Archive - Oct 2009

Weakness in Fixed Income this morning following hawkish minutes by the Bank of England. Technically we had been calling for a rebound from 117-20/117-28 to about 118-28+/119 for the 10Y future. We almost reached the target for the retracement yesterday. As can be seen on the daily chart there is a key support around 117-26, which if not held would trigger an acceleration straight to 116/116-20. We think medium term this remains the risk ever since we tested 119-23 and failed to break to the upside. Waiting a break below 117-26 or above 119 we would be trade 10Y future in that range.

• Goldman Sachs anti-communist pearls of wisdom: "pay inequality helps everyone" [while directed corporate communist bailouts of Goldman help just Goldman] (Bloomberg)
• Wells Fargo reports better earnings on FDIC/Wachovia generosity (Bloomberg)
• What, no multi-trillion record principal revenue? Morgan Stanley beats estimates on higher investment banking fees (Bloomberg)
• Euro at $1.50 - a disaster or an alibi? (Reuters)
• Boeing reports $1.6 billion loss because of delays (NYT)
• Our subprime federal government (City)

• Asian currencies fell on concern emerging-market central banks will follow Brazil in taxing investment from overseas to temper currency gains.
• Asian stocks fall on commodities, US housing data; Treasuries and Dollar advances.
• Bank of England Governor suggests splitting up largest banks to stem risk.
• China's 'growth on steroids' risks next slowdown as lending binge subsides.
• Hong Kong may end mortgage insurance for investment properties.
• Housing Starts, Wholesale Prices signal low rates to ensure US recovery.

As pension plans face mounting financial strains, they will be scrutinizing every relationship, including the ones with their big custodial banks. If there is any truth to these allegations, State Street will see many of their pension clients switching to another custodial bank.

If you moved music stands at Carnegie Hall for a living, you might think you were lucky to get the job. You get to work with the some of the greatest musical talents of our time. And, the work isn't that hard. Maybe even fun to be around all that genius. But what if you made $530,000 a year doing it. Now, THAT would be fun. Maybe board president Sandy Weill doesn't think that's so much. After all, it is the Big Apple.

What do you think?

As everyone else has been cheering the revival of the housing bubble, one person has been busy offloading a significant portion of his exposure to housing: Bill Gross. And the direct sponsor of billions of dollars hitting Mr. Gross' Wells Fargo banking account, why, the US taxpayer of course, courtesy of the Fed's printing press which continues keeping prices artificially high. With the Fed en route to purchase nearly one and a half trillion in Agency and MBS paper (for now), it has found eager sellers in the face of PIMCO. MarketWatch reports that PIMCO sold $30 billion in agency paper in September alone, and has sold over $80 billion year to date.

Track the career of the man who in 1999 testified to Congress against derivatives regulation on behalf of the Fed and PPT, only to recant in 2008, then become Fed's Director of Banking Supervision.

The most recent weekly ABC consumer confidence index number is out, and at -50 it is the lowest reading in exactly 3 months. Surprisingly, consumers are not keeping their confidence in lockstep with the value of their burgeoning E-Trade accounts. What next is up the administration's sleeve is anybody's guess.

Spreads were broadly wider in the US as all the indices deteriorated (with IG just underperforming HY as intraday ranges remained low but sentiment was definitely more skewed to the widening side). The last week or so has seen a shift in the relative-strength between debt, equity, and vol and based on this we would expect HY-IG decompression in the short-term and equities to underperform credit here (for equity guys a sell the rally rather than buy the dips mentality in stocks short-term).

The Federal Reserve Accountability Act would require the GAO to audit all remaining emergency lending programs not already subject to audit. To protect against the risk that disclosure of the participation of particular institutions could disrupt markets, the GAO would be required to redact the names of the specific institutions. Names would, however, be made available one year after each emergency program is no longer used. In addition, to encourage greater accessibility for the average taxpayer, the Fed would be required to place these GAO audits along with additional audit materials on its website under a new “Audit” section.

As anyone who has spent even a day looking at securitization tranching or CDS trading will tell you, there are two critical components to any investment that involves risky fixed income: cumulative loss probability and loss severity: the first tells about how likely any given security is to default within a given amount of time, while the second determines what the final recovery will be assuming there is an actual even of default. The two are usually tied in very closely, as any (forced) delays in reaching a default state usually come at the expense of exhausting any underlying asset value (and in some cases being primed by additional layer of debt which get a first look on assets in the case of liquidation).

After having been invited to appear on CNBC to discuss the litigation launched against State Street for what on the surface at least appears rather damaging allegations (and, in honesty, something that does not come as a surprise to anyone on Wall Street), the California Attorney General is greeted by this intellectual pearl from the woman who alleges bloggers tend to generically fall in the "idiot" camp. Michelle - while the blogosphere can not made any counterclaims yet, it is quite nice of you to open your mouth and do it for us:

The government rescued bondholders so they wouldn't have to take a haircut.

Everyday Americans? We've been scalped ...

"As the Commission considers the treatment of ATSs, at this week’s open meeting and beyond, I respectfully ask that you consider the proposals outlined below to ensure that ATSs, while continuing to provide beneficial competition to registered exchanges that directly and indirectly benefits retail investors, do not undermine the fairness, transparency and integrity in our markets that the Commission has worked for so many decades to foster." - Sen. Chuck Schumer