Archive - Oct 26, 2009

• Yields 0.769% vs. Exp. 0.939%
• Bid-To-Cover 3.10 vs. Prev. 1.81
• Indirects 47.8% vs. Prev. 23.73%
• Indirect Bid-To-Cover 1.53x
• Allotted at high 38.26%

"While I understand your need to be “on the map,” and I understand the “public figure” exception to the libel laws, I do think that given your backgrounds and your histories, you are taking too much license with your Jim Cramer says Sell TheStreet.com. I believe that level of lack of responsibility is beneath you. So please take it down and apologize to me so we can move on. Fair? Think about it. Think about how much better you are than that? If you really need to sell subs just sell them, don’t trash me to do it." - Jim Cramer

What economic system do we really have in America right now?

Our view is that creditors of CIT would realize optimal value by not selling bonds currently at distressed levels, not voting for an exchange of bonds (see Exhibit G for a summary), not voting for the prepackaged bankruptcy (see Exhibit G), and probably not accepting an investment from Carl Icahn (there has been no firm proposal to date). Fair value for CIT’s senior unsecured creditors is in the area of 90% of face. - Egan Jones

"The fiscal position of the US is a complete disaster. Eventually in ten years time about 50% of tax revenues will be used to just cover the interest payments on the government debt and that is unsustainable. Then you are forced to print money... As soon as the S&P drops towards 900 or 800 Bernanke will print money again, he is a money printer, he is nothing else. But he does that well - he prints well; you have to give him a medal for that" - Marc Faber

With the Treasury portion of QE ending in 3 days (October 29 is the last scheduled POMO for this iteration of QE), and the MBS problem refusing to go away even as the Fed only has $400 billion in dry powder left to keep mortgage rates palatable, the question becomes where will new forms of liquidity come from in order to satisfy the parabolic run up in the market. And as traditional conduits of risk transfer are still shunning stocks, with equity mutual funds yet to report a positive flow number for 2009, the question of whether there really is any substantial money on the sidelines to take over for the Fed's liquidity dump take center stage. Goldman Sachs presents one analysis according to which there is $600 billion of potential equity allocatable capital from individuals, institutional investors and companies. Yet with unemployment hitting 10% shortly, and still massive corporate debt loads needing to addressed, one wonders if Goldman is premature in its optimistic outlook.

Project Mayhem, professor of Oligopoly Studies at NYU, sorts through the various squid tentacles of the past week.

Even as the cataclysmic events of last year fade into memory and most pundits are convinced that the government alone can push the country into prosperity, if it only wasn't for that pesky unemployment number that just refuses to cooperate, yet another comparison with the Great Depression emerges, one that shows that the current period is in fact even worse than what occurred in the years after 1930. Moody's has released an analysis which shows that the most recent rate of bank charge offs, which hit $45 billion in the past quarter, and have now reached a total of $116 billion, is at 3.4%, which is substantially higher than the 2.25% hit in 1932, before peaking at at 3.4% rate by 1934.

"A decline in the value of the dollar is necessary in order compensate for the fact that the US economy will remain rather weak, will be a drag on the global economy. China will emerge as the motor replacing the US consumer and, of course, it’s a smaller motor because the Chinese economy is much smaller. So the world economy will have less of a motor, so it will move forward slower than it has in the last 25 years. But China will be the engine driving it forward and the US will be actually a drag that’s being pulled along through a gradual decline in the value of the dollar." - George Soros

We have a lot of fresh Treasury supply coming in this week. The last 30-Y auction put an end to a series off auctions that were coming in better than expected. However, as we had warned before that last long bond auction, the expected yield below 4% had the potential to trigger some retaliation by real money investors. Sure enoguh the scenario played out and since then yield have backed up towards 4.30%. Also as pointed out last week 3.50% on the 10Y is a relatively key psychological level.

• Coming to a Federal Reserve near you: Russian banks count pigs, lingerie as collateral from creditors (Bloomberg)
• George Soros: Don't ignore the need for financial reform (FT)
• CIT continues delaying the inevitable: sweetens, extends exchange offer (Reuters)
• German consumer confidence falls for the first time in a year (BBC)
• Is California finished? (The New Republic)
• Nouriel Roubini: Big crash coming (Index Universe)

• Asian shares were mostly higher Monday with S.Korean shares helped by upbeat economics.
• Bank failures in US exceed 100 for this year, most closings since 1992.
• China's September coal imports increase 7% from August as economy recovers
• Oil prices slipped to near $80 a barrel in Asia
• Dollar falls versus Euro as recovery signs, stock gains sap safety demand.
• Japan to punish BNP Paribas's unit over convertible bond, share price manipulation.

Back in September, Capmark Financial Group, Inc., (100% owner of Capmark Bank) spiked Capmark Bank's capital with a $600 million dollar transfer of $490 some million in cash and $100 some million in "servicing advances." Just to keep everyone up to speed, in June of this year, Capmark Bank reported total assets of $11.12 billion and outstanding deposits of $8.39 billion. No small fish, Capmark. Just a few days after the hot cash injection, on October 2 to be precise, Capmark Financial consented to the entry of "Cease and Desist" orders effective immediately and imposing an 8% Tier 1 leverage ratio requirement on Capmark Bank along with a "Total Risk Based Capital" ratio of 10%. The firm was also required to issue capital plans to the FDIC and Utah authorities within 45 days.

Definitely some interesting articles in my weekly link fest. We’ve got inflation, deflation, oil, jobs and of course plenty of Goldman barbs. What more could you ask for?