Archive - Sep 2009 - Story

"So there you have it: slow painful grind before the storm or a quick reversal. Given that I expect a very sizeable move the other way, I think it is much more likely that with the use of propaganda, revised data, and 10th derivative arguments on the business cycle, the eternal utopists or evil carry-traders will try to hold this status quo and push the market a little further into risk appetite territory before all the retail accounts can get properly wiped out." - Nic Lanoir, ICAP

• Dear Chairman Ben: The Chinese send their congratulations (WSJ)
• The Fed monitoring systemic risk is like asking a thief to police himself (WSJ)
• Contrary to all claims by Bloomberg of "recession easing", FDIC will likely add six-month extension for debt-guarantee program (Bloomberg) - can't have the government stop backstopping these healthy banks now can we
• NYSE selling stake in Amex options unit to Citadel and Goldman Sachs among others (AP) - just to make Christine Varney's upcoming case just that little easier
• Lloyd Blankfein between a rock, an SLP gold mine program, record Fixed Income daily profits, and 300 million pitchforks come bonus season (Bloomberg)

• Asian stocks fall on share sales; Alibaba slumps as Chairman pares stake.
• China looking at investing part of its $300B sovereign-wealth fund in US realty.
• China plans first offering of yuan sovereign debt outside mainland China, in Hong Kong.
• China's steel output rises 2% as state spending spurs demand.
• Euro rises toward 9-month high versus Dollar on speculation of recovery.
• Japan to hike fees it pays to aluminum producers by 53% - highest in 14 yrs.
• OPEC Committee to recommend keeping quotas unchanged: Kuwait Minister.

"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism – which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object." - John Maynard Keynes

Someone should send the UMich Confidence rolodex (which seemingly consists exclusively of Goldman executive committee members whose "in the moneyness" on Goldman calls translates into confidence of being able to buy a 14th Aston Martin DB - on a one to one basis with the market) over to the ABC Consumer Comfort people, as the two firms seem to never be able to spin the same "the consumer is violently recovering compliments of the $9 trillion in budget deficits" story. After hitting -45 recently, the index dropped yet again, hitting -48 today, a level the index has flatlined to ever since early June.

Spreads were tighter in the US as all the indices improved (with IG making its best day's performance since 6/2/09 and HY outperforming. HY-IG traded back below 700bps, HY-LCDX under 100bps, XOver-Main under 500bps even as intraday ranges remained narrow but gap tighter in HY and IG). Indices generally outperformed intrinsics driving HY skew back below $2 (an arbitrary inflection point for index arbers) but widening the skew in all other liquid indices.

The fight against HFT, and intraday speculation just got serious. According to the WSJ, Warren Buffett, together with John Bogle and 25 others, have endorsed a petition that focusing on speculative stock gains "hurts the economy and may require regulation."

"We are at this stage in our investigation in which we are making charging decisions with respect to Bank of America and its executives."

How poetic would it be if Madoff and Ken share a jailcell?

To recap our earlier prognostications:

"Another day in which the market was driven by the ongoing dollar cataclysm, the EUR-JPY carry trade, and some speculation on what gold will do. Also, another day in which stock direction was absolutely not based on fundamentals, and momos gunned every move higher on micro volume and every reversal was meet with a huge volume ramp."

Once again, the Perpetual Motion Machine is working to perfection.
Another round of Treasuries sold off at absurd yields as the GS Prop Desk engineered a "Gap and Crap" with the SPY, sending Grandma, Fidelity, and the Bank of Japan fleeing to the safety of T-Bonds.

A record plunge in consumer credit, and the American middle class has just given the new and improved Obama-endorsed "spend spend spend" recovery and confidence plan the middle finger.

As the dollar picks up steam intraday, HFTs take over market action (it is a low volume day after all) after the two trading in lockstep early in the morning. The complete lack of market logic is somehow completely not surprising.

If fear is gone you would expect primary bond dealers to reduce considerably the current holdings of bonds. However that it is not the case and hoarding in treasuries continue. The latest uptick shows a net long position at over $16 billion. A very rare and unusual behavior from bond dealers. We look for long term treasury prices to go unusually higher.

In an odd intraday development, stocks are now largely ignoring any attempts to gun the market higher via the recent mechanism of choice for market push: the EUR-JPY carry trade. With the Yen repeatedly hitting intraday lows, courtesy of its brand new yet old and familiar carry role redux, the stock market seems poised to take out day's lows.

David Bianco, CFA, has solidifed his status as the anti-Rosenberg with yet another pump piece issued by TARP recipient extraordinaire BofA/Merrill Lynch. The Chief US Equity Strategist and Rosie replacement sees an S&P earnings of approximately $70, or roughly a Div/0 compared to the most recent negative trailing EPS for S&P companies. How Bianco sees earnings growth on limited cost extraction and a persistently declining top line is just slightly beyond our meager calculating skills.