Archive - Aug 1, 2009

Not sure this will hold up, the new internet connection being iffy. We'll give it a try. Radio Zero returns. 11:00 ET. URL 15 minutes before. As usual.

Listen: http://89.248.169.94:8000/listen.pls
Flirt: aim:goim?screenname=radiozh

One of Wall Street's biggest whipping boys since the post-Lehman days, culminating with the insanity in credit markets in early March, have undoubtedly been correlation desks. These trading outfits, which hit their heyday in 2004-2005, when CDS spreads were nice and tight, and negative convexity would at most bring a 20-30bps widening, would repackage securitization tranches whereby usually they kept the senior and equity wrap around a mezzanine piece, which was in turn sold to investors. Buyers of mezz tranches, whose junior and senior layers would become impaired after a 15% and 30% cumulative losses, respecitvely, saw what the definition of a world of pain is first hand recently, and effectively shut down the correlation business at many major banks. But not all.

"In literature, it is difficult to find a protagonist more endearing, clever and flawed than Sherlock Holmes. Peerless in his attention to detail and his limitless powers of perception, what appears clear cut and evident to his trained senses bewilders those of lesser skills. His foil, Dr. Watson, his counterpart at Scotland Yard, the plodding Inspector Lestrade, and his arch enemy Professor Moriarty all wither in the face of Holmes’ masterful powers of logic and deduction. That said, I believe even the formidable Mr. Holmes would have a problem figuring out the truth behind the current economic state of affairs."

The backward revision economic data train continues, this time in GDP, which came in at a "better" than expected 1% while the prior quarterly data was adjusted significantly downward from -5.5% to -6.4%. Additionally, per a brand new revision to the way GDP data is presented, the GDP decline demonstrated over the past year is now the largest since World War II. Current quarter jiggering aside, downward revisions to prior quarters have left the decline in real GDP at -3.9% in the year through Q2. And to demonstrate, the severity of this downturn, the Q2 data concluded the first three-quarter consecutive period of falling GDP since 1953-1954.

The Treasury sold $109 billion of new coupons last week and rates fell by 25BP. How did they do that??

Because sniping out the B&T crowd in Meatpacking at 3am is only so much fun.