Archive - Sep 3, 2009

That gasping sound you hear coming from the commercial real estate market just means it's alive and kicking.

I feel it appropriate to help distribute Karl Denninger's video response to the currently in vogue effort of the government-subsidized media to discredit those AMERICANS who question current government policy and who suspect that the economy will get worse before it gets better.

Like I said at the start of this post, the world is awash with liquidity, so keep buying them dips and pay attention to the hedge fund heave-ho. It looks like things are getting bubbly all over again.

Americans will have to reach into their wallets and buy some Treasuries. POMO is almost over. Someone has to buy this paper. The problem is that at the current yield the adjusted return is less than 1/2 percent per annum. Who's buying that?

The "loan problem" has not gotten any better, in fact, quite the opposite. Also, for an example of how everything will collapse once the unwind begins, look no farther than Wells Fargo.

Spreads were mixed in the US with all but HY marginally tighter (indices saw very small intraday ranges once again and closed well off their best levels unlike equities). Indices typically underperformed single-names (liquidity was minimal in single-names as dealer notched down spreads to encourage some action in low spread names) with skews mostly narrower as IG underperformed but narrowed the skew, HVOL underperformed but narrowed 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.

A fitting headline to cap a day in which retail analysts from various investment banks were yapping ceaselessly, trying to convince CNBC's viewers that consumer discretionary is the next REIT space, and that HFT computers are mere minutes away from trading trillions of shares with one another, thereby pumping retail stocks into the ionosphere, is the news out of the WSJ that Liz Claiborne has hired restructuring and turnaround advisor Alvarez & Marsal, best known for advising the wind-down of Lehman's bankrupt estate.

3:30 pm. To the dot. An underfunded SEC is happy to see computerized HFT tulipmania back in charge of the market.

Without doubt the two biggest issues before the US economy are the threat of a double dip recession and what happens when the massive liquidity pump is i) stopped and ii) put in reverse. And of the key macro economic indicators, deflation is by far the biggest bogeyman (and wildcard). Even in the context of so-called better than expected economic data, i.e., the growth in GDP, a more exhaustive dig through the deflator for gross domestic purchases reveals that deflation has still firmly gripped the economy. Yet price perceptions, which have an impact on the consumer saving and spending rate, while critical are merely one of the numerous indicators that one has to keep an eye on. The group of the four horsemen of a depression also includes overall systemic leverage, the availability of credit, and unemployment.

There is debate (and confusion) over whether the average American has actually increased his saving rate or whether this is a mirage. Ha!... Felix Salmon points out that some economists actually think that buying stocks and bonds is consumption - not saving. Much of the confusion arises from the need to distinguish between "investors" and "savers".

The Treasury Curve is much steeper ‘relatively speaking’ than even its high absolute levels imply – is this what Gold is reflecting?

Today's intraday bizarro market: bonds and dollar ticking higher, as stocks pretend to climb, with VIX sinking all day.

On a slow news day, a few enjoyable blasts from the past compliments of Chairman Ben, confirming his distinguished track record of predicting "stuff" and "containing crises"

The recent run up in gold, coupled with the decline in the dollar (via the DXY) has raised the GLD/DXY ratio to July 2008 levels, with just under 1.5x points left for Gold to hit multi-year relative highs. With gold seen as not only an inflation hedge, but a systemic collapse safe haven, could the run up in gold have more than just inflationary implications? With the dollar safe haven status out of the window, it does, in fact, only leave gold as the only TEOTWAWKI hedge. At flat dollar levels, look for gold to test the $1050 level relatively soon.

Developing Story

One wonders why it took so long to incentivize the SEC to actually prosecute wrongdoing on Wall Street. One also wonders how much of this new windfall will remain once all the Madoff-related lawsuits against the SEC clean the regulator's clock.