Archive - Sep 2009

Spreads tightened significantly from last Friday's close with HY massively outperforming IG as equities reversed their short-term losses to storm over 2.5% higher (close-to-close). This rally in risky assets was accompanied by a major drop in the dollar which shifted gold and oil higher and somewhat confusingly a rally in Treasuries - a flight to safety and risk. HY closed within 10% of its spread tights for the week while IG was more than 20% off its tights, but skews were cruished in IG and HVOL this week (especially the latter).

Gold, and the companies that produce it, have enjoyed a brisk runup of late, as the metal mounts yet another assault on the beckoning, symbolic $1,000 level. How much of this can be traced to what China has done, is doing, or may yet do? We don’t know, but we suspect it’s not entirely coincidental. All rumor and speculation aside, as China clearly turns more and more bullish on gold, so will everyone else.

Not much happening today, other than more rotation out of stuff that bottlerocketed the last few days, into other "Hail Mary" near-bankrupt penny stocks such as newspaper companies, Yellow Freight, etc.

The debate is fairly heated between bulls and bears. Bears are aggravated by media led propaganda trying to claim victory when nothing fundamental other than issuing sovereign debt and changing accounting standards for the worst has been achieved. Bulls look at the business cycle, with ISM numbers now expected to hit 60 in the next couple months, a steep yield curve guarantying banks solid income, and China leading the world out of the recession.

A week ago, private jet maker Textron received a blessing for an upcoming follow on offering (presumably sole managed by Goldman Sachs), when the firm became Goldman's most recent Conviction Buy List company. Zero Hedge was modestly skeptical about the rationale provided by Goldman about this next iteration of sliced bread. Our modest skepticism was enhanced today, when Warren Buffet portfolio company, NetJets, announced it will be cutting over 300 jobs, following a prior announcement of a $253 million pre tax loss (but, but, Goldman said all is great in the private jet market?) and the involuntary departure of ex-CEO Richard Santulli.

In an act unprecedented nobility, granted using other people's money, the FDIC sent out a release today, encouraging its loss-share partners who have acquired failed banks on the back of taxpayers' footing the bulk of the balance sheet risk and cost, essentially guaranteeing profits for these same partners, to "consider temporarily reducing mortgage payments for borrowers who are unemployed or underemployed." The FDIC's recommendation: "to reduce the loan payment to an affordable level for at least six months." And the kicker, once again subsidized by those taxpayers who live within their means yet do not find it critical to live in a house they can not afford: "losses incurred in subsequent foreclosures or short sales are covered losses."

The Treasury's Money Market Fund guarantee program, which was among the first to be instituted in the wake of Lehman's collapse, after the Reserve Primary Fund broke the buck (for a great description of what really happened, go here) is set to expire on September 19, after an extension had been granted on March 31 to postpone the initial April 30 expiration.

From the Doug Kass rumor bag:
"High above the Alps, my Gnome continues to hear of a $3 billion-plus derivative loss at a major Japanese financial institution. Stay tuned, as that Gnome has a good nose."

Update from a reader: Some more color on deriv losses - hearing that it was a structured desk...that explains why low spread names are wider and high spread names so much tighter...supersenior vs equity was very popular way to bet on weakness cheap

Someone just traded 10,000 Oct $26 Puts on the ISE. At first blush it appears it was a bid-side trade, and not a roll.

The chart below indicates the increasingly illogical run up in both bonds and stocks (combined with the daily VIX clobbering). Yet even as the dollar plumbs new lows, somehow US bonds appear increasingly more attractive.

The doctor's prescription to the capital markets: take two Geodons and see Dr. Chariman Ben in the morning.

EUR-JPN/SPY chart presented without commentary.

In an article on cnbc.com which covers Art Cashin's observations between the "eerie" similarities of the current market and the exponential ramp in the Spring and Summer of 1987 (and we all know how that ended), the video that accompanies it and is supposed to show Art Cashin's real time ruminations was replaced with an overlay of Rebecca Jarvis discussing market headlines. Obviously, this is merely a glaring technical glitch at the GE subsidiary.

Interview with Zhu Min, Bank of China Vice President:

Q. Is overconfidence the biggest risk to the recovery?

A. It's not only overconfidence, it's overmyopic: Wall Street feels the crisis never happened. It seems to me the financial crisis is not over yet, but it has stabilized from a cliff drop. That's one thing. The real economic crisis is just starting.

Inventories sluggish as GDP bounce based on restocking delayed indefinitely. But at least consumer are confident they will keep hearing good news on TV.

Part of the "New GM," General Motors will be aggressively going after its Asian and European competition with a 60-Day, money-back guarantee. Eager to boost sales, and the consumer's confidence, this has to be one of the most aggressive (or desperate) moves yet in the history of the American automobile business.