Archive - Jan 2010

Low policy rates don’t impact speculative grade debt so much. Mortality rates for lower-rated debt are much higher than investment-grade debt; the three year mark is where defaults really start to bite. Three years ago (2007), 51% of HY issuance was rated B or below. Mortalities have been accelerated by economic factors, but cumulative default rates will still be high. A buy-and-hold strategy with a broad index of HY debt consistently outperforms the Treasury benchmark. Trading strategies benefit from treasury positioning.

RANsquawk 13th January US Morning Briefing - Stocks, Bonds, FX etc.

The latest indication of the exuberance in high yield was today's announcement from oil-tanker owner Teekay. The firm is offering $300 million of debt to finance a tender offer of the firm's 8.875% 2011 senior notes. Nothing has changed from the frothy days of 2007: tender short, provide sweetener, price longer maturity deal, wait out the next crash, repeat. In the meantime, the company's products are used as glorified warehouses to store ever greater amounts of oil for that day when Goldman's $1,000,000/barrel price prediction finally comes through. In the mean time, EIA reported another 3.7 million crude inventory build to 331 million barrels. Of course, massive supply will bring its own demand... Eventually.

Dubai - meet Greece. Apparently credit traders appreciate biblical allusions, as Greek Prime Minister George Papandreou "promised" for the third time today that all is good in the debt-stricken country, claiming there is "no way" the country would leave the euro or seek aid from the IMF. Credit's response: Greek CDS surges to an all time high of 327 bps, and the country now represents 24% of SovX risk.

So... Timmy... Who's lying here?

First flash, now naked access. While we are certain those whole livelihood depends on scalping and manipulating markets and finding loopholes from regulation will scream bloody murder (look at the industry response to suggestions that HFT is "evil") will provide some very vocal public comments, at least the SEC implicitly acknowledges that naked access is not quite the boon to investors that Goldman et al would like to make it seem.

It should come as no surprise that Zero Hedge has long been warning against the dangers of sponsored access. Some broad background on the topic can be found here and here.

For once we applaud the SEC in this endeavor. Of course, once the SEC ends the public comment solicitation period with "no action", or a ruling that does nothing at all to change the actual naked access process, we will resume our daily calls for Mary Schapiro's immediate resignation.

With all the recent outrage over the AIG fiasco focusing on Tim Geithner, is the anger misplaced? Is the real culprit in this situation Goldman Sachs, which allegedly sold its $2.5 billion in extremely profitable AIG CDS prior to March 15, when the full disclosure of the government's measure to preserve AIG became first known; a time in which Goldman, by implication, may well have been in possession of material, non-public information?

Watch the Financial Crisis Inquiry Commission's grilling of Blankfein, Dimon, Mack and Moynihan live and turbofan enginge commercial free at the FCIC's website here.

• Must read: Bring back Glass-Steagall - Banks that behave like hedge funds (and "trade ahead" of their clients) don't deserve guarantees (WSJ)
• And speaking of Goldman hypocricy - The subsidy that won't die (Slate)
• Friedman: Is China the next Enron? (WSJ)
• Bernanke challenged on rates role in bust (WSJ)
• German economy shrinks 5% in 2009, more than expected (Bloomberg)
• Moody's says Greece, Portugal may face "slow death" (Bloomberg)

• Asian stock markets lower Wednesday, weighed by Wall Street's decline and Chinese central bank's move to rein in excessive credit creation.
• China’s stocks declined the most in 3 weeks, after a shift by central bank to restrain lending.
• China's central bank said it will raise the % of deposits that banks must keep in reserve.
• Indonesia plans to renegotiate a trade pact between SE Asia, China that took effect this month.
• Japanese corp. bankruptcies fell for the first time in 4 yrs in 2009 led by export-led recovery.
• More problems in Greece, weak US corporate earnings and China's curb on lending sends European stocks lower.

RANsquawk 13th January Morning Briefing - Stocks, Bonds, FX etc.

Dumping the world’s most overvalued asset. America’s debt service to double. Hey buddy, can you spare $2.5 trillion? Short a few JGB’s while you’re at it. The fourth in a series of seven on The Mad Hedge Fund Trader’s Annual Asset Allocation Review. (TBT), (JGB)

If governments do not nip this bonus bonanza in the bud, then the next financial meltdown is only a matter of time. How long will we allow the rest of the economy to be subservient to the reckless arrogance and greed of a financial sector gone rogue?

Since the 1991 collapse of the USSR, foreign investors have looked at the former Soviet space as a land rich in underdeveloped resources waiting for Western technology and finance to bring to the world market. Gold from Kyrgyzstan, uranium and oil from Kazakhstan, oil and natural gas from Azerbaijan – all have begun to make their way to the global market, generating rich profits for both their owners and developers.

In the five former Soviet countries stretching eastwards from the Caspian to the western Chinese border – Turkmenistan, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan there is a resource both more limited and valuable than even the region’s fabled hydrocarbon resources, water. The arid region has a surfeit of it, what there is is unevenly distributed, and more than 70 years of Soviet industrialization have left an ecological wasteland facing increased demands on its limited hydrological resources.

The ABC Consumer Confidence index plummeted last week, falling from -41 to -47, sustaining "one of its steepest one-week drops in the last quarter century, following last week’s troubling jobs report with an all-hands retreat from what had been a tentative positive trend in consumer attitudes." At -47 the index is essentially at the average 2009 level of -48, and far below the average since 1985 of -12. As far as the US consumer is concerned, this recession is far from over.