Archive - Sep 2009

We won't add much, save to say how excited analysts always are to goal seek facts in their reports for axed stocks when the simple explanation is beta lifting all semi-sunk boats in an irrationally exuberant market.

• Must read: Break up the banks to fix the system (FT)
• The five non-sell outs. One wonders if to honor or pity them (Bloomberg)
• Wall Street's mania for short-term results hurts economy (WaPo)
• Nomura says headhunter requested "absurd" fee for Lehman bankers (Bloomberg)
• Mack steps down as MS chief after seeking to curb risk (Bloomberg)
• Another thousandth cut for the dollar: just please die already and make Bernanke a happy man (FT)

• Chinese Premier says China 'cannot, will not' pull back from economic stimulus policy.
• Crude rises for fourth day on inventories report, IEA outlook.
• French President wants to tax carbon dioxide emissions by households, businesses.
• Govt on track to pay back car dealers for "cash for clunkers" program by Sept. 30.
• Hotel occupancy to gain strength in late 2009, 2010, profit to remain elusive: report.
• India might unwind its easy monetary policy sooner than other countries: Central Bank.
• Istithmar said to halt investment as Dubai weighs sale of sovereign fund.

QE = Reason For Equity Market Performance. QED

• Securities held outright: $1,501 billion
  (an increase of $128.7 billion MoM, resulting from $32.6 billion in new
  Treasury purchases, $82.4 billion increase in MBS and $13.7 billion in Agency Debt), or $10.7 billion increase sequentially
• Net borrowings: $320.3 billion, a decline of $5 billion compared to two weeks prior
• Float, liquidity swaps, Maiden Lane and other assets: $248.9 billion, an $2 billion decrease on ongoing $1 billion reduction in CPFF (an issue discussed repeatedly by Zero Hedge) while liquidity swaps, after bottoming out recently and gradually reversing, have again declined by $2 billion sequentially.

Does all this mean the W-recovery is off the table? Not necessarily. What it means is that there is a lot of liquidity in the system that will spur another asset bubble. And we all know that asset bubbles do not end well.

By my count the D.C. mortgage lenders have upward of $1 trillion of loans on their books that were made to achieve social objectives. This has been 'play money' for Congress and past Administrations for years. The boss at FHFA has told Congress this has to stop. Where are chips going to fall on this one?

This sugar story will leave a bitter taste in your mouth. 30 year old stories come back to life. What is the FDA doing? And What does Don Rumsfeld have to do with this?

"Unemployment insurance benefits have been on an upward trend over the past two
decades, partially reversing an earlier decline. The trend is associated with shifts toward a
higher share of job losers among the unemployed and longer durations of unemployment,
which may cause benefits to lapse for some recipients as labor market weakness persists." - Aisling Cleary, FRBSF

"The best indicator of health would be a GDP declining to reflect we have moved our manufacturing overseas, we have too much debt, and unfunded pensions are a ticking time bomb that makes the housing market a pleasure to deal with."

Spreads were tighter in the US as all the indices improved (with IG and HY at their tightest closes since 08/10 and rallying for the fifth day-in-a-row for the first time since the Dec08 roll). IG trades 10.4bps tight (rich) to its 50d moving average, which is a Z-Score of -1s.d.. At 111bps, IG has closed tighter on only 4 days so far this year (181 trading days). The last five days have seen IG diverging (bullishly) from its 50d moving average. Indices typically underperformed single-names with skews narrower with HVOL the most notable and talk of some index arb and tail hedge unwinds was heard.

As CNBC guests will be so quick to admit, the money on the sidelines is indeed not sitting still: it is fleeing! Even as the market has gone up by 4% over the past month, flows in domestic long-term equity mutual funds have become increasingly more negative. The total amount withdrawn is over $5 billion, and last week alone saw a -$3.2 billion outflow, according to Investment Company Institute.

Counterparty risk is considerably below its peak levels surrounding the September 2008 systemic crisis anxiety. However, while the CDR Counterparty Risk Index (CRI) is trading back to July 2008 levels (post Bear Stearns), cognitive biases to anchor on the worst case are misleading as the largest 14 OTC derivative counterparties remain 5-10 times more risky than early 2007.

Not only did we get the Obama "resubstantiation" rally, but the Program Robots went absolutely wild today, sending the companies closest to bankruptcy into Outer Space.

Dear Mr. Khuzami, see this chart? See the arrow? See the volume? Please put one and one and one together (we are happy to provide you with a calculator).