The Big Picture

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• Rally Improves Backdrop Somewhat
• Last Days to Register for Big Picture Conference!
• The Daily Show: Ron Paul Extended Interview
• Can Countries Default On Their Debts?
• Measuring Your Way to Success
• TBP’s 30 Most Influential Finance Sources
• Read It Here First: MS Earnings Concerns
• Michael Spence: Political Ideology Blocking Good Policy
• Counties (Finally) Suing MERS Over Recording Fees
• New Home Sales fall as Aug proves tough month

Rally Improves Backdrop Somewhat Posted: 27 Sep 2011 04:30 AM PDT > Following last weeks fugly sell off, traders were hoping for signs of a bottom. 90% down days — like the one we saw last week, with 90% of the volume and 90% of the stocks are both to the downside — can lead to a tradeable low, if not a firm bottom (heh heh). Yesterday’s not unexpected face-ripper was of comfort to the bulls. The advance yesterday was stronger than Friday’s modest bounce. We would have preferred more insitutional endorsement; note that volume at 5.2 billion shares was well below the 7 billion shares traded on Thursday's 90% Down Day. The rally was broad based, but according to Lowry’s technical services, not quite a 90% up day (NY Up Volume was about 87% of total versus Friday’s Up/Down Volume of 69%. That’s a bit surprising in light of the strong price action, anyway. Lowry describes this as a typical “rebound rally” that follows 90% Down Days. The Quarter ends Friday, and its worth noting that the next few days may have an element of window dressing to them.

Last Days to Register for Big Picture Conference! Posted: 27 Sep 2011 04:08 AM PDT There is a week left to get your tickets for the Big Picture Conference at the discounted rate — Register today! You can see the full line up by clicking here. Group discounts are available for parties of 6 or more. Current students and faculty with .EDU email addresses also qualify. Contact us by sending an email to TBPConf@gmail.com. Be sure to let us know how many are in your party for groups. Current students please send from your campus email.

The Daily Show: Ron Paul Extended Interview Posted: 27 Sep 2011 03:21 AM PDT Republican presidential candidate Ron Paul believes his political message is a threat to the establishment and his campaign is on the verge of an explosion of interest. The Daily Show with Jon Stewart Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook (04:55) ~~~ Extended Interview Pt. 2 Ron Paul believes the war on drugs is a violation of Americans’ civil liberties and trusts that people can make their own choices without government regulation. The Daily Show with Jon Stewart Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook (05:39) ~~~ Ron Paul Extended Interview Pt. 3 Ron Paul believes the environment should be protected by property rights instead of federal laws and that government authority should exist only at a state level. The Daily Show with Jon Stewart Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook (06:53)

Can Countries Default On Their Debts? Posted: 26 Sep 2011 10:30 PM PDT Countries Routinely Default Many people – including economists – are are confused about whether or not countries can default. One of the world's leading economic historians – Harvard professor Niall Ferguson – says: The economists are ill qualified to analyse the current economic situation since they lack the overview of historians such as himself. "There are economic professors in American universities who think they are masters of the universe, but they don't have any historical knowledge. I have never believed that markets are self correcting. No historian could." "The idea that countries don't go bust is a joke… Ferguson notes: Habsburg Spain defaulted on all or part of its debt 14 times between 1557 and 1696 and also succumbed to inflation due to a surfeit of New World silver. Prerevolutionary France was spending 62 percent of royal revenue on debt service by 1788. The Ottoman Empire went the same way: interest payments and amortization rose from 15 percent of the budget in 1860 to 50 percent in 1875. And don't forget the last great English-speaking empire. By the interwar years, interest payments were consuming 44 percent of the British budget, making it intensely difficult to rearm in the face of a new German threat. In fact, as the IMF's Eduardo Borensztein and Ugo Panizza have shown, countries default all of the time. Here are 3 charts based on IMF data courtesy of Calculated Risk: American states have also defaulted. As the Wall Street Journal noted in January: Land values soared. States splurged on new programs. Then it all went bust, bringing down banks and state governments with them. This wasn't America in 2011, it was America in 1841, when a now-forgotten depression pushed eight states and a desolate territory called Florida into the unthinkable: They defaulted on debts. But America Can't Default … Can It? Mainstream American economists argue that – because we have world's reserve currency – America can never default. Specifically, they say we can always print up more money to pay our creditors. This may technically be true, although the dollar's status as reserve currency is slipping away. But with every new dollar we print, each existing dollar becomes worth less. And our creditor, China, has said that America has defaulted by printing too many dollars. For example: A Chinese ratings house has accused the United States of defaulting on its massive debt, state media said Friday, a day after Beijing urged Washington to put its fiscal house in order. "In our opinion, the United States has already been defaulting," Guan Jianzhong, president of Dagong Global Credit Rating Co. Ltd., the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying. Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies – eroding the wealth of creditors including China, Guan said. It is printing massive numbers of dollars which has caused the dollar to weaken against other currencies. So while America may not technically default, it may default in practice, by printing so many dollars that creditors don't want to lend, except for a very steep price. How Did We Get Here? How did Greece, Iceland and other countries get to the point of default? BIS (the "Central Banks' Central Bank") said in 2008 that said that the massive bailouts are putting nations at risk. Spiegel wrote in 2009: Unlike 1929, the world's major countries are flooding the economy with money to prevent deflation and, with it, a downward spiral of declining prices and income. But no one knows whether this will suffice, or whether all the money being thrown at the aggressive virus fueling this crisis will only make it worse. Debts are being fought with debts, meaning that not only banks but entire countries could end up bankrupt. Perhaps the efforts to combat the current crisis are merely laying the foundations for the next crisis, which will be bigger still. That is what is happening today. Of course, if the governments had chosen the little guy instead of the giant banks, the consumer would have more resources and confidence, small businesses would be hiring, economies would stabilize, and governments would as well. By choosing the big banks over the little guy, the governments have doomed both.

Measuring Your Way to Success Posted: 26 Sep 2011 04:30 PM PDT Measuring our way to future success View more presentations from Helge Tennø

TBP’s 30 Most Influential Finance Sources Posted: 26 Sep 2011 02:00 PM PDT Last week, I lamented that the Bloomberg 50 was a disappointingly obvious list (the event was quite good, however). Following that (Meh!) complaint, I asked readers who was their most influential managers, thinkers, traders and strategists — who impacted their trading, thinking and investment process more than the rest of the chattering classes. For obvious reasons, I excluded myself & TBP (the sample group of TBP is biased). Well, you responded in force. Almost 500 votes were submitted for 90+ people. The list ranged far and wide, with many nominees. I thought it was more intriguing than the Business Week piece, with far less sell side names and far more interesting, thoughtful suggestions. Kudos to TBP readers for your intriguing perspectives. This is the list you, the home viewer, came up with: Asset Managers Researcher/Strategists Media/Blogs 1. Jeremy Grantham James Grant Naked Capitalism 2. Jim Rogers Robert Shiller John Mauldin 3. John Hussman Lakshman Achuthan Paul Krugman 4. George Soros Marc Faber ZeroHedge.com 5. Hugh Hendry David Rosenberg Calculated Risk 6. Bill Gross Chris Whalen Jesse's Café Américain 7. Felix Zulauf Gary Shilling Mish 8. Seth Klarman James Montier Peter Brandt 9. Bill Fleckenstein Louise Yamada Robert Prechter 10. Howard Marks Nouriel Roubini FT Alphaville

Read It Here First: MS Earnings Concerns Posted: 26 Sep 2011 12:30 PM PDT Morgan Stanley Research channels our prior discussion on earnings during recessions: “We have heard investors suggest $80 in EPS was a fair bear case for 2012. We decided to look at history as a guide in assessing the bear case EPS. The 2001 recession saw a 13% revenue decline and a 57% EPS drawdown. The 2008 recession saw a 14% revenue decline and a 51% EPS hit, peak-to-trough. For 2012, bottom-up estimates (excluding financials) embed a 5% revenue INCREASE and just over 10% year-over-year EPS growth. If prior recessions prove relevant to next year's economy, $54 to $68 in EPS in 2012 would be a more likely range than the $112 that the bottom-up consensus estimates currently embed.” What should SPX prices be? Depends upon how much earnings fall during the coming slow down/recession. If we get a pre-2000 recession drop of 15%, then we are priced fairly. A 2001-recession like drop of 25% means more downside. Of course, the 2008 outlier — earnings plummeted 44% during the credit crisis  — well, that means a whole lot more downside work in equities . . . > Hat tip Sam Ro Previously: The investor's dilemma: Earnings, valuations and what to do next (September 11th, 2011) Is the S&P500 Cheap? (August 29th, 2011) McKinsey: Equity Analysts Are Still Too Bullish (June 2nd, 2010)

Michael Spence: Political Ideology Blocking Good Policy Posted: 26 Sep 2011 11:15 AM PDT ~~~ Source: "It's Hard To Be Optimistic": Political Ideology Blocking Good Policy, Michael Spence Says Aaron Task Daily Ticker – Fri, Sep 23, 2011 http://finance.yahoo.com/blogs/daily-ticker/hard-optimistic-political-ideology-blocking-good-policy-michael-174729136.html

Counties (Finally) Suing MERS Over Recording Fees Posted: 26 Sep 2011 09:30 AM PDT "This is a big new front. This case is scary because if Dallas wins then there are a lot of other counties around the country that are going to follow." -Christopher L. Peterson, associate dean and professor at the University of Utah S.J. Quinney College of Law. > In all of the market mayhem of last week, this article may have slipped by unnoticed: Merscorp, Bank of America Sued by Dallas District Attorney. We’ve discussed Mortgage Electronic Registration Systems (aka MERS) repeatedly over the years, including its quasi-legal standing and how it illegally failed to pay lawful recording fees to states and counties. (Back in March ’11, we discussed that County & State Litigation vs MERS was coming soon). The Dallas DA action may be the largest major City/County litigation versus MERS. This may break open the flood gates for other such suits by counties and states around the country. The politics of this are quite fascinating: The bankers may own the corrupt US Congress, and they may have intimidated or bought off many of the more cowardly State Attorneys General, but there simply are too many counties and District Attorneys representing local interests throughout the country to all be bought off. Buying/intimidating/controlling all of the local country District Attorneys may be like herding cats — nearly impossible. I am going to stand by my original prediction: The early litigants may get something, but the latter lawsuits will likely result in bankrupting MERS. An interesting legal question is whether the banks that created MERS — Bank of America, Countrywide, Fannie Mae, Freddie Mac, et. al. — can be reached beyond the corporate shield. Unless someone can demonstrate intentional fraud by design, I tend to doubt it. Stay tuned . . . > Source: Merscorp, Bank of America Sued by Dallas District Attorney Businessweek, September 21, 2011, 5:46 PM Margaret Cronin Fisk and Thomas Korosec    http://www.businessweek.com/news/2011-09-21/merscorp-bank-of-america-sued-by-dallas-district-attorney.html BofA Case May Be Followed by More Mortgage Suits by Counties Margaret Cronin Fisk and James Sterngold Bloomberg, September 23, 2011 http://www.bloomberg.com/news/2011-09-22/bank-of-america-filing-fee-case-may-open-new-front-in-mortgage-lawsuits.html See also: Craig Watkins Makes Good on Threat to Sue Mortgage Processor Over “Tens of Millions” Robert Wilonsky Dallas Observer, Sep. 20 2011  http://blogs.dallasobserver.com/unfairpark/2011/09/craig_watkins_makes_good_on_th.php Dallas County DA Sues MERS, Says Shadow Recording System Confused Title and Cost Money Martha Neil ABA Journal, Sep 20, 2011 http://www.abajournal.com/news/article/dallas_county_da_sues_mers_says_shadow_recording_system_confused_title_and_/ Homeowners' Rebellion: Could 62 Million Homes Be Foreclosure-Proof? Ellen Brownposted Yes Magazine Aug 18, 2010 http://www.yesmagazine.org/new-economy/homeowners-rebellion-could-62-million-homes-be-foreclosure-proof ~~~ On a related note, this embarrassing WSJ article — Niche Lawyers Spawned Housing Fracas — was not their finest moment . . .

New Home Sales fall as Aug proves tough month Posted: 26 Sep 2011 09:15 AM PDT The August turbulence in global markets saw New Home Sales, a measure of contract signings of new homes, fall by 7k to 295k annualized, the lowest since Feb and down from 302k in July. The figure was 2k above estimates and July was revised up by a modest 4k. The lowest since at least 1963 was seen in Aug at 278k. Sales did rise in the Midwest but fell in the Northeast and the South and West where the biggest foreclosure competition is occurring. Months supply rose to 6.6 from 6.5 as the absolute number of homes for sale fell by just 2k. The median home price fell by 7.7% y/o/y. Bottom line, this is more of the same at least in the new home market where competition from existing homes remain fierce at the same time more want to rent and those that want to buy have to deal with tougher lending decisions and inconsistent appraisals.

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