week, according to Fed data ...

It’s been a bad year for Wall Street analysts. 2008 started off with some of the worst earnings expectations the Street crowd have ever dreamt up. Bear in mind, I don’t mean “worst” as in “negative,” I mean “worst” as in wrong or inaccurate. According to Bloomberg Wall Street analysts kicked off 2008 predicting an average 22% increase in profits at banks, brokers, and insurance companies the year. Needless to say, they overshot the mark… In fact, many of the firms they predicted this growth for no longer exist. Wall Street is not prone to apologizing. But after this screw up a number of firms admitted they were off by a wide margin. Heck, a couple Goldman Sachs’ analysts even went so far as to say they were “clearly wrong” on their recommendation of financials in early May. But these guys had nothing on the ...

This dollar rally is just about done. As I’m sure you’re aware, starting in July, the dollar began its biggest rally in years. Seeing this, the talking heads got jiggy and started proclaiming that the currency had entered a bull market. As usual, they were horribly wrong. The dollar is not in a bull market. It is in a massive short-covering rally, much like the one stocks experienced back in July when the SEC threatened to make short-selling illegal for financial stocks. I’ll explain…

STIMULUS DIVIDENDS

An Obscure Tax Loophole That Pays 10, 20, even 50 times Bush's Stimulus Checks.

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I’m about to commit the cardinal sin of finance… criticizing Warren Buffett. Buffett needs no introduction as an investor. He’s returned average annual gains of 21% since 1965 and is largely considered to be the greatest living investor, if not the greatest investor of all time. However, in terms of ethics or business principles, Buffett’s been venturing into some somewhat shady territory in the last two months. First came his $5 billion investment in Goldman Sachs (GS). Buffett bought preferred shares yielding 10% a year. Goldman can buy the shares back at any point at a 10% premium. And Buffett also receives the right to buy $5 billion worth of GS stock at $115 per share at any point in the next five years. The talking heads went bananas over this, claiming it was a tremendous show of confidence in financial stocks. It wasn’t. It was ...