Archive - Aug 16, 2010
I’ll Take Two Lumps, Please
Submitted by madhedgefundtrader on 08/16/2010 23:49 -0500It’s just a matter of time before global buying of the grains spills over into the sugar market. Should you be buying the world’s worst performing asset? New shortages are looming on the horizon. The US Department of Agriculture claims our stockpiles are at a 40 year nadir. China is developing a sweet tooth. (SGG), (CZZ).
CBRE August Cap Rate Survey
Submitted by Tyler Durden on 08/16/2010 23:06 -0500The monthly CBRE Cap Rate survey is out, and unlike recent months, the outlook for commercial real estate is turning more dour. CBRE's commentary: "As the US economy slows from its growth over the past six months, activity is expected to be more moderate for the remainder of the year. This is partly due to the fact that a few government stimulus programs are coming to an end, along with the fact that job growth remains slow. According to Economy.com the gross domestic product is expected to grow 2.7%, which is a reduction from the 3.0% that was originally projected for 2010. On the upside, corporate profits are steadily increasing and business capital spending is expected to continue to rise. Commercial investment activity and interest have increased in the first half of 2010, but the prevailing challenge continues to be a shortage of suitable product." None of this takes away from the fact that commercial real estate, which has long been the bubble within a bubble, continues to subsist purely on the premise of the (ever) greater fool theory, in that ML's research and underwriting desk will be able to find those to sell equity to in an attempt to delever almost a trillion in REIT debt maturing by 2012. Failing that, the firm will merely extend maturities and roll the debt when the time comes: as recent weeks have taught us, there is no shortage of lunatics chasing yield, believing that High Yield is fixed income, when it is really just a high beta equity play on distressed names.
Where Are Hedge Funds Placing Their Bets?
Submitted by Leo Kolivakis on 08/16/2010 21:35 -0500What are the top hedge funds buying and selling?
In Advance Of Tomorrow's "Future Of Housing Finance" Kabuki Theater; Or Why The GSE Zombies Will Suck The US Middle Class Dry Forever, Amen
Submitted by Tyler Durden on 08/16/2010 21:16 -0500Tomorrow, a variety of luminaries, such as Bill Gross and Mark Zandi, will be panelists in a worthless and futile spectacle titled "Conference on the Future of Housing Finance" which has the aim of doing something or another to extend and pretend the ticking timebomb that are the bankrupt GSEs. It will most certainly succeed in that regard. What it will definitely fail at, is to provide some resolution to the $7 trillion mortgage "holding" problem, which incidentally was the first domino to fall in 2008, which just so happened nearly took down western-style capitalism with it (and morbidly, it should have: the result would have been a system infinitely better). Yet as we prepare for this hearing (and try to track down Mr. Gross' testimony to validate his previous statement that absent an implicit government guarantee he would buy MBS/Agency securities only with 30% down), here is another view, this one from none other than Edward Pinto, who himself was an executive vice president and chief credit officer at Fannie Mae in the late 1980s. As Pinto says, echoing the previous high dB statements by Rick Santelli, "We'll never get a rational mortgage system until the government's affordable housing mandates are ended." We couldn't agree more.
Dissecting The Flashing Red Warning Light Of Record Stock Correlations
Submitted by Tyler Durden on 08/16/2010 20:56 -0500As we pointed out on Friday, implied correlation closed at an all time high. While this phenomenon is likely the most concerning indicator of a wholesale market meltdown (not to mention that market neutral funds continue on their rapid progression to oblivion: for reference check HFRXEMN and HSKAX), more so than even the Hindenburg Omen (which however does make for a cool soundbite) as there are no endogenous safe-haven sectors within stocks (the safe haven is simply known as bonds, and stunningly high yield also applies even though HY, especially B2/B and lower, and stocks probably differ in some way, but we still haven't quite figured out what), the threat level will only be obvious in retrospect. The very curious topic has incentivized some in the sellside realm to present their own cautionary tales about the trade off and the cost-benefit analysis of a record high cross asset correlation. One among these is BNY's Nicholas Colas, who points out that due to the subliminal perception of record low stock dispersion (or liminal if such people read sites like Zero Hedge), investors have decided to diversify on their own not within stocks, but outside of stocks, the result being record inflows into bond funds (and outflows out of equities). His summary is very concerning: "Investors, even if they have not learned it formally, understand that diversification means lower correlations. As long as stocks, bonds, precious metals, and other assets all move in lock step, retail investors will most likely favor less risky assets." This statement captures the problem better than most: stocks, and their liquid, synthetic, nouveau-CDO cousins, the ETFs, continue to trade higher on ever greater vapors, as the underlying asset base is increasingly devoid of cash. And when the margin call-based liquidations set in, and they will, stocks will collapse more violently, and with far greater amplitude than they did on May 6 (incidentally a date which is an anniversary of the real Hindenburg disaster). Only in retrospect will the current record correlation levels be perceived for the loud alarm bell they truly are. But, courtesy of our idiot regulators, this will certainly not occur sooner, or before it is too late.
Eton Park Joins Soros And Paulson In Making GLD Fund's Top Stock Holding
Submitted by Tyler Durden on 08/16/2010 19:24 -0500Eton Park, the hedge fund founded and ran by Goldman's youngest partner, Eric Mindich, has just joined Paulson and Soros in making GLD his largest common stock position at $800 million (in addition to owning calls and puts on GLD for another $1.1 billion in gross notional). The fund also owns puts for almost $900 million gross in the MSCI Emerging Markets index, but without having any detail on the strike and duration, this position could be equivalent to a net notional of anything (not to mention possible arbs with non-disclosable CDS and other OTC products). Either way, as Eton Park had no GLD common holdings at March 31, it is now clear where a substantial buying interest in the ETF came from in Q2.
Daily Oil Market Summary: 8.16.2010
Submitted by Tyler Durden on 08/16/2010 18:51 -0500The energy complex was slightly lower on Monday, led lower by the “gases” – gasoline and natural gas. Crude oil and heating oil prices were just fractionally lower in a relatively quiet trading day. With August winding down its second half, it seems that all of Europe and large parts of the rest of the northern hemisphere are on vacation or holiday. And, as if to highlight this, equities were barely changed, down just 1.14 on the day to 10,302.01, while the euro was mostly under selling pressure early in the session, only to rally in later in the day. Traders and investors saw a weakening economy and plentiful oil supplies as reasons not to be aggressive buyers when the euro rallied later in the day. - Cameron Hanover
Guest Post: Careful With 30Y Treasuries
Submitted by Tyler Durden on 08/16/2010 18:41 -0500With Fed announcement of the second round of treasury purchase in the 2-10Y segment and corresponding yields at all time lows, it may be tempting to pick the only cheap thing left in this space, the longest-term treasuries. It seems natural to speculate that the 30Y will follow, and the next natural thing for Fed to do should be buying the 30Y. Well, every obvious play in the market comes with some caveat. The more obvious and sure thing it seems, the more worried and paranoid you should be. A few risks I can see about this seemingly obvious play.
BP Vessel of Opportunity Workers Allege that Oil Is Not Being Cleaned Up During the Day ... Instead, Corexit Is Being Sprayed at Night
Submitted by George Washington on 08/16/2010 18:32 -0500Workers allege that - when they spot oil - they are removed from the scene, and then Corexit is dumped on the area at night ...
Founder Of Reaganomics Says That "Without A Revolution, Americans Are History"
Submitted by Tyler Durden on 08/16/2010 17:33 -0500The United States is running out of time to get its budget and trade deficits under control. Despite the urgency of the situation, 2010 has been wasted in hype about a non-existent recovery. As recently as August 2 Treasury Secretary Timothy F. Geithner penned a New York Times column, “Welcome to the Recovery.” As John Williams (shadowstats.com) has made clear on many occasions, an appearance of recovery was created by over-counting employment and undercounting inflation. Warnings by Williams, Gerald Celente, and myself have gone unheeded, but our warnings recently had echoes from Boston University professor Laurence Kotlikoff and from David Stockman, who excoriated the Republican Party for becoming big-spending Democrats. It is encouraging to see some realization that, this time, Washington cannot spend the economy out of recession. The deficits are already too large for the dollar to survive as reserve currency, and deficit spending cannot put Americans back to work in jobs that have been moved offshore. However, the solutions offered by those who are beginning to recognize that there is a problem are discouraging...The United States and the welfare of its 300 million people cannot be restored unless the neocons, Wall Street, the corporations, and their servile slaves in Congress and the White House can be defeated. Without a revolution, Americans are history. - Dr. Paul Craig Roberts
Paulson Goes Hog Wild In Q2, Adds Billions To Existing Positions, Opens New Positions In Goldman, GGP, American Capital And Others
Submitted by Tyler Durden on 08/16/2010 16:50 -0500John Paulson who has recently not had much P&L success in his bullish bet on the economy, released his 13-F for Q2. It appears JP went hog wild adding to existing and new positions in Q2, increasing total positions outstanding from 60 to 78. During the quarter, in addition to adding billions to existing positions (most notably increasing his Hartford position by 31.3 million share to 44 million for a total value of $973 million at June 30, making this a top 5 position, below Anglogold and above Comcast), Paulson added 19 new positions worth $2.4 billion, most notably Exxon, for 9.2 million shares, or over half a billion as of 6/30, 7 million shares of Sybase, 10 million shares of Mariner Energy, 43.7 million shares in American Capital, 66.7 million shares in Popular, and, lo and behold, a 1.1 million share position in former darling, and CDO portfolio creator extraordinaire, Goldman Sachs (as well as a bunch of other positions). In the meantime, Paulson divested of his positions in XTO, 3 Com and First Midwest. Yet of the top positions in Paulson's portfolio, which tonie to be GLD, Bank of America, and Citigroup, the manager has seen a substantial drop in value, with BofA declining by over a dollar per share between June 30 and currently, and Citi dropping by $0.50, resulting in a loss of $400 million in just these two names in the period since the 13F. Add a $3 drop in GLD, and the top three positions alone have caused a half a billion loss in Paulson's portfolio since June 30.
Bill Ackman Adds Citi, ADP, Sells Yum In Q2
Submitted by Tyler Durden on 08/16/2010 15:33 -0500
Pershing Square's Q2 13F is out and it seems that Bill Ackman's fund has had a few notable changes in its holdings, most notable of which is the addition of 146.5 million shares of Citi. Alas, it may be too little to late to jump on the John Paulson Recovery fund (we are waiting for that particular 13F to be released any minute). At least the white haired manager did not get into Bank of America, which has been in gradual freefall mode for the past 2 months. Pershing also added a new position in ADP, which amounts to 8.3 million shares, added a little in Kraft, while selling nearly his entire Yum position, as well as offloading a token amount of Target. GGP was flat at 24 million shares.
Where Was Today's Last-Minute ETF Volume?
Submitted by Tyler Durden on 08/16/2010 15:14 -0500
That volume today was anemic should come as no surprise to anyone: the roughly 0.69 shares (+/-) traded, ended up leaving the market pretty much where it opened. All joking aside, consolidated NYSE volume was the lowest of the year. Yet what was very peculiar on the volume side was that ETF volume (not just rebalancing but also dark pool to open venue dumpage), traditionally a staple of last minute rebalancing, was essentially non-existence, coming in at below half the average last minute cumulative volume. After giving up on mutual funds are investors starting to bail on that most recent CDO reincarnation - ETFs - as well?
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 16/08/10
Submitted by RANSquawk Video on 08/16/2010 15:08 -0500RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 16/08/10
Another Market Dislocation: General Collateral vs Fed Funds, Now At Widest Divergence Of 2010
Submitted by Tyler Durden on 08/16/2010 14:51 -0500
The most recent notable dislocation in a market now replete with broken correlations, comes courtesy of an observation by Barclays' Joseph Abate who notes that the General Collateral Repo, at 0.29%, rate has surged to a 2010 wide compared to the effective Fed Funds rate, an arbitrage that should not exist for structural (secured vs unsecured) and practical (the spread should be immediately "arbed" out by the numerous banks who participate in both markets) reasons. Yet it does. Joe Abate presents a technical explanation on why this may be happening, although a far simpler, and far more elegant reason is that all repo pledgable USTs have now gone "special" as few traders are willing to take the MTM hit on even an overnight holding in USTs (remember repo is broadly an overnight trade), and thus crossing a bid-offer in GC repo is becoming increasingly problematic. In other words, the Fed's actions vis-a-vis the Fed Funds rate and its intervention in the 10-30 Year part of the curve is starting to throw curve balls to the money market. We will be closely following the GC-FF spread: it is at the 2010 wide already. Further widening should set off alarm bells that not all is well in the money market. Alternatively, it could all very well just be noise.






