Archive - Oct 2009

It was interesting to see the bears all come out of their caves today after the move yesterday. What's even more interesting is that non-bears joined the negative talk, with Bill Gross calling basically for a 30% sell-off in equities and arguing housing was overvalued by 50% from 2007 highs (by the way if the latter is true, the stock market should then correct by a lot more than 30%, more like 75%), and GS and BOAML came out with bearish outlooks on housing. Given upbeat equity predictions by the latter two firms (helps to have replaced Rosenberg with a bull!) it's all the more intriguing.

Although we remain committed to a higher rate world as the FED’s printing presses will (sooner than you think) create Inflation, we also believe that you can be both bearish on the market and a seller of ultra-high rate Insurance...A 10yr – 10yr payer swaption struck at 6.0% would roll up in mid-market price from 209bps to 265bps over three years, all else equal. Since being short while the curve is steep and being long options are both hugely negative carry positions, this situation was truly extraordinary. Over the next few months, we implored all who would listen to buy these options...This trade is not for the faint of heart. In fact, I can almost certainly assure you that you will not “top tic” this idea so you should expect this structure to mark against you early on. Nevertheless, with RV hedge funds sidelined until their VAR limits increase sometime in Q1 next year, the dealer community has had no choice but to press up the skew until a seller is found. We urge you to be that seller. The massive skews here create the anomaly that you can structure a costless package with almost no delta or gamma exposure for even a +200bps shock. - ML RateLabs

Yet another "Wash, Rinse, Repeat" cycle, as the Treasury Dept. attempts to hock out another $100+ billion, stocks are sold, de-risking returns, and investors lap up U.S. Dollars and Treasuries with a vengeance. It's getting way too easy.

If anyone wants to know why CNBC anchors are so pale and nervous these days, look no further. As Comcast CEO Brian Roberts considers what to keep and what to, well, cut, post his digestion of NBC Universal (assuming deal rumors are true naturally) his eyes likely cast casual nervous glances at Nielsen reports of CNBC viewership. Yet his nervousness is quite minor compared to what actual employees must be feeling after Nielsen reported a 50% plunge in CNBC viewership in October year over year. Specifically, CNBC has experienced a massive 52% decline in overall viewers during business day hours (5 am - 7 pm), and a not much better 49% drop in its demo (25-54) in the month of October as compared to last year. Specific shows that are likely to follow the fate of Dennis Kneale's recently cancelled 8pm gobbledygook are likely the Kudlow Report and Mad Money, which are down 59% and 56%, respectively.

It appears the computers are so used to low volume daily drifts higher that they literally are unable to handle i) spikes in volume and ii) sharp downward moves. Today, NYSE's Euronext subsidiary was so inundated with massive selling volume in ING that it decided to take a cigarette break and shut down trading in the company altogether.

The defenders of the TBTFs say that bigger is more efficient.

Are they right?

"Rage, rage, against this conclusion if you wish, but the six-month rally in risk assets- while still continuously supported by Fed and Treasury policymakers - is likely at its pinnacle. Out, out, brief candle." - Bill Gross, PIMCO

Janet Tavakoli with some more great quotes ...

The latest must read from Eric Sprott: "We believe the US government’s current trajectory presents one of the greatest macro-economic risks at play today. The Federal Reserve and the US government have assumed the toxic financial trash that brought the banking system to its knees a year ago. By monetizing debt to support their budget deficit and ‘save the system’, both entities have chosen to walk a well worn path traveled by so many governments before them. Like dead men walking, the US government is merely biding its time until the moment of truth. Unlike Fannie Mae, General Motors or Citigroup, however, there is no one left to grant a reprieve."

• Yields 1.020% vs. Exp. 1.051%
• Bid-To-Cover 3.63 vs. Avg. 2.96 (Prev. 3.23)
• Indirects 44.5% vs. Avg. 50.2% (Prev. 45.18%)
• Indirect Bid-To-Cover 2.1
• Allotted at high 3.21%

It is not a good day for Steve Liesman. First the market dropped after what everyone at propaganda central thought would make the crew at the soon to be Comcast subsidiary wear their "Dow 10,000 (not adjusted for dollar devaluation)" hat courtesy of yet more massaged Case-Shiller data. But then Tim Geithner's favorite mouthpiece made the horrible mistake of engaging in a factually-backed and reasoned debate with Michael Pento. Alas, unlike the traditional monologues in which Mr. Liesman excels in dogmatic and reasonless argumentation, when facts are needed to justify claims, propaganda houses of cards tend to collapse with a bang, not a whimper. And alas, the same happened earlier today when Liesman proved to his producer what an epic fail it is to engage GE cheerleader #1 in anything more than monologues for the conceivable future.

Developing story per Reuters. Resumes of a slew of analysts/traders who know how to extract info at all costs are hitting the street as I type.

If history has taught us anything, it is that those with the most money are not necessarily those that are best at investing money. There is a saying that encapsulates this in a somewhat more erudite manner (I would never be so forward, or so rude :-)) - "When playing poker, look around the table. If you can't find the sucker, it is probably you!". Obviously, the guys at Capmark didn't read BoomBustBlog...

"As many of you know, we are already moving forward on our market structure initiative. In recent weeks, we have proposed rules that would address the inequities of flash orders and dark pools of liquidity. Both of these undermine the integrity of the market by providing valuable pricing information to select market participants — information that is not widely available to the public. This in turn creates a risk of private markets and two-tiered access to information." - Mary Schapiro, SEC

"The investing community (especially retail) has benefitted from the evolving market structure" - Goldman Sachs