Just as we had suspected, Bloomberg is now reporting that BofA has gone all M.A.D. on the hand-that-feeds by leaving the possibility of bankruptcy for its trade-of-the-decade, accretive-within-a-year, coulda-been-a-contender business unit Countrywide Financial Corp. The entity remains a separate legal entity under the BAC capital structure with $3.8bn of direct Senior Unsecured and Senior Subordinated debt and an aggregate exposure around $6.5bn from all the sub-entities under the CFC entity. Of course, threatening the use of this legal route will not be a tidy process and will likely bring in doubt the rest of BAC's capital structure to a greater or lesser degree and is unlikely to bode well for BAC's capital market access and trading partners - but perhaps that won't be a problem once the FDIC's living wills are in place.
The last two weeks have been full of headlines regarding the volatility and decompression of sovereign spreads around the world. What has been more intriguing to us than day-after-day of discussing Greek 2Y yields or French 5Y CDS has been the relative increases in net notional credit protection outstanding on Germany. The German credit worthiness and sovereignty stands at the heart of any solution to the crises in the Euro-zone and it appears market participants are increasingly pricing in that risk transfer. This is exactly the same transmission we saw in the US when the Fed/TSY announced day-after-day of acronym-laden support mechanisms and shouldered more and more of the private balance sheet risk. This week, both Brazil and Germany overtook Spain in terms of net notional CDS outstanding.
This scandal is rapidly becoming the gift that keeps on giving...
Like any good sequel, RIMM's earnings tonight did not disappoint (those looking for a disaster flick). Expectations were high (low), but we all suspected that it might not quite live up to the pre-quel, same actors and three months later. Well the reviews are in and RIMMberrr II is a winner -18.5% (beating the measly -14.5% initial reaction in the prior release).
A few days ago we learned that the SEC was either objectively going after every single HFT shop by demanding frontrunning blueprints, or it was merely pandering to the requirements of GETCO, which is in dire need of eliminating some of its more profitable competitors. Now, the WSJ informs that the same porn-addicted regulators are going after ETFs: yet another market product that the enforcement regulator, in its multi-year long career-enhancement focused hiatus, has totally forgotten about and is finally starting to realize has more of an impact on the market than virtually anything else currently in the trading domain. The skeptics will say that this is nothing but ETF giant Blackrock stretching its wings and making sure it doesn't have to share the spoils of frontrunning war with anyone. Whether that is the case, we will find out soon enough, in the meantime we learn that the SEC is "looking into whether turbocharged exchange-traded funds amplified August's topsy-turvy swings in the stock market." Apparently years, because it is no longer months, after the flash crash, the SEC has realized that the convexity and gamma brought about by HFTs in the ETF space merely adds leverage upon leverage, sending the market into spasms of unnecessary but inevitable bouts of momentum chasing: "SEC officials are zeroing in on "leveraged" ETFs, which amplify investor bets, often through derivatives. Derivatives are financial contracts with values linked to another asset. The funds typically offer double or even triple the return of an index, such as the Standard & Poor's 500-stock index." Soon enough, we dread to think, the SEC may also realize that it has absolutely no clue about market topology and structure, nor how anything actually works in modern markets. But since the response by the midget porn fanatics will take years if not decades, we doubt anyone is too concerned. After all Keynesianism itself has at best one, maybe two summers left. Max.
The following email intercept from a senior Managing Director of Obama bastion Evercore (Roger Altman: nuf said), explains all there is to know about the Obama presidency, but it does not explain why Groupon still does not have a "meet your president, half off price" coupon yet. "Hi there - fundraising this quarter has been a struggle (as you can imagine give all the negative stuff around the President) - they are offering a one off opportunity to attend this small dinner on Monday for $25k instead of the full max out of $38.5k, or a couple at $38.5k instead of $77k. Just wanted to offer that in case you're interested!" Anyway, we'll got and report ourselves to @AttackWatch immediately as this is obviously a non-subversive counter-disinformation campaign.
In the latest installment of what is rapidly becoming Obama's Keynesian Solargate, we learn that the Treasury Department's Inspector General has opened an investigation of the now defunct $528 million government loan to Solyndra which has no chance of getting repaid, following what will be a pennies on the dollar liquidation of the company, especially since it is primed by a $75 million term loan to George Kaiser, a documented Obama "bundler" as was documented previously. Per the AP, "A spokesman said Thursday that the inspector general is reviewing the role and actions of the Federal Financing Bank, a government corporation supervised by the Treasury Department. The bank provided the low-interest loan to the Fremont, Calif.-based company." The "concern" is that Obama has pushed levers to get the investment in a venture controlled by a "friend" on a fasttrack, with the White House Office Of Management Supervision urging the DOE to release the funds without proper diligence. "The House energy committee released documents Wednesday that appeared to show senior staff at the White House Office of Management and Budget chafing about having to conduct "rushed approvals" of a loan guarantee for Solyndra. Republican members of the committee said the emails raised questions about whether the loan was rushed to accommodate a Solyndra groundbreaking ceremony in September 2009 that featured Vice President Joe Biden and Energy Secretary Steven Chu." And while there is more, we will spare the Treasury IG some time (assuming he is at least a little less corrupt than everyone else in the administration and actually plan on conducting a legitimate investigation) and advise him to simply look at campaign and other contributions by Solyndra's equity backers which features the George Kaiser Family Foundation, U.S. Venture Partners, CMEA Ventures, Redpoint Ventures, Virgin Green Fund, Madrone Capital Partners, RockPort Capital Partners, Argonaut Private Equity, Masdar and Artis Capital Management. When in doubt, always follow the buck... especially when it is looking for a very fast turnaround courtesy of taxpayer capital IRR padding.
Market sentiment is now instantaneously lurching from one opposite to another with each consecutive headline, infused with the grace of a drunk and high Berlusconi in an American Apparel store: the schizopanic is becoming unbearable for anyone who still has their own money in the market. Futures are closed for 10 more minutes, but since the logical response to this news would be a major drop, we propose that a huge spike in futures will follow on implied certainty that Europe will be forced to pull an "America" and dump several trillion euro in taxpayer funds to recapitalize its banks. And following in America's footsteps, look for the start of Mutual Assured Destruction rhetoric out of Eurocrats as soon as this evening.
Strawman-of-the-night: G7 OFFICIAL SAYS EUROPEAN GOVS WEIGHING TALF-LIKE PGM: CNBC.
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
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.
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