Archive - Nov 2009 - Story

With October car sales forthcoming from the Big 2 (and Fiat), the Street is being explicably cautious, with October SAAR estimates slightly higher than 10 million. As a reminder prior year's October SAAR came in at 10.8 million, and that was in a month following the standstill of the entire economy. What was that about increased lending going to consumers courtesy of the Fed's monetary largesse? Or does that only account for "big ticket" purchases like iPhones? Yet where the street may be in for a surprise is its optimism that the Cash For Clunker overhang has subsidized: a rather bold assumption for an economy running entirely on government stimuli.

Very jumpy equities today. SPY trading like a penny stock all morning, and now gold rushing to an all time high: was India's IMF purchase just the starter gun for all CBs to "get involved." Also, anyone hearing any fun rumors regarding UBS?

Yesterday's "blowout" ISM reading of 55.7 (on 53 in consensus) was enough to lead to a big market rally, at least temporarily. Yet, just like CfC and the overall Q3 GDP took early credit for massive stimulus payments (whose cost will be felt more gradually over the next decade), it appears the same principle of "borrowing from the future" is applicable to the ISM reading as well. And if David Rosenberg is correct, and the ISM, along with all other stimulus indicators, holds the seeds of its own destruction inside of it, look for this to be an ISM top, potentially until such time as the next stimulus is invoked.

Zero Hedge's resident ink-master, John Redmann, again.

After hitting stupid tights of 236 bps in the prior week, the secured-unsecured spread started widening marginally again, going back to above 250 bps. And while the bulk of moves by the index constituents were noise based, except for TRW's presumably erroneous reading of a 450 bps tightening in loans to 157 bps, the question remains of whether there is any principal upside left or whether new investors will be stuck collecting meager spreads over a virtually non-existent LIBOR in the loan universe, while bonds are dependant on the vagaries of the stock market, and thus the Fed.

• Wall Street cries "Feed Me" or the world will end (Bloomberg)
• RBS, Lloyds get $51 billion in second bailout (Bloomberg)
• Even as Europe raises 2010 growth forecast (AP)
• Mort Zuckerman: Forget inflation, deflation is a bigger danger (USNews)
• States are pondering fraud suits against banks (NYT)
• Retailers "dodge bullet" with CIT November bankruptcy filing (Bloomberg)

• China said to plan review of developer loans on concern at surging prices.
• EU raises 2010 GDP forecast as deficits, jobless soar.
• Euro higher to $1.4800 in European morning trade as ECB expected to hold rate.
• IMF sold 200 metric tons of gold to India's central bank for about $6.7B.
• Korean Won leads Asia currency gains as US data spurs demand for higher yields.
• Most Asian stocks fell as concern over the withdrawal of stimulus measures.

Coming soon...

The US Treasury today announced a preliminary estimate of borrowing needs in the Q4 2009 and Q1 2010 quarters. The October-December borrowing need has been revised lower to $276 billion from the $485 billion announced in July 2009. The primary reason for the decline, aside from the need to stay below the $12.1 trillion debt ceiling which would have already been breached had this number been in line with prior expectations, is due to the $185 billion refunded from the Supplementary Financing Program announced earlier, which as of October 28 has been completed. Yet, like everything else with the current administration, current peace of mind comes at a magnified future cost: the US Treasury now expected to issue $478 billion in Treasurys in Q1, and coupled with a net cash decline of $40 billion from Q4, implies that in Q1 2010 over half a trillion in debt will be issued net, if not more.

"It is important to recognize that the current financial crisis is rooted in the economic and political difficulties of monitoring and controlling the production and distribution of safety-net subsidies. Regulation-induced innovation by financial firms seeks relentlessly to outstrip the monitoring technology and the administrative focus that supervisory personnel use in controlling institutional risk-taking. Exclusionary laws and rigid capital regulation encourage rather than control regulatory arbitrage over time." - Professor Ed Kane, Boston College

In this Bloomberg clip, commerce secretary Gary Locke says that "if there is to be another stimulus -- and that’s being hotly discussed and very seriously considered within the administration as well as members of Congress -- it needs to be very targeted, very specific and we need to be very mindful of the deficit as well.In other words, with unemployment not improving after the first $787 billion was spent, and since at this point nothing matters since America will never be able to realistically service its debt, with mid-term elections coming up, and Obama's rating plummeting even despite an orchestrated 50% rally, it is a matter of months, if not days, before the President unveils another multi-trillion UST sinkhole. One that is likely to be promptly followed by the Chairman announcing the next iteration of Quantitative Easing.

Volatility is spiking back up to 30 after a slow but steady descent since March from 50 to 20. Does this forecast a correction is about to happen?

Price momentum is relevant again, as long as you ignore prices before March
2009

S&P 500 is up approximately 14.7% YTD, but 53% since March 9, 2009.

If you calculate the correlation between the S&P 500 sector return before and after that date, you find a correlation of nearly -.9!!!

Plotting sector return for 2009 on the same scale as the before/after March 9th chart shows the year-to-date returns have much less disparity than either time period.

Value, Improving Financials and Balance Sheet added to performance. Momentum and Sentiment both underperformed.

The former Fed Chairman continues to be a lone voice of sanity in an administration gripped by propaganda on preferred TV networks (denial), fingerpointing at the old administration (anger), flag@whitehouse.gov (fear), just no acceptance yet. Funny, but the lie detector test went off the charts when Paul said that there's "no problem between" him and the Obama-ites.

Today's top CDS movers wider were almost all health insurers, likely still reeling from the potential adverse fallout of any new health bill. Additionally, Sempra Energy was the day's biggest mover at +16 bps. In the tightening camp, VNO and CEG lead the pack, with old Zero Hedge favorite NRUC making the top five list as well.