Archive - Oct 7, 2009

• Yields 3.210% vs. Exp. 3.229%
• Bid to Cover 3.01 vs. Avg. 2.66 (Prev. 2.77)
• Indirect Bid To Cover 1.52
• Indirects 47.4% vs. Avg. 36.8% (Prev. 55.3%)
• Allotted at high 12.77%
• Direct bidders at 5%

In a repeat of its actions with the Lehman ad hoc committee, PIMCO has now decided to abdicate its role on the CIT steering committee, and sell off its associated holdings. Several questions emerge: the broad public is already aware of the CDS windfall that Goldman stands to reap if CIT ultimately does experience an "event of default" which at this point is a merely formality. So, in a parallel line of thought, just how much is PIMCO hedged to its CIT exposure? And if the answer is "much to quite much", will the combined interests of Goldman and PIMCO to effectively let the company sink be enough to warrant what may otherwise not have been a foregone conclusion on the viability of the company. Furthermore, while part of the Steering committee, how muchrestricted data was PIMCO privy to? One imagines CIT is a veritable treasure trove full of insights into the lending practices by its millions of customers. Obviously while PIMCO was a committee member, it was unable to trade on this data (right SEC?). Now that it is officially separate from this restriction, an appropriate question would be just what are the limitations in place for preventing it from taking advantage of its huge capital base and all the confidential information it may have gleaned?

Another entry from the X-files. Apparently banks trading on material inside information before their research reports are issued does not constitute criminal breach of preexisting regulations. So, instead, the WSJ reports in a developing story, that the SEC will focus on what it does best: focus on "making examples" out of heinous abusers of efficient markets, especially those that have already been cleared of wrongdoing. This is bar none the best use of taxpayer money. Ever. Never mind the billions of dollars stolen each day under the SEC's nose by future employers of the SEC's "best and brightest."

"The concept of Communism is rightly reviled in this country for the simple reason that it is blind to human nature, allowing a small group of individuals near-total control, while sticking everyone else with the same crappy systems -- and the bill. America spent countless lives and half a century fighting against this system of government...so why are we standing for it now?" - Dylan Ratigan

"The Europeans are getting worried. As the euro flirts with the $1.50 level not seen since mid-2008, the Eurozone's economic and monetary authorities are mulling their first unequivocal verbal protest against the currency's appreciation in five years. Why now? Because Eurozone officials have lost trust in the commitment of US President Barack Obama's administration to the "strong dollar" policy. This loss of trust has reached a point where some even suspect the US has reached an accommodation with the Chinese whereby Beijing turns a blind eye to dollar depreciation in return for a moratorium on Washington's public calls for renminbi appreciation." - MGA

The greatest piece of "research" humor today (and that is saying a lot as it is in direct competition with Wells Fargo's upgrade of Bank of America) comes from David Bianco, whose report "Six Reasons for Optimism" borders on the surreal.

Veteran gold traders can attest that piling onto breakouts, especially in highly leveraged futures, can quickly become a losing proposition on a reversal. While yesterday’s surge in gold was confirmed with gold priced in other currencies, there is a slight seasonal negative at work here until the end of October. Traders should recall that the second week of October 2008 began a painful slide after a strong September...

It has been a while since the Fed took matters into its own hands, which is why at 11am the Fed completed a $1.3 billion buyback of 2021 thru 2024 maturities. Ironically that's exactly the time when the market took a leisurely stroll into green territory, and hopefully should make today's auction of $20 billion in 10 Year Notes just a tad more palatable.

General Motor's Co. CEO, the same fellow on the commercials betting you won't take it back "may the better car win..." says GM's global market share has risen in the third quarter vs. the first half of 2009... But still below last year.

"Because of unprecedented demand for American Eagle Gold and Silver Bullion Coins, the United States Mint suspended production of 2009 proof and uncirculated versions of these coins." - US Mint

there is talk of a sources report out on the street.. that saying ECB might start talking down the EUR... concerned that Obama wants a weak currency... Chinese are acquiescing to weaker usd.. and eur twi has appreciated 5%.. and cny has depreciated vs eur... do NOT think this is new news.. as pointed out this morning - Erik Nielsen thinks that comments earlier this week on the EUR by Trichet signaled a new material level of concern on the EUR, i.e. For the first time he expressed concern on the EUR-TWI (which hit a new high for the year last night again) and mentioned that discussions should take place with some Asian countries on letting their currencies appreciate more - This seems to be stronger than his normal stock responses on FX of "against brutal FX moves" & "My friends in the US want a strong-USD).."

A recent article by the WSJ about the "Goldman huddle" sparked anger resulting from selective and advance disclosure by the firm to its choice clients about so-called trading recommendations. Yet a much more provocative study published in the October edition of the Journal Of Finance by Jennifer Juergens and Laura Lindsey titled "Getting Out Early: An Analysis of Market Making Activity at the Recommending Analyst's Firm" stands to create much more trouble for Wall Street firms if proven true, and is yet another stab at what little is left of the reputation of already disgraced regulators such as FINRA, who are now seemingly unable able to even police existing rules and regulations. Furthermore, the study is additional proof that bank prop trading needs to be, if not completely separated, than to be contained exclusively from not just client flow trading, but from internal research dissemination, and has to be much more closely regulated.

It matters not whether companies worldwide see profit increases. We know on balance a lot of companies will not do well in this economic climate. The stabilization “meme” is in, and as long as companies on balance can show signs of that, the earnings season will go off without a hitch. Technically speaking, the strength of the short-covering rally is greater than the rally off the Sept 13 and Aug 17 lows at present. So the strength may persist into Wednesday or Thursday. This will leave room for the stock market to clime into the 1050’s where it will meet resistance from the August retail sales high at 1052, the Sept ISM high at 1055, and the Chicago ISM high at 1064. Well, we don’t expect the strength will go so far as to challenge last week’s highs at 1064-1066, there is every reason to suspect the stock market will challenge last week’s upper extremes near term, based on some of the considerations mentioned above. Note, the overnight low at 1035 is being supported by the Aug highs at 1034 and the three M&A’s at 1036.

• UK faced "bank runs, riots" as RBS and HBOS neared collapse (Bloomberg), but now it is all so much better
• Yakuza's Series 7 exam is harbinger for economy (Bloomberg, h/t Eric)
• Is REIT rally rooted in reality or wrongly rising? (WSJ, h/t Geoffrey)
• Here's your answer: US office vacancies reach five year high of 16.5% (Bloomberg)
• Evans-Pritchard: China calls time on dollar hegemony (Telegraph)
• The $3.4 trillion problem that refuses to be swept under the carpet: Fed frets about Commercial Real Estate (WSJ)

• Asian stocks gain on commodity prices; Newcrest advances on record gold prices.
• ECB little reason to raise rates over next 12 months because of a muted inflation outlook: IMF.
• Fed should increase interest rates 'sooner rather than later,' Hoenig says.
• Gold hits record $1,045 on report suggesting the end of dollar-based oil trading.
• Gold jumps to record $1,038 an ounce as outlook for inflation fuels demand.
• JP Morgan says US may take until 2013 to recover jobs lost in recession.