Archive - Oct 2009 - Story

• Greenspan says US should consider breaking up banks that get too large.
• Most Asian stocks rise as Yen weakens, oil gains; Sony climbs on upgrade.
• Euro down to $1.4900 in European morning trade as equity markets trade lower.
• European markets buoyed by Dow's further rise above 10,000 mark; all eyes on US earnings again.
• Oil extends rally, jumps above $78 in Asia, as US gasoline supplies drop.
• US 30-year mortgage rates climb to 4.92% in first increase since August.
• US state tax collections in Q2 falls record 16.6% - the most in almost half a century.
• Yen drops versus Euro, Dollar on prospect Asian stocks will extend rally.

Securities held outright: $1,608 billion
(an increase of $75.3 billion MoM, resulting from $13 billion in new
Treasury purchases, $52 billion increase in MBS and $11 billion in Agency Debt), or $13 billion increase sequentially

Net borrowings: unchanged at $289 billion, as no update in the current week.

Float, liquidity swaps, Maiden Lane and other assets: $231.8 billion, a $4 billion decrease based on a $252 million reduction in CPFF and a $6.2 billion reduction in FX liquidity swaps, bringing these to a fresh 52 week low. At $43 billion in liquidity swaps, there is little room left for the Fed to force foreign CB to keep pressing on the dollar. Keep an eye out on this datapoint as it is probably one of the better leading indicators of when foreign CBs start covering their dollar shorts (and are in need of dollar funding by the Fed).

Joe Saluzzi of Themis Trading shares another set of valuable market insights, and suggests what everyone knows but is unwilling to act on, for fear of taking the US Central Bank head on: that the entire market is now just another bubble. In brief - "markets are not efficient" and investor psychology, sentiment and technicals are the only thing that matters. Saluzzi explains why he is most worried about unemployment, housing and the rising debt. He is not the only one. Joe concludes with a jab at all overoptimistic hollow teleprompter repeaters, better known as CNBC anchors: "You can't tell me everything is getting better when I point to all these negatives and all these problems that still exist and they haven't been addressed yet."

Spreads were broadly wider in the US as all the indices deteriorated (once again underperforming a relentless equity market). For the first day this year, IG4-13 all had upward sloping curves in 3s5s7s10s (notably IG8-11) as HY underperformed IG and rolls decompressed modestly. IG trades 4.3bps tight (rich) to its 50d moving average, which is a Z-Score of -0.7s.d.. At 97.5bps, IG (adjusted) has closed tighter on only 13 days so far this year (206 trading days). The last five days have seen IG diverging from its 50d moving average.

Insult was just added to Ken Lewis' terminal injury (and it might get much worse).

Hot on the heels of realizing that the money you have now is getting close to worthless in order to bail out the Wall Street oligarchy, courtesy of the Chairman, Alan Grayson is taking his initiative to delay Bernanke's nomination direct to the people, and here is your chance to be heard. A new website Unmask the Fed is soliciting Americans' endorsement in getting to the bottom of the following question:

Chairman of the Federal Reserve, Ben Bernanke, is up for confirmation
to his second term, but he has still refused to disclose where he sent
$2 trillion in taxpayers' money. Send a message to your Senators and ask them to make Bernanke come clean before his confirmation moves forward!

In August, the U.S. dollar celebrated its 38th anniversary as a fiat currency.
When Roosevelt issued his infamous 1933 presidential diktat, forcing delivery (confiscation) of gold owned by private citizens to the government in exchange for compensation, gold was $20.67/oz. In January 1934, the price was raised to $35/oz and the U.S. government pocketed the difference – and essentially devalued the dollar by 69%. Yet the dollar remained convertible, and foreign central banks could redeem their dollar reserves for gold. This presented no problem when the U.S. was running trade surpluses and foreigners didn't have many dollars to exchange for gold. But in 1965, France’s President Charles de Gaulle started aggressively exchanging his country’s dollars for gold and loudly encouraged other countries to do likewise. That year U.S. gold holdings fell to a 26-year low.

The simply idiotic lawsuit recently commenced by Hertz against Audit Integrity for daring to put the company which was on the verge of bankruptcy numerous times over the past year on its list of top bankruptcy candidates, has been the butt of all jokes within the analyst community. The kind of unwarranted retaliation by a firm against someone who dares to point out its flaws is not only comic, but a practical infringement of the First Amendment, especially if substantiated qualitatively. And for substantiation, maybe Hertz' legal counsel can also go after all those sell side and 3rd party analysts who over the past year have claimed the firm will likely not survive more than 12 months (hint: there are many of those around). Today, James Kaplan, Chairman and CEO of Audit Integrity has provided his must read response, which one hopes should put to rest Hertz' simply sad and silly attempt to prove its "viability" by going after its critics.

Dylan Ratigan sums it better than any financial analyst has been able to do so far: "giving people $23 trillion in taxpayer money, especially the banks, it makes their stock price go up."

And some observations on the Chairman's Moral Hazard Doctrine: "Ben Bernanke said he would print an unlimited amount of money, against the future of our taxpayer, that's why our dollar continues to collapse, to support the banks which is working pretty well."

Out here in Los Angeles, the current fad amongst the Hollywood wannabes is to find the biggest truck possible to cruise down Ventura Blvd. Its not enough anymore to own a European luxury car, something bigger is necessary to "make a statement". However, the "Infinite Fiat: Wash, Rinse, Repeat" policies of the Fed may bring this trend to an end.

With everyone's eyes glued to Google earnings after the close, below is a representation of the most active options classes today: the top 3 contracts traded were all near-term (Friday expiration) calls with 550, 540 and 560 strikes. It is not immediately known if investors are setting themselves up bullishly (buying calls) or bearishly (selling calls), although with the price of the entire top 10 complex down, except for the Oct 530 puts, it does appear that bearishness may be dominant. Whether or not the option action is a material factor for Google's underperformance is also not clear.

Bloomberg highlights an interesting development out of CDO land, where TPG Credit is in the process of attempting to raid quality assets in a TRuPs CDO at the rip off price of 5 cents on the dollar, while bribing the first loss tranche: the CDO equity holders, with a moderate take out fee. If this is a broad loophole in which the equity tranche, which in most cases is out of the money since even the highest-rated slices are trading at 40-50 cents on the dollar in most CDOs, can determine the fate of CDO dispositions, expect many other funds to join TPG in raiding any and all good assets making up comparable CDOs. As there is roughly $650 billion in CDOs outstanding, they have quite an extensive selection to pick and choose from.

An anemic day in the markets is punctuated by a large spike in crude prices, which despite near record low refinery utilizations, a draw down in reserves has caused the NYMEX speculators to believe that Goldman will finally be proven right with their "oil at $200 v2.0" call. Another highlight is that even as the DXY approaches the highs for the day (and pushing gold lower), stocks have dislocated from chasing the dollar and instead follow bonds (inversely) intraday. Watch for Google earnings after the close.

Regular Zero Hedge guest Warren Pollock has taken UBS to court. An issue of contention is Pollock's question of just who it is that UBS has responsibility to: the market, its clients, or themselves. While the natural progression would be in the order presented, Pollock's claim is that it has become inverted, not only at UBS, with all banks caring exclusively about their own wealth and success first, above any secondary concerns they may have regarding proper treatment of markets or clients. This will be an interesting case to follow.

"The middle class became a resource to be pulled from - "the turkey at the thanksgiving dinner" - the middle class has gotten shakier and shakier, it has become hollowed out. The middle class makes us who we are. The middle class gives us political stability. It is safe to walk our streets because we have a middle class. And every time we hollow [the middle class] out we take the risk that something of what we know as America begins to die. That's what scares me." - Elizabeth Warren