Archive - Aug 2009

A listing of the most active SPY options by open interest indicates 3 Calls... and 29 Puts.

With At The Money vol dropping markedly over the past 4 days, and the VIX plunging, the green light to buy stocks ahead of OpEx was given by those who traded 25% of the market volume in just 5 financial stocks purely as a result of yet another massive squeeze, dragging the balance of the market. Yet observing the wings indicates a significant steepening of the skew, especially in the last day. On the other hand, it could be simply churn moving away from stocks and into options. However, with today's bleak jobs data, offset by optimism out of Philadelphia, at this point there is no question that fundamentals have no bearing whatsoever in this market and momentum drives all. Every trade is merely a coin toss.

Once again, the lure of easy money lured the Riverboaters back into the casino for more action. Old timers like Art Cashin, who has been warning of a correction, are woefully inept at gauging the gambling fever which now grips so many fast buck hustlers these days.

Treasuries and equities now being bought together, the only driving factor is the continued crashing of the dollar. Apparently every asset class is now a safe haven from the continued pillaging of the US currency.

With option expiration tomorrow, the market could be set for some peculiar action over the next 48 hours. But first, your scheduled afternoon market ramp.

Commodity bull Dennis Gartman has decided it is time to collect a little 2 and 20 luvin' presumably a more lucrative venture than reaping the benefits of newsletter subscriptions. Hopefully the fund, if it ever launches will be a little more diversified than just a couple of thousand BOEs. To observe the effects of a lack of diversification, one only needs to observe the performance of Ackman's Target fund.

The attached chart demonstrates just how much of a ramp the Russell 2000 has experienced in terms of its market beta since the March lows. A pretty convincing demonstration of just how many junk stocks have been purchased, most of them on forced short squeezes, which have in turn pushed the marginal buyer to be much lessdiscriminate in lifting any and all offers, thus driving the overall market.

The world's formerly largest hedge fund, which had a luxury car maker subsidiary is about to meet its regulator maker, the BaFIN . Only took them about a year. Which is still one tenth the lag demonstrated by their US counterparts.

While over the past several weeks Goldman's stock price has been steady as a rock (except to precipitate an occasional headfake in a volumeless and directionless market), its CDS has spiked wider by about 50% since its lows (from low 90s to mid 140s). Either some arb desk is currently collecting all its possessions in banker boxes as it is escorted out of the building, or look for a convergence of these two trades soon.

Tim Geithner just can't get enough of testing the indirect bidders' desire (the directs', not so much) for soaking up rapidly deflating US Sovereign debt: next up on deck $109 Billion in Treasury Bonds, as well as 88 Billion in Treasury Bills.

"We should probably add here that even though the moves by the Fed have provided ample liquidity, they have not stopped the underlying fundamentals from deteriorating — see Corporate Bond Defaults Hit Record on page 19 of the FT. (S&P just reported that 201 companies with $453 billion of debt have defaulted this year, exceeding the entire tally of 126 defaults covering $433bln in ALL of 2008). The 12-month speculative-grade corporate default rate has risen to 8.58%, as of July, from 8.25% in June (the rating agency is forecasting that the default rate will rise to 14.3% by the first quarter of 2010, taking out the prior record of 12.54% set in July 1991)." David Rosenberg

Courtesy of Finviz, the ratio of insider buying to selling transactions is 18 to 131. Total transaction value: Buys: $29.7 million; Sells: $889 million. This compares with last week's buys for $60.1 million and sells for $1.15 billion. $3 Billion in insider sales in three weeks.

Just don't tell that to delinquent loans: now at 9.24% of all loans.

The trend of polls beating expectations continues, while actual results indicate no real improvement. The latest indication of this comes from the Philly Fed current activity diffusion index, which skyrocketed from -7.5% to 4.2% as the market kept on ramping higher, while more employees were let go, and margins declined yet again.

After several consecutive weeks of equity market mimicking and rerisking, the CDS market finally saw a net derisking in the week ended August 14, across virtually sectors, with the biggest action concentrated in the financials arena. Total net notional change was substantially higher than last week's -$14.5 billion, increasing to $66.1 billion, with a marked derisking in financials at $62.6 billion. Other notable derisking spaces were Consumer Services at $27.6 billion (again) and Utilities at $20 billion.