Archive - Oct 7, 2009

Yet another advantage for Brazil and India.

Yet another problem for America.

Yes, this is a tricky stock market trade for both bulls and bears. The trickiness is largely a function of the bull momentum off the lows this year. After a 62% ramp-up from the March lows, you would think the market would like to take a breather, for more than 7 days, particularly when the economic data month over month is not “equity-friendly.” But no, the spate of bad news we have seen over the past two weeks only spikes the market for a few hours or days, and then comes rushing right back up to the highs.

Let me repeat what I stated last August. AIMCo is lucky to have Leo de Bever as their new CEO. The politicians in Alberta should give him a chance to prove himself. I am confident he will succeed in building a great team and add long-term value to the funds he's been entrusted to manage.

In an ominous, one sentence disclosure just filed in Southern District Court of New York, the SEC has advised that it will demand a trial by jury for "all issues so triable." It appears the common man will finally have his say. Woe to ex-CEO Ken Lewis.

When a few weeks ago we presented the concept of certain banks stealthy encroachment into the media world we were half joking. After all, the FCC would never allow Wall Street entities, even with equity control, to have a say in program line up and content, right? Needless to say, the potential for abuse (call it brain washing, or what you will) is simply staggering. Separately, two days ago, we highlighted the bankruptcy of Canada's biggest media company, CanWest, whose bankruptcy filings we are still combing through, looking for some of the usual suspects. Which is why we read with great interest Andrew Willis' article in today's Globe and Mail "Inside Goldman's deal with CanWest" which may have helped us, and our readers, elegantly put some of the pieces together.

Spreads were wider in the major indices today as single-names actually led the way weaker today and high beta underperformed low beta with wideners outpacing tighteners by almost 8-to-1. Credit continues to underperform stocks and a lifting in compression trades today and strength in TSYs suggests far less confidence in the recovery in fixed income investors than equity investors.

"In the second half of 2009, there are signs that key markets the Company operates in are stabilizing. Due to low inventories at distributors and rising shipments, regional premiums are improving and global aluminum consumption is expected to increase 11% in the second half of 2009." - Alcoa

Dear Chairman Dodd and members of the Banking Committee,

We are writing to ask you to postpone the confirmation of Ben Bernanke until the Federal Reserve releases documentation that will allow the public and the Senate to have a full understanding of the commitments that the Federal Reserve has made on our behalf. Without such an understanding, it is impossible to know whether Chairman Bernanke is fit to serve another term and fulfill the Federal Reserve’s dual mandate to ensure price stability and full employment. A list of said documentation is enumerated below.

- Alan Grayson and Ron Paul

Despite the horrific tech stock crash of 2001-2002, and the greatest crash in our generation in 2008, people still love to chase stocks, no matter what. And like dirty old men, they always go back to the same old hookers over and over again....

In a leaked document of Goldman's internal defense of various trading practices including HFT and dark pools, before the SEC, the dominant force out of 85 Broad provides a very good if biased overview of virtually all issues that the SEC is currently evaluating and looking to address per the proddings from senator Kaufman.

Securities Industries News discloses that the SEC has requested it be granted authority to have "direct access to real-time data" on CDS and other derivatives. One wonders how the SEC was operating up until this point without this information. Yet of course, this is merely just another pretext for the SEC to deflect allegations about its utter uselessness, with claims that "lack of such information hampered its efforts to investigate potential fraud and market manipulation in the over-the-counter (OTC) derivatives markets during last fall’s financial crisis." Well, duh. The SEC is finally realizing that the credit market is, oh, about 10 times bigger than equities, and that virtually everyone trades CDS now over cash products. CDS is, incidentally, also where all the insider trading occurs these days, a fact abused all too well by CDS traders, who have known about the SEC's inability to closely track the action in the credit market. This is also why if the SEC were to look at CDS buying action of LBOs names in 2006/2007 it may actually find some amusing results. In the meantime, the SEC should spend $10,000 a year and get a MarkIt subscription.

Yet another month where the decline in consumer credit comes in worse than expected: Total Credit decline from $2,475 billion to $2,463, with the bulk of the $12 billion decline consisting of Revolving Credit reduction, or $10 billion, to $900 billion. Total consumer credit is now back to July 2007 levels... and the decline has yet to decelerate. This is the seventh straight month of consumer credit declines.

Just crossing the DJ newsires: US Commerce Considers Imposing Import Duties On China Pipe

Will update as we get more

Briefly, VAR is a measure of how much money one might lose on an exceptionally bad day. Typically, one takes the current risk position and shifts, twists, and flexes the various vectors to match what would have been the worst 95th to 99th percentile day in the past one to three years. In a nutshell, using a “real” 2nd or 3rd Standard Deviation event as opposed to simulated output from some theoretical decision tree. There are pluses and minuses to this structure, but the core idea of using real events as opposed to a regression based computer model has some elegance. That said, there is one small problem, namely, how far back in history should one look ? One year, three years, maybe fifty years ? Moreover, should one pick the single 5th worst day or maybe some sort of levered function of the distribution such as 120% of the average of the 10 worst days?

As everyone is waiting for Alcoa's stock price report later today, it is worth noting that the company's Stock Price-To-Aluminum Price ratio has hit a one year high: the last time this relationship was at 0.78, the stock proceeded to plummet almost straight line to its low reading of 0.4. Granted, last time around China did not have a rampaging multi trillion credit bubble. Yet the stickiness of aluminum prices has been troubling: Alcoa's top line may be a key determinant of how this earnings season progresses, and is precisely what most pundits will be focusing on.