Archive - Sep 2009
The price correlation between equities and bonds of late has some argue that typically, if equities are trending higher, then bonds would head lower, and yield would be higher, due to concerns of higher inflation. So, the fact that bonds and equities in general are both firm seems to beg the question - which rally would end first - equities or bonds?
Spreads widened for the second day in a row, as weaker than expected existing home sales trumped a headline beat for initial claims swinging risk assets from a good start to a weak middle. Stocks drifted further down most of the day except for a late day cover rally (for the daytraders) which credit hardly took part in as IG went out near its wides and SPY dropped close to its low after-hours as RIMM lowered its Q3 revenue outlook (so much for top-line growth coming to the rescue).
"… excess savings flowing in from Asia and the reckless lowering of interest rates by the Federal Reserve Board; the relation between executive compensation, short-term profit goals, and risky lending; the housing bubble fueled by low interest rates, aggressive mortgage marketing, and loose regulations; the low savings rate of American people; and the highly leveraged balance sheets of large financial institutions." - Richard Posner
Tomorrow's testimony before the House Financial Services Committee by Federal Reserve General Counsel Scott Alvarez, followed by Thomas Woods, Jr of the Mises Institute will be most interesting because it will discuss the topic that is so near and dear to everyone's heart: HR 1207, or Ron Paul's Audit the Fed" bill, which is the culmination of the Congressman's life efforts to unmask the Federal Reserve. With the congressional vote on HR 1207 approaching soon, and the bill already having an absolute majority, its passage is a mere formality.
Tsunami fizzles, turns out to be a storm in a teacup. Alas, so is RIMM's guidance.
Updated (as expected), from The Street:
9/24/2009 5:03 PM EDT
RIMM giving you a chance to buy the Mobile Internet at reduced prices as i said could happen in my video today with Alix Steel.
Some charts courtesy of the DOE demonstrating just how deep the energy, and by implication, the overall economy slump is, relative to prior years.
And the Fed finds a way to screw everyone over yet again. Contrary to expectations that the Fed will use reverse repos to remove excess liquidity (which, by definition, such an action would) it appears that Bernanke's wily scam is to push even more money out of money market funds and into capital markets. Even though banks currently have about $800 billion in excess reserves which the Fed is paying interest on, and which would be a damn good source of liquidity extraction as the Fed considers to shrink its ever expanding balance sheet, the Chairman is rumored to be considering money market funds as a liquidity source. Reuters points out that the Fed would thus have recourse to around $4-500 billion, and maybe more, of the $3.5 trillion sloshing in "money on the sidelines", roughly the same amount as MMs had just before the Lehman implosion.
If they don't turn around this tape in the next day or so, Bernanke and his court will be disgraced and the O-Team will be on the phone begging for more alphabet soup programs, monetizations, bailouts, nationalizations, and other assorted "Fiat Flinging" to avert catastrophic deflation.
Some gloomy predictions direct from the horse's mouth (how did CNBC allow such a bear on? No prescreening of hedge fund manager guests?)
Something is definitely off here. Usually the market would follow a move in the Yen-Euro carry in lockstep. Not today.
Insider selling outpaced buying by "only" a factor of 41x (data from FinViz). The data was adjusted to exclude the $37 million purchased by Elevation Partners as part of the Palm follow on, as that transaction was likely premarketed and was designed to generate deal interest by the underwriter Goldman Sachs. Pro Forma for this purchase, there was $2.1 million in 24 insider buys versus $84.4 million in 139 insider sells. While sellers are still outpacing buyers by a material margin, the volume on both side of the equation is dropping dramatically (well, mostly the sellers). At some point once the selling is exhausted, a contrarian could say that the motivation to keep the market propped up could very easily disappear.
- Yields 3.005% vs. Exp. 3.047%
- Bid-To-Cover 2.79 vs. Avg. 2.55 (Prev. 2.74)
- Indirects 61.7% vs. Avg. 51.44% (Prev. 61.3%)
- Indirect Bid-To-Cover: 1.29x
- Direct accepted: 6.3% of Total accepted
- Allotted at high 30.22%
While I am bearish on a 2/3 year horizon for certain, I have been cautiously trying to pick spots to sell risky assets for the past 3 to 4 months. Over the past 2 weeks I have become more vocal because a lot of signs that a possibly significant reversal (think more of a 10% move than a 3% move in major equity indices) could be in the works.
According to the BLS, the exhaustion rate, or the number of people who have used up their benefits, and will no longer be receiving unemployment checks, has hit an all time high of 52.40% for August. This is a staggering number, and whats worse it was grown in practically a linear fashion with not even a hope of a second (third or fourth) derivative green shoot in sight. In fact, the deterioration in "employability" is accelerating. And yet assorted "pundits" claim the employment picture is improving. We wish them and their newsletters (and, heaven forbid, LPs) all the best.
And the undisputed winner of the market bad timing awards is RCN. Just as the world is finally getting concerned and quite vocal over a two-tiered market in which certain exclusive market participants reap the gains of extensive infrastructure investments which may or may not allow them a distinct "informational asymmetry" advantage, and hot on the heels of a vote by the SEC seeking a Flash trading ban, RCN has announced that it set to launch a "low-latency co-location and exchange-only network connecting the major bourses and data centers in the New York and New Jersey financial hubs."