Archive - Aug 2009

A recent increase of 25bps by the Bank of Israel is a potentially bullish indicator.

While Harvard regroups and tacitly admits its mea culpa, most pension parrots will keep repeating the same mistakes, losing billions in the process. They will all learn the hard way.

My ramblings on how the banking system is broken and what to do about it.

"Examiners at the Financial Regulatory Authority, the industry self-regulatory body known as Finra, and the Securities and Exchange Commission intend to ask Goldman for more information on the firm's weekly [huddles], people familiar with the matter said." - WSJ

Score another one for the little guys.

A comprehensive market profile chart for the SPY since August 3.

S&P REVISES NATL RURAL COOP OUTLOOK TO NEG, AFFIRMS 'A/A-1' CCR

We believe that CFC's continued high exposure to short-term wholesale funding, increased leverage, potential credit quality problems with its limited existing loan loss reserves, and potential exposure to interest rate movements could lead us to lower the ratings. The outlook could be reviewed for a revision to stable if management succeeds in reducing leverage and the company's dependence on short-term funding.

While in the past VWAP was the traditional strange attractor for intraday price convergence, today marked a stark difference, indicating that either i) whoever was trading did not use any VWAP algos to accumulate/dispose of block positions, or that, ii) [and in keeping with i)], most orders were routed to dark pools. However, take away FNM, FRE, and Citi, and there were basically no large blocks. One wonders just how much trading in the fab five f*@&#d financials occured in dark pools over the course of not just today, but the past week: if one were to add dark pool volume to what we know accounted for 25% of the total NYSE volume, the result would likely be a shock.

Spreads were mixed in the US with IG unch, HVOL improving, ExHVOL weaker, XO stronger, and HY rallying (as we note all the indices ended well off their tights and did not partake of the swings we saw in equity land today). Indices typically underperformed single-names with skews widening in general (although we do note a significant tendency for off-the-run IG-HY decompression relative to IG12-HY12 compression and roll compression in ExHVOL's curve) as IG underperformed but narrowed the skew, HVOL outperformed but widened the skew, ExHVOL intrinsics beat and narrowed the skew, XO's skew increased as the index outperformed, and HY's skew widened as it underperformed.

The stunningly quick collapse of mortgage lender Taylor, Bean & Whittaker is over, with the only logical and possible conclusion: bankruptcy. The Florida mortgage lender, which in the January - June period was the 12th largest mortgage lender filed for bankruptcy in Middle District of Florida (case 09-07047). Neil Luria of Navigant, who was named as CRO, had this to say: "This is a very complicated business, and the speed of its collapse has been stunning. Much remains to be done, but we are committed to creating and realizing the value of the company’s assets."

No commentary on JP Morgan's ETF desk moonlighting as Cape Canaveral

XLF dropping on relative basis to rest of market on accelerating volume, just in time for a notable flight to 30 Year UST bonds: yields have plunged from 4.42% to 4.29% intraday, a major move from a marginal buyer perspective.

"Many of the issues that are cropping up in the ongoing wave of REIT and real estate restructurings
and bankruptcies are novel, and many of the issues that arise in bankruptcy in the
ordinary course have not been previously applied to the complex real estate financing structures
created in recent years. It is important to appreciate, but not to exaggerate, the hazards now facing
both lenders and borrowers." - Wachtell Lipton

Recent approaches by the Obama administration for mortgage mods in Prime and Alt-A have sought to appease negative equity perceptions (and reality) of borrowers, with the end result being a substantial push for loan mods, as HOPE targets a 3-4 million loan mod total over the duration of the program (which is substantially behind schedule as only 230,000 mods so far have been enacted). Yet empirical data indicate that negative equity is an irrelevant issue in examining the behavior of re-defaulters.

Issues under attack include everything that currently lays the groundwork for a multiple-tiered market, including:

• Flash Orders
• High-Frequency Trading (with a juicy tangent regarding Renaissance Technologies)
• Co-location of Servers at the Exchanges and Other Venues
• Direct Market or Sponsored Access
• Dark Pools
• Liquidity Rebates
• Retail Order Flow