Archive - May 21, 2010

One week after the flash crash which caused the biggest redemptions from domestic equity funds in years, equity mutual funds continue to see accelerating redemptions, with Lipper/AMG reporting that equity flows in the week ended May 19 came at -$4.3 billion. We are confident that next week's data will show an exponential spike in redemptions after fears of global contagion and rampant liquidations finally shift across the Atlantic. High beta credit in the form of HY also saw a material outflow of $378 million, however less than last week's near record $1.7 billion figure which ground the primary HY market to a stop. Other capital flows were mostly noise with the exception of money markets, which once again saw a staggering outflow to the tune of $27 billion, or 1% of assets, bringing total YTD money market redemptions now to $410 billion! Somehow, we have the feeling that with stocks now negative for the year, all those lemmings who got on the momo train and shifted their money market holdings into stocks, both domestic and foreign, are now regretting it.

The European TARP has formally passed. Yet liquidations still persist, as no short covering spree materializes on this much anticipated news, contrary to the strawman that CNBC tried to create.

Even as the German Bundesrat passed the euro bailout law, things in
Europe are taking a material turn for the worse, with the Bund at new
record highs, and Libor-OID creeping ever higher.

06:48 05/21 STG 3-MO LIBOR/OIS SPREAD WIDENS TO 21.1 VS 20.8BPS THU
06:48 05/21 EURO 3-MO LIBOR/OIS HOLDS STEADY AT 24.2BPS FRIDAY
06:47 05/21 DOLLAR 3M LIBOR/OIS SPREAD WIDENS TO 26.7BP VS 25.4BP THU
 
GERMAN 10-YEAR GOVERNMENT BOND YIELD HITS RECORD LOW AT 2.656 PCT

We will post the Libor dispersion by bank shortly. We have a
feeling the European banks in EUR Libor will be screaming higher as
Lehman II mentality takes hold.

More market rumors of forced liquidations, this this coming from your favorite bailed out bank. If we get more we will post it.

• Asian shares were down Friday, but many markets were off their lows by closing.
• China’s stocks fell to its worst week in 15 months, on the nation’s policy tightening.
• Crude oil is poised for a third weekly decline on European debt crisis
• FDIC said US banking industry continued to face challenges in Q1 2010.
• Germany's gross domestic product rose 0.2% in the first quarter of the year.
• Japan's central bank keeps rates steady and upgrades its economic outlook.
• US Senate approves Wall Street Financial Overhaul Bill after 59-39 vote.

Although early stage delinquencies are improving in the aggregate, the mass of both early and later stage delinquencies are continuing the trend of moving from the usual suspects of the sunshine belt boom states of Florida, California to middle America and states such as VA, NC and RI, who lead the loss pack in several categories - even beating FL and CA for several quarters running. Take note that some of these states never experience a big boom, but are suffering the bust anyway...

RANsquawk 21st May Morning Briefing - Stocks, Bonds, FX etc.