Thursday, October 29, 2009

GDP Finally Up

  • After a full year of wrenching declines, US GDP rose by a seasonally adjusted 3.5% annual rate in the third quarter. The gain was driven by consumer spending, which rose by 3.4% in the third quarter compared with a 0.9% drop in the April-June period of 2009. You can thank our federal government for cash for clunkers, the first time home buyer tax credit, and the piles and piles of stimulus cash showered on the economy. But with unemployment at 10%, and consumers continuing to shed debt, it seems unlikely that this sort of momentum can hold for a sustained period of time. Equity markets are not impressed, posting a meek rally this morning.
  • Another hedge fund scandal hits the tape, with the founder of K1 (no relation to K10, I promise) Helmut Klener arrested in Germany amid a fraud probe. The hedge fund is entangled in an international criminal investigation after banks including Barclays, JP Morgan, BNP Paribas and Soc Gen were saddled with $400 million in losses. Apparently the fund of funds deceived the banks when borrowing money to boost returns. Unheard of! In any event, details are forthcoming and likely to be juicy.
  • The Fed has finished purchasing its $300 billion in Treasuries, having met its quota, and grown tired of playing patty-cake with Treasury. The program has kept long term interest rates artificially low for the past seven-months, allowing lots of folks to refi into much lower interest rates on their mortgages. Lower rates have also led to a massive spurt of bond market issuance by firms, particularly since it's so tough to get a bank loan these days. The low interest rate mortgage boom, however, will continue as the Fed's much larger $1.25 trillion game of patty-cake with Fannie and Freddie goes on through March. Given how much money Wall Street dealers have made being the middle man between the Fed and Treasury and the Fed and Fannie and Freddie, it sort of makes you wonder why the Fed didn't cut them out and trade directly with the other government entities. In any event, rates are likely to head higher so get your refis done while you still can.
  • Here's a quick update on the Lembis, my favorite local real estate mogul family that punted generations' worth of real estate wealth in a few short years. Walter Lembi, managing director of the San Francisco based Lembi Group, is wanted for passing around $298,500 worth of bad checks at Caesar's Palace. Mr. Lembi was about as good at gambling away his money at the tables as he was with gambling away the real estate fortune that it took his family decades to build. Apparently, Mr. Lembi is no longer living in his Burlingame home, the address that was listed on court documents so authorities are having trouble tracking him down. Maybe they should check in one of his old apartments? Although judging from all the lawsuits, his tenants hated him so much, they're likely to rat him out.

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