Archive - Aug 12, 2009 - Story

The newly hired traders at the Federal Reserve proving their mettle.

Developing story

Someone threw in the towel this morning, and volume exploded. Subsequent to the initial exuberance volume has been retracing to average, and will promptly turn below average in the next few minutes.

In what may just be a valiant effort to raise cash- JP Morgan is looking to unload some 23 office properties... They're selling. Not financing. I'm reading this as- "getting the f-out of Dodge..."

Love him or hate him, he has been right before, and is very likely correct again. Pay particular attention to Nassim's claim on the impact of marginal buyers: exemplified all too well by the 10.8% decline in short interest in the second week of July and the resulting 9% squeeze in the S&P.

Today’s avalanche of China data suggests that the economic recovery is solid, but that the momentum ebbed in July. What was a V-shaped recovery now seems to be experiencing a little gravitational pull. The slightly weaker-than-expected data means an even smaller chance of an imminent change in macro policy and lends weight to those who argue that it is too early to tighten. Having seen the data early, Premier Wen Jiabao restated at the weekend that the goal was to maintain a proactive fiscal policy and a moderately loose monetary policy.

And thus the original question is how quickly can the accumulated corporate cash buffer be converted into revenue growth? It seems companies don't really care to answer that: the growth will come from "elsewhere" they will be happy to announce, and refer you to the GDP - where all "growth" comes from transfer payments, and other fictitious items indicating "growth" yet all those merely do is sucker more and more people into the stock market at bubble valuations (why are not more companies doing follow on offerings, absent REITs of course? Is it because institutional stock managers know that valuations, which this is all really about, are simply insane?). Absent some investment in CapEx you can kiss your V-shaped revenue (and thus earnings) recovery goodbye. But who honestly cares about how a stable economy works any more when you have trillions in excess liquidity provided by Bernanke Capital LLC?

It's official: irrational exuberance in the secondary market is back. Indicative loans are now at just over 400 bps while bonds are less than double that at 761 bps. Of course, everyone at this point has forgotten the expectation of 20% defaults in HY names by the end of 2009. All shall be well in 5x+ leveraged consumer names wich make mattresses. Not sure if the Sealy loans trading 450 bps outside of bonds is real or not, but who really cares: the bond squeeze could easily push it so tight you would have to pay the company to hold their CCC-rated toxic paper.

“When business in the United States underwent a contraction... the Federal Reserve created more paper reserves.

The excess credit spilled over into the market triggering a fantastic speculative boom... “

• June Eurozone industrial output drops, erases May gain (BBC News)
• $23 billion of 10 Years on deck (CNNMoney)
• Momo is now global - most stock optimism in two years (Bloomberg)
• China accuses US of protectionism in tire case (Yahoo, h/t Credittrader)
• Stocks: the latest Fed bubble (Fortune)
• A president as micromanager (WSJ)

• Asian stocks fall as weaker profits fuel valuation concern
• China's money market rates drop on signs Central Bank to delay tightening
• Fed may acknowledge faster growth, pledge to keep rate 'exceptionally' low.
• Europe industrial production unexpectedly drops, suggesting slow recovery
• French inflation rate remains negative for third month on energy and energy retail