Archive - Aug 2009 - Story

• 4.54% high yield vs. exp. 4.556%
• 2.54 Bid-to-cover vs. Avg. 2.08 (Prev. 2.14)
• Indirect bids 48.1% vs. Avg. 33.21 % (Prev. 32.85%)
• 1.72 Bid-to-cover on indirects accepted to tendered
• Alloted at high 16.77% (BBG)

All Hail Octavia!
U.S. government stages fake coup to wipe out national debt

The FASB's rule mandating quarterly disclosure of Fair Value of toxic loans indicates that most financial firms are still very deep underwater. Case in point: Regions Financial, whose entire Stockholders' Equity would be in the red (and the firm would be in conservatorship at best) at this moment if the firm were to assign fair value to its loan book.

And the current week isn't shaping up much better. When will the pain for the gullible ones finally end?

Remember when the dollar bounced back after the "phenomenal" GDP numbers? Neither do we. But at least stocks are up. More of a cushion for after the "even more phenomenal" 30 Year auction results come out today.

Read on for some major exciting changes to market structure.

As part of the recent initiatives by Exchanges, ECNs and ATS to provide much needed transparency into daily trading practices, BATS recently started disclosed not only daily volume breakouts of total daily and short volume, but also detail into every single transaction occuring during the trading day. The complete data can be found here: the transaction level detail is staggering.

• Initial jobless claims increased by 4,000 to 558,000 last week, higher than 545,000 estimate (Bloomberg)
• Retail sales also fall more than expected, amazing what a major recession will do to rosy expectations (Bloomberg)
• Yet more people shopping at Wal-Mart (Bloomberg)
• China's growth an accounting miracle (ContrarianEdge)
• No "Mission Accomplised" for the Fed (Barron's)

• Asian Stocks rise as Fed says recession easing; MSCI Asia Pac Index posts its biggest gain this month.
• Chinese stocks rebound after sharp decline, led by banks and metals.
• China wants more say over iron prices, plans moratorium on new steel projects.
• Euro rises against dollar in morning European trade on positive economic news.
• Euro area contracted only 0.1% in Q2 after unexpected growth in Germany, France.
• Euro zone industrial production fell in euro zone in June, reversing May's gain.

Everybody loves to hate the bonds. “Confetti”, “certificates of confiscation”, “wall paper” are some recent terms used to describe them. I agree, it sounds like a loser's bet to give your money away to that “malfunctioning corporation called America” (Gordon Gekko, correct me if I am misquoting) for a measly 3.75% a year for 10 years. So why not short them?

Must read

Bankruptcy advisors are increasingly having to defend the exorbitant fees (expenses, not so much - see below) that they are charging from their zombied clients, which in the absence of traditional banker products has become one of the primary sources of revenue for whatever is left of the financial advisory industry. A wonderful case in point is today's defense by Evercore of the ridiculous fees they collected for quote-unquote advising on the most predetermined and advice-remote transaction in the history of bankruptcy, i.e. the nationalization of General Motors via the stalking horse legitimization mechanism.

The head of the Congressional Oversight Panel provides a solid dose of reality, and some scary words for the bulls.

Spreads were mostly wider in the US today as ExHVOL is the only index tighter thanks to HVOL's underperformance (with HY underperforming IG as the former broke above 800bps intraday). Indices generally outperformed intrinsics (as it appears single-name protection buyers were hedging with index protection) 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 outperformed but narrowed the skew. IG opened gap at its wides and did leak tighter most of the day but intrinsics did not follow and the weakness in HY suggests that investors were looking at HY-IG decompression.