Archive - Aug 2009 - Story

Recent trends indicate that the pick up in corporate finance transactions, especially in the equity capital market may be petering off. After hitting an unprecedented high in June as the market reached the head of what had previously been seen as a fake head and shoulders formation, the July afterburners in the secondary market did not translate into primary market strength. Additionally, the August run rate indicates that the primary market may well have peaked in the May-June timeframe.

An experiment in finance-fiction fusion.

The below chart sorts the over 350 names that make up the DTCC most liquid index, sorted from most risky to least risky.

The week ended August 7 indicated that Goldman's PT on the NYSE is regaining its dominance after in the prior week it came perilously close to being overtaken by Morgan Stanley (not so much in principal as in agency trading). In the last week 800 million prgram traded shares transacted each day, 26.9% of total buy-sell volume. Unfortunately the NYSE has removed how this compares on an average basis to a 52 week trailing average which last we checked was around 25%.

"As the US market is now back at fair value, I’ve been pondering what could drive the market higher. Jeremy Grantham provides some answers in his latest missive to clients. He argues that “the greatest monetary and fiscal stimulus by far in US history” coupled with a “super colossal dose of moral hazard” could generate a stock market rally “far in excess of anything justified by…economic fundamentals”. This viewpoint receives support from the latest finding from experimental economics. The evidence from this field shows that even amongst the normally well behaved ‘experienced’ subjects, a very large liquidity shock can reignite a bubble!" - Soc Gen

• Insider trading fears beset buying of toxic assets (TribLIVE)
• Retailers see back-to-school sales slowing (NYT, h/t Paul)
• The five core problems with the U.S. (Grandfather economic report, h/t Credit Trader)
• As of August 14, 2009, FDIC is bankrupt (Mish, also here)
• The treacherous path for housing - 42 percent of Cali mortgages with negative equity (Dr. Housing Bubble)

When analyzing the recovery prospects before the U.S. economy, no analysis is complete without a detailed look at the capacity of the U.S. consumer, that dynamo that has always managed to pull the economy out of whatever hole it managed to find itself over the past 80 years.

Risk off trade comes back as USD and JPY close out the week on an upswing

The perfect segue to the weekend.

Scientific observations on dark pools and associated algorithmic approaches

Credit significantly underperformed stocks this week as last week's capitulation in CDS markets did seem to be the turning point for this swing. HY underperformed IG considerably as single-names led the weakness but with spreads so much wider close-to-close, the S&P is almost unch, VIX is down, and Oil and Gold both fell with the dollar (unexpectedly) and we sense some weakness (following today's flatline in stocks midday) to come in equity markets.

First casualty: Dwelling House Savings and Loan Association, Pittsburgh, Pennsylvania, to be acquired by PNC. $13.4 million in assets and $13.8 million in deposits (did they have $0.4 million in contra assets somewhere?). FDIC PR here.

Second casualty (pro forma): Dwelling House Savings and Loan Association of Pittsburg, does not pass go: FDIC appointed receiver. "Dwelling House, which had total assets of $12.9 million, was in an
unsafe and unsound condition, was critically undercapitalized and had
no reasonable prospect of recovery." Oddly the "same" entity can have two different total assets at the same time OTS PR here.

Third casualty:  Colonial Bank, Montgomery, Alabama, with BB&T being the lucky winner. $25 billion in total assets, and $20 billion in total deposits. FDIC retains $3 billion of the total assets not purchased by BB&T ($23 Billion). The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $2.8 billion. The FDIC and BB&T entered into a loss-share transaction on approximately $15 billion of Colonial Bank's assets. FDIC PR here.

Fourth casualty: [leave space blank]

Richard LeFrak on the long, hard path before commercial real estate (and he should know). Also, in a stunning development Ivanka explains CMBS (which she undoubtedly learned from fiance Jared Kushner who knows all about CMBS and 666 Fifth Avenue)

"The OTS has decided to suspend consideration of the application while we examine certain issues." - William Ruberry, OTS Spokesman

The Treasury has provided a substantial FOIA disclosure packet to the good folks over at Judicial Watch. At this point we are awaiting a similar FOIA response from the Fed, which was requested by Zero Hedge previously and we expect to have it within 1 month.