Archive - Sep 1, 2009

Leo Kolivakis's picture

My advice to the U.S. pay czar is to leave Nancy Everett and her team alone. Unlike the senior managers at most of Canada's large public pension funds, the folks at Promark Global Advisors earned their compensation by not following the herd, realizing the beauty of bonds, and by focusing on preservation of capital.

Fed Will Now Monetize The Most Recently Issued Agencies

"Prior to August 31, 2009, purchases were focused on off-the-run securities in that category. Going forward, purchases will include on-the-run securities in that category. This change represents a technical adjustment designed to mitigate market dislocations and to promote overall market functioning. Over the course of the program, the Federal Reserve may change the scope of purchasable securities." - Federal Reserve

Daily Credit Summary: September 1 - Good News Is No News

Spreads were broadly wider in the US as all the indices deteriorated (and while HY underperformed, it did not as much as one might have expected with equity underperforming credit as we had warned with ExHVOL (low beta) underperforming). Indices typically underperformed single-names (as IG reached back to 8/20 wides and HY back to 8/17 price lows) with skews widening in general 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.

Disappointing August SAAR Estimate

The chart below says it all: August SAAR, estimated at 13.7 million by Citigroup economists, was slightly better than the prevailing consensus of 13.3 million, significantly below Goldman's ebullient expectation of 15.5 million, and will likely be seen as a disappointment of the impact of Cash for Clunkers. And now comes the subsidy hangover. Zero Hedge provides its September estimate of a 9.5 million SAAR, mostly as a function of at least 1.5 million auto sales having been pulled from forward periods. We would not be surprised if the actual number comes in below our estimate.

Canadians Halt Options Trading With California Residents Due To Unpaid Bills

Please be advised that there has been an unforeseen delay in renewing CDCC’s annual application with the State of California. Due to this delay, CDCC options may not at this time and until further notice be sold or offered for sale in the state of California and to California residents until the annual application process is completed.

GS Is The New Market Windsock

Now that the AIG Volkswagen has imploded, the market is gauging the wind's direction by much more solid, and moderate beta names, like Goldman Sachs. It is somewhat fitting the GS is now the proxy for the entire US equity capital markets.

Collapse In Commercial Paper Outstanding Bodes Ill For Corporate Growth

Investment grade bond issuance this year hit all time records, with the six-month moving average hitting an unprecedented $692 billion through May of 2009. And yet while government guaranteed Aaa financial company issues accounted for a major portion of this, IG-rated industrial companies issued a record $317 billion of new bonds this year. Yet, in many ways like the Cash for Clunkers subsidy, the government endorsed refi binge is coming to an end, and Moody's estimates that July and August will have a monthly IG issuance of $66 billion on average, which represents 57% of the monthly average through May.

Stuy Town, Which Is On Verge Of Default, Costs Florida's Pension Fund Entire $250 Million Investment

Stuy Town, which as Zero Hedge wrote about several days ago is in dire straits and a few months away from default, has claimed its first casualty in the face of the Florida pension fund, aka State Board Administration which has disclosed a full loss on its $250 million investment. Next question: is Blackrock still carrying Stuy Town at 100 cents on the dollar for its own LP appeasement purposes (PEs heart FASB looseness)? This piece of information will likely get as much coverage on GE's propaganda central subsidiary as Chrysler missing August sales estimates by almost 20%.

Coordinated Derisking

It appears the market now only acts sensibly on big volume selloff days. The chart below is what one would expect, and what one would never see over the past 6 months.

Ford August Sales Big Miss At 21% YoY Increase Vs 39.3% Estimate, Chrysler Expected To Be Bigger Miss

Could the impact of Cash for Clunkers have been materially overestimated? Based on the results from Ford, it would seem so, as the high expected SAAR of 15-16 million is now looking more and more like a mirage. Goldman Sachs is expecting a 15.5 MM SAAR for August, and yet they were betting on a 39% increase in Ford sales YoY, falling woefully short of the actual number which was a just announced 21%. What is much more interesting, is where Chrysler numbers will come out: Goldman is expecting a 5% increase in sales, yet a note out of AP quotes an insider saying that August sales were a 15% drop for the Fiat subsidiary.

F/X Reversal Reversal

Remember yesterday how the market ramped when the Yen got whacked, leading to strength in all other pairs and a pounding of the dollar? Alas, Bernanke, Printing and Press LLC is unable to repeat its daily lashing of the greenback.

$5.6 Billion POMO Completed

Just when you thought the Fed was trying to gradually disintermediate itself from capital markets, they are off to the races with another POMO action. As of this auction, $276.3 of the $300 billion in Treasury repurchase allocation has been used up, leaving less then $25 billion for future POMO actions. As Zero Hedge discussed before, this total will be used up in the next 2 weeks. What then? All of a sudden the invisible bid under equities is looking very, very precarious.