Archive - Nov 2009 - Story

The problem with the Greeks was ultimately their love of conflict. If anything could be said of the fall of the city-state generally it would be that more than a hundred years of effectively unending warfare (rainy season, fighting season, rainy season, fighting season, lather, rinse, repeat) finally exhausted the resources of the dominant political unit of the time. Sort of troubling in this vein is the connection (and therefore the related failure) of "direct democracy" to the identity and existence of the city-state. Direct democracy was lovely, after all, and philosophically easy to envisage, that is until, in the wake of a crumbling Alexandrian Empire, it collapsed under its own increasing weight (or the increasing weight of military spending). What was left of the polis, the central, individualistic notion that the Citizen was of great particular import, was rather directly absorbed into cosmopolis, and the importance of managerial infrastructure to keep the aqueducts clean. After all, direct democracy (and the mob rule that accompanies it) had killed Socrates, hadn't it? That Plato dedicates The Republic partly to the import of the Philosopher King years later might have been predictable.

Amusingly, no sooner than a series of commentators rushed to point out how stable and friendly Dubai is (including some local names that might surprise you) Dubai reminded everyone that there is no freedom of the press in the city-state by yanking Western papers critical of the jurisdiction off the stands.

The National Retail Federation has reported that the average Thanksgiving spend has declined from $372 in 2008 to $343 in 2009, as more shoppers sought out rock-bottom 5 am bargains: the estimated number of bargain hunters increased from 172 million to 195 million.

Empirical data suggests that High Frequency Trading, and VWAP algos in particular, introduce numerous adverse selection and increased liquidity shortfalls relative to non-HFT trading strategies. The ultimate cost of currently existing HFT-mediated market tolling may far surpass any proposed transaction tax, implying trading costs may in fact be reduced as a Tobin variant removes the externality features associated with adverse HFT market-dominant algorithms.

Silver has its place. It’s an industrial metal, has a nice correlation to equities, and has been used as money for thousands of years, which gives it a kinky personality. But don’t think that silver currency (or gold standard) is an effective way to handcuff government theft. As long as there have been silver coins circulating, there was a crooked Mint debasing them to its advantage. The “Tungsten Effect” is the rule, not the exception. Historically, the most common metal in coinage was lead. This is simply the nature of things. Cash of any kind exhibits exponential decay, a half-life. Real safety is found in paying your taxes.

The strongest discipline imposed on a state is not connected to its currency. Iron discipline stems from credit. The government bond market is the crown jewel of any state. A state will torch its constitution before it lets its bond market get crushed. It’s like choosing to repair a ruptured jugular instead of getting a facelift. So Treasury paper credit risk shouldn’t be a worry to anyone right now. As long as the United States is around, there will be Treasuries paper earning income, however meager. Let me say this in another way: if the Treasury market goes, so the does the U.S., and pretty much everything else with it. Wait… did I just feed the beast?

Five easy to digest CMBS narratives courtesy of the BarCap CMBS team, which highlight why "extend and pretend" in the commercial real estate arena is doomed to fail, and why the longer the pain is postponed, the greater the ultimate loss to all stakeholders involved. The administration and the Fed are rushing against the value evaporation/debt inflation clock, and losing. The five properties detailed:

Shutters on the Beach & Casa Del Mar

The Belnord

Columbia Center

Schron Industrial

Tustin Legacy

Your weekly recap of European and Chinese action in a few easy charts (and some token conflicts of interest)

This year's Thanksgiving turkey has arrived as a dud. While the U.S. markets were closed over the holiday, Dubai managed to pull the rug from under the global risk trade by announcing a 6 month moratorium on the debt of Dubai World. The state-sponsored Dubai World is an umbrella company that houses a portfolio of businesses, including Nakheel - the famous real estate developer of the Palm Islands.

Interestingly, though implicit and Fanniesque guarantees by Abu Dhabi have always colored the pricing of Dubai's debt (along with the image, apparently exaggerated both in will and ability, of the virtually unlimited backing of Abu Dhabi's "$600 billion" sovereign wealth fund) most stories covering the Reuters disclosure this morning focus on the (so far ethereal) assistance Abu Dhabi will be giving Dubai, and not that which it will not.

Mark Pittman, the Loeb Award-winning Bloomberg journalist, a personal friend, a legendary financial reporter and the first person to sue the Fed (in conjunction with Bloomberg News) and win, passed away on Wednesday. He was 52. Our thoughts are with his family.

The Federal Reserve's balance sheet hit a new all time record of $2.2 Trillion in assets, after an $11 billion spike in MBS and Agency purchases week over week.

A quick look at debts and creditors for today's most popular Bloomberg search term.

Ex-Paulson & Co. subprime trade brain Paolo Pellegrini hits it out of the ballpark with an 80.8% gross return year to date, and 176% from inception. Also, an amusing tidbit from Pellegrini's non-compete: "Please note that PSQR will not be open to investors in funds managed by Paulson & Co. Inc. until January 1, 2010."

Spreads (rather unsurprisingly) ended wider from Wednesday's close as HY broke above 700bps for the first time since Nov 7th and underperformed IG. Volumes were pretty decent for a holiday half-day and while we ended off the wides, having tracked stocks most of the day, the close was generally weak.

Is another Deutsche Bank (ex) prop group about to blow up on Dubai World? First, of course, we had Boaz Weinstein who lost so much money on the basis trade implosion last year, the DB accountants are still unsure how to quantify the P (not so much) & L, and now QVT Financial, originally also a prop trading group at DB until 2003, seems to have lost a boatload on the Dubai fiasco. The WSJ reports that QVT, headed by one Angelo Moskov, is "spearheading efforts to rally holders in bonds in Dubai World subsidiary Nakheel, including hedge funds and other money managers in New York and London... About 15 or 20 investors in bonds of Dubai World's real-estate subsidiary have come together in an effort to explore their options, after suffering huge losses."

As traditionally those most exposed within any given committee are presented the privilege to "head" such ad hoc initiatives, we are fairly certain that the QVT gentlemen have absorbed the lion's share of said "huge losses." And as the bonds have dropped from 110 to 40 in two days, and are trading below such liquidating names as Nortel, with other credits fully on the government's bailout/subsidiary payroll, this could easily be the single worst performing issue of 2009. Thus not one year seem to pass without what seemingly is yet another major Deutsche Bank legacy blow up.