Archive - 2009 - Story

"A year ago, we thought that recovery for the financial system and the
economy would be characterized by massive, sustained deleveraging. The
Crash had starkly shown the devastation that runaway deleveraging at a time
of shrinking liquidity could inflict on financial assets and the economy.
The fragility of the financial system in 2007–8 came, in large measure, from
the migration of a model of financing from the so-called shadow banking
system into the daylight version. The new stars of the Street were overlevered
hedge funds and private equity firms. They drove the bull markets in complex
new mortgage products, flawed-model derivatives—and in compensation
for the brashest bettors. So profitable were they, that they were able to hire
elite investment bankers and traders from the Big Banks—and to supply the
justification that the big bonuses paid by the big banks were necessary to
keep their biggest producers.
In retrospect, Wall Street should have tried to follow the advice of the Tenth
Commandment, rather than of Long-Term Capital Management and Enron." - Don Coxe

Sorry, not much happening today other than Hi-Fi Robots sparring with each other and various Teenage Mutant Ninja traders exchanging blows with each other on specific stocks. And, of course, the wild shanks and cranks related to OpEx.

The near term concern for gold is that they may be under pressure until they can get past the Jan 8 US jobs report, because it is that jobs report that sent a signal to market participants that a so-called US jobs market is healthy for the US dollar. The strong US jobs report scattered and plundered gold mkt speculators who were taken to the woodshed that day. That Dec 4 jobs report is why gold bulls may have to exhibit patience until nearly the next jobs report.

For the first time ever, the combined risk of the PIIGS (Portugal, Italy, Ireland, Greece and Spain) is greater than that of the developing BRICs. China is now well on its way to global domination and risk-haven status. Renminbi reserve currency anyone?

Developing.

Update: Back up now

As was pointed out yesterday, Morgan Stanley's massive Real Estate empire is starting to unravel building by building. With a building here, five buildings there, the shareholder pain, and the writedowns start accumulating. But it was not always makeshift tears and walking away from buidings when your equity is underwater. In those long ago days of 2005 it was hope and bubblemania. Which is why we dug up various Morgan Stanley Real Estate Fund documents and materials, exposing the firm's delirium just as the peak in the real estate bubble was about to set in.

Latest data out of the BLS is in tune with the most recent miraculous reading of national unemployment, a number which as highlighted allows more ways to be gamed than not. In any case, for those who believe BLS data, here are the most improved states (those farmers must sure be hiring ahead of the winter season): Louisiana: from 7.4% to 6.7%, Nebraska: from 4.9% to 4.5%, Kansas: from 6.8% to 6.3%, Connecticut: 8.8% to 8.2%, and Kentucky: 11.2% to 10.6%.

Yesterday CCU surprised the bond world by upsizing its $750 million bond offering, which Zero Hedge highlighted previously as an indication of the top-tick exuberance in the bond market, to $2.5 billion. And according to preliminary rumors it may very well have been the top, with Thomson Reuters' IFR service saying that "counsel for certain lenders has delivered a letter asserting that the transaction and the UOP was an event of default under the CCU Credit Agreement." This is not good for CCU, which had hoped it had sufficiently placated dissident bondholders when it dramatically changed the use of proceeds of the upsized transaction.

RANsquawk 18th December US Morning Briefing - Stocks, Bonds, FX

Cramer recommends Citi and in the same paragraph says "Look, I have no idea really how Citigroup is doing." At least he is honest. And just as minor mathematical point: a 100% loss from $3.15 is the same as a 100% loss from 3,150,000.

Was it a mere two weeks ago that the dollar was at the year's lows? This is what a (moderate) squeeze looks like: a 135.8% annualized move. Last time the DXY was here was on September 8. And yet stocks are still confusing a higher dollar with strength. Look for a snapback.

Views on upcoming, yet unannounced testimonies from Blankfein, Dimon et al from Janet Tavakoli, as well as the maddening inefficiency and government when it comes to all things financial. And some stern condemnations: "Credit derivatives have been criticized for information asymmetry, so why not criticize how these committees operate? I am happy to publicly state that they are rigged."

As one so vividly remembers, probably the key catalyst that set off the chain of events last fall following the collapse of Lehman were the closed loop (and much delayed) downgrades of AIG, which in a span of hours went from AAA to much lower, thus springing various collateral requirements which the company could not satisfy, and in turn forcing even more downgrades, until ultimately it became clear that the firm (like most others on Wall Street) is merely a lot of hot air and unjustified valuations. Ironically, the rating agencies, and more specifically Moody's, could once again be the catalyst for the much anticipated collapse of the European house of cards, which as all now know, has Greece as its weakest link. The threat: a Greek downgrade by Moody's from its current rating of A1 to anything with a B handle would make the country's sovereign debt ineligible for ECB collateral in 2011, sparking a sovereign liquidity crisis. Recall that both Fitch and S&P recently downgraded Greece to BBB+, implying that the fate of Greece, and specifically its ability to access cheap and quick capital via the ECB, could be cut off on the whim of the rating agency that Warren Buffett himself can't stop selling enough of.

On September 2 Goldman upgraded Textron to Conviction Buy ($23 PT) and provided the following catalysts as key items to keep an eye on:

A
year ago, each of Textron’s businesses were going the wrong way:
Corporate profits and the Industrial economy were rolling over, which
had negative implications for Cessna and Industrial, Financials were
facing severe challenges which had negative implications for TFC, and a
leadership change was about to take place in Washington with negative
implications for Defense and therefore Bell and Systems. Today,
we see the exact opposite occurring.

Unfortunately for Goldman's pie in the sky/conviction buy thesis what we really are seeing today is the opposite of the opposite, which comes to us via the following press release from Textron:

The company has
been in discussions with a large customer concerning the cancellation of
about $1.1 billion of jets it had on order with Cessna.

• Skies darken for Ben Bernanke nomination (Politico)
• Discord behind TARP payment (WSJ)
• UK public sector net borrowing hits record high in November (BBC)
• The Great stabilization: The recession was less calamitous than many feared. Its aftermath will be more dangerous than many expect (Economist)
• Bank of England official says crisis shows U.K. bank exodus may be no bad thing (Bloomberg)
• Obama loses lending lever as Citigroup, Wells Fargo repay TARP (Bloomberg)