Archive - Dec 8, 2009

“It is alarming to look at what the Europe and Central Asian countries are soon to face as the region continues to age,” said Schwarz. “Future pension system deficits can be threefold than what is currently expected, and are expected to remain at that level for more than 20 years before slightly improving. Policymakers need to use the opportunity of the current crisis to address long-term issues, which could bankrupt pension systems precisely when the numbers of people who need them are growing.”

The ABC Consumer Confidence index was just released, and is notable as it is the first confidence read since the NFP/unemployment number was released last week by the BLS. And despite all expectations, and proddings by the Comcastic ones that the presumed drop in unemployment would boost sentiment and confidence, the index in fact dropped by two points from -45 to -47. Could people just be smarter, and finally better at seeing through the BS, than the mainstream media gives them credit for?

Below we present an analysis of the 125 names that make up the CDX IG 13 index. The index closed at 97.75 today, with constituent names trading between 873 bps on the wide side, to 29 bps on the tight side. While in March the ten widest names were all trading north of 1000 bps, now even bankrupt AIG and ILFC are inside. With just 40 bps of theoretical tightening, a basket of the 10 tightest names could be a generational opportunity for a catastrophe hedge.

As multinational military forces have left Iraq, international petroleum companies have eagerly descended - seduced by the long-term potential of vast oil reserves off-limits to foreigners for decades. Yet lingering violence, legal questions and political uncertainty make doing business in this country a gamble.

In the first international oil auction held last June, widely seen as a failure, the Iraqi government awarded a firm contract to only a consortium of British Petroleum and the China National Petroleum Co. to further develop the Rumaila field over 20 years. Iraq recently forged an initial agreement with a group comprising Exxon Mobil and Royal Dutch Shell to develop the West Qurna field, and one with an ENI-led consortium of Occidental Petroleum and Korea Gas for the Zubair oil field.

"TCW separately announced that Jeffrey E. Gundlach has been relieved of his duties as TCW's Chief Investment Officer and lead portfolio manager of TCW's high-grade fixed income funds and accounts and removed from the Board of Directors of TCW Group, Inc. The firm deeply regrets the need to take this action. Mr. Gundlach threatened to take certain actions that could have jeopardized the firm's ability to manage clients' fixed income assets. The firm had no alternative but to take the necessary steps to ensure the continuity and stability of its high-grade fixed income business and the highest standard of attention to client's interests." - TCW

And so Goldman will be forced to start revising its forecasts ever lower. Revised GDP came out at 1.3% versus preliminary annualized numbers of 4.8%. Now that's a miss that would make even the BLS and the D.C. propaganda bureau blush. Expectations were for 2.8% GDP.

A Detailed Technical update of the DJIA Cash, S&P Cash, Gold Futures, US Dollar Index and Goldman Sachs

It appears the only thing worse in this world than a measly $500,000 salary is getting no salary at all. And that's exactly what is about to happen to AIG General Counsel, Anastasia Kelly, who before joining the bankrupt firm, was a GC at such reputable organizations as MCI/WorldCon (sic) and Fannie Mae. To paraphrase the objections against a very prominent Treasury Secretary recently, the question is not whether or not she will leave the job, the question is how she got it in the first place. Kelly, who recently was protesting the $500k salary cap imposed by Pay Despot Ken Feinberg, yet was in Benmosche's black book, will likely be out of the organization, presumably involuntarily, by year end. We are confident that with the economy rocking she will be able to find a job that pays her much more in line with her true skills... which based on her track record hopefully involves more than leading three sequential companies straight into bankruptcy.

Spreads ended the day mixed in the US today with very low intraday ranges and only marginal moves as HY just outperformed IG. Breadth was modestly negative as TMT and CONSumer names underperformed. We note that credit has outperformed equity in the last couple of days as the dollar has sprung higher and perhaps this is another of the coal-mine's canaries that risk-aversion (think steam behind the run) is hitting stocks.

Geithner is in the blender, and Obama may be set to hit the liquefy (while pulsating) button. As the public is screaming for metaphoric blood, Obama may have finally decided to bring his lobbying efforts direct to Wall Street (instead of its coming to him via Timmy and Larry whispering sweet nothings). Which is why the President is meeting with top bankers once again this coming Monday. Of course, the pretext is innocuous, but many see this as Jamie Dimon's coronation moment, and the first step in his official transition into the public arena.

Gold is a hedge against a world monetary order on its death bed. The events of 2008 gave a
preview of a world without credit. When the dollar based paper money regime has gasped its
last, what will replace it? Will gold assume an official role? It is impossible to say. Currencies
of the future could quite possibly bifurcate, with some taking the form of scrip such as food
stamps, medical vouchers, or air miles used strictly for transactional purposes. An optimist
would hope that gold could perhaps coexist with government scrip as a vehicle for saving and
wealth preservation. However, that remains to be seen. Anything less would imply a world less
Austrian and more Orwellian.

For the contrarian, life has become more difficult even as it has become more gratifying. The
commotion surrounding gold makes the contrarian strand of thought harder to detect. It is not
that we don’t welcome the “Johnny come latelys” to the hard money cause. They are, for the
most part, elite investment thinkers who have a history of sound decision making. However, we
no longer enjoy the luxury of peace and quiet or as much time to reflect. Our periodic sanity
checks, based on the makeup of the opposition, are somewhat less frequent and perhaps not as
reliable. Still, we perceive that gold continues to be under owned and misunderstood by most.
While it is no longer enough to observe that the metal is of interest based on universal apathy, it
is safe to say that it has a long way to go before it becomes mainstream.

It has been a while since Alan Grayson had a public appearance. Today the man comes back with a bang.

Peter Santoro, Managing Director and Head of Institutional Markets at somehow still troubled hedge fund Citadel, has left for greener pastures, according to our rumor bag. One hopes it is not to join another former Citadel specialist, Misha Malyshev, former head of quant trading at the Chicago fund, who also bolted earlier this year and is currently embroiled in litigation with his former mothership. The departure of such a high profile trader right before bonus season is very suspect to say the least. In other news, Citadel is well on its way to becoming Jefferies-lite, after the "hedge fund" is close to finalizing the terms of the Targa Resources $150 million TL A and $550 million TL B.

Sorry, market is like a broken record, same play calls are made over and over. The Fed sells down stocks, interest rates collapse, new debt is raised 300% oversubscribed, increasing deficits financed with ease as fearful investors pile into the U.S. Dollar.

The two lessons we take away as standouts from the credit crisis are probably somewhat unconventional, but we think they are of great import. First of all, "big" has a way of changing to "trivial" overnight when one is talking about government spending. Second, the "biggest of the big" isn't summed up by large, complex models. Instead, it gets added up on scratch paper. Or via the calculator feature of a Blackberry. Or scrawled on a cocktail napkin with a leaky pen. Today, drawing from these lessons, we think that five simple lines portend something, well, big.