Bear Market Rally Working: Consumer Wealth Up 5% To $53.4 Trillion, Courtesy Of $2.3 Trillion In Market "Gains" As Deleveraging ContinuesSubmitted by Tyler Durden on 12/10/2009 - 13:44
According to the latest Flow of Funds report, household net worth increased by $2.7 trillion, of which 85% was the result of an increase in "Equity Shares at Market Value." With the mortgage piggy bank shut down for years, the only capitalappreciation recourse for Americans has become the uber-manipulated stock market. Zero Hedge expects another TV appearance by Obama within 24 hours, in which, to great pomp and circumstance, he will announce this increase without highlighting what the actual reason (Liberty 33, wink, wink; vertical yield curve) for the increase is. In other not so shocking news, consumer deleveraging continues with $113 billion in debt wiped out from both mortgage and consumer credit in Q3. Who took its place? Why the US government, which borrowed more than enough: Federal government debt outstanding increased by 20.6%! Welcome Central Planning - we eagerly await Obama's announcement of the first five year plan in one of the 10 or so daily TV spots he has reserved until Christmas.
Is The Goldman Exodus About To Start? Firm Announces Management Committee To Get 5 Year Vesting "Shares At Risk" With ClawbacksSubmitted by Tyler Durden on 12/10/2009 - 13:00
Just released: the latest Mea Culpa from 85 Broad. Goldman's "entire 30-person management committee, which comprises all global divisional and regional leadership, will receive 100 percent of their discretionary compensation in the form of Shares at Risk, which are subject to restrictions for five years. Discretionary compensation represents the vast majority of senior management's compensation and is directly tied to the firm's overall performance. "
The rating agencies have decided to once again remind the world of their pathetic, and decades behind the curve existence. The most recent act: downgrading Illinois From AA- to A+ with a negative outlook. From the report: "The downgrade reflects what we view as the state's deteriorating
liquidity and financial position," said Standard & Poor's credit analyst Robin
Prunty. "Illinois failed to address its fiscal 2009 deficit, which was carried
into fiscal 2010. Similar to many other states, revenues are performing below
originally forecast levels."
From the trader grapevine:
Talk out of Dubai that Nakheel is going to make full payment on their bond due Monday -- unclear if there's anything to it but its going around now. Its coming from Dubai so could just be punters trying to walk up their equity tape, incremental positive though. I would note that the bond has been removed from listing on Bloomberg, what that means, im not sure.
Absolutely no corroboration to this at this point, and is likely total BS
Two days ago we highlighted Moody's full report on sovereign AAA ratings, in which the rater was highlighting its own impotence of knowing full well that both the US and UK are unworthy of AAA ratings, yet unable to do anything about this, as a downgrade of either would set of a chain of events that could potentially undo the last year of "house of card" building by both key governments, who have set off on creating the biggest ponzi scheme in the history of the world, and whose collapse would result in the same social unrest that was expected to happen in the UK if RBS and HBOS were to fail (which presumably was averted by literally last minute action). Today, none other than glass house inhabitant Citigroup, which would not be in existence if the true state of financial and economic affairs was disclosed in even one tenth of its magnitude, bashes Moody's as being, gasp, too optimistic. Citi analyst Mark Schoefield says "in our view the pre-budget report leaves us significantly closer to a negative ratings action by virtue of having done nothing to slow the current pace of deterioration in the fiscal position."
Typical of a post-bubble credit collapse, I see the range of outcomes in the financial markets and the economy to be extremely wide. But one conclusion I think we can agree on in this light is the need to maintain defensive strategies and minimize volatility and downside risks as well as to focus on where the secular fundamentals are positive such as in fixed-income and in equity sectors that lever off the commodity sector, under the proviso that the “experts” are correct on this particular forecast — that China and India remain the global growth leaders. - David Rosenberg
ICI Discloses 16th Sequential Outflow From Domestic Equity Funds: $44 Billion Withdrawn Since AugustSubmitted by Tyler Durden on 12/10/2009 - 11:08
The lack of trust in equities just refuses to budge. Even as the market keeps going up courtesy of assorted low volume buy programs, short squeezes and the occasional 33 Liberty intervention, not only insiders but equity holders in mutual funds are taking every opportunity they get to shift out of speculative "cap gains" products and move into safer fixed investments. Since August 12 there has not been one positive fund flow into domestic equities, with the cumulative outflows now totalling $44 billion and rising, according to ICI.
The Fed is really picking up on its reverse repo operations, even if for completely meaningless amounts. Today's 4th sequential reverse repo test follows yesterday's of the same size, the only difference is the term, which dropped to 3 days today from 8 days yesterday. The question of when these will shift from tests to actual liquidity extractions (and collateralized by anything than 0% Treasuries) is open, and if Goldman is right expect nothing to happen here for several years.
The number you won't hear mentioned anywhere in the Mainstream Media: 327,729. That is how many people shifted to Emergency Unemployment Compensation programs in the last week alone, hitting an all time record high of 4.2 million! So as everyone is focused on the benign picture of initial claims in the last week which was "only" 474,000, the number of people rolling off continuing benefits has exploded and is now a stunning 592,579 only in the last two week. Look for this number to keep going into the stratosphere as the 6 month continuing claims cliff keeps getting hit by more and more people who are unemployed and keep looking not only for believable change, but actual jobs to go with it.
- Brown, Sarkozy Op-Ed: Global finance, global regulation (WSJ)
- Citi TARP talks uncertain says Treasury official (Reuters)
- France said to consider following U.K. bank bonus tax (Bloomberg)
- Dems to lift debt ceiling by $1.8 trillion, fear 2010 backlash (Politico)
- Sovereign credits get less than royal treatment (Barron's)
- Wells Fargo cuts as much as 30% in principal from Pick-a-Pay OptionArms (Bloomberg)
- Is the Fed engaged in qualitative or quantitative easing? (EContrarian via RCM)
- Asian shares were mostly lower Thursday as continued risk aversion hurt demand.
- Australian employers add 31,200 jobs, six times estimates; currency gains.
- Australia's jobless rate unexpectedly falls to 5.7 percent in November.
- Bank of Korea keeps key interest rate at record low at 2% as economy recovers.
- China puts squeeze on property speculators with tougher sales tax penalty.
- China says US, Russia dumped electrical steel.
- Climbing yen, economy concerns sends Japan stocks lower; Nikkei loses 1.4 percent.
RANsquawk 10th December Morning Briefing - Stocks, Bonds, FX etc.
The worst kept secret on Wall Street over the past few days has been the floating of the ABX Prime index by MarkIt. While previously ABX covered only subprime, with it being fixed within points away from 0 in perpetuity, it appears speculators have decided to move up the food chain into what was formerly considered safe collateral. And MarkIt is more than happy to provide them with the tool to do it. So what will this new index do - well, in addition to making trillionaires out of Paolo Pellegrini and Kyle Bass (in the same way ABX Subprime made them billionaires), the new index may just be the tipping point that finally collapses the trillions in sham GSE holdings at mark-to-myth. Because while Subprime ABX forced funds to have an interest in price discovery in lower rated collateral, so Prime ABX will push the bar even higher. However, funds betting to the tune of hundreds of billions in gross notional will be axed directly against the Fed, the Government, the FHA and the GSEs: the only way they will make money is by prime loans trading down to fair values (as opposed to the artificially propped up par values currently). Just as the ability to bet on the subprime collapse forced the first leg down of the housing crisis, so the prime price-discovery mechanism in the form of Prime ABX, will likely be the last nail in the coffin of sham RMBS marks-to-myth, and firmly ground these in the same sand in which Dubai is about to collapse.
The biggest discrepancy coming out of Goldman these days is not the "conviction buy" external rating on all equities, even as the prop guys keep selling, but the conflicting opinion of a strong dollar coupled with expectations for two+ years of no Fed Fund rate increases. Conventional wisdom of course says that it has to be one or the other - can't have both. Apparently Goldman clients have voiced enough shock and awe with this position by the masters of the universe, that it has provoked the firm to come out with a clarification of how its trading desk could have been axed so wrong. Below is the proposed justification.
IG 13 closed at the same level as yesterday, 97.75, even with the average and intrinsic spreads both tightening marginally. The widest and the tightest names are the same: ILFC, AIG and Valero on the wide side, while HP, BDK and IBM round out the "best" credits.