Archive - May 1, 2009 - Story

WSJ out with a stunner, explaining the reasons behind the delay of the stress test releases until May 7th. And if Citi, which already has done some massive creeping equitization of its preferred stock is still in this much pain, one can only imagine what lies in store for Bank of America and even Wells Fargo.

The first bank failure to hit the FDIC website (this is #30 for 2009) : Silverton Bank, National Association of Atlanta, Georgia.

Spreads were broadly wider in the US as all the indices deteriorated. Indices generally outperformed intrinsics (as we see high beta shorts selling index protection as hedges) with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but widened the skew, ExHVOL outperformed pushing the skew wider, XO's skew increased as the index outperformed, and HY's skew widened as it underperformed.

In yet more bad news for the second derivative crowd, today's announcement of a 9.3 million SAAR took the green shoot cheerleaders to the woodshed. Not only has this number firmly planted U.S. auto sales in the robust and $3.5 billion Chrysler DIP-worthy level of the late 1970's, but it has also proven that last month's SAAR of 9.9 million was as legitimate as the 2.2% consumer driven improvement to GDP.

In yet more bad news for the second derivative crowd, today's announcement of a 9.3 million SAAR took the green shoot cheerleaders to the woodshed. Not only has this number firmly planted U.S. auto sales in the robust and $3.5 billion Chrysler DIP-worthy level of the late 1970's, but it has also proven that last month's SAAR of 9.9 million was as legitimate as the 2.2% consumer driven improvement to GDP.

Below we present the summarized term sheet of the most recent reincarnation of the TALF, compliments of the Federal Reserve.

Securitized Bonds: Created on or after 1/1/09

Underlying Loans: Created on or after 7/1/08

Collateral Type: AAA cusiped & cleared through DTC – required investment grade rating from minimum of 2 rating agencies

Update: It is, of course, Goldman's prerogative to provide their view on the matter. Below is a quote from Goldman Sachs spokesman Ed Canaday (hat tip Felix Salmon):

Update: It is, of course, Goldman's prerogative to provide their view on the matter. Below is a quote from Goldman Sachs spokesman Ed Canaday (hat tip Felix Salmon):

The biggest ongoing short squeeze may not be in equity markets, despite all efforts to the contrary, but rather in the risk of Eastern European countries as noted by their respective CDS levels. The chart below demonstrates the massive squeeze experienced by holders of CEE risk, which is quite entertaining considering the biggest risk powder keg by far is contained in this region. Indicatively, spreads have tightened by a massive 46% over the past 2 months which compares with Asia (39.1%), LatAm (21%) and EMEA (25.5%).

The biggest ongoing short squeeze may not be in equity markets, despite all efforts to the contrary, but rather in the risk of Eastern European countries as noted by their respective CDS levels. The chart below demonstrates the massive squeeze experienced by holders of CEE risk, which is quite entertaining considering the biggest risk powder keg by far is contained in this region. Indicatively, spreads have tightened by a massive 46% over the past 2 months which compares with Asia (39.1%), LatAm (21%) and EMEA (25.5%).

Update: Here is the official PR.

Bloomberg reports Attorney General Andrew M. Cuomo said his office has issued subpoenas to more than 100 investment firms and their agents in the investigation into possible corruption and kickback schemes involving the New York state and city pension funds.

Following the March rally, consumer sentiment is up significantly according to the latest Michigan survey. The latest numbers indicate sentiment is at a recession-busting 65.1, up from March's number of 57.3 and significantly ahead of consensus numbers at 61.5. Of course, the cynics among us will attribute it to a lagging indicator that is likely to add further fuel to the fire that is the March bear rally.

Here comes the thumping of the bond market. Barclays report by Joseph Abate out discussing the shortage of short paper, which could wreak havoc on T-Bills. As many readers know today a 300 bps fee is implemented for fails (incomplete delivery) which means many dealers will simply sit on paper, making shorting that much more difficult, and we could see negative T-Bill rates as soon as the next few days. All we need now is illiquidity in the bond market to follow the joke that equity liquidity has become to put a cherry on top of this utterly broken market.

Here comes the thumping of the bond market. Barclays report by Joseph Abate out discussing the shortage of short paper, which could wreak havoc on T-Bills. As many readers know today a 300 bps fee is implemented for fails (incomplete delivery) which means many dealers will simply sit on paper, making shorting that much more difficult, and we could see negative T-Bill rates as soon as the next few days. All we need now is illiquidity in the bond market to follow the joke that equity liquidity has become to put a cherry on top of this utterly broken market.

A very good summary by Douglas Baird, professor at the University of Chicago law school, who analyzes the implications of the 363 sale and the (ab)use of 1129(a)(7) of the bankruptcy code on the Chrysler bankruptcy and why the first 5 days will likely be critical.