Archive - Jul 2009

Today saw fully $1.5 billion in CMBS bonds out for the bid from bank portfolios and insurance companies and CMBX AAAs down 2 points. Sellers were locking in price improvements, while buyers were loading up on bonds they think will tighten into a TALF/PPIP bid. But the real fun came from the rating agencies which downgraded or warned of downgrades all the way up the capital structure. S&P took several AAA-rated classes down tosingle-A or below, and Moodys was making noises about its own bout of upcoming downgrades. Given that AAA/Aaa ratings are needed for TALF eligibility, market consternation ensued.

What's happening is that the Rating Agencies have realized they are the arbiter of credit quality in TALF, on behalf of a Fed which, according to section 13 of the Federal Reserve Act of 1913, can't take on any credit risk. How else to explain the accelerated waiting periods between negative watch and downgrade? How awkward would it be if the AAA/Aaa bonds the Fed took on balance sheet were to inconveniently default! Better to downgrade into ineligibility now than testify before a congressional panel later.

Dylan Ratigan and Barry Ritholtz dissect Goldman.

The classic formulation of the link between money supply and output (MV=PY) suggests that an increase in nominal output requires an increase not only the monetary base (which we’ve certainly seen), but also an increase in the money multiplier and the velocity of money. Even then, Y needs to broadly close the output gap before pricing power is reintroduced and P can rise. Does the Feds balance sheet really justify 2-year inflation levels of roughly 0%? Read on...

While momentum chasers in America quarrel over worthless data points and whether some trading desk bought an additional 20 PCs with Intel's brand spanking new i7 CPU to reduce latency by yet another 1 nanosecond, imagine hypothetical green shoots, and storm the futures in hopes of getting other momentum chasers to get behind them, a much more relevant development is currently unfolding which could potentially have a terminal effect on the future of securitization. Creditflux reported last week that the lawyers of bankrupt Lehman Brothers recently filed in English courts a request to overturn the concept of bankruptcy-remoteness for special purpose vehicles (SPVs). If granted, this request could spell the end of securitization as a once upon a time multi trillion credit product, regardless of how many PPIP or TALF revisions the administration throws in the CRE fire.

Spreads were tighter in the US as all the indices improved (with credit curves flattening/inverting in the face of significant TSY steepening today). Indices generally outperformed intrinsics 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's skew widened as it underperformed.

The bond ski jumpers are back.

In a scathing expose of Goldman (has Goldman suddenly become the media's punching bag), Gasparino gets yanked off the air for telling it how it is. Chaz concludes by telling CNBC to stop protecting Goldman (fast forward to the 3 minute mark). Crickets ensue as MC Cabrera pulls off her best Blue Steel impersonation.

As frequent readers know, Zero Hedge compiles an update of the Fed's balance sheet every week,
based on the most recent H.3 and H.4.1 statements. One odd trend that has caught our attention is the virtual disappearance of central bank liquidity swaps as disclosed in the weekly H.4.1 report. The historical low level for this metric was in the pre-Lehman days when it averaged about $60 billion weekly. Then in the depth of the crisis it peaked at just under $600 billion in December 2008. Yet, oddly, even though Europe's economic and monetary situation has deteriorated since then, the foreign CB swaps have plunged, and are now almost at pre-Lehman levels: the most recent reading was of $100 billion, a half a trillion decline from the peak!

The anti-Goldman sentiment keeps on growing: next up is Bloomberg's interview with former Attorney General Eliot Spitzer in which he chimes in with his views of Taibbi's Goldman Sachs article and Goldman's money making prowess ("because it is a conspiracy does not mean it is wrong").
In a impressively coherent presentation, the former Governor also talks
about bankrupt states and the lack of regulation (his family life
disclosure may be fast forwarded). Must watch. (Bloomberg has made their videos almost unlinkable for some insane reason: click on the Bloomberg AV page and select the top Editors' Video Pick).

Zero Hedge's good-natured critique of Merrill Lynch's most recent RateLab issue seems to have circulated. We present the response by its author to our earlier comments."

David Faber discusses Goldman's real estate losses, and draws some conclusions about the upcoming pain for REITs. And yet, thanks to Goldman, which has been instrumental in upgrading and issuing stock for the REITs (and having a massive blow out quarter thanks in large part to its REIT underwriting activity), the sector is doing unprecedentedly well. Surely one has to wonder just what must happen at this point for people to realize what a ticking time bomb Commercial REITs are?

The latest economic confidence numbers out of Investors Business Daily and TechnoMetrica Market Intelligence. As expected, reality always catches up with fiction.

VIX-VXV hits steepest levels in a long time. Short-term vol being driven down by dispersion traders (selling correlation), cyclical/seasonal pressures, and risk transfer. Then again all these synthetic risk measures are likely screwed up beyond belief.

Developing story: from Goldman conference call.

Presumably this is news. Compliments of Jim DeMint and CNBC.