Archive - Oct 6, 2009

Forget fundamentals. Hedge fund flows, investment banking flows, sovereign wealth fund flows, pension flows, and retail speculation will drive equities and other risk assets much higher. How long can it last? Remember the famous quote from John Maynard Keynes: "The market can stay irrational longer than you can stay solvent."

Spreads are mixed in the major indices today as single-names lagged any underperformance intraday and credit notably underperformed equities all day. Aside from very early trading tights in IG12/13, the on-the-runs were unable to break yesterday's tights (while SPY managed to gap up and hold well off yesterday's highs). Intraday ranges in IG and HY remained very muted again despite a pick up in volumes (as talk was of elevated activity in rolls and curves once again).

Dear Congressional Aides:

Here are the questions which should be asked of Gary Gensler and Henry Hu in tomorrow's hearing before the House Committee on Financial Services

CIT bondholders are starting to disagree on who gets the spoils. This is not very surprising, seeing how they have little (read no) downside to their existing bargaining position. Either way, in today's call hosted by Little Bear Investments, the bondholders are standing firm on their bargaining position.

"Those who sit back and think that they can rely either on the government or rating agencies or even third party experts are making a huge mistake." - Former SEC Chairman, Harvey Pitt

In the end, the CARS program subsidized total auto sales, decreased inventories, and increased production, providing temporary relief to an ailing and restructuring domestic auto industry. However, the risk going forward is that long-term health of the automakers relies on a debt-burdened consumer, who may pull back on auto sales in the near term because of a government-enacted policy that basically “stole” from future demand. Under these circumstances, automakers must be careful when ramping up production in the fourth quarter to avoid building up inventories in the face of declining sales.

- Cleveland Fed

Canwest Media, Canada's largest media company, which reaches "20 million Canadians who turn to [it] every week as their source of news, information and entertainment," just announced that its Canwest, CMI, Canwest Television Limited Partnership (including Global Television, MovieTime, DejaView and Fox Sports World) as well as The National Post Company units have filed for creditor protection (read Bankruptcy, or technically Chapter 15, and specifically, 09-15994, U.S. Bankruptcy Court, Southern District of New York), as part of a plan to refinance its excessive debt load. Interestingly, so confident is Canwest in investors' willingness to throw their money at anything, including bankrupt companies, that is bankruptcy plan contemplates an up to $65 million new equity raise, which apparently has still not been formalized. This plan has been, brought to you by the company's legal team from Bracewell & Giuliani, headed by Evan Flaschen.

Everyone who grew up watching James Bond must have had a kick reading the news last night or this morning, and finding out about secret meetings between China, Russia, Gulf countries, France, and Brazil, plotting to organize the demise of the US dollar. Unlike in Goldfinger, the villains this time weren't planning to plant a bomb in Fort Knox, but rather stop using the greenback, and instead price currencies against a basket of currencies composed of (drums please): the yuan, the ruble, a newly created Arab currency, the euro, the yen, and gold. I don't remember reading the Brazilian real but we could throw it in there so we don't hurt anybody's feelings.

[T]he Treasury Department said that any review of [patently misleading and false] announcements last year “must be considered in light of the unprecedented circumstances in which they were made.”

"You requested that we verify in writing that the equity trades you place in your Fidelity brokerage accounts are never subject to "Flash orders." I have reviewed your request and determined that we are unable to verify this information, since flash orders involve the activity of stock exchanges to which orders are routed, not the brokerage firms which receive the orders from their clients." - Fidelity Investments

If so, that would explain the significant more lower in the stock intraday (see previous post) as well as the drift wider in CDS, which opened 100/105, rose to 103/108 and jumped to 107/112 on the rumor. (Ignore the stock's move higher over the past few minutes. That's just computers responding to the stock bouncing off of the closing VWAP).

Dow Jones reporting that a select group of CIT bondholders, led by Little Bear Investments, will hold a 4:30 pm call with the company to discuss preferential terms to the proposed exchange offer which would result in a "leaner and meaner" Club CIT. The issue: long-dated creditors are getting a rather unpleasant deal in that even while they will not beoffered to roll their debt holdings, what they will get is a "small amount of preferred shares in the restructured entity."

Still surprised the only market volume is always to the downside? Talk to the machines.

"In November 2008, Chinese banks said they would no longer play by our rules. Top tier banks (Bank of China and Industrial and Commercial Bank of China) reneged on derivatives contracts. They failed to come up with billions in collateral on dollar/yen FX trades, which were out of the money after the yen’s October appreciation. This should have been headline news in every financial newspaper, but it wasn’t." - Janet Tavakoli

• Yields 1.445% vs. Exp. 1.441%
• Bid-To-Cover 2.76 vs. Avg. 2.80 (Prev. 3.02)
• Indirect Bid-To-Cover 1.34
• Indirects 49.1% vs. Avg. 50.45% (Prev. 54.23%)
• Allotted at high 61.96%
• Direct bidders at a sturdy 11%: money market guarantee expiration? Do directs prefer Treasuries over equities?