Archive - Dec 2009 - Story

Not to be left out of the party, Morgan Stanley yesterday issued "A Closer Look at Dubai's Debt."  True, they figure that GRE's (government-related entities) are saddled with about 116% of Dubai's GDP in debt, true, if the government shifted implicit support to explicit support for these entities interest expense could account for a third of government spending very quickly, granted, total public sector debt looks like 140% of GDP (assuming no major GDP falloff of course) yes a 40-50% haircut would be required to have a meaningfully effectual impact on the debtor's predicament, but you should be selling five year credit default swaps on Dubai debt because Morgan Stanley is buying things really aren't so bad.

RANsquawk 8th December Morning Briefing - Stocks, Bonds, FX etc.

The passage of time, in addition to being subject to dilation through the effects of e.g., relative velocity, also suffers numerous perceptual contortions depending on the observer's particular state of mind. For the purposes of day to day affairs, most humans not at relative velocities to their immediate surroundings that reach a significant fraction of the speed of light, would find these subjective changes normally accounting for the largest perceived deltas in the passage of time ("a watched pot never boils, etc.") Of course, as with most of the laws of nature, the regina scientiarum and, if you believe their analysts, even the laws of thermodynamics, when it comes to the ratings agencies, all bets are off and mere humans unable to shift their perceptions into rates more in line with geologic observations will be doomed to frustration and folly. So it is this morning with Moody's, which has, ever so subtly, maybe warned of what might someday develop into conditions that, in exactly the right environment, could potentially result in a downgrade for the Aaa rated United States and the United Kingdom... maybe sometime around 2013 or so, maybe. (Proving once and for all that Moody's finally fired analysts John Cusack and Amanda Peet).

Zero Hedge has come across what could well be Jeff Gundlach's swan song as TCW. While we are still investigating the curious circumstances surrounding Gundlach's unceremonious firing, and subsequent departure of his closest lieutenants, we leave readers with this last masterpiece from the mortgage bond expert while still a TCW employee.

Goldman's tentacles are smart, and know all about contingency planning. With so much of the firm's future strategy contingent on Cap And Trade derived profits, the firm is hedging for a downside case scenario. The attached presentation by the Environmental Protection Agency is just the fall back plan. UEA debate notwithstanding, the EPA, after "careful consideration of the full weight of scientific evidence and a thorough review of numerous public comments received on the Proposed Findings published April 24, 2009" has found that "six greenhouse gases taken in combination endanger both the public health and the public welfare of current and future generations." Truly an opportune timing for the EPA to come up with this, seeing how suddenly scientific evidence does not really mean as much as it used to...oh, one month ago. And not to mention that whole Goldman/Cap And Trade backlash of course.

In what is the start of the biggest uphill battle in D.C., arguably even bigger than deposing the printing press leprechaun, five democrats are proposing an amendment to reinstate Glass-Steagal, whose repeal, through the Larry Summers orchestrated Gramm-Leach-Bliley Act, in 1999 set the economy on the collision course that culminated with the implosion of every single Goldman Sachs FICC competitor in 2008. The five Democrats who have undertaken thesisyphean task of taking on both Wall Street and their direct boss, are Maurice Hinchey of New York, John Conyers of Michigan, Peter DeFazio of Oregon, Jay Inslee of Washington, and John Tierney of Massachusetts.

Merrill is convinced inflation is a-coming. As such, here are RateLab's proposed top trades, some of which are rather esoteric, others which make intuitive sense (of course, assuming one agrees that inflation trumps deflation: a bold assumption keeping in mind the endless consumer credit collapse). Some of the ideas: i) Sell OTM Payer Skews, ii) GNMA Reverse Mortgage Floaters, iii) Sell MBS/Buy Treasury Strips, iv) Buy CMBX 3 AAA /Sell CMBX 3 A, v) Buy FN 4.5/Sell half of FN 4 and 5 each, vi) Buy August 2025 vs USH0 Basis, and lastly some encouraging words on Agencies. As Zero Hedge is firmly convinced that the entire mortgage market is firmly gamed courtesy of endless Fed intervention which is the defacto buyer of first, middle and last resort, we urge readers to be very careful with any andall MBS/Agency trades.

With the full frontal we have been doing lately of Team Jan and Team Jim, we have ignored some of the other more prominent strategists at Goldman, which is why today we shift our focus on Chief European Strategist Peter Oppeneimer. We present his most recent comprehensive outlook report titled, not surprisingly, "From hope to growth." Don't expect anything tooearth-shattering or against the party line of the government sponsored hedge fund. You will, however at the very least, find out where some of the catchier slogans in the administration come from.

A report by Bloomberg finally recaps the flagrantly obvious insider trading in NYB stocks and options, presented first here on Zero Hedge.

Traders were sitting at their desks watching listless action on the NYSE today. What do you do if you are a restless and bored hedge fund manager with billions under management? You do like Tiger Woods does. Go find some cheap $8/hr. waitresses to chase.

Total borrowings declined by 3.5 billion to a total of $2,482.9 billion, with revolving credit declining by $6.9 billion while non-revolving increased by $3.5 billion. As non-revolving credit is directly linked to auto purchases, the seasonal spike in this segment is not surprising as consumers rushed to get financing for all those CfC subsidized Toyotas (and to a lesser extent, domestic cars). Notable is that the LTV increased to a skyhigh 93%, while the average amount financed has hit a record of $32.3k, a jump of over 6% MoM. The expected total decline was $9.4 billion, with economists likely ignoring the consumer need to finance even much cheaper auto purchases.

A new white paper out of Themis Trading analyses the impact of predatory algos comprising various HFT strategies. In Themis' view: predatory HFT generates $1.5-$3 billion in profit. Themis concludes with the following three market integrity questions:

1. Instead of belittling the impact of latency arbitrage, and representing it as a gloriously naive $0.01-$0.02, does the regulators' thinking change if that impact is as high as $3 billion a year?

2. In a quid-pro-quo worlds, are market centers merely charging HFTs a higher fee in exchange for an advance look at the NBBO? Market centers should be protecting all participants equally.

3. The most critical question: "When a market center provides an HFT the ability to out-maneuver institutional orders, is not the exchange putting institutions and their brokers in breach of their fiduciary responsibilities, especially those institutions managing pension funds governed by ERISA?"

The weakness in leaders is spreading, with the chance of fried calamari by market close creeping higher by the minute. Watch out for those fishing boats.

An overview of where money is moving most recently, from Morgan Stanley. Overall a mixed picture, with anyone who has half a brain dumping as many MBS as the Fed will buy (i.e., all of it), coupled with a mildly declining interest in Treasurys.

The traditional market leaders, financials and tech, are nowhere to be seen, as sector rotation out of high beta names continues. Look for much more weakness ahead of fins, especially with market (and "free" world) proxy Goldman now actively taking on water.