Stressing Over The Test (Part 2)


Tomorrow will not be a bank holiday.

Half of the 19 banks that underwent the Obama administration’s stress test will have a need to raise capital according to the best-case scenario. That will be the headline on the news, but perhaps 16 of 19 banks will need to bolster reserves under the worst-case scenario.

This is why there was a delay in releasing the results. Banks leaders were squawking to regulators that the worst is over and therefore those tests should not be released.

The worst-case scenario took a 10.5% levels for unemployment. If the banks think this level is unrealistic we are there already if you take the fuzzy math away from the Bureau of Labor Statistics.

Mortgage defaults are still rising with a new wave of possible foreclosures about to wash ashore with Option ARMs and Jumbo markets. Not to mention commercial properties defaults and the derivatives associated with these debt instruments.

Speaking of unemployment, the precursors to the BLS number on Friday for April, ADP and Challenger, Gray and Christmas puts a rosy outlook on the number. 500,000 unemployed is now seen as good since the levels are dropping from the 650K level of previous months.

Well Friday’s number will include sectors, which are hiring people. Do you believe construction industry hired people lately? Well the BLS will say that probably occurred, because the weather is warming, which is a metric under the BLS “Birth/Death Model,” where phantom companies hire phantom workers, which BLS believes but cannot prove.

Better Red Than Dead

Wall Street loves socialism when it benefits it with bailouts and cheap money, but when Washington veers too far left the street screams bloody murder.

Hedge fund manager, Cliff Asness of AQR Capital Management and manages $20 billion in assets has come out with guns blazing against the Obama administration for its tack on the Chrysler bankruptcy talks.

Asness’ firm does not hold Chrysler bonds, but fears that the White House’s leading the auto bailout’s direction sets a bad precedent. Asness, a former Goldman Sachs quant director, put to words what many hedge fund managers have said privately.

  • • “Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice”, they are stealing.”
  • • “The President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along.”
  • • “The President’s attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to “sacrifice” some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.”

For more on Wall and Washington and the economy see:


One thought on “Stressing Over The Test (Part 2)

  1. Pingback: Cliff Asness

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