Archive - Dec 1, 2009 - Story

All those charts of one thing in terms of another...all of them so, so stupid...unless of course you happen to live in North Korea today and just found yourself 100x poorer and scrambling to exchange whatever is in your wallet for dollars, ovens, bananas, penguins, horses, toothpicks, hookers, Kindles (never mind if you can't read: that will just make you a targeted Amazon customer), matches, or... gold. And as Bernanke will soon be converting Benjamins into brand spanking new Obama-portraited dollar denominations, the S&P, in "real" terms (represented in ounces of gold) is now back to April levels, and receding fast.

Gold continues to march to its own drummer.  This time clearly supported by massive North Korean retail buying (inflation being under complete control).

Update: No really, totally under control!

Following up on the earlier post in which Robert Litterman basically told his quant colleagues that they either have to stop competing with Goldman or die, we present the following presentation from GSAM titled "Maybe it really is different this time" from the June 2009 Nomura Quantitative Investment Strategies Conference. In essence Goldman finds that when one factors in liquidity and trading costs, the returns by momentum and value (as well as most other strategies) strategies have in fact underperformed miserably over the years. Furthermore, with everyone now enjoying the tools of the trade courtesy of $29.95/month TradeBiot programs, the crowding in the quant arena will generate more volatile returns as well as lower Sharpe ratios, while the stronger results will be available to the smaller managers who focus on less liquid stocks or markets. But we thought liquidity was what all buyers were demanding and benefiting from? It is ironic that the quants most likely to succeed are those who stray from the beaten bath. Of course the only ones who profit are those who provide the liquidity, courtesy of every more generous exchanges which are exponentially losing traffic to non-exchange ATS.

Just in time for the holidays (but carefully timed to avoid contributing to the Black Friday numbers) we've refreshed the offerings at the Zero Hedge Cafepress store! We won't bother describing the outstanding wares we now offer here. Just go take a look.

With everyone expecting the Chairman's reconfirmation process on Thursday to be merely a formality, Senator Bob Corker throws this wrench after he "said he wasn't sure yet whether the chairman had the votes on the Banking committee or in the Senate as a whole." The Hill reports, "I don't know where that sits," Corker told reporters when asked if Bernanke would have the votes to get a second term, adding he wasn't sure whether Bernanke would have the votes in the 23-member Senate Banking Committee, either.

Those of you shocked to see the official Treasury Direct debt ticker break the statutory debt limit number of $12.104 trillion may have overlooked a clever loophole.

Spreads were tighter in the US today with HY outperforming IG as the dollar fell overnight and early macro data appeared less than terrible (though some underlying indices showed weak outlooks). HY skews have narrowed significantly in the last couple of days (with intrinsics underperforming) and as we discuss in detail below, today's moves take indices back to unch from 11/25 but scratching the surface shows some clear signals of change.

Talk about a brief tenure. Guess today's GM numbers were not all that hot after all. Is Steve Rattner the replacement? Or maybe the President himself can put in some private sector time (oh wait GM is publicly owned now too, nevermind).

Presented without comment

Just try to tell us you wouldn't be arming yourself too if you worked at Goldman Sachs.

One wonders what the boys at Goldman are up to these days. Should they upgrade their own stock? Should by buy GS call options with a margin loan from the Fed? If the market is going to break any higher, Goldman's stock better turn around, otherwise, thousands of Prop Desk traders are going to liquidate in order to "lock in the year" and retire until January 3.

Even as momentum buyers keep driving the market to new 2009 highs today on a worse than expected ISM numbers (more Obamoney coming), none other than Goldman Sachs head of quant strategies Robert Litterman says that with everyone on the same side of the trade in momentum and value quant strats, the returns to these strategies are rapidly becoming negligible due to overcrowding. Of course, what happens when the crowds disperse is anyone's guess, although if Obama had anything to say about it, the exit would be cool, calm and collected. Obviously it will be anything but. And very limited upside also means very unlimited downside. Yet let he who wants to fight the Marriner Eccles lunatics cast the first short.

"We are no longer in a golden age. We are in trouble. The correction of economic and social
distortions that have built up over the past twenty years is underway. It is creating serious
ongoing economic and social problems, and despite the reassurances of central bankers and
investment pundits, there is no easy way to deal with it. The Fed’s standard remedy for treating
recessions by lowering interest rates and boosting liquidity has been seriously abused since
1982. The normal clearing function of recessions was aborted by an over-reactive monetary
intervention in every case, while fiscal irresponsibility at all levels of government mounted
unimpeded, and regulators were curtailed, reviled, or fired. These policies are not a template for
remediation. As we wrote in a recent Balestra Bulletin: for policymakers to expect the most
over-borrowed and over-spent consumers in the world to borrow and spend more in order to
carry us out of this recession is foolishness. So we suggest that the experts change their
playbook and look for guidance at the U.S. from the late 1920s through the 1930s, or more
recently, Japan’s ongoing tortuous financial struggle, which has its roots in the excesses of the
1980s." - Balestra Capital

What? Huh? Market Conditions? Have they seen the market today? Credit and equity markets have now completely decoupled.

Trader commentary:

Hearing the [MF Global Ltd "MR"] USD250m SEC registered 10y issue has been pulled due to market conditions. JPM sole books. Co-mgrs: Citi, MF, Wm Blair. Rated Baa2/BBB.

That's not good for the equity bubble chasers. Credit is always right in the end. And if even JPM can't sell an IG bond, the window is now closed, except for the momos chasing every offer higher.

"Markets are tired, but it appears that there is enough liquidity being pumped still to shrug any sort of bad news for now. Dubai, even though not a sizable market, is a very good hint at what is going to happen when CRE deals have to be refinanced, unless they default on interest payments before that... It shows that even though assets have been revalued on balance sheets they still have negative carry, and some of them no one really wants to help refinancing. There is also a massive wave of mortgage resets in 2010. That's why overall we think December, without a negative catalyst, will range and maybe make slightly new highs, but we would brace for a different business environment in 2010. There is a lot of expectation, and we have a market which by many technical measures is overbought, and is priced in for the most optimistic range of economic forecasts. Comes also the question of how long Japan and Europe will accept to be the butt of the FX market. Maybe the first cracks will come from political trouble to extend debt ceilings, pass new budgets, or international quarrels on foreign exchange and interventions. Until then, watch the 50-dma on a close in EURUSD, AUDUSD, DXY, or almost every US cross for that matter, and the 100-dma on the Dax. A break would mean Christmas is early this year." - Nic Lenoir, ICAP