Archive - Jul 2009

Maybe the attention is on the wrong building...

Zero Hedge posts a weekly update of the Federal Reserve's bloated balance sheet as we believe it is critical to visualize the spiraling debt burden at our "central bank" especially since any day now the Fed will begin purchasing treasury securities outright in defiance of Geithner's lies to the contrary (China can't sell its planned Bills: at 0.925 Bid-To-Cover does anyone honestly think they will instead prefer to buy dollar denominated toiler paper and not roll out their own QE version momentarily?). As Cornelius pointed out earlier the dollar can't find a floor these days: rerisking is rampant the argument goes and that kills the greenback. However, the circular logic also holds: create dollar pain (by whatever means possible) and thus stimulate the market, Larry Summer's all time wet dream (would anyone like to wager that when hedge fund positional disclosure become mandatory DE Shaw will fight until the bitter end). And in this simplistic trilateral world (have fun gaming the yuan), the strength of any one of the trio in the dollar-yen-euro triangle results in implicit weakness of the other two. And vice versa. Yet aside from major broker-dealers who are axed in a given equity direction and thus have all the incentive to impact underlying currencies, is it possible that specific governments may manipulate currency strength via central bank positioning? Why yes.

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The recent fall in the dollar and yen are yet another indicator of investors moving to risk assets. What does this mean for further dollar/yen weakness?

Liquidity, as frequent readers know, is a fascinating topic to Zero Hedge. Liquidity black holes, as one would imagine, is doulby so. However, when a firm like State Street, which is at the heart of the multi-trillion dollar stock lending endoskeleton of the market discusses both of these concepts, one must pay attention. The below report is a State Street presentation from 2003 discussing what happens in those episodes when liquidity disappears and how that impairs all other axes of proper market function.

Missed this the first time around, but it explains pretty well what modern banking means for the retail investor and why it is oh so critical to save, save, save.

No downward inflection points on the horizon in this set of primary data (here and here). Then again, we did not yet run it through the CNBC filter.

No direct correlation between the two, but a couple of good videos to start off your morning: Denninger on Kudlow - ever wondered what a bear in a Pamplona stampede looks like, here is your chance - this proves again why the Brady Bunch talking head box format is the most useless medium to convey any sort of informative message (but works miracles for those Mercedes commercial CPMs). And also a much more informative piece on Dark Pools.

Gold started the summer doldrums looking strong and has retreated since, but what are its prospects for the rest of the year and beyond? That will largely be determined by the interplay between supply and demand; let’s take a look at the supply side.

Banking analyst Meredith Whitney made a bullish “trading” call for the financial sector over the weekend,
on the premise that the govt had driven down the cost of capital so low for the banksters that they had
made it easy for them to make money and ramp up their depleted tangible book values. Whitney’s call
alone drove the stock market up 4% on Monday July 13 from its overnight lows. By Wednesday, the stock
market had round-tripped and taken out its previous month high and was up 8% from its intraweek lows.

And you thought they were done. Nope! Zero Hedge has gotten two more takedown notices. No, we aren't kidding. This just means more Radio Zero for you.

11:30 Eastern. 15 minutes prior for URL details (as usual). I'll be fashionably late (as usual).

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Summaries of the "causes of the crisis" usually devote a trenchant bullet point to the conflicted, procyclical role of the rating agencies in the whole mess. Like the SATs, everybody acknowledges the serious shortcomings of the agencies, but grudgingly accept the need for a common ruler to objectively measure disparate claims of quality.

Spreads were significantly tighter this week with HY dramatically outperforming IG as tighteners outpaced wideners by over twelve-to-one. LCDX appeared to be the long credit vehicle of choice though as investors moved into the most senior part of the capital structure systemically. High-beta underperformed low-beta names (in large part due to CIT's impact on the tail risk names) as we saw IG, HVOL, and ExHVOL indices considerably outperform intrinsics and widening the skew almost 10bps in IG12.

Based upon information available through 14:30 today, we remain unable to locate and borrow / re-borrow the shares necessary to meet delivery obligations on certain short stock positions in your account. As current SEC regulations now strictly enforce delivery obligations, these short stock positions will be subject to forced buy-in by IB should our continued efforts to borrow or re-borrow the necessary shares today be unsuccessful.