Now that Goldman Global Alpha and Katina are both dunzo, the firm's Quantitative Investment Strategies pitchbook, praising the "intelligent offense" and "dynamic defense" not to mention "wealth creation" of the "Dynamic Allocation Fund" may need to be gored and substantially reworked...
As predicted last night when ZH said: "Goldman Global Alpha just blew up, for the second and probably last time", and as was glaringly obvious, sure enough the WSJ confirms:
- Goldman Sachs Closing Global Alpha Fund By End Of Oct
- Goldman Hedge Fund To Shut Dn Due To Redemptions
- Goldman's Global Alpha Fund Had Approximately $1B In
And so the quant unwind begins. The question now is: who is next.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 15/09/11
On 12 September Iran brought its first nuclear power plant in Bushehr online, connecting it to the country's electrical grid. Iranian officials at the opening ceremony said that the 1,000 megawatt plant has begun generating electricity at 40 percent of its capacity and will reach full capacity by the year’s end following further testing. Quite aside from demonstrating Iran’s touching post-Fukushima faith in nuclear energy despite being a seismically active country, Bushehr represents a Rorschach test of sorts for all the fears and anxieties in the Middle East, in which everyone looking at the facility has his preconceptions reaffirmed. “Axis of Evil” charter member Iran insists that Bushehr represents the government’s determination to husband is vast oil reserves by promoting other energy sources, as its economy has hammered by more than three decades of U.S.-led sanctions. Iran has been subjected to increasingly militant rhetoric from both Tel Aviv and Washington over its civilian nuclear energy program, with thinly veiled threats of possible military action if Tehran does not abandon its efforts, even though they are completely complaint under the terms of the Nuclear Non-Proliferation Treaty (NPT), which Iran has signed and which Tehran pointedly underlines, it’s nemesis and harshest critic Israel has not
We have long discussed the colossal maturities pending among the state-sponsored FDIC-backed TLGP bonds due over the next few months but adding the financials exposure to other investment grade corporate bonds shows some incredible supply is pending. Bloomberg noted the fourth quarter alone has over $200bn coming due - based on a search of their database.
Just because it is not enough for Tim Geithner to be mocked, ridiculed and generally despised on one continent, the former New York Fed "Hudsucker Proxy-style" plant has just managed to become the most despised individual on at least one more continent. Bloomberg reports that European Central Bank Executive Board member Juergen Stark said countries offering advice on how Europe should solve its debt crisis should put their own fiscal situation in order first. "Finger-pointing in the direction of Europe shouldn’t prevent others from putting their budgets in order and doing their homework before handing out advice to Europeans," Stark said at an event in Vienna. This probably means it is safe to assume that the ECB, after listening to the human caricature of Beavis twice in a row on implementing totally failed stress tests, will not take up Timmy on his latest proposal of how Europe should fix itself. It is also safe to say that Europe just have a perfect example of how one should shut up a corrupt, incompetent, cheating, printer of virtually infinite one-ply US debt.
Over the weekend I wrote about what I thought the EU and the ECB needed to do to in order to prepare for a Greek default. Nothing that has been said or done this week goes against the view that Europe is preparing for Greece to default. In the past week someone went into all the EU officials' speeches and did a replace all and "default" became "controlled default". Notice how they have backed off how bad a Greek default would be and try and narrow it down to the fact that a default without adult supervision would be bad. After yesterdays conference call they said that Greece would remain in the Euro. They never said Greece wouldn't default. That conference call was as likely to be scripting out the roles for the next few weeks to control the default and arrange post default financing for Greece. The language was not that strong and I don't believe their words were chosen by accident. If Greece defaults the first obvious panic will be how do the European banks get funding, especially in dollars. Well, that question has been answered. The mechanism to avert short term liquidity problems after Greece defaults is now in place.
Why expend treasure and resources on a propaganda campaign that is doomed to run aground on the sharp reefs of reality? Two reasons: it's cheaper and less risky than real change. The Status Quo has a tremendous stake in maintaining the present structure and hierarchy of control, power and wealth. Enabling real change introduces uncertainty and thus risk, and so the lowest-risk response to devolution is to convince people that the erosion is not actually happening. This is also much less costly than actually introducing potentially destabilizing real change. But reality, unlike perception, cannot be changed by propaganda. The Chinese buying Italian debt, for example, does not make the debt or Italy's insolvency go away. Thus the Status Quo's campaign of "solving" fundamental problems with perception management will necessarily fail. A noteworthy example is the Eurozone's Status Quo attempt to convince everyone that Greece, Portugal, Spain and Italy will not default, when their default is already unavoidable.
When it comes to playing the endspiel for Bank of America, there are two binary outcomes: A) either the stock goes to zero in a slow, painful bleed, accompanied by periodic mega squeezes on headlines such as Buffett taking another bath; or B) the stock surges following some substantial government bail out and a quick and painless resolution of the mortgage putback litigation, the robosigning debacle, and somehow the bank finds a way to make money in an environment in which the 2s10s is about to tumble to record lows following the "Torque." As is well known, our personal belief is that all signs point to A) however with limited upside (one can only double their money by shorting) and a constant threat of short squeezes (hence unlimited downside), especially with the stock as depressed as it is and in this massively rigged and centrally planned market, puts a perpetual damper for those who wish to short the name to death. Which brings up an interest tangent: is there a way to profit from the collapse in Bank of America in a mirror image situation, i.e., with unlimited upside and limited downside? The answer is yes, and it very well may be in the form of MBIA, where as we indicate below, the upside may not only unlimited semantically, but practically as well, courtesy of shades of that most epic moves of 2008: that of the short squeeze in Volkswagen stock. Is there a chance that MBIA, with its 27 million short interest, and its 98% long institutional ownership could be the next Volkswagen? Perhaps. Read on.
We are once again delighted to bring to our readers The Punch Line: the consumate compendium of economic chart porn available, put together by Abe Gulkowitz, this time titled "The Big Swerve" for obvious reasons. As Abe comments: "There's a growing concern among even the most optimistic investors, companies and households that the United States has either entered a new recession, or never really emerged fully whole from the last great downturn. There is also a worse scenario and fear – that growth going forward could be seriously constrained because of a myriad of overwhelming issues with no quick fix. Even though many of the risks are long-term in scope, enough risks have been elevated in the near term. These concerns are centered on the weakness evident in many key indicators here in the U.S. and also overseas. And they are aggravated by the gauntlet of hurdles facing the euro area this month alone. What’s most disconcerting about the euro stress nightmare is that numerous announcements have already heralded the end of the crisis. Where was all the analysis and the review? Has no one reviewed the reality on the ground in Greece and in the other peripheral European countries at risk? And how deep are the exposures across the major banks? Weakness in a sector such as banking is different than weakness in advertising, for example. Rising vulnerabilities in banking and finance could jeopardize the entire financial system and world economy." What has made the usually cheery Gulkowitz so morose? The 18 pages of charts, headlines and factoids below explain it all.
By now we have repeatedly seen and heard Obama's vision of the American Jobs Plan, which as has been discussed previously is dead on arrival, specifically due to Republican opposition. As to what the republican oppose specifically, watch below as Boehner gives the first public appearance presenting the republican talking points on the AJA.
In light of continuing deterioration in macroeconomic data (we don't remember when the last time was that we had a materially better "than expected" data point) many are left wondering how it is possible, that when seeing broad signs of capitulation even among the permabullish contingent, the market has resumed its ceaseless levitation. Simple - as David Rosenberg recaps our post from two days ago, "Short interest on the NYSE and Nasdaq surged nearly 4% in the second half of August; these positions are now being squeezed, which is the "buying" support" the market has been experiencing in the low-volume rally of the past few sessions." Indeed, as long as the weakest hands who piled on the shorts into the latest market plunge are not cleared out, the current episode of no-volume levitation will continue. Sprinkle one or two favorable headlines which sends the robots into a frenzied bullish bias churn, and one can see why it may be time to whip out Birinyi's ruler.
By now most are used with rates for General Collateral and the OTR 10 Year particularly to trade at quite depressed levels. After all, with continued problems in European funding markets, there is little place for traditional capital to go than good old safe US repo markets. One need to just read the latest from collateral expert Joseph Abate of Barclays to find what the consensus on the matter is. To wit: "Higher bank funding rates, however, are unlikely to attract much demand from money market funds. Instead – and as they have done all summer – we expect prime funds to shorten their average WAM (from 39d currently) and to shift their asset allocations further toward repo, bills, and agencies, which already account for 30% of their holdings. We also expect prime funds to increase their already extremely high (46%) 7d liquidity buffer. In addition, money fund investors are likely to make some adjustments of their own – shifting balances out of prime funds into government-only balances. Some of the more risk averse money is likely to flow into non-interest-bearing demand deposits, which have unlimited FDIC insurance coverage through the end of 2012." On top of this there are technical considerations for even lower repo rates: "More immediately, dealers are preparing for quarter end. The normal end of quarter balance sheet repositioning (and shrinkage) is expected to further pressure overnight repo with collateral rates expected to stay pinned below 5bp through month end. Demand for term repo will also pick up as investors seek to pick up a few extra basis points." The same is just as true for the 10 Year OTR which "has traded deeply special given its limited supply – both in the market (as the first issuance) as well as in the Fed’s SOMA lending program. In recent days the issue has traded at a 250bp or more premium to GC." Yet something interesting happened in the actual General Collateral rate as of yesterday: it soared, despite both fundamentals and technicals, to the highest level since fears of an imminent US bankruptcy brought it to year highs in the first week of August.
This could probably explain a lot. According to the FT, which has managed to sneak a peek into Kweku Adoboli aka, the scourge of UBS, Facebook profile, in a July 31 update said: "Will they? Won’t they? Reduced to watching Fox News for guidance, it’s a grim affair". It appears that Adoboli should thus be commended - under those conditions we believe it is a miracle a person's loss can be confined to just $2 billion. FT continues with the cyberstalking: " That was followed a week later amid steep market falls, by an entry that read: “Can we shut down global markets for a week so everyone can just chill out?” It also appears that the Delta One'er (which is just a fancy name for "correlation desk" trader) enjoyed his downtime as well: "He came across as someone who worked quite hard to get where he was and played quite hard too," said the acquaintance. Yet by all counts it appears that the event that did ole' Kweku in was the Swiss intervention on September 6: "However, the final message left by the trader on his own Facebook page on September 6 simply read “need a miracle”." Odd: so does Tim Geithner and the Eurozone. Alas, as the latest "rogue trader" incarnation just found the hard way, those are in short supply these days.