Archive - Jun 27, 2009

From yesterday's hearing before the U.S. Senate on Over The Counter Derivatives. The full archived webcast can be found here - some perspectives from Citadel's Griffin and Robert Pickel, CEO of ISDA, but most notably a very exhaustive report from Chris Whalen of IRR. While I am not as much a proponent of regulation of CDS as Whalen is, he provides an impressive narrative of recent events which, if one were so inclined, could provide CDS-haters enough ammo to make a sufficiently strong case.

Commercial satellite-launch services provider Sea Launch, which is 40% owned by 787 on time manufacturer extraordinaire, Boeing, filed for bankruptcy last night in Delaware (09-12513). The Long Beach company which has used the Kazakhstan Baikonur Space Center for rocket launches in the past, has listed liabilities of over $1 billion.

Even though the market's brief hiccup into green territory was promptly corrected (as expected earlier), it is the mortgage vigilantes' turn to beat the death drum. The 30 Yr Mortgage - 10 Yr UST spread is not helping the new, existing, and otherwise home sale green shoots. And this on top of the Treasury's $7 billion in Open Market purchases of bonds yesterday.

Some developing stories:

• US Justice department says NYT report saying it would drop suit against UBS is "simply untrue" (source BNO)
• Austria has announced it will sell debt denominated in USD, CHF and JPY. Good to see someone's fair opinion of what is most overvalued in this world.
• Greece vehemently denies rumors it may drop EURO. Dick Fuld vehemently denied Lehman is going bankrupt two days before it went bankrupt.
• Iran has expelled two UK diplomats (based on Iranian Tweeting, so grain of salt)
• And a personal favorite: BOE's Dale says at some point, UK output will stop falling

Zero Hedge had some fun recently analyzing the extensive thought process that goes into the decision making that leads to the addition (and, more relevantly, subtraction) of any given stock from the Goldman Sachs conviction list. One could say a case study of exhaustive insight and careful risk management it was not. After a flurry of requests, I provide an unabridged, updated snapshot of the entire Goldman Sachs Conviction List (both Buys and Sells) for North American stocks.

Until yesterday, the only real risk at the 5th branch of government (4th is the PIMCO/BlackRock two headed hydra) was making sure that 2009 is the year of the biggest bonuses on record (amusingly, now that Cerberus has all but followed Chrysler to its ignominious end (oddly missing from the company's industry expertise page - one would think the Dan Quayle-advised company learned more from this cataclysm than anything else), maybe Stephen Feinberg can sell the brand to the GS/PIMCO/BlackRock triumvirate and generate at least some recovery for its long-suffering LPs: the name would be so much more appropriate then).

I guess there is a very good chance that there will be fundamental changes to global financial markets within the next 5 to 10 years. This will not only include adjustments to rules and regulations, the structure of how markets work, instruments and processes, but also include fundamental changes in how participants operate and what the financial institutions of the future will look like.

One of the most overhyped and underdelivering companies in the world has liquidated, less than a few years after spending a boatload of capex to purchase uber-expensive machines that ended up being complete garbage and will probably reap 5 cents on the dollar in salvage value. Cardmembers are currently in process of getting their notifications.

• Must read: Researching corruption at the Treasury: The PPT 101 (Market Skeptics)
• NRG suit against Exelon bid dismissed (WSJ)
• State Street will have something to say about this: Fed in discussions on changing Repo transactions (Bloomberg)
• Someone is buying the solar hype: GCL-Poly to buy Jiangsu Zhongneng Polysilicon (Bloomberg)

Spreads were broadly wider in the US as all the indices deteriorated. Indices generally outperformed intrinsics (as post-roll derisking covered by index hedges seemed prevalent) with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but widened the skew, ExHVOL outperformed pushing the skew wider, XO's skew increased as the index outperformed, and HY outperformed but narrowed the skew.

The HFR Market Neutral index is back down to when we first discussed it. In the meantime, market neutrals have repeatedly tried to leverage up on numerous occasions and failed every single time. With YTD performance of -3.88%, it will likely only get worse from here.

The 50 DMA and 200 DMA are about to collide. What next?

Developing story: this means that unemployment will either be allowed to reach its true, "unadjusted" levels in the low teens shortly, or will be kept artificially low for 2-3 months, allowing that to be spun as a green shoot by CNBC. Time will tell.