Archive - Apr 2010

• An economy of liars (WSJ)
• Goldman Sachs alum receive threatening phone calls from their Alma Mater (Huffington Post)
• Sack Goldmans! UK Ministers urged to bar bank from government contracts (Independent)
• Another case of quant espionage: ex-Soc Gen trader accused of stealing code (Bloomberg)
• Goldman taps ex-White House counsel for help (Reuters)
• Goldman's London unit face formal UK probe (Bloomberg)
• Roger Altman: Obama's disastrous debt is Obama's biggest test (FT)
• Fannie and Freddie amnesia (WSJ)

From the conference call, according to Lloyd Blankfein, Goldman is just a glorified Craig's List. Seeing how there is a slight valuation mismatch between the two, we believe a Long CL Short GS pair trade is in order.

GOLDMAN'S BLANKFEIN: ROLE JUST TO BRING TOGETHER MKT PARTCPNTS
GOLDMAN'S BLANKFEIN: WOULD NEVER CONDONE INAPPROP BEHAVIOR
GOLDMAN'S BLANKFEIN: WOULD NEVER INTENTIONALLY MISLEAD ANYONE

Also, the firm refuses to disclose if there are other Wells Notices outstanding. We are keeping a close eye on Mr. Jonathan Egol's Finra record: we were amused that the U-4 of Jonathan Tourre was finally updated.

Greece today managed to place €1.95 billion in 13 month Bills, slightly more than the €1.5 billion planned. The number is trivial as today Greece sees an outflow of €8.22 billion in bond redemptions to be promptly followed by €1.585 billion in Bill redemptions on the 23rd. What is non-trivial is the interest rate this 3 month Bill came at, which was at 3.65%, more than double the 1.67% yield when the country issued 3 month Bills last on January 19. Compare that with Germany's 3.11% rate on the 10 Year. The bid to cover on the latest auction was 4.61 due to the ridiculously high interest rate. The Greek PDMA debt chief Petros Christodoulou told Market News that he is "very pleased indeed" about the auction. We will see how pleased he is when he has to raise something more than a 6 month tenor.

• Asian stocks rebound on SEC's split vote on Goldman, Economy.
• Saudis tightening Chinese energy ties to move away from dependence on US.
• UK inflation rate rises to 3.4%
• Yen falls versus higher-yielding currencies on recovery signs.
• Amylin reported a narrowed Q1 loss of $38.2M as costs dropped. Revs fell 3.5% to $174.1M.
• Arch Coal sees metallurgical-coal sales tripling on demand from steelmakers.
• BofA-Merrill rank first on Credit Suisse's tally for CDO `Litigation Risk'

RANsquawk 20th April European Morning Briefing - Stocks, Bonds, FX

This is where the mainstream media is failing. When the paradigm shift into distributed computing and the resultant frictionless media model occurred, MSM fought instead of embracing it. A typical old school reaction, it was inevitable and a fight that they were destined to lose. Instead of complaining about free content, produce something worth paying for!

RANsquawk Morning Briefing - Stocks, Bonds, FX etc.: 20/04/10

RANsquawk 20th April Morning Briefing - Stocks, Bonds, FX etc.

It is a curious phenomenon that consumers are increasing spending in light of high unemployment and declining wages. How can that be? Have consumers just decided that the recession is over and life will be just like it was before? Where is the money coming from?

One of the take home lessons from the Lehman Repo 105 scam is that Primary Dealers will do everything in their power to dispose of assets in any way possible at end of quarter time in order to make their leverage ratios palatable to investors and rating agencies. A week ago, taking a hint from the WSJ, we observed how for the week ended March 31, total Primary Dealer assets plunged by $34 billion in just one week: from March 24 to March 31. For this EOQ asset window dressing hypothesis to be confirmed, we needed to see a corresponding spike in asset in the week immediately following March 31. Sure enough, using Treasury data of Primary Dealer holdings, we observe precisely that, and then some. In the week ended April 7, total Primary Dealer assets exploded by $53 billion to the highest level seen in 2010, or $300 billion, a stunning 21% increase in total assets in just one week! This is also the highest total level of PD asset holdings since June 10, 2009. What do primary dealers do with these assets? They either repo them out back to the Fed directly, or via the Tri-Party Repo System, or via some other off balance sheet conduit, using the cash proceeds to go elbow deep in risky assets and purchase every stock imaginable (having given the impression the week before that they are all prudent fiduciaries who don't "gamble" with other people's money). If you were wondering where the surge in buying interest came from in the first few days of April, wonder no more. Furthermore, as PDs would be careful about negative carry on the repo rates, it would be expected that the one security they would buy the most of, would be T-Bills with their next to nothing interest rates... Which is exactly what happened: PD T-Bill holdings surged from a mere $12.6 billion at March 31 to $44.4 billion on April 7. PDs no longer need Repo 105 - they do all their EOQ window dressing directly in the open market.

Stocks are still in a secular bear market. Bernanke is attempting to cure the current economic collapse with new printing press financed bubbles . We could be in for another downdraft as severe as the debacle that ensued in 2008-2009. Every asset class will get hammered, except gold. The barbaric relic is going to the old inflation adjusted high of $2,000. An exclusive Hedge Fund Radio interview with the publisher of the popular blog, The Mess Greenspan Made

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PIMCO has released the March statistics of its massive Total Return Fund, which as od March 31 has grown to a massive $220 billion, an increase of $5 billion from the $214.3 billion in February. The YTD performance on the TRF is now 2.97%, and just like everything else in America has a short effective duration of just 4.81. It is stunning that one fund now has more in AUM than most countries generate as GDP. And this excludes the other $800 billion or so that the Bill Gross firm is managing in other vehicles. In terms of composition, there was little change in actual holdings: Government Relates Securities declined slightly to 33% from 35%, mortgage securities was virtually unchanged at 16%, the same as IG Corporates; High Yield is also a tiny 3% of AUM. The firm's rapid expansion in Non US-denominated developed countries has plateaued and declined by 1% to 18% in March. And cash increased marginally from just 2% in February to 5% in March. What is more interesting is the portfolio composition by maturity: Gross is starting to reach into the longer-dated side of the curve. The firm's holding of debt 3 year and longer are now the biggest since June 2009. The firm was not short any particular tenor: the last time it was short was in 2008 when Gross was shorting the 20+ year bucket.

Now that the attention of the investment community once again turns to regulatory risk, analysts will instead focus on who may be most at risk for comparable CDO-related overtures by the SEC. The table below presents CDO league tables for top CDO underwriters in the 2006 and 2007 period. By and far Merrill Lynch and Citi appear to be most at risk (from Credit Suisse). In a separate report Credit Suisse confirmed that based on deals with "salient" characteristics to Abacus, the firm once again sees Merrill/BofA as the most likely to suffer the wrath of the SEC. The other two firms that fill out the top three list for the 2005-2008 period with "comparable deals" are UBS AG which ranked second with $15.8 billion, and JPMorgan Chase & Co. was third with $9.9 billion, primarily due to its purchase of Bear which despite being one of the biggest underwriters of CDO, passed on the Paulson proposed deal structure citing "ethical concerns", as we reported yesterday.

John Paulson was the big swinging dick who created Abacus. He is Teflon on that one. Consider OneWest.

John Crocker, President & CEO of Healthcare of Ontario Pension Plan (HOOPP) is calling on governments to enable the formation of large, multi-employer defined benefit pension plans to provide pensions for workers in the private sector. I agree and go even further than he does in my recommendations.