Archive - Nov 2009 - Story

Standards have slipped....

From Business Wire

DB Commodity Services LLC today announced it has filed a registration
statement with the US Securities and Exchange Commission (SEC) to register
100,000,000 additional shares of PowerShares DB US Dollar Index Bullish Fund
(NYSE Arca: UUP) in order to meet investor demand. Creations of new shares in
the fund are temporarily suspended pending clearance of the registration
statement by the SEC, the Financial Industry Regulatory Authority and the
National Futures Association and declaration of the effectiveness of the
registration statement.

Someone please explain how Larry Kudlow looks at October same-store sales numbers and concludes that this batch of data is a tremendous improvement. Out of the core 9 companies, only three (Costco, Gap and Nordstrom's) met or beat analyst estimates, while 6 missed consensus: JCPenney, Kohl's, Limited, Macy's, Target and TJ Maxx. And this is on the foreground of October of 2008, when people were afraid to leave their homes, let along shop for alligator skin purses (or murses).

The situation in housing is taking a turn for the surreal. As of tomorrow, bankrupt Fannie Mae will offer deadbeat housing speculators, aka homeowners who bought at the market peak and now can't pay their mortgage, the option to live in their foreclosed upon home while renting it out on a month-to-month basis from the government. As the WSJ reports, "borrowers-turned-tenants will be able to sign leases of up to 12 months and will pay market rents, which in most cases are lower than the cost of mortgage payments." The catch: Fannie will be able to hold the home as not listed for sale. In essence the shadow inventory of millions of zombie houses will skyrocket overnight, further complicating any objective analyses of how many houses are available on the market (the answer: many, many more than you think, but the exact number escapes us). And with housing still collapsing, and jobs still non-existent, more and more people are likely to take advantage of this latest taxpayer subsidized boondoggle. It is clear now that the Fed will do everything in its power to attempt a reflation of the previous housing bubble, instead of wiping the slate clean. Taxpayer losses be damned: there are investment banks with horrendous balance sheets that need bailing out.

"I think we will look back in 10 years' time and say we should not have [passed the Gramm Leach Bliley Bill] but we did because we forgot the lessons of the past, and that which is true in the 1930's is true in 2010" - Byron Dorgan, 1999

"One can almost see the stirrings of cyclical discontent within the market. Risk trades are
looking increasingly vulnerable and correlations are beginning to break down. Investors
should focus on the nominal quantities, which continue to wither on the vine." - Albert Edwards, SocGen

Among the names listed are Zvi Goffer, Arthur Cutillo, Jason Goldfarb, Craig Drimal, Emanuel Goffer, Michael Kimelman and David Plate. Full complaint enclosed. Some of the illegal actions highlighted include the purchase of 710,000 shares of 3-Com by the seven. Also, the Hilton LBO once again is prominently featured as one of the misdeeds. In other news, Moody's just can't catch a break: although if they are set on sucking as a rating agency, at least they can be terrific as an information leak.

One of the key departures by the FOMC yesterday in comparison to prior rate statements, was providing a glimpse into what the specific economic conditions are that warrant continued "exceptionally" low rates. Among these the Fed outlined "low rates of resource utilization, subdued inflation trends, and stable inflation expectations"- so long as there is no perceived change to any of these, expect rates to persist in the 0-25 bps zone. Goldman provides some valuable insight on how to interpret these three key considerations by the Fed.

New stocks implicated in insider trading scheme include 3-Com and Avaya. More to come. Attached is an overview of Rick Schottenfeld's hedge fund.

• This is just the beginning: Bank of England extends Quantitative Easing by 25 billion pounds to 200 billion, holds rates steady, wishes it could push rates to -50% (Reuters)
• ECB holds rates, clues on withdrawal sought (Reuters)
• No Solitaire was played in Q3 - worker productivity jumps 9.5% in Q3, while unit labor costs fall 5.2%, in other news, this year your bonus is your job, like last year (Bloomberg, AP)
• From the wrist slap department: UBS fined 8 million pounds by UK regulator for unauthorized trades (Bloomberg)
• Professor Colander tells Congress economic models are flawed (Wall St. Cheat Sheet)
• John Crudele: Obama's gibberish on jobs makes my job easy (NY Post)

We would like to highlight in US treasuries the 10Y future support at 117. This is the neckline of a H&S pattern within the right should of a bigger picture H&S pattern with neckline and crucial long term support at 113-15. We very much expect to test 117 over the next few sessions, and the daily chart shows how the 200-dma has been resistance and envelop on the upside recently and is guiding us lower after the recent retest. It is worth noting that the relatively dovish statement by the Fed yesterday in light of some expectations by a few market participants of a more hawkish stance led to some steepening and selling in the long end. Overall ever since the Fed has announced the quantitative easing measures we have seen on many occasions the market eact negatively to it in the long end. Part of it used to be dealers and fast money accounts buying ahead of the Fed and selling back on the follow only to buy back lower later. But some of it stems rom the short-USD carry trade which has also led to some selling in the long end. Today was a perfect example, and we feel more selling is highly possible over the next few sessions especially if risky assets behave positively. A hold of 117 is crucial, as a failure to do so would lead to a 45bps move higher in yields most likely.

CNBC reports. Unclear at this point if the arrests are related to Galleon. Identities so far unknown. Should make the paranoia in the rest of the hedge fund world reach 5mg Geodon prescription levels. Details from the WSJ: "The New York office of the FBI said the individuals were primarily taken into custody in New York. One person was arrested in New Jersey and one person was arrested in Connecticut."

• Asian stocks fall as South Korea fuels growth concern.
• China shares rise for 5th day to 12-week high, extending gains on recovery hopes.
• Congress giving homebuyers a $6,500 tax break.
• Fed signals return to growth alone doesn't warrant interest-rate increase.
• Oil prices slipped below $80 a barrel Thursday in Asia as the U.S. dollar strengthened.
• US, EU ask WTO to probe Chinese export curbs on 'critical' raw materials.

Even as the entire HFT industry is on edge, and fighting against very justifiable allegations that it is setting the market up for another October 1987 type event due to the increasing preponderance of computerized trading, the ever so vocal industry leaders have had no time to do precisely the one thing that they are accused of: understanding their own business. According to a recent survey by Finextra.com, two thirds of quant analysts think their supervisors do not understand the work they do.

Below are the heatmaps for the North American components of IG, as of November 3 intraday and Month to Date. We will provide today's update as soon as we have it. Notable yesterday was that not only 5 Yr AIG widened even as the stock was melting up ever higher, the curve was flattening, with 7 and 10 years of both AIG and ILFC (right AIG column) tightening. The days of flat (or, heaven forbid, inverted) curves, so ubiquitous a year ago, just may make a come back yet. The widening in financials was all of the place, with only Black and Decker, Clorox, MOT, Constellation and CBS moving tighter. It is still too early in the Month to Date category to extract any trends.