Archive - Sep 2009

• Yields 3.510% vs. Exp. 3.350%- Update: It appears the fine folks at Ran Squawk, where we sourced this data, had a typo (http://www.zerohedge.com/news). It would appear they had a fat finger moment and the actual number was 3.53% Exp. This is, of course, in line with the auction outcome.
• Bid-To-Cover 2.77 vs. Avg. 2.62 (Prev. 3.28)
• Indirects 55.3% vs. Avg. 28.5% (Prev. 43.9%)
• Allotted at high 78.40% (BBG)
• Indirect bidder Bid-To-Cover at 1.4x

As the market shoots up once more, there is absolutely no volume breadth participation aside from the traditional program traders who now enjoy complete domination over daily market moves. The SPY intraday volume is plunging relative to average, and at last check 62 million shares were traded compared to a 105 million average by this point in the day: a 40% drop! This should account for all those on the "sidelines" who have taken the Wall Street equivalent of the Main Street revolt to heart, and refuse to participate in what everyone realizes is a market that has no connection to any underlying fundamental reality. We wish the computers all the best as they gun the S&P to 1,600 on 20% real unemployment, $9 trillion in budget deficits, a CRE collapse, waning stimulus effects, and a fast approaching 10% savings rate.

"You are evil thieving bastards, you have reaped ungodly profits in your behemoth casino scams, then lost, only to turn around and usurp the wealth of this great nation by the outright rape and pillage of middle class Americans' whose sweat and toil built it. The biggest ripoff in the history of the world is padding your bonus checks with the Federal Government as your co-conspirators. Every last one of you should be rotting in prison." - American Middle Class Representative

The quants are on their own today, frontrunning each other to lift whatever offers are available.

There was a time when the US would not guarantee the existence of every bank in perpetuity. When weak organizations, with or without untenable balance sheets would have to adapt to survive or simply disappear. It was known as capitalism. And it was about to change completely. However before it did, in those fateful nights before Lehman was not given the taxpayer capital "get out of bankruptcy free" card that Hank Paulson and Ben Bernanke subsequently handed out with such abandon to all other financial firms, Dick Fuld attempted to warn Chairman Ben and Secretary Hank about what would happen if Goldman got its wish of destroying its number one competitor in fixed income capital markets.

"Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research." - Goldman Sachs Research Disclosure

"So there you have it: slow painful grind before the storm or a quick reversal. Given that I expect a very sizeable move the other way, I think it is much more likely that with the use of propaganda, revised data, and 10th derivative arguments on the business cycle, the eternal utopists or evil carry-traders will try to hold this status quo and push the market a little further into risk appetite territory before all the retail accounts can get properly wiped out." - Nic Lanoir, ICAP

• Dear Chairman Ben: The Chinese send their congratulations (WSJ)
• The Fed monitoring systemic risk is like asking a thief to police himself (WSJ)
• Contrary to all claims by Bloomberg of "recession easing", FDIC will likely add six-month extension for debt-guarantee program (Bloomberg) - can't have the government stop backstopping these healthy banks now can we
• NYSE selling stake in Amex options unit to Citadel and Goldman Sachs among others (AP) - just to make Christine Varney's upcoming case just that little easier
• Lloyd Blankfein between a rock, an SLP gold mine program, record Fixed Income daily profits, and 300 million pitchforks come bonus season (Bloomberg)

• Asian stocks fall on share sales; Alibaba slumps as Chairman pares stake.
• China looking at investing part of its $300B sovereign-wealth fund in US realty.
• China plans first offering of yuan sovereign debt outside mainland China, in Hong Kong.
• China's steel output rises 2% as state spending spurs demand.
• Euro rises toward 9-month high versus Dollar on speculation of recovery.
• Japan to hike fees it pays to aluminum producers by 53% - highest in 14 yrs.
• OPEC Committee to recommend keeping quotas unchanged: Kuwait Minister.

"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism – which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object." - John Maynard Keynes

The rules of the game have changed. After the disaster of 2008, pension funds will be scrutinizing their investments a lot more carefully, especially their investments in alternatives like hedge funds, private equity, real estate and commodity funds. Those funds who refuse to adapt will find it extremely difficult to raise the money they need to compete.

P&I's article “Renaissance to open up a bit”, discusses the firm’s quest for institutional money and reads very much like a marketing piece. Yes, RIEF performance this year is just awful and assets have “plummeted 81% to $5 billion as of June 30, down from a peak of $27 billion” but, after "massaging" these numbers, P&I was able to find something positive.

Here are some arguments why one should think twice before jumping in bed with gold bugs, or at least remain sober while determining gold’s weight in the portfolio .

Someone should send the UMich Confidence rolodex (which seemingly consists exclusively of Goldman executive committee members whose "in the moneyness" on Goldman calls translates into confidence of being able to buy a 14th Aston Martin DB - on a one to one basis with the market) over to the ABC Consumer Comfort people, as the two firms seem to never be able to spin the same "the consumer is violently recovering compliments of the $9 trillion in budget deficits" story. After hitting -45 recently, the index dropped yet again, hitting -48 today, a level the index has flatlined to ever since early June.

Spreads were tighter in the US as all the indices improved (with IG making its best day's performance since 6/2/09 and HY outperforming. HY-IG traded back below 700bps, HY-LCDX under 100bps, XOver-Main under 500bps even as intraday ranges remained narrow but gap tighter in HY and IG). Indices generally outperformed intrinsics driving HY skew back below $2 (an arbitrary inflection point for index arbers) but widening the skew in all other liquid indices.