Archive - Oct 23, 2009

Reggie - I am a large hotel company and have been treated like a thief by the doo doos [he is referring to Reggie Middleton's notorious Doo Doo 32 (As I see it, these 32 banks and thrifts are in deep doo-doo!)].

Some Mutual Assured Destruction, Friday edition, courtesy of CIT: $35 billion in estimated General Unsecured Claims recovering between $2 and $13 billion if company is "forced" to file for bankruptcy.

The Merrill Lynch High Yield Master II Index, often used when assessing the state of the broad High Yield market, suggests that Junk bonds have returned a whooping 51% year-to-date, thereby outperforming the SPX by a cool 29%. I am notoriously skeptical about indices (reasons include geometric returns versus dollar weighted returns, index inclusion/exclusion problem, changes in share of CCC rated paper, etc). Looking at High Yield mutual fund indices only partly solves such issues as these indices have their own flaws but f.i. Lipper's HY index ytd return was in the low 40's and thereby almost 10 percentage points (so actually 20%) lower than the Master II's.

Following last night's surprising disclosure that Calpers is reviewing its relationship with PE giant Apollo, which over the years has been among the biggest beneficiaries of Calpers' generosity, the California pension system today is really taking the scythe to its money managers. And while Calpers (and, of course, Apollo) would have you believe that the PE firm's review is just ordinary course of business, the people who buy that explanation are likely the same who are buying Amazon stock at its all time high levels. Adding fuel to the speculative fire that Apollo may soon be out in the cold, is today's announcement that Calpers has just severed ties with long-time partner MacFarlane Partners.

Here we deconstruct the largest of the AAA rated Agency MBS offerings that the Fed just bought (at the bargain price of just under $9B). No mortgage insurance and no verifiable assets or income are all highlighted features for a non-trivial portion of these CA-dominated loans, 18% of which are cash out refis. Who says the taxpayer isn't getting his money's worth?

By Marla Singer and Geoffrey Batt

Jim "Dykstra Is One Of The Great Ones In The Business" Cramer's thestreet.com appears to be suffering.  The company failed to produce their 10-Q filing for the second quarter explaining that "the Company has identified an issue relating to its recording of certain revenue in a non-core business, Promotions.com, that the Company acquired in August 2007...."  Nasdaq promptly sent thestreet.com an official notice of the firm's failure to comply with listing rules (to wit Rule 5250(c)(1)) and gave the firm until October 12th to explain themselves.  Apparently, no explanation has been forthcoming (or at least if it has we have been unable to uncover it- EDGAR doesn't list ANY filings by the company after August) nor does it appear that Nasdaq has yet seen fit to bless thestreet.com with an extension.  It seems just one of the latest hurdles for the sound effects driven firm.  A literal "abandon ship" exercise seems to have gripped the company's executive and professional advisory corps.

Developing Story:

FRENCH PARLIAMENT ADOPTS 10% TAX ON 2009 BANK PROFITS

Is Uncle Sam set to follow?

After being discredited for being a bull market, pro-cyclical permabull, whose "stellar" performance was only courtesy of a multi-decade credit bubble, Bill Miller shares his latest thoughts. Also, nothing like one permabull quoting another permabull to bloster his case.

As we sit at our desks pondering the myriad questions we’re faced with as investors, questions of great complexity, and ones of undeniable importance to our future well-being, it probably makes sense to get up and go outside, where the view is likely to be different, and clearer, and better." Bill Miller

We agree- what one will find is 17% real unemployment, empty storefronts, Fed owned malls that are deserted, ammo shortages, collapsing CRE rents, tens of thousands of formerly unemployed Wall Streets trying to find a job... and that's not even walking too far past one's block

For all of you momentum chasing, non-calculating, never touched a spreadsheet, CNBC luvin', James Cramer watchin' bulls out there, I have a feeling you will be hearing a lot of I told'ja so's over the next 12 months.

On 22 October, 2009, the New York Regional Office Staff of the U.S. Securities and Exchange Commission (SEC) provided ICAP Securities USA LLC (ICAP), a subsidiary of ICAP plc, with a "Wells" notice stating that the Staff intends to recommend that the Commission bring enforcement actions for possible violations of the federal securities laws. The notice relates to an existing SEC investigation into the market in certain fixed income securities which has been ongoing since 2005. The Wells notice is not a formal allegation nor a finding of wrongdoing. The company has discussed these matters with the SEC, has substantial disagreements with the SEC regarding how they should properly be viewed, and will vigorously put forth its position if and when any such charges are brought. Further statements will be made as appropriate.

"[The Board of Lazard's World Trust Fund believes that] changing the currency in which the shares are traded from US dollars to Sterling, should assist in improving the marketability and liquidity of the Fund’s shares and support the attraction and retention of a diverse shareholder base." - Lazard Asset Management

Earlier in the week it was Carl Ichan who offered a bid to help CIT restructure; now a tentative deal with Goldman may do the trick. But of course it would. Goldman does the trick every time, right?

With the US government now having taken over the functions of such pristine subprime lenders as New Century, with the provision that it not only is not checking borrowers' credit scores, income potential, or other "facts" that the mortgage lenders at least pretended to care about, but also giving away massive incentives to promote housing bubble V2, it was only a matter of time before the taxpayer's balance sheet would start looking like an AngeloMozilo wet dream. Today, Freddie Mac released its September Monthly Volume Summary and, as expected, it is beginning to look just like the subprime debacle is among us, only this time all of America is on the hook thanks to a brilliant Fed and the even more brilliant geniuses in D.C.

As the only way to make money in this market is to mimic the big boys and to churn stock after stock (especially those with massive short interests) then closing 100% in cash at the end of every day, it was only a matter of time before someone started pitching the very same product that Comedy Central's Cash Cow highlighted is a sure way to make gobs of free money, to retail investors. That this someone happened to be Lime Brokerage is probably not very surprising.

10Y yields are challenging an important resistance this morning just below 3.50. We expected to drop to 117-24/28 overnight, but it seems the Financial Times article about a change in language by the fed put pressure on markets overnight. I personally feel that the article was more one person's wishful opinion more than anything else. If those words came out of the mouth of a Fed official it would be a different story. However the preson putting the story out is one of the best informed financial journalist when it comes to the Fed. Most people agree that this is a theme for early 2010, so maybe it's a way for the author to position first on the story and have a right to claim when it happens. Certainly a change of language is something easier to do for officials considering the mess that resulted from the reverse repo dry run. According to Lou Crandall, our chief economist, this is a topic for early 2010, but he thinks that a change in language could well be the first action by the Fed in the process of moving towards normalizing rates.