Archive - Sep 2009

A presumably growing economy, one that has now emerged from a recession (if one listens to the Chairman) needs fuel. Or, as the case may be, oil. So today's oil inventory report did two things: it flatly refuted the Chairman's ongoing propaganda that all is finally well with the US economy, but also played a nasty trick on oil speculators who got majorly burned after oil tumbled as a result of ongoing lack of demand for the black gold. At least all those parked tankers overflowing with oil and betting that sooner or later the stored oil will be put to some use will get a few more chances to finally be proven right.

At some point in the last 48 hours our RAN Squawk feed began to leak into the general feed for Zero Hedge. Result: this morning a number of people woke up with 200+ messages from RAN Squawk in their Zero Hedge RSS Inboxes. Sorry about that. It is not intended to be permanent. (Nor was it intended at all, actually). The feeds should be corrected now. Please excuse our dust.

Over the past year there have been some phenomenal moves in stocks, which some call high beta names, but which for all intents and purposes can be called "crap" companies (we use the term generically in the fashion it has been previously used by the mainstream media). So Zero Hedge decided to do a more in-depth analysis of just which names have benefited by the unprecedented equity rally, and whether their fundamentals justify the record moves from the stocks' 52 week lows.

Now that Flash trading is practically a thing of the past, everyone's attention is shifting to dark pools. And if the just released letter by the World Federation of Exchanges is any indication, dark pools' days could be comparably numbered.

"The environment of exchange trading has been altered, and in sorne ways has been adversely affected by many of the changes that have occurred in the world's financial system in recent years. Therefore, the continued proper functioning of regulated exchange markets should not be taken for granted." - World Federation of Exchanges Letter to G-20

• Pearlstein: A new bubble of the Fed's creation (WaPo)
• Wall St. Cheat Sheet award series continues with the financial analyst who the analyst who nailed the crisis (WSCS)
• Shocker: Ex-Moody's analyst says inflated ratings continue (WSJ)
• The Casino chronicles: Traders seek fortune in AIG, a stock once left for dead (WSJ, h/t Joel)
• Time to junk AIG (Reuters)

• Asian stock markets were lower as a monthslong rally sputtered and investors waited
• Dollar falls to one-year low as Fed may signal interest rates to stay low.
• Euro close to 1-year highs against U.S. dollar
• Fed is said to start talks with dealers on using reverse repo agreements.
• Federal Reserve policymakers likely to leave economic supports in place

This has to be seen to be believed. Why is it that all the former CNBC pundits end up becoming sensible and rational people: first, and ironically, ex-Fast Money Ratigan, and now Simon. What IS it about the borg brainwashing collective at that TV station? Back to the clip and Hobbes, who on CNBC says: "This is an overbought, inflated market, that could come down quite rapidly", yet pan back to Teranova, who says "Hey Simon now that you are back in the US you have to be a bit of a cheerleader" which is all anyone needs to hear.

The company which for nearly two decades has been the ultimate vulture investor, Dallas-based Lone Star Funds, is in the process of finding yield starved novice asset managers, or in other words, buyers for $239 million of subprime backed securities. According to Bloomberg, the portfolio represents holdings which the company acquired at or about the time it acquired CIT's mortgage business for $1.5 billion, which also gifted the distressed fund $4.4 billion worth of CIT debt.

It's not just rating agencies that are at the crossroads, but pension funds are at the crossroads too. We need a governance overhaul that introduces more transparency and a compensation system that rewards risk-adjusted returns. The status quo at rating agencies and pension funds is totally unacceptable.

In response to a FOIA request, Administration officials deliberately censored figures that specify the annual costs cap-and-tax will impose. The Treasury documents appear to confirm what Upton has been saying all along, that cap-and-trade is a national energy tax that will devastate American families. I am particularly interested in the one-page document entitled Domestic Climate Policy that was prepared by Judson Jaffe. The Jaffe document omits important figures, most glaringly, on the annual costs under a cap-and-trade regime, stating, “It will raise energy prices and impose annual costs on the order of XXXXXXXX dollars.” - Congressman Fred Upton

As the competition as to who will print the most money & debt to manufacture artificial growth rage, the US and the UK seem to be our two finalists. China was disqualified as the lack of transparency makes it difficult to quantify how much public spending is done in order to pump GDP numbers, though we do not doubt they try thir very best.

Spreads were tighter again in the US today as post-roll activity picked up in IG leaving HY to charge tighter still (though not managing to make it back below 600bps) as roll re-positioning and tranche technicals seem to be dominating index activity. The ongoing compression in the widest and riskiest credits saw high beta names dramatically outperform low beta today, single-names outperform indices across the board and HVOL, XO, and HY all outperform IG.

With media reports of reverse repos starting to surface, are these actually honest intentions by the Fed to prevent yet another bubble for consuming the US before it is far too late, or, as we have come to expect from the Federal Reserve, merely more red herrings? Our money is on the latter.

This comes from the Department of I Should Have Known.

After several relatively flat if slowly grinding tighter weeks, last week the highly leveraged credit market once again took a major leg in. And as has been true in equities with the neverending dash for trash, so has been the case in credit. Names like Cenveo, mega levered LBO FDC, Mediacom, Neiman Marcus, TRW and West all ripped much tighter this week. The reason: who knows. More importantly, who cares. it is a bubble, enjoy it. After all everyone is smart enough to get out of the door first when it pops.