Archive - May 2009

This is the chart they don't want you to see: the purchasing power of the dollar over the past 76 years has declined by 94%. And based on current monetary and fiscal policy, we have at least another 94% to go. The only question is whether this will be achieved in 76 months this time.

Hat tip Teddy

Textron private-jet competitor Hawker Beechcraft was the latest casualty of S&P's ongoing foray into subjective default proclamations, when the rating agency decided to monkeyhammer the company from a B- to a CC rating as a result of Hawker's recent tender offer for its own debt at distressed prices.

Stress Tests are over, loan loss provisions will be spread over years, accounting treatment has been relaxed, and nationalization will be left to the Swedes. While Bank of America and Wells Fargo capital needs are larger than expected, they fit within the Treasury's paradigm: earnings, asset sales, private sector capital raises and convertible TARP preferred stock will re-capitalize U.S.

Stress Tests are over, loan loss provisions will be spread over years, accounting treatment has been relaxed, and nationalization will be left to the Swedes. While Bank of America and Wells Fargo capital needs are larger than expected, they fit within the Treasury's paradigm: earnings, asset sales, private sector capital raises and convertible TARP preferred stock will re-capitalize U.S.

"We're leveling off! We're leveling off!"—so is the hope of TTT, Helicopter Ben, Larry the Wall Street Lackey and the rest of Team Obama. "This recession is leveling off!"

No it's not: The unemployment figures just released by the Bureau of Labor Statistics are totally cosmetic: We lost a whole lot more than 531,000 unemployed.

First, the "seasonal adjustment", which is a black box that can tweek me into looking like Dumbo the flying elephant. They're knocking off ±65,000 workers for no clearly discernible reason.

• Morgan Stanley raises $7.5 billion through stock and bond sale (Bloomberg)
• Fannie Mae requests $19 billion from treasury after $23 biollion loss (Yahoo)
• Fannie loss swells as government support doulbes to $200 billion (WSJ)
• Cooking the +226K death rate adjusted non-farm number after major prior
  

Ken Lewis is on CNBC touting the "BoA story", sees the market bottoming out and is generally sunny across most business lines. When asked about the Merrill business lines, apparently "trading is fine" and "investment banking is doing ok... some equity underwritings!"

According to the most recent data out of the NYSE, Goldman's principal program trading dropped an astonishing 25%, hitting a many week low absolute number. Not only that, but the portion of Goldman's principal PT trades as a percentage of total, and as a multiple of agency and customer facilitation also dropped substantially. Now, if Goldman is indeed, in the words of Ed Canaday, merely providing market liquidity under the guise of the SLP program, did the NYSE all of a sudden just feel the need for much less liquidity last week?

According to the most recent data out of the NYSE, Goldman's principal program trading dropped an astonishing 25%, hitting a many week low absolute number. Not only that, but the portion of Goldman's principal PT trades as a percentage of total, and as a multiple of agency and customer facilitation also dropped substantially. Now, if Goldman is indeed, in the words of Ed Canaday, merely providing market liquidity under the guise of the SLP program, did the NYSE all of a sudden just feel the need for much less liquidity last week?

One of the few sane voices in the desert has left the (Merrill Lynch) building. David Rosenberg, on his way out, leaves everyone with an economist's dozen of rules to remember.

David, so long, and thanks for all the fish.

Rosie's rules to remember:

1) In order for an economic forecast to be relevant, it must be combined with a market call.

2) Never be a slave to the data – they are no substitute for astute observation of the big picture.

• Huge decision for commercial-mortgage investors tomorrow in bankruptcy court (WSJ)
• Hong Kong chairman says rally overdone, won't buy stocks (Bloomberg)
• Market fear rising bond yields (FT)
• Euro declines on speculation ECB official will signal rate cut (

Quant and heat mapping: inflation up, deflation down, quality marginally up, garbage pillaged. Marginal quant leveraging.

AMG Data Services just announced that US junk bond funds saw an $822 million inflow this past week, a doubling of the $435 million inflow from a week earlier. Looks like the powers that be have created a literal junk vortex and institutions are jettisoning treasuries (look at clearing 30 Yr Yield for an indication of appetite) and gobbling up the bottom of the risk pile just as hedge funds are dumping.

Spreads were mixed in the US with IG wider (after a 10bps gap tighter opening), HVOL improving, ExHVOL weaker, XO wider, and HY rallying (HY-IG decompression came on later in the day). Indices typically underperformed single-names (as talk of major prop desk short-covering were rife) with skews widening in general as IG underperformed but narrowed the skew, HVOL outperformed but widened the skew, ExHVOL's skew widened as it underperformed, XO underperformed but compressed the skew, and HY's skew widened as it underperformed.

The highly unconflicted NY Fed Chairman, who was buying boatloads of Goldman shares as the bank was getting taxpayer bailouts, has just resigned.