Archive - Apr 2009 - Story

Lately, oil has been closely tracking the equity markets - most recently, it closed down for a second straight session (after a high of 54.66, just short of our band at 55) on the back of a poor day in equities. We believe this makes no sense as we think that oil needs to respond more directly to aggregate demand (as we've discussed before) instead of using the equities market as a proxy for aggregate demand. 

The Congressional Budget Office has released preliminary deficit numbers, which indicate that for the first half of 2009 the deficit has already hit $1 trillion, $640 billion more than the comparable 2008 period, when the deficit was $313 billion.

• Must Read: IMF to warn toxic debts will reach $4 trillion, higher than Roubini's prediction (Times Online)

We had forgotten about these guys, with Moody's taking all the downgrading limelight over the past month. Zero Hedge, along with many, agrees that there is little of practical value to be extracted from rating agency actions or reports, however, notes that many CDOs and mutual funds are still stuck in a world where a company's rating has a binary holding outcome on a given security (i.e. to sell or not to sell). In this case, the S&P commentary is mildly insightful as it discusses the pain to come in the entire advertising space (no shocker there).

An amusing article in the WSJ today discusses the newfound sweeping hope across the REIT space. The hope, by the way, has to do with the recent stock offerings by SPG, AMB and KIM (the last one Zero Hedge had quite a few things to say about). WSJ provides a good assessment of the situation:

Vacancies are still zooming up and property values are still crashing down.

An amusing article in the WSJ today discusses the newfound sweeping hope across the REIT space. The hope, by the way, has to do with the recent stock offerings by SPG, AMB and KIM (the last one Zero Hedge had quite a few things to say about). WSJ provides a good assessment of the situation:

Vacancies are still zooming up and property values are still crashing down.

The BoJ is scheduled to release an interest rate decision tomorrow. With rates at an already low level, even for Japan, we have to wonder what direction the BoJ will take. The BoJ is not known for being the most proactive central bank out there but even they can't ignore the past few months of dismal data across the board - aggregate demand, capital spending, exports, unemployment data, purchasing expectations and even housing are all painting a dismal picture. 

Spreads were mixed in the US today with IG worse, HVOL improving, ExHVOL weaker, XO wider, and HY rallying. Indices typically underperformed single-names with skews widening in general as IG underperformed but narrowed the skew, HVOL outperformed but widened the skew, ExHVOL intrinsics beat and narrowed the skew, XO's skew increased as the index outperformed, and HY's skew widened as it underperformed.

According to a research report by Jim Reid of Deutsche Bank, the 5 year cumulative default rate for US High Yield names will hit 53% assuming 0 recovery rates, and 69% assuming average recoveries. In Europe things are even worse: 65% and 81% respectively.

Vornado Chairman Steven Roth has released a letter to shareholders in which he warns of a very difficult environment going forward. Note the warnings for CMBS and whole loan holders.

Excerpted from letter:

The company has announced that as a result of the unusual market activity in the common stock, the New York Stock Exchange contacted GGP and requested the issuance of a public statement indicating whether there are any corporate developments that might explain the unusual activity. The company announces it is not aware of any corporate developments that might explain the unusual market activity. Maybe Ackman hired one of the laid off Simmons algo guys who is experiementing with the "never sell" program trade.

The company has announced that as a result of the unusual market activity in the common stock, the New York Stock Exchange contacted GGP and requested the issuance of a public statement indicating whether there are any corporate developments that might explain the unusual activity. The company announces it is not aware of any corporate developments that might explain the unusual market activity. Maybe Ackman hired one of the laid off Simmons algo guys who is experiementing with the "never sell" program trade.

...Or the case for Equitable Subordination of the U.S. Treasury's GM Claim

The US Treasury lent $13.4 billion to General Motors on December 31, 2008. The loan documentation (full contract here) is curious in several respects (beyond the obvious dangers to capitalism).

Everyone's favorite Cessna maker which recently was plumbing all time stock price lows after it was made clear that no corporate CEO will ever be allowed to buy a private jet ever again, was up a whopping 10% today on takeover speculation, to $8.00. This is likely not much of a consolation to longs, as TXT was trading north of $60 a year ago. Bloomberg quotes reputable sources such as Michael Nasto, senior trader at U.S.

And two months ago one would have been almost tempted to believe David Paterson that he "will never increase taxes." Too bad that like every other politician, a little time and a ridiculous budget deficit is all it took for the governor to flip on his promise.