Archive - Oct 2009 - Story

Although we remain committed to a higher rate world as the FED’s printing presses will (sooner than you think) create Inflation, we also believe that you can be both bearish on the market and a seller of ultra-high rate Insurance...A 10yr – 10yr payer swaption struck at 6.0% would roll up in mid-market price from 209bps to 265bps over three years, all else equal. Since being short while the curve is steep and being long options are both hugely negative carry positions, this situation was truly extraordinary. Over the next few months, we implored all who would listen to buy these options...This trade is not for the faint of heart. In fact, I can almost certainly assure you that you will not “top tic” this idea so you should expect this structure to mark against you early on. Nevertheless, with RV hedge funds sidelined until their VAR limits increase sometime in Q1 next year, the dealer community has had no choice but to press up the skew until a seller is found. We urge you to be that seller. The massive skews here create the anomaly that you can structure a costless package with almost no delta or gamma exposure for even a +200bps shock. - ML RateLabs

Yet another "Wash, Rinse, Repeat" cycle, as the Treasury Dept. attempts to hock out another $100+ billion, stocks are sold, de-risking returns, and investors lap up U.S. Dollars and Treasuries with a vengeance. It's getting way too easy.

If anyone wants to know why CNBC anchors are so pale and nervous these days, look no further. As Comcast CEO Brian Roberts considers what to keep and what to, well, cut, post his digestion of NBC Universal (assuming deal rumors are true naturally) his eyes likely cast casual nervous glances at Nielsen reports of CNBC viewership. Yet his nervousness is quite minor compared to what actual employees must be feeling after Nielsen reported a 50% plunge in CNBC viewership in October year over year. Specifically, CNBC has experienced a massive 52% decline in overall viewers during business day hours (5 am - 7 pm), and a not much better 49% drop in its demo (25-54) in the month of October as compared to last year. Specific shows that are likely to follow the fate of Dennis Kneale's recently cancelled 8pm gobbledygook are likely the Kudlow Report and Mad Money, which are down 59% and 56%, respectively.

It appears the computers are so used to low volume daily drifts higher that they literally are unable to handle i) spikes in volume and ii) sharp downward moves. Today, NYSE's Euronext subsidiary was so inundated with massive selling volume in ING that it decided to take a cigarette break and shut down trading in the company altogether.

"Rage, rage, against this conclusion if you wish, but the six-month rally in risk assets- while still continuously supported by Fed and Treasury policymakers - is likely at its pinnacle. Out, out, brief candle." - Bill Gross, PIMCO

The latest must read from Eric Sprott: "We believe the US government’s current trajectory presents one of the greatest macro-economic risks at play today. The Federal Reserve and the US government have assumed the toxic financial trash that brought the banking system to its knees a year ago. By monetizing debt to support their budget deficit and ‘save the system’, both entities have chosen to walk a well worn path traveled by so many governments before them. Like dead men walking, the US government is merely biding its time until the moment of truth. Unlike Fannie Mae, General Motors or Citigroup, however, there is no one left to grant a reprieve."

• Yields 1.020% vs. Exp. 1.051%
• Bid-To-Cover 3.63 vs. Avg. 2.96 (Prev. 3.23)
• Indirects 44.5% vs. Avg. 50.2% (Prev. 45.18%)
• Indirect Bid-To-Cover 2.1
• Allotted at high 3.21%

It is not a good day for Steve Liesman. First the market dropped after what everyone at propaganda central thought would make the crew at the soon to be Comcast subsidiary wear their "Dow 10,000 (not adjusted for dollar devaluation)" hat courtesy of yet more massaged Case-Shiller data. But then Tim Geithner's favorite mouthpiece made the horrible mistake of engaging in a factually-backed and reasoned debate with Michael Pento. Alas, unlike the traditional monologues in which Mr. Liesman excels in dogmatic and reasonless argumentation, when facts are needed to justify claims, propaganda houses of cards tend to collapse with a bang, not a whimper. And alas, the same happened earlier today when Liesman proved to his producer what an epic fail it is to engage GE cheerleader #1 in anything more than monologues for the conceivable future.

Developing story per Reuters. Resumes of a slew of analysts/traders who know how to extract info at all costs are hitting the street as I type.

"As many of you know, we are already moving forward on our market structure initiative. In recent weeks, we have proposed rules that would address the inequities of flash orders and dark pools of liquidity. Both of these undermine the integrity of the market by providing valuable pricing information to select market participants — information that is not widely available to the public. This in turn creates a risk of private markets and two-tiered access to information." - Mary Schapiro, SEC

"The investing community (especially retail) has benefitted from the evolving market structure" - Goldman Sachs

"You heard at the beginning of my remarks that we believe one of the biggest challenges we have is to avoid large concentrated exposures; and we took that very much into account in managing our credit exposures to Lehman and to AIG, as well as we do with any other financial institution. Given that, what I would tell you is given the outcome at Lehman and whatever the outcome at AIG, I would expect the direct impact of our credit exposure to both of them to be immaterial to our results." - David Viniar, Goldman Sachs CFO, September 16, 2008

Many readers have expressed their incredulity, frustration and, at times, outright anger, with what can be classified simply as a mutual circle jerk among Wall Street's financial analysts, rushing to upgrade each others' stocks with impunity. These analysts have been operating with an S&P and Moody's like tendency to ignore any and all pitfalls associated with skyrocketing loan losses, coupled with tepid increases by the banks' taking on necessary reserves to account for what will likely be a collapse in the CRE market, which we at Zero Hedge have been documenting for the past nine months. Hereby we demonstrate the circular nature of all these activities: the attached graphic shows just how prevalent the ponzi upgrade game has become - among the top 7 banks which have staggering (and in many cases taxpayer subsidized) balance sheets and hold all the keys for the next major leg down, there is just one sell rating (and even that is simply between a European analyst and a European firm). Which begs a new spin on an old question: if a ponzi scheme develops before our eyes and everyone is blissfully ignoring it, has a ponzi ever occurred (we refer you to the SEC for the answer)?

All those who have had a fishy feeling about this whole volumeless rally may be curious to take a look at the following graphic which indicates that unprecedented divergence between the VWAP on the SPY, which since the beginning of the rally in March has hit just over 91, and the actual SPY which as of last night was at 107. The difference between the two data series is now roughly 15 points, or about 150 on the S&P, or just under 1,500 DJIA points. This differential is entirely due to the low volume aggregation on the way up, in essence the entire run up has been a lite version of a 6 months long gap move up. What the chart also explains is the propensity by the market to see every potential sell off have a dramatically broader volume participation than the computer driven trickle higher, as all market participants realize there is insufficient accumulation interest to justify this 3 Sigma divergence.

The Conference Board's Consumer Confidence number for the month of October hit 47.7, a major decline from the September number of 53.4 and over a 5 point differential from the expected reading of 53.1. The data series has trended flat since hitting a high of 54.80 in May and has recently accelerated its pick up. As a reminder a reading above 90 means the economy is on solid footing. Above 100 signals strong growth. We are nowhere close and in fact getting worse by the month with unemployment, commodity inflation and wage deflation taking their toll on US consumers.