Archive - Jul 20, 2009

Laboring tirelessly, an unsung Zero Hedger works behind the scenes into the wee hours and regularly saves my ass.

Tim Geithner is watching the Paulson interrogation clip and sweating hard.

Ye of the junk comment, you have been flagged.

The FDIC has been making noises for a couple of months about a dry-run of the PPPIP for Legacy Loans, where Uncle Sam will provide half the equity and and up to 6 turns of seller-financed leverage for Public Private Investment Funds to buy whole loans off failed institutions. Well, the first run is here. Peek under the hood...

Dear Pension/Endowment/etc Trustees and Investment Committees:

I understand you enjoy your secure, relatively well-paid job, and your forgivable desire to maintain this status-quo for as long as possible. So long as you like your job and want to keep it, don’t you think its in your best interest to get rid of nonsensical, self-defeating policies like the following (from CalPERS)?

Advanta Corp., embattled small-business lender and sponsor of the renowned World TeamTennis league (wtt.com), has been winding down its credit card business over the past few weeks, another victim of the failed wholesale funding model. Today the company announced a dramatic increase in charge-offs on it's credit card lending book. The numbers are shockingly bad.

Rep. Cliff Stearns not heart GS

If you have had your fill of Rosie for a while (not sure how that is possible, but a big hypothetical if), here is a wonderful piece by Hoisington Investment Management Company. Some great monetary and fiscal insights. Also lends credence to the theory that Gross very well may be spot on and the market is run by a bunch of herd-instincted, CNBC watching WOPRs (at least on the basis of upcoming deflation).

From The Fourth Branch Of Government's Secular Outlook, Interest Rate Strategies:

With Treasury yields near the top of our expected range, PIMCO plans to overweight duration and take exposure to the 5-to 10-year portion of the yield curve. However, consistent with our Secular Outlook, we plan to also retain an emphasis on the short end of the curves in the U.S., Europe and the U.K. as central banks are likely to tighten more slowly than markets expect.

Sure, that 10 year at 3.6% is such a bargain. So let me get this straight, equity markets are planning for near hyper-inflation yet Bill Gross is happy to lock in current inflation levels. Presumably someone is wrong: here is our guess who.

The VIX is hell bent on demonstrating it can go back to under 10 even as bond vol keeps on calling its bluff. However, someone keeps selling vol in wholesale amounts and reraising all in (the 5th round has been, of course, with taxpayer money) on stable market bets despite all fundamental signs to the opposite.

CNBC seems hell bent on clarifying what liquidity is. Oddly there was no commercial for JPM's Highbridge or Sigma X to follow the segment. Charlie - one sympathizes with having to butter up Van Praag. However, as you are digging into the other side of the story, can you ask your buddy Lucas just why is it that Goldman had to get a Fed VaR exemption and go with the toothless SEC as its risk regulator. This would make for some truly insightful reporting.

Spreads were tighter in the US as all the indices improved (with HY at new contract highs but IG staying wide of its tightest levels as the S&P closed at 2009 highs - although VIX is massively lower than the 60% levels last seen when SPY was here). Indices typically underperformed single-names (as a late day pick up in single-name activity suggest some index arb flows at play) with skews mostly narrower as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL outperformed pushing the skew wider, XO underperformed but compressed the skew, and HY outperformed but narrowed the skew.

Thought provoking

Whoever is buying up stock today, sure ain't reading Moody's most recent REAL Commercial Property Price Index Report. Then again, robots aren't paid to read, they're paid to lead.

- CRE falls 7.6% in one month (May), on top of the 8.6% decrease for the previous month.

- Now -28.5% YOY and -34.8% from peak (October 2007).

- Transaction volume slows to its lowest level yet.

CDS:

Citi and BofA tighter by 26bps and 15 bps to 318 and 150bps, respectively.

Equity:

Citi and BofA down by 8% and 6% to $2.77 and $12.14, respectively.

Is capital structure arbitrage, gasp, back? Holy pair trades are again in vogue, Batman. Makes sense, especially with US Sovereign CDS slightly wider even as Goldman is providing gobs of liquidity to today's market as usual (i.e., equities up, up, up).