Archive - Oct 2009

In crazy times like today, all one could and actually should ask for is sanity. Yes, sanity – a clear mind free of noise to deal with the insanity that is thrust upon us by a volatile and noise-making machine also known as the stock market. We find ourselves glued to the computer screens or CNBC waiting to find out what the Dow’s next tick is going to be. Unfortunately, we are left with only a headache and wasted time. OK, what’s next? Here is my advice: read. Read books that will bring you sanity, the ones that will snap you back into the shell of investor and out of the sorry shell of nervous observer of the daily stock market melodrama. The following books are excellent choices and come with plenty of sanity and sage advice.

First RIM, and now Baidu. BIDU stock is plunging after hours, down over 14% at last check after the company announced revenues will be between 1.19 billion yuan ($174 million) and 1.23 billion yuan. Consensus was 1.36 billion yuan. How a Chinese company, in the middle of the greatest bubble reincarnation, supported by an economy that is a reverse feedback loop, can miss, is shocking and is sure to put the recent tech rally in perspective. In the meantime, as a reminder of how collectivist groupthink is cultivated and encouraged by the mighty ones on 85 Broad, we have attached the most recent BIDU report from Goldman Sachs, which is still on the firm's Conviction Buy List.

The CRE crunch continues claiming victims, with the latest being the Four Seasons Hotel in New York. And while Stuyvesant Town is some dinky little project somewhere on the East side of New York (or so prevailing thought runs), which few care if it goes belly up or not, the fat cats that frequent the opulent hotel on 58th street next to the brothel, pardon, gentlemen's club, which is Tao in all but name, may be a little more concerned about this one. In addition to the Four Seasons, three other luxury hotels, which back a loan sent to a special servicer 10 days ago include the Four Seasons Biltmore Resort in Montecito, the ritzy Las Ventanas in Cabo, the destination of many a banker closing dinner, and the San Ysidro Ranch in Montecito.

Asian central banks have left unattended a bunch of pretty upset carry-traders... We had a well-established support line on EURUSD and on Friday when we tested it (for the 5th or 6th time) central banks came to the rescue. However, when we tried to break again this morning, the market awaited... in vain, and with no massive buyers it's a wave of stops that met the swing traders selling the break.

The Big Mac, much regarded as the sandwich of global prosperity has been pulled-out out of Iceland. According to The Economist's famed Big Mac Index 2009- the homes of the world's most expensive Big Macs remain in Switzerland and Norway.

A hundred billion this week, over a trillion next year, and it starts to add up. It appears that what has been phenomenal strength in the UST market for many months now, undoubtedly with the fervent support of the Federal Reserve, seems to be abating. Over the past week the 2s10s charts has moved stepper by about 15 points, proving that Julian Robertson's steepener trade and its Constant Maturity Swap derivatives will likely end up being quite a profitable position. With a record onslaught of new issuance this week alone, and the expiration of POMO activities on Thursday, the supply side of the equation may finally be catching up bond traders.

With the dollar catapulting off the lows, once again commodity plays were scorched today, along with all of the financials. But of course, money never leaves the stock market, it simply moves from one Keno Table to the next. Money must be "working" at all times, constantly transferred to what ever table looks the best.

Remember Citi? The bank that once did stuff like investment banking and research, sales and trading, and some other things, and was a little more than just a zombifying and rapidly decaying ward of the state? Neither do we. For a vivid example of how things have changed, Citi today's added BAC stock to its "top picks live" list... and nobody gave a rat's ass. In fact the financial action was driven by Dick Bove's earlier downgrade of some regional banks, dragging down such "opportunity" firms as Bank of America with them. Yet Citi knows a thing or two about a thing or two, specifically that BofA, once it is done with all the assorted litigation facing its soon to be ex-CEO, and any potential dangers over the other orange guy they got for a steal when they acquired Countrywide, and maybe even prior, will need to raise capital, especially if its star traders want to be paid for churning the bejeezus out of stocks like Citi, CIT, FNM and FRE (and maybe BAC itself). The amount of the offering will have to be at least $45,000,000,001, in order to pay back the $45 billion of government TARP aid still on the books, and the token $1 for General Corporate Purposes.

Domestic markets seem just a little too claustrophobic recently? The S&P's inability to breach 1,100 got you down? Trading in After Hours not the cash cow it used to be? The fix for gunning stocks ever higher 24 hours a day becoming irresistible? No clue what do with yourself in the hours between 4pm and 9:30 am? Have no fear, Goldman is here with your much needed fix.

Pretty simple intraday action: crank the dollar, spook everything else. The key correlation charts have been linked at the hip, with the only notable recent outlier being the 10 Year which has been drifting slowly lower, presumably ahead of the $100 billion+ in upcoming coupon issuance.

• 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