Archive - Nov 2009 - Story

According to the latest Big Money poll results, groupthink has taken over with the herd almost completely on the bullish side of things. Currently, only 13% of respondents are bearish in their investment outlook though June 2010. Additionally the divergence on where the bulls and bears see the market in 6 months continues growing larger, with bears expecting the S&P at almost 1,200 while bears retrenching even more from the prior poll, and reducing their S&P expectations from to 1003 to 922.

All you needed to know about the firm's org chart, its background, the reasons for the bankruptcy, and what happens from here. Robert Gerber of ultra-expedient General Motors and Lyondell fame is assigned to CIT.

• Fed Independence: RIP? (Cumberland Advisors)
• Evans-Pritchard: It is Japan we should be worrying about, not America (Telegraph)
• Pandit's "near-death" cash hoard signals lower US bank profits (Bloomberg)
• Goldman looks to buy Fannie tax credits (WSJ)
• BNY Mellon CEO Kelly tells BofA: No, thanks (WSJ)
• Galleon and the trouble with insider trading (WSJ)

• Asian stocks fell, extending MSCI APAC Index’s first monthly decline since Feb'09.
• China manufacturing grows at fastest pace in 18 months on stimulus, loans.
• China's Chen warns of world slump if economic stimulus withdrawn too early.
• Euro rises against Yen as signs of global recovery spur demand for yield.
• AEP sees 2010 ongoing EPS of $2.80-$3.20, forms Transmission company.
• CF Industries adds cash for Terra Industries offer, hikes bid price by $200M to $4.1B.
• Chevron Corp. reported a 51% drop in Q3 profit at $3.83B on lower oil, natural gas prices.

A scheduled rate decision by the RBA tomorrow has the potential to demolish AUD/USD carry.

Nouriel has a great op-ed in the FT, discussing the imminent reversal of the dollar carry trade, a topic Zero Hedge has been harping on for quite some time: not because we believe that in the long run America will stabilize its economy (on the contrary), but because in a globalized economy (yes, a sad side effect of $1.4 quadrillion in derivatives is the fungibility of declining asset leverage) economies are relative, not absolute concepts. While our biggest pet peeve has to do with the lack of contrarian thought in whatever the groupthink trade de jour is (when everyone is on the same side of the boat, it always inevitably capsizes), Nouriel is similarly unimpressed with what he sees is doomed to end badly for so many institutional and retail traders who are part of the herd mentality. Never one to mince words, Roubini's conclusion is scary.

As the Fed is taking proactive measure to address the upcoming CRE cataclysm (as defined by WL Ross and George Soros) via gratuitous policy changes, it is useful to observe the recent market of CMBX 1-5 (2005-2007) AAA-rated trances mid-spreads. As the chart below indicates, the CMBX market may have jumped the shark on risk perceptions. CMBX 1 has dropped to sub 200 bps levels, back to pre-Lehman levels. Yet analysts are finally shifting their attention to both cumulative loss and loss severity estimates in CRE. While one may never be able to recreate the Paulson ABX trade, the current spread on CMBX may provide enough of a buffer to give the most profitable trade of the new millennium a second parallel life, based on the assumption that kicking the can down the road is not a prudent approach by the Fed and the FDIC.

Who wants to bet how many of these are marked to market?

As expected, Bankruptcy Case 09-16565, Southern District of New York, is the latest addition to the Bowling Green testament of the collapsing consumer class. $71 Billion in Total Assets, $64.9 Billion in Total Liabilities listed, as well as a metric ton of various bond issues. Common stock holders getting hosed include recently downgraded FMR (9.9%), Brandes (9.7%) and Franklin Mutual (5.7%). Bank of America listed a primary creditor (as administrative and collateral agent) at $7.5 billion. The Goldman Sachs Swap agreement is listed as having a notional value of $1.934 billion.

A candid look at the burgeoning US T-Bill holdings, the ever-worsening asset-liability duration and funding mismatch, and the implications for "moderating credit conditions", money on the sidelines, and US monetary policy, at a time when 2009 Treasury interest expense is set to surpass half a trillion dollars for the first time in history.

Last week I wrote an “op-ed” on the Chinese, and their increasing involvement in the world automobile business; and as a car guy, I wish them well, much success, I do. Volvo too, after all, I was brought home from the hospital as a newborn in a 1975 China Red 164 E.

While some of the readers here at Zero Hedge may or may not have agreed with some of the things I had to say, I took note of an upright, registered ZH commenter (who shall remain nameless as I’m not calling him or out or anything bad… I’m thanking him actually) who said “Great Britain has some of the best mechanical minds in Auto racing and this technical talent could have help fine tune new engine and chassis designs…”

Last week I wrote an “op-ed” on the Chinese, and their increasing involvement in the world automobile business; and as a car guy, I wish them well, much success, I do. Volvo too, after all, I was brought home from the hospital as a newborn in a 1975 China Red 164 E.

While some of the readers here at Zero Hedge may or may not have agreed with some of the things I had to say, I took note of an upright, registered ZH commenter (who shall remain nameless as I’m not calling him or out or anything bad… I’m thanking him actually) who said “Great Britain has some of the best mechanical minds in Auto racing and this technical talent could have help fine tune new engine and chassis designs…”

For years now, we have been focused on the macro theme of the credit cycle in all its wonderful glory quite intently. For those reading our work over the years, you’d probably characterize it as focused “to a fault”. Again and again during the current decade we asked, is it a business cycle or a credit cycle? Of course after the events of the last few years, it sure seems that question has been answered in spades. At the moment, we believe our little credit cycle obsession is still the key focal point for what may lie ahead in terms of real economy and financial market outcomes. In this discussion we want to have a brief look at components of credit cycle character that as of today simply have no precedent over the last six decades of recorded Fed data. After looking at these data points, we want you to ask yourself, should we really be expecting a “typical” economic recovery? Secondly, we want to briefly have a look at historical patterns of consumption in prior recessionary cycles and what experience of the moment may be telling us relative to behavioral patterns of the past. Let’s get right to it.