Archive - Feb 4, 2010

NY AG Andrew Cuomo just announced he would file civil securities fraud charges against BofA ex-CEO Ken Lewis and CFO Joe Price under New York's Martin Act. This blow to Ken Lewis follows hot on the heels of yet another attempt by the ever pathetic and worthless SEC to cover up the whole Merrill mess, this time by proposing yet another settlement with BofA, however instead $30 million this time taxpayers will pay BofA investors $150 million. The fact that there is no change in the SEC's M.O. from before, but merely an increase in the "booty", is sure to anger Judge Rakoff even more. The need for a referendum over the fitness of Mary Schapiro to serve her job as head of the SEC in light of these two diametrically opposing actions is now greater than ever.

The Treasury just announced that it will auction $77 billion in Bills in the next week, broken down as follows:

• $24 billion 3 month Bills on February 8
• $27 billion 6 month Bills on February 9
• $26 billion 1 year Bills on February 9

This joins the previously announced $81 billion in coupon bonds previously announced for auction.

• $40 billion 3 years Bonds on February 9
• $25 billion 10 year Bonds on February 10
• $16 billion 30 year Bonds on February 11

The increasing rotation out of Bill reliance and into Bonds is sure to put ever greater pressure on longer-dated yields, even as the short-end continues seeing massive demand due to the previously announced jiggering by the SEC in money market accounts which could in the near-future be experimenting with their newly-legal right to suspend redemptions.

The STUPID Index is on a roll: it is now 12bps wider to 224, the widest level since April 4, 2009. With UK CDS nearing 100 bps, STUPID non-member, and the country which will ultimately have to fund rolling bailouts, Germany - is somehow trading inside the US, north of 50 bps. Absent the Deutsche Mark making a stunning comeback, coupled with its becoming the reserve currency upon its reintroduction, there is no reason why the Germany-US spread should be negative (which is not to say the the US CDS is rich here).

All carry trade pairs (and the traders who still have these on) are getting the Friend-O treatment today. Whether the funding currency is the dollar ot the yen, the need to convert paper losses into real ones will likely hit the stops today causing a rush for the exits (if it hasn't happened already). At this point you can take Goldman's ever optimistic double down on the BZL trade and use it for toilet paper. One wonders if Lloyd wouldn't be happier not having a prop desk on days like today. Incidentally, both Deutsche Bank and Citi are actively eliminating their prop trading desks. Deutsche Bank earlier announced that "the bank has eliminated its proprietary credit trading business and reduced proprietary trading in equity and equity derivatives by 90 percent, Ackermann said in remarks prepared for the bank's annual results media conference on Thursday." Thank you Boaz Weinstein. In other news, Citi prop traders Matthew Newton and Matthew Carpenter has just bailed, seeing the writing on the wall.

RANsquawk 3rd February US Morning Briefing - Stocks, Bonds, FX etc.

Yet another supporter of the huge imbalance between bond supply and demand emerges, this time it is the ever controversial Nassim Taleb, who speaking at a Moscow conference today, the same place where Roubini said to get the hell out of the dollar, said that "it is a no brainer [that] every single human being" should be short Treasuries, "citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration."

Who would have thought that the much anticipated European contagion would actually arrive. It was priced in right? Algos and correlation desks are flabbergasted that this is one situtation that the Fed apparently is helpless with. And if it does, it would only be dollar positive and stock market negative. Indeed, regarding the first, the dollar is now back to July 2009 levels. Regarding the second, ES takes out the 1085 support to the downside with much conviction. We have previously discussed where next technical support levels are (hint: lower).

A new loan BWIC has been circling the market, this one for just over $280 million, as another small portfolio of loans needs to find a new owner. The biggest positions include Transdigm TL $5.3 million, Georgia-Pac TLB $5.1 million, Dean Foods TLB $5.1 million, Celanese TL $4.9 million and AMC Entertainment TL $4.9 million. We have yet to hear if the trader organizing this particular auction has reported in sick. All bids are due at 11:30 am today to your favorite loan salesman.

A unique look at bond behavior will serve to illustrate how risk is lowered in holding long Treasuries for the coming year.

• We hope you bought some: US CDS widest (why do they keep saying highest) since April (Reuters)
• Pesek: Biggest bubble in history is growing every day (Bloomberg)
• Weil: Obama's $6.3 trillion scam is America's shame (Bloomberg)
• Portugal, Spain lead worldwide decline in stocks, dollar gains. Why, oh why, can't every currency be a reserve currency? (Bloomberg)
• Roubini: The ticking US fiscal time bomb (Forbes)
• GMAC reports record loss on home mortgage defaults (Bloomberg)
• Micro investment bank Imperial Capital shelves plans to go public at a ludicrous 4.69 times net tangible assets per
  share (3x more than prevailing 1.52
  times). More importantly, everyone is expecting the IPO of Hustler affiliate, porn site AdultFriendFinder (Bloomberg)

Initial claims just made a negative U-turn and posted their first weekly increase since the beneficial inflection point. After new home sales and NAHB, is the initial claims double dip next? This week's number of 480,000 was 25,000 worse than expected, and 8,000 thousand worse than last week's 472,000. The 4-week average rose to 11,750 to 468,750. According to the Labor Department this was a straightforward report with "nothing unusual" and no states estimated. Unadjusted claims rose 28,234 to 530,405. Continuing claims increased by 2,000 on a SA basis, to 4.6 million and by 62,784 NSA to 5.7 million. EUCs surged once again to 281,442 for a new total of 5,632,219. Extended benefits claims fell 39,129 to 222,833 as ever increasing numbers of people roll off extended benefit eligibility.

Seems like the speed and acceleration of profitability is non-stop at Toyota; despite a myriad of product recalls failing to stop the all-mighty Japanese automaker.

Okay, okay... Bad pun. Or was that a metaphor?

Fourth quarter, Toyota posts a net profit of some 153.2 billion yen, $1.7 billion dollars...

But could this be one of the last profitable quarters in a long while for the troubled automaker? The Japanese remain optimisitc!

Contagion is here. Portugal and Greece default risks are now racing whose CDS can hit 500 first... Then 1,000... Forget the bond vigilantes: the sovereign default vigilantes just called Almunia's bluff. At last check SovX was flirting with the record century mark, Greece was almost back to record wides with some bids of 410 bps floating around, while Portugal, which is today's whipping boy, exploded to 215 bps. We eagerly await to see which other country will join the CDS ballet. Almunia is now openly waging a two-front war, which will soon become multi. The last time this happened to a European, the results were not that good.

RANsquawk 4th February Morning Briefing - Stocks, Bonds, FX etc.

Unemployment isn't falling below 9% for at least a year. Those jobs exported to China aren’t coming back. Consumer spending is unsustainable. The loopholes in the proposed financial regulations are big enough for bankers to drive their Ferraris through. Trouble for Obama in November.