Archive - Aug 31, 2009 - Story

In a surprising turn of credit "looseness", total seasonally adjusted depository reserves increased by $84 billion compared to two weeks ago, and are now at $856 billion, the highest level since the end of May. It appears that contrary to all rhetoric to the contrary, banks are still unable and/or unwilling to lend or otherwise dispose of the ever increasing duffel bags full of cash in the basement.

Credit markets were notably weak in August with HY underperforming IG, low beta deterioration, more curve inversion, and financials weaker, and all in the face of the continued rally in stocks. In the past we have seen credit anticipate and equity confirm - certainly credit markets are off their Utopian levels while stocks maintain them.

"Insider selling is 30x insider buying, while corporate stock buybacks are non-existent. Companies are saying they don't want to touch their own stocks."

"I don't know where the money is coming from to keep the markets from not plunging."

One can offer some suggestions.

In a May interview with Jane Hamsher and Marcy Wheeler of Firedoglake, The Chairman of the Senate Committee on Banking, Housing and Urban Affairs, Chris Dodd notes that information about who the bank recipients of Fed loans is "concerning", and that he would make such a request of the Federal Reserve. "I'll ask" is his summation of the questioning about why nobody besides the Fed is allowed to know where taxpayer capital goes to.

After an ~20 million cumulative volume shortfall from average until 4:00pm, volume went green for the day in the first two minutes of After Hours traing. In the meantime the SEC continues to do absolutely nothing.

Someone just puked up a boatload of Yen to buy pretty much every other F/X pair. And in the process the DXY getting weaker, as the EUR is 57.6% of the DXY while the Yen is just 13.6%. Nothing like buying Euros against Yen, weaken the Dollar and make stocks shoot up.

It would appear an attempt at some upside breakout was promptly stifled, after 2 million SPY shares were eagerly absorbed, although not without 5 cent bid-ask spreads on a few occasions. Still, there are 55 minutes until After Hours.

Traders may be back from vacation but all are still drinking Iced Caramel Macchiatos, as everyone knows no real trading is done before After Hours anymore. In the meantime SPY is locked between the VWAP and Thursday's close.

Here comes the populist revolt.

Some observations on daily market dislocations.

You think you're doing Mother Earth a favor by going "green" with a hybrid vehicle? Think again.

"The AFL-CIO, one of the Democratic Party’s most powerful allies, would like to assess a small tax — about a tenth of a percent — on every stock transaction."

Enjoy the ramp ladies. It is about to end

Since Obama started to talk about health care reform his approval has sunk real quickly. It is now up to a point that the consensus prefers no reform at all. I am of the opinion that such a grand task is ill-timed. After the financial fiasco of the credit bubble who’s to say that we are on solid footing. The same talking heads that claimed all was fine are out in force with the same rhetoric. Don’t believe it. A balance sheet recession will take a lot of time to unwind. People on Main Street are perhaps not as gullible the second time around.

The most recent quarterly data confirms the MBS->Treasury flight. In all reality, the Fed will likely have to expand the agency/MBS portion of QE even more than the Treasury monetization portion when it is time for QE 2.0, as foreigners want to have increasingly nothing to do with Fannie and Freddie. Yet their poison, is the eager involuntary meat of US taxpayers, or so Bernanke will like everyone to believe.

The secured-unsecured divergence continues, with leveraged universe loans tighter in the last week by 5 bps, back to unchanged with two weeks ago, while bonds continue drifting gradually wider, 11 bps wider over the last week and over 70 bps over the past two weeks.