Archive - Oct 30, 2009

Zero Hedge is starting a presentation of credit heatmaps, specifically CDS: easily the most liquid product in the market currently (unfortunately still not for retail consumption but give it 12 months...)
Our first such heatmap just so happens to coincide with a day in which it may as well be called a redmap. We hope to make this a daily feature on Zero Hedge (the heatmap, not the bloodbath).

I don't get too excited when I see one day sell-offs. I was talking to a trader who told me he thinks hedge funds are unwinding risk trades going into year-end. Maybe they are or maybe this is another classic shakedown of nervous investors before they bring this market much higher.

Forget our babble. Here's the data.

Won't you please give to UNICEF the FDIC fund this Halloween?

CIT is now certain to file for bankruptcy over the weekend, after it was unable to obtain the requsite number of consents for its exchange offer. The only question is whether or not the bankruptcy will be a pre-packaged, in which bondholders will accept specific haircuts or if it will be a free fall Chapter 11, which would likely promptly devolve into a Chapter 7 liquidation, if creditors are unable to come to a non-blocking agreement. In an odd development today the firm announced that it had chosen Icahn to provide an incremental $1 billion DIP for when the company does file. By doing so, the BOD and the executive committee basically kissed their jobs goodbye: Icahn has been vocal and extremely critical of everyone at the fancy-lobbied firm at 505 Fifth.

...and then some more

The FDIC is auctioning off property that it has "acquired" from failed banks. This is going to kill the other owners of foreclosed homes. Who are those other owners? It's Fannie, Freddie and FHA. There is no winner in this policy. The losers live in Hampton Ga. Is Sheila Bair desperate for bucks or does she just not understand that she is cannibalizing the other D.C. lenders?

The FNM "seriously delinquent" rate has gone parabolic, increasing by roughly 5% sequentially and just under 300% YoY. As mere text will simply not do this metric justice, please enjoy this chart of the dataset from Blytic. It tells you all you need to know about the Fed's containment of the housing problem.

The market has been in anti-Halloween mode the last two quarters, cleverly hiding its true nature under a placid costume before exposing its real hockey mask clad self on Halloween weekend.  How perfectly contrarian!

Join us, again, for a contrarian night at Studio Zero, where Radio Zero will bring you all the musicial highlights of our annual Halloween blow out party in real time as it happens.  Early morning (East Coast time) linger for our traditional (invited) anonymous A-List DJ of the night- an exceptional treat with the most gob-smacking hard beats, no tricks (we promise).

Our test broadcast begins, well, now.  Live stuff from yours truly? Think 6:30 - 7:00ish ET.  The heat of the party?  You'll know it when you hear it. 

Listen here: http://cdo.zerohedge.com:8000/listen.pls

Or pick up our West Coast Mirror (with 1000 slots) here: http://72.13.86.66:8000/listen.pls thanks to the mind-blowing generosity of EGI Hosting.

Chat up the DJ (send your .mp3 files) here: radiozh.

Or... join our IRC server at chat.zerohedge.com #radiozh.  If you just can't be bothered with an IRC client, we've provided one for you here. Otherwise, consider getting mIRC.  You might find it useful in connection with new features Zero Hedge before too long... but if I tell you more about that I will have to buy your puts in size.

Spreads were broadly wider in the US as all the indices deteriorated (as IG and HY closed at their wides with the former making its largest jump wider since 10/01). IG trades 7.8bps wide (cheap) to its 50d moving average, which is a Z-Score of 1.3s.d.. At 109bps, IG has closed tighter on 63 days so far this year (217 trading days) and we note that the distance to the average is getting close to its largest since this rally began (a critical break over 9-10bps above the average would suggest we are in a new era. Yesterday's crack of IG not being able to break the 50-day average (while technical nonsense) is notable in that we have not seen an upside break and unsuccessful test of the average since the March rally began in credit.

In what could have been the biggest piece of news today, yet making little headway into the media, the Fed announced that it is adopting a policy statement supporting "prudent commercial real estate loan workouts." And even though in traditional Fed fashion, the statement says a lot but is even more vague, some of the implications from a more nuanced read have very serious adverse implications for commercial real estate.

Well … the third time certainly proved to be the charm. After yesterday’s anticipated bounce filled an open gap at 1060.25 on the S&P futures (ESZ09) in response to an insanely oversold McClellan Oscillator reading of -381.49, the markets appear to be resuming their impulsively downward voyage back to reality; today’s internals registered even more bearish readings than Wednesday’s, which is an extremely negative omen for the future outlook of the markets. While the TICK did not register a reading that surpassed -1400 today (intra-day low of -1396), we did witness the VOLD relentlessly plunge to a new extreme closing low of -1,408,903, which now marks the lowest closing low since that of 9/02/09.

Today's PMI data was very strong. There are experts in econometrics much more knowledgeable than I will ever be calling for further strength in production numbers that will lead to a turn in unemployment into Q1 2010. I don't dispute their models or the indicators they look at. However I can't come to terms with it. I think this is in great part because the business cycle which is supposed to lead us out of this recession is at odds with a much longer and bigger cycle: the debt cycle. I know this flies in the face of 50 years of econometrics that has made people a lot of money trading, but this is mainly due to the fact that the debt cycle is so long and stretched over time that we don't really have data to measure its impact on previous cycles. It coincides in a sense with the Kondratieff cycle, but transposed into today's financial markets, the burst of the debt bubble is a lot more pronounced. Basically modern technology and financial engineering has made it very easy to securitize credit and source funding or financing globally, so that the extent of the debt bubble has been allowed to grow far beyond what could have happened 50 years ago. There is also obviously the global aspect of it. Because financial markets are more and more global, so is the crisis.

The chart below present the change in reported and projected corporate Revenues and EPS (excluding financial companies), and highlights the dramatic improvement in the economy expected by analysts over the next 2-3 quarters. In the next quarter things for companies get dicey with both revenue and EPS expected to be flat with Q4 of 2008. Whether or not this is attainable will be seen shortly. Yet where it does get just a little amusing, is 2 and 3 quarters in the future, when EPS are projected to increase by 23% and 20% respectively, while everyone hopes sales can wave a magic wand, and with skeleton crews of employees and no growth capex investments, are assumed to grow by 11.2% and 9.5%. Additionally, analysts are now forced to actually really ramp up their expectations in order for stocks to grow incrementally from here. If readers believe that corporate revenues in Q1 of 2010 can grow sales by more than 10% from Q1 2009 (while continuing to fire people), then by all means, buy stocks.

The GDP results for Q3 are a triumph of government stimulus, which is to say they are a mirage, destined to vanish when the money runs out. There is really very little good news from the BEA report when you consider most of the economic activity was the result of Cash for Clunkers, the $8,000 housing tax credit, and federal spending. But like everything else in life, it's a bit more complicated than that.

Goldman takes a chunk of debt off the books, now Carl Ichan provides a billion-dollar line of credit... But despite all the saving, they'll still file for bankruptcy.