Archive - Oct 2009

Russia: "primitive resource-based economy, systemic corruption, lack of pluralistic democracy"
Russia's President Medvedev

• Lowest volume day of the year? Check
• Pattern matching and heatmapping? Check
• Time to ramp market to YTD highs? Check
• Does anyone care or trade anymore with Mr. Simons soon to be derelict cores? Not so much...

Yet another rotation engineered by some Chop House upgrade of the semiconductors, which sent some of the chip stocks into Outer Space. Investors never sell, they just switch from one Keno Table to another, sell one group, and reinvest in another. All part of the coordinated effort to keep the party going.....

The "new" General Motors has seen the death of Pontiac and Saturn... And the General just unloaded what was once one of its most popular brands, the icon of brawn and excess- Hummer. And they are rumored to have gotten a fraction of what they were hoping to get…

The story first presented on Zero Hedge yesterday as "The Fed's 30's Minute Agency Monetization Window" is now mainstream, after making headline news on Bloomberg.

Whether or not the rapid move in curve steepening is driven by a flight from long-dated bonds (and yesterday someone very demonstratively puked on the 30 year, both before and especially after the auction), or inflation is starting to finally be a concern for the bond community (unlikely, as it would be a first: everyprevious time equity and credit have disagreed about inflation, it was always credit which was proven right), the 2s10s has steepened by a whopping 14 bps in less than 24 hours. The flipside: more cash for the banks. Is it enough? Or, more importantly, will it be enough 2 years from now when the bank CRE whole loan holdings start rolling (hopefully). At least Bernanke has a head start on the $3.5 trillion problem which is contained.

Beneath all of the rhetoric, here is the REAL reason by big boys are fighting to keep CDS from being regulated.

The congressional candidate is the latest to chime in on perspectives of where gold is going. This ties in with our expectations that the Fed's generous excess liquidity, coupled with a declining dollar, will likely see gold as the primary focus on new capital flows. If gold does really hit $5,000 expect a military coup by the various governors of the Fed.

Courtesy of HedgeFund.Net, below is the September and Q3 highlights of hedge fund asset flows and performance. Curious are the long-only strategies, which contrary to expectations saw substantial out flows to the tune of 4.2% in Q3. Not surprisingly, stat arb strategies saw an asset allocation increase of 12.6% in the same time period. With regulatory focus on some of the potential loopholes abused by stat arb players, look for some volatility in this metric.

According to the latest poll of the National Association of Active Investment Managers, even as an almost record number of respondents confirm their bullishness (a contrarian indicator), an all time high confirm that they are "not confident" in their outlook. This is a turning point for bullish to bearish sentiment inversion, as can be seen in March of 2008, when a comparable confidence reading resulted in a major drop in sentiment, which subsequently resulted in a Fall 2008 market doldrums to put it lightly.

For everyone who has forgotten the risks associated with throwing billions of new capital into BRICs, the following new video highlighting the plight of Russian investment manager Hermitage Capital should promptly remind just why authoritarian, investor unfriendly countries may merit a second thought as a place to park your LPs' hard earned money.

By using our balance sheet, the Federal Reserve has been able to overcome, at least partially, the constraints on policy posed by dysfunctional credit markets and by the zero lower bound on the federal funds rate target. By improving credit market functioning and adding liquidity to the system, our programs have provided critical support to the financial system and the economy. Moreover, we have carried out these programs responsibly, with minimal credit risk and with close attention to the exit strategy. Our activities have resulted in substantial changes to the size and composition of our balance sheet. When the economic outlook has improved sufficiently, we will be prepared to tighten the stance of monetary policy and eventually return our balance sheet to a more normal configuration. - Chairman (or is that Printman) Ben Bernanke

If there is one sector that is really hurting despite return chasing in all categories (money being thrown at equities, bonds, and commodities without regard or prudence as Rosenberg has pointed out), it is private equity. Indeed, while credit has thawed in general, investors are still completely shutting out the 5x+ leverage transaction world: the bread and butter of the LBO business model. For a sober look at the desolation in the PE landscape, even as funds rush to raise more billions in dry equity powder which sits at banks collecting 1%, consider that YTD only $33 billion in 654 PE deals has been disclosed a 60% drop from the 1,532 deals done through Q3 in 2008, and not even comparable to the heady days of 2007.

"So far, it would appear that the “buying” has come more from program trading, short-covering and institutional portfolio managers putting cash to work. This is the big risk for the bears — what if Ma and Pa Kettle capitulate?"

"The amateur investor is going to get hit badly again because they're pouring money into these funds. Some of these funds managers I do not think are experienced enough to handle some of the distressed stuff they're buying and they're going to get burned." - Carl Icahn