Archive - Mar 2, 2010 - Story

There is nothing quite as liberating as jumping on the bandwagon of scapegoating that which one does not understand. The idiocy of the chorus which blames CDS "speculators" for the mysterious kidnapping and rape of the Easter Bunny and Santa Claus' stomach stapling, not to mention the imminent Greek implosion (NOT as a function of a funding crisis, but due to the one soon to be unending strike, which will commence once Greeks realize their wages are about to be cut by 250% and the new retirement age will the same as that of Yoda), is just getting surreal. And if the cheap seats housing the portly derrieres of all those CDS "experts" need yet more proof just how full of excrement their pointless multi-syllabic exhortations are, we present Credit Trader's very diplomatic presentation (diplomatic, because our version would have included a preponderance of breathless f-bombs, which is why we wisely decided against writing one), which is sufficient and necessary to hopefully shut all these empty chatterboxes up for good. Alas, that ain't happening. Either way, here is the data, which will certainly not make an impression on anyone except those why actually do understand how the CDS market works. For everyone else (the "it's like selling a warehouse full of feces... in backwardation, thank you speculators... buying crap insurance on the warehouse and then redirecting the Chipotle lunch hour crowd into it" people), start writing your disgruntled, opinionated and Thesaurus-worthy retorts. Oh, and by the way, are speculators guilty that CDS spreads on Greece have collapsed by over 120 bps in the past two weeks? Oddly, we have not heard anything about that at all in the idiotstream media.

There should be no excuses for a better than expected February for auto sales... Toyota is down (and the domestic competition would have you believing "out" as well...) But how did the other major brands perform in February, which is traditionally a shitty month to sell a car?

On one hand you have Moody's REAL CPPI index telling you commercial real estate prices not only bottomed in December, but are now increasing at the fastest rate in years. On the other hand you have reality staring you in the face (that is if you are reading the February RealPoint CMBS report), in the form of $46 billion in CMBS delinquencies in January: this was a record 5.762% of total, and represents a 325% increase from the $10.8 billion inJanuary 2009 (and a 10% increase sequentially). Contrary to all propaganda punditry, the rate of deterioration in commercial real estate keeps accelerating. Oh, and this number does not include the $3 billion Stuy Town default, which will be counted for the first time in March. Look for the % of delinquent loans to hit 8%-9% within 6 months, about the time when TALF will be really needed. Too bad TALF expires the same day as Quantitative Easing for MBS ends, March 31.

As we continue to move through 2010, we suggest benchmarking against the 5% 50 day MA demarcation line. Again, we wish there were Holy Grails in the wonderful world of investment management and technical analysis specifically, but there are no guarantees. These patterns of cyclical bull market development and maturation have been very consistent historically when looking at this 5% 50 day MA experience. Remember, although there are no guarantees in the financial markets, this pattern has been consistent for over a half century now, through generational credit cycles and otherwise. Over the very short term and amidst the heightened and perhaps unexpected volatility of the moment, we want to make sure we stay in harmony with the message and movement of the market. And this is what we hear when we “listen” to the risk management lessons of the last half century. A half century of human decision making represented graphically. Don’t forget the old Jesse Livermore truism. Human decision making never changes, only the wallets do.

Each quarter, following the release of assorted 10-K's and Q's, one of the most interesting pieces of detective work in the world of financials occurs when one, hopefully armed with a lot of free time, pores through the hundreds of pages of financial arcana and outright magic and cow manure, better known as Wells Fargo's financials (blessed by such grizzled and conflicted wizards as Warren Buffett). The investigative work is usually driven by the desire to uncover just where the trampling of accounting rules, and collusion between the management team, accountants, lawyers and regulators (FDIC and otherwise) occurs. In this specific case, the results demonstrate that adjusting for some ratheregregious accounting "frivolities", Wells Fargo may well be under the 3.0% FDIC Tier 1 ratio minimum for "strong" bank holding companies. This would imply that the publicly reported Tier 1 ratio of 6.46% is more than double what the bank deserves, and a pure construct of some accountant's imagination rather than anything even remotely indicative of the truth.

It's official - Goldman Sachs is the new American Idol. The firm has taken over American public interest and its airwaves (both metaphorically and soon, if Canada is any example, literally) - after serving as ground zero for the financial system bailout, after facilitating the fudging of EU entrants' books over the past decade, after going after iconic soccer clubs, and after actually rebranding marine wildlife, the firm is now implicated as the key lender, and, after pulling liquidity at the last moment, soon to be owner, of the Sawgrass Marriott Gold Resort & Spa, which has just filed for bankruptcy. The resort, which is home to the associated TPC Sawgrass golf course (which has not filed for chapter 11, at least not yet, and also happens to be the headquarters of the PGA Tour), is where Tiger Woods decided to apologize on February 19 for having sex with "those women." We are positive that the latest reality series to come out of Hollywood brain trust "Who wants to marry a Goldmanaire" is just months away.

As you by now well know I am fundamentally bullish USDJPY for the long term. Leaving aside the fundamental economic problems of the Japanese economy, the BOJ has recently pretty much committed to pursue QE until they can somehow manufacture inflation, the debt to GDP ratio is 200% and rates are at 0% so comparatively the USD has nothing to be ashamed of, and the Fed is starting to pull out liquidity from the market. Therefore if risk doesn't collapse (as it would trigger the usual flight to quality in JPY / carry trade covering) the elements in terms of monetary policy and rates cycle are also in place to support economic fundamentals. - Nic Lenoir

The artificially-engendered revival of the dispute, which began in February 2010 between Argentina and the United Kingdom over the sovereignty of the Falkland Islands in the South Atlantic, has been portrayed as a posturing by embattled Argentine Pres. Cristina Fernández de Kirchner, taking advantage of both the start of exploratory oil and gas drilling by British company Desire Petroleum in the Falklands waters, and the talks by Latin American and Caribbean leaders of the Rio Group in the Mexican resort of Playa del Carmen, beginning on February 22, 2010. But the crisis may well play into the political posturing of equally embattled United Kingdom Prime Minister Gordon Brown, who faces a general election by June 2010 at the latest.

Has it been 15 minutes? Yep - here's the latest from Dow Jones: Greece risks bankruptcy if it doesn't take radical extra measures to fix its finances, Prime Minister George Papandreou warned Tuesday, saying the country was in a "wartime situation." We are confident the "wartime" reference is purely a metaphor cause Turkey has been very quiet lately. And here is how you can help.

As the financial crisis has unfolded over the last two years, the Federal Reserve has been responding in a variety of unprecedented ways. Therefore, it is logical to assume that these never-before-used actions have altered long-established ways of viewing things. One area that has been impacted is the US dollar money supply.

John Thain is already working his interior management magic. The word "out there" is that all non top level CIT employees (who will at best get a little restricted stock with 3 year vesting) willget exactly zero bonus for 2009. Probably to be expected for a firm that was only not bailed out but also went bankrupt, yet pulled a Detroit UAW and emerged in about a month. It remains to be seen if the money thus retained will go toward the purchase of arcane $100,000 toilet and lounging paraphernalia for Thain's office, or changing that idiotic night club lighting at CIT's 5th Avenue lobby.It is also unknown if under Thain's recent guidance, CIT has managed to invest (and lose) several billion in blown up basis and HVOL trades. It is certainly unknown when and if Bank of America will acquire CIT, under the stern "guidance" of Ben Bernanke.

Comparing the Primary Dealer and Indirect Participation demonstrates that PDs now singlehandedly control the 1 month Bill auction. Indirect take down has dropped to a 2010 low level at 17.9%, while PD take down has surged to a high of 73.4%.

It has been at least 15 minutes without a rumor, report, or actual development on Greece. So here is one: Market News reports that a senior member of Chancellor Palpatine, er, Angela Merkel's CDU/CSU-FDP government coalition has told the news agency that "Greece cannot count on financial help from the European Union and has to solve its budget problems on its own."

No, you are not reading that chart wrong. Gold just surged to near two month highs, hitting $1130/oz, or $12 higher, even as the dollar is green for the day. The fiat currency inferno is picking up, as traders refuse to keep their money in anything but gold or dollars - proof of tungsten gold counterfeiting is not helping the gold shorts.From the 2010 lows, the currency devaluation "safety trade" has been Gold and the USD, in a ratio of 5-1!

The latest from Government Sponsored Zombie #1: Freddie's Home Price Index declined by 0.4% year over year. Even the government, with all its subsidy bells and whistles, can merely drag the horse to the water, so to say. Sure enough, there is "spin out of the box" ready for this as well (read below to find out all about the shiny package this turd came delivered in). In the meantime, after going above 5% just once in the past 5 weeks, last week the Freddie 30 year Fixed Rate popped by 12 bps: the greatest weekly increase so far in 2010.