Archive - Oct 2009 - Story

Ahead of tomorrow's Committee of Oversight and Congressional Reform hearing on the Bank Of America - Merrill Lynch strong-arming by the Fed, entitled "Bank of America and Merrill Lynch: How Did a Private Deal Turn Into a Federal Bailout? Part IV" (which may or may not happen), Dylan Ratigan discusses some salient points with California Republican Darrell Issa. As a reminder, prominent witnesses tomorrow will be BofA GC Tim Mayopolous and Directors Charles Gifford and Thomas May.

Michelle Caruso-Cabrera asks hard hitting questions, and provides even more hard-hitting post mortems. Case in point: today the Power Lunch anchor escalates her argument that the whole lawsuit by California Attorney General Brown against State Street is a cheap "Spitzeresque" ploy to generate brownie points for a meager penalty:

On closer inspection this looks more like a naked attempt at boosting a
Brown run for Governor than it is about protecting fire fighters'
retirement funds.

Flash down, dark pools regulated... and now the last, and logical, focus - HFT.

In the meantime NITE and other dark pool operators not doing too hot.

Neil Barofsky is a "Czar" (well, isn't everyone these days?) who watches over the $700 billion bailout package given to banks and others to avoid utter collapse; and in a report fully disclosed later today, thinks it’s not realistic that we’ll get all the money back.

The VIX gets ready to break through the 20 resistance level, courtesy of the Federal Reserve. And speaking of the Fed, Bernanke seems intent on continuing liquidity transfer in perpetuity, and milking marginal volumes higher, as the S&P is set to hit 1,200 today on oddlots. Today's play: circa billion dollar luvin of long-dated treasuries. Presumably, large enough to goose the market higher, but little enough to leave time for one last ditch attempt to bail out the market the next time futures are negative pre-market.

Steven Rattner's somewhat self-congratulatory mini-memoir on the bailout of GM and Chrysler is a light, charming dalliance about the Car Czar's spring fling with the automotive industry.  "Light," in that Rattner effectively glosses over the difficult issues that permeated the massive government intervention in markets that characterized the bailout.  "Charming," in that sort of quaint way one smiles at the naive misconceptions of self-centered children not one's own.  (Surely it takes no small measure of self-love to put one's name under the subtitle "How the Obama Team Did It" in the face of the newly impending doom that, even now, rushes, nebulous and sandstorm like, to consume GM and Chrysler in the fine red sands of commercial failure).

Down pre-market got you down? Throw a little POMO and sprinkle a dash of mangled dollars, and voila: another 52 week high.

On Monday the Federal Reserve held a major reverse repo test, as was announced by the NY Fed and by Zero Hedge. We have subsequently received several unconfirmed reports that the conducted test has been a disaster (we have calls into the Federal Reserve to confirm or deny this, we are eagerly awaiting their reply). Presumably, after conducting various repos last year, a typical transaction would be in the $1 to $5 billion range. At around the time the financial system was being pulledapart, were two separate $50 billion repo transactions on September 18, 2009, a day when as Paul Kanjorski had highlighted earlier in the year the money market system nearly collapsed as a result of Lehman and AIG's failure, and the Reserve Fund breaking the buck. Notable about Monday's reverse repo "test" was that it was quite sizable: in the $100 billion ballpark, on parallel with the biggest liquidity extraction from 2008. The outcome was the discovery that the dealer community does not have the capacity to do reverse transactions of this magnitude. As a result the Fed was forced to go directly to the money market industry, which has been speculated as a key source of excess liquidity withdrawals, another topic we discussed previously.

Weakness in Fixed Income this morning following hawkish minutes by the Bank of England. Technically we had been calling for a rebound from 117-20/117-28 to about 118-28+/119 for the 10Y future. We almost reached the target for the retracement yesterday. As can be seen on the daily chart there is a key support around 117-26, which if not held would trigger an acceleration straight to 116/116-20. We think medium term this remains the risk ever since we tested 119-23 and failed to break to the upside. Waiting a break below 117-26 or above 119 we would be trade 10Y future in that range.

• Goldman Sachs anti-communist pearls of wisdom: "pay inequality helps everyone" [while directed corporate communist bailouts of Goldman help just Goldman] (Bloomberg)
• Wells Fargo reports better earnings on FDIC/Wachovia generosity (Bloomberg)
• What, no multi-trillion record principal revenue? Morgan Stanley beats estimates on higher investment banking fees (Bloomberg)
• Euro at $1.50 - a disaster or an alibi? (Reuters)
• Boeing reports $1.6 billion loss because of delays (NYT)
• Our subprime federal government (City)

• Asian currencies fell on concern emerging-market central banks will follow Brazil in taxing investment from overseas to temper currency gains.
• Asian stocks fall on commodities, US housing data; Treasuries and Dollar advances.
• Bank of England Governor suggests splitting up largest banks to stem risk.
• China's 'growth on steroids' risks next slowdown as lending binge subsides.
• Hong Kong may end mortgage insurance for investment properties.
• Housing Starts, Wholesale Prices signal low rates to ensure US recovery.

As everyone else has been cheering the revival of the housing bubble, one person has been busy offloading a significant portion of his exposure to housing: Bill Gross. And the direct sponsor of billions of dollars hitting Mr. Gross' Wells Fargo banking account, why, the US taxpayer of course, courtesy of the Fed's printing press which continues keeping prices artificially high. With the Fed en route to purchase nearly one and a half trillion in Agency and MBS paper (for now), it has found eager sellers in the face of PIMCO. MarketWatch reports that PIMCO sold $30 billion in agency paper in September alone, and has sold over $80 billion year to date.

The most recent weekly ABC consumer confidence index number is out, and at -50 it is the lowest reading in exactly 3 months. Surprisingly, consumers are not keeping their confidence in lockstep with the value of their burgeoning E-Trade accounts. What next is up the administration's sleeve is anybody's guess.

Spreads were broadly wider in the US as all the indices deteriorated (with IG just underperforming HY as intraday ranges remained low but sentiment was definitely more skewed to the widening side). The last week or so has seen a shift in the relative-strength between debt, equity, and vol and based on this we would expect HY-IG decompression in the short-term and equities to underperform credit here (for equity guys a sell the rally rather than buy the dips mentality in stocks short-term).

The Federal Reserve Accountability Act would require the GAO to audit all remaining emergency lending programs not already subject to audit. To protect against the risk that disclosure of the participation of particular institutions could disrupt markets, the GAO would be required to redact the names of the specific institutions. Names would, however, be made available one year after each emergency program is no longer used. In addition, to encourage greater accessibility for the average taxpayer, the Fed would be required to place these GAO audits along with additional audit materials on its website under a new “Audit” section.