Archive - Feb 2010

The bank stocks, especially the regionals choking on massive loads of commercial real estate loans are vastly outperforming most sectors right now. Why is that? Who knows, maybe the lack of lending assures that in 3 years, the banks will have no losses because they have no loans. Then all those free DDA deposits can be parked in risk free trades for a clean spread with zero risk?

Don't look now but the Direct Bidders once again saved the just completed 5 year bond auction. Not only was the $13.1 billion direct bid a record by a large margin (the prior record bid was $8.5 billion), not only was 12.8% take down the second highest since June of 2009 (versus an average of 5.6% since June), but the Direct share was a record 11.4% of total total auction (average at 4.5%). This masks the ongoing deterioration in the Indirect bid, which at $22 billion was almost $7 billion lower than the $28.6 billion last month. This is the smallest Indirect bid for a 5 Year since mid 2009, while the 19.1% Indirect share was the lowest since last April, coupled with the lowest Indirect takedown (40.3%) since last July.

EuroStat just caused more work for RBS "strategists." The European statistics office, still busy going through Chi square brain teasers, has announced it has to determine the increase in Greek government debt due to the 2001 Goldman-underwritten swap transaction. Per Bloomberg: "The Greek authorities have informed Eurostat that repayment of the debt began in 2004,” Eurostat said in an e- mailed statement today. “In consequence, Eurostat will have to determine, in cooperation with the Greek authorities, what will be the increase in government debt due to this specific swap operation from 2004 onwards.”

As the report clearly explains, the sluggish global recovery (if any) still has a great impact on the banking sector and especially the small- and mid-sized institutions that still seem to operate in a tail-spin environment. With refinancing periods approaching in both the private residential and commercial real estate market anticipate further banking failures, maybe even at an increased pace than seen over the last year. - Saxo Bank

• Yields 2.395% vs. Exp. 2.389%
• Bid To Cover 2.75 vs. Avg. 2.65 (Prev. 2.80)
• Indirects 40.30% vs. Avg. 51.47% (Prev. 52.98%)
• Indirect hit ratio 76.8%
• Allotted at high 32.83%
• Direct take down 12.85%
• 1 PM WI bid was 2.380%

Obviously, even if they're right, gold could seriously correct in the meantime ...

We were pleasantly surprised earlier today when we discovered that the "head of European rates" at RBS, or as it is better known in the US as CRT LLC (see here, here and here), Harvinder Sian, not only sends out mollifying notes to clients with extended references to "excitable" blogs such as Zero Hedge, but that apparently cost-cutting measures have forced RBS to cancel their over-budget Dow Jones wire service.

• Downside risks for Greece's real and nominal growth are likely to increase the size of needed fiscal consolidation, raising questions about the feasibility of the country's ambitious budgetary goals.
• Political risks for the timely implementation of the entirety of fiscal reforms continue to be material.
• We are maintaining our 'BBB+/A-2' ratings on the Hellenic Republic on CreditWatch negative.
• The negative CreditWatch implications reflect the possibility of a further downgrade of one to two notches within a month.

By the thinnest of margins, the SEC just voted 3-2 to institute the short-selling rule which will put curbs on shorting individual securities that fall over 10% in any one day. Dow Jones points out that even market decisions are now split according to party lines: "Republican Commissioners Kathleen Casey and Troy Paredes said Wednesday they would vote against the proposal. Democratic Commissioners Luis Aguilar and Elisse Walter signaled their support for it, along with SEC Chairman Mary Schapiro, who was appointed last year by President Barack Obama." Paredes was further quotes as saying that the rule is "rooted in conjecture and too speculative." Not surprisingly, Aguilar and Walter, both likely reading from the party lines said that this would "help bolster market confidence."

The almighty dollar just reminded everyone that it is in the hands of the Geithner/Bernanke puppetmasters. Overtures to reform GSEs announced earlier helped everyone forget that Greek rioting does not fill a budget deficit and instead that we have a hole worth several trillion in the mortgage sector, courtesy of 25-50% artificially higher home prices, that is currently unaccounted for. So as the dollar plunged, the JPYEUR currency pair formerly known as the market, surged. Is regime 2 (weak euro) about to revert to regime 1 (weak dollar) all over again? The race to the bottom is about to enter the second lap.

Juts headlines for now, paraphrasing Geithner's comments in the House Budget Q&A. We are confident the package will be offered only if perpetuation of the Ponzi scheme is safe and sound. Should the incremental 50% in debt hit the books at the current run-rate, America will likely become a B2/B rated junk credit.

Chairman Frank, Ranking Member Bachus, and other members of the Committee, I am pleased to present the Federal Reserve's semiannual Monetary Policy Report to the Congress.

Although the recession officially began more than two years ago, U.S. economic activity contracted particularly sharply following the intensification of the global financial crisis in the fall of 2008. Concerted efforts by the Federal Reserve, the Treasury Department, and other U.S. authorities to stabilize the financial system, together with highly stimulative monetary and fiscal policies, helped arrest the decline and are supporting a nascent economic recovery. Indeed, the U.S. economy expanded at about a 4 percent annual rate during the second half of last year... Etc

Diamond prices have jumped 30% since March, but the business is being turned on its ear. Your local neighborhood jewelry store is about to get wiped out. A 5% annualized return, with benefits. Eating Blue Nile’s lunch. The stock plunges a nausea inducing 20% in one day. What’s up with those toothpaste tubes? A consumer spending play with a turbocharger, and the reverse.

The housing sector just went back from critical to comatose - U.S. new-home sales plunged in January, setting a record low and erasing all gains made in the market during the past year. Well, if new homes can't sell now with all the current bells and whistles, they pretty much never will. One idea - lower prices. Oh wait, that would go against the first directive of the Federal Reserve. Equities still a little shell shocked, and unable to fathom that the double dip is now official.

I think I’d shoot myself. [Laughing] I don’t think I’d go to work in the morning. If I were Chairman of the Federal Reserve I would let free market forces unfold. I would let rates rise to where they should rise. These are not normal rates that we have now. I would have to raise rates. I’d have to do it over time. - Fred Hickey