Merrill

Merrill
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Frontrunning: October 27





  • White House questions new Ebola rules, nurse plans to sue (Reuters)
  • States stand firm on Ebola quarantines despite White House pressure (Reuters)
  • Rousseff Naming Brazil Finance Minister Key to Regain Trust (BBG)
  • Ukraine leader wins pro-West mandate but wary of Russia (Reuters)
  • Single Firm Holds More Than 50% of Copper in LME Warehouses (WSJ)
  • Treasury Liquidity Squeeze Seen as Dealer Shut Off Machine (BBG)
  • CVS follows Rite-Aid, shuts off Apple Pay (USAToday)
  • Oil Speculators Bet Wrong as Rebound Proves Fleeting (BBG)
  • Draghi Sets Stimulus Pace as ECB Reveals Covered-Bond Purchases (BBG)
  • German Ifo Business Confidence Drops for Sixth Month (BBG)
 
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5 Things To Ponder: To QE Or Not To QE





Over the last few weeks, the markets have seen wild vacillations as stocks plunged and then surged on a massive short-squeeze in the most beaten up sectors of energy and small-mid capitalization companies. While "Ebola" fears filled mainstream headlines the other driver behind the sell-off, and then marked recovery, was a variety of rhetoric surrounding the last vestiges of the current quantitative easing program by the Fed. “You will know that the financial markets have reached peak instability and volatility when Britney Spears rings the opening bell.”

 
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Frontrunning: October 23





  • Canada PM vows crackdown after capital shocked by fatal attacks (Reuters)
  • Canada Gunman Was Convert to Islam With Criminal Record (BBG)
  • Some U.S. hospitals weigh withholding care to Ebola patients (Reuters)
  • But... Great rotation... Bond funds stock up on Treasuries in prep for market shock (Reuters)
  • Saudis at War With Islamic State Confront Echo of Kingdom’s Past (BBG)
  • EU’s Top Banker Warns of Rule Fixation ‘Going Beyond Reason (BBG)
  • U.S.-led air strikes killed 521 fighters, 32 civilians in Syria (Reuters)
  • Growing Kurdish Unity Helps West, Worries Turkey (WSJ)
  • Don’t Be Distracted by the Pass Rate in ECB’s Bank Exams (BBG)
  • Hedge Funds Add to Venture-Capital Bounty (WSJ)
  • Speed-of-Light Trading Grows in Europe With McKay Network (BBG)
 
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Harley Bassman: "The Fed Is Trying To Land A Jumbo Jet On A Football Field"





Once upon a time, one of the best sell-side analysts in the MBS space was Merrill Lynch's "Convexity Maven" Harley Bassman: he was so good, in fact, he was quickly soaked up to the buyside, or at least the prop-trading side, when several years ago he left Merrill to join Credit Suisse as a prop trader. It was here that he provided some insightful trade ideas such as "The "Anti-Widowmaker" Trade: Get Paid To Wait For The Japanese House Of Card To Collapse" and previewed the "Inevitable 'Taper'" at a time when most still didn't think the Fed was running out of paper to monetize. Then, about a year ago, Bassman disappeared again, only to reappear in a new capacity at recently-troubled bond manager Pimco. It is from here that following a year-long silences, he has just sent out his latest letter, in which he picks up on his favorite topic: implied volatility in rates, and the arbitrage opportunities it provides courtesy of epic risk mispricing in the current quote-unquote market, courtesy of the Fed's 6 year+ centrally-planned manipulation of, well, everything. 

 
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Frontrunning: October 21





  • Total CEO de Margerie killed in Moscow as jet hits snow plough (Reuters)
  • China GDP Growth Rate Is Slowest in Five Years (WSJ)
  • Oil at $80 a Barrel Muffles Forecasts for U.S. Shale Boom (BBG)
  • Carney Faces Scrutiny on Worst Payments Outage Since 2007 (BBG)
  • Ebola crisis turns a corner as U.S. issues new treatment protocols (Reuters)
  • Gold Buying Rebounds in India on Diwali Jewelry Sales (BBG)
  • China-backed hackers may have infiltrated Apple's iCloud (Reuters)
  • Greece Said to Seek Recycling of Bank Funds for Exit (BBG)
 
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Frontrunning: October 16





  • Dallas County May Declare State of Disaster From Ebola Virus (BBG)
  • Markets on edge after worst turmoil in four years (Reuters)
  • Central bankers may have no quick fix as markets swoon, economy weakens (Reuters)
  • Risk of Deflation Feeds Global Fears  (Hilsenrath)
  • U.S. health official allowed new Ebola patient on plane with slight fever (Reuters)
  • Texas Hospital Fights Allegations About Ebola Protocols (BBG)
  • Treasuries Gain as Oil Drops Below $80 While Stocks Slide (BBG)
  • Greek Bonds Slump on Bailout Concern as Spain Misses Sale Target (BBG)
  • White House shifts into crisis mode on Ebola response (Reuters)
  • Obama Confronts Slippery Slope as Islamic State Advances (BBG)
 
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Frontrunning: October 15





  • M&A Bubble is bursting: AbbVie Says It Reconsiders Merger Pact With Shire (WSJ)
  • Winner of bad headline timing award: Spinoffs Could Set Stage for Next Merger Wave (BBG) - and now wait for the spinoffs getting pulled
  • Record mortgage settlement pushes Bank of America into third-quarter loss (Reuters)
  • Korea joins the Japan currency war: Bank of Korea Cuts Base Rate (WSJ)
  • Double Irish’s Slow Death Leaves Google Executives Calm (BBG)
  • Global Oil Glut Sends Prices Plunging (WSJ)
  • Slow Rise in Prices Shows China’s Economy Is Still Struggling (WSJ)
 
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Frontrunning: October 14





  • No Happy Ending for Investors in Central Bank Fairy Tale (BBG)
  • Ebola Response Strains Hospitals (WSJ)
  • Obama, foreign military chiefs, to thrash out Islamic State plans (Reuters)
  • Draghi’s ‘Whatever It Takes’ Plan on Trial at EU Court (BBG)
  • Too-Big-to-Fail Banks Face Up to $870 Billion Capital Gap (BBG)
  • Iran’s Message to World: You Need Us to Fight Islamists (BBG)
  • Facing new oil glut, Saudis avoid 1980s mistakes to halt price slide (Reuters)
  • Ukraine Grannies Outprice Banks on Hryvnia Black Market (BBG)
  • HK police use sledgehammers, chainsaws to clear protest barriers, open road (Reuters)
  • Gazprom Quarterly Net Rises 13%, Misses Estimate on Ukraine Debt (BBG)
 
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Frontrunning: October 10





  • It wasn't Obama this time: Pakistani teen, Indian activist win Nobel Peace Prize (Reuters)
  • Surging VIX Shakes Bulls as S&P 500 Charts Go Haywire (BBG)
  • Global shares hit six-month low as growth worries mount (Reuters)
  • Police, protesters clash in St. Louis ahead of weekend of rallies (Reuters)
  • We're Sitting on 10 Billion Barrels of Oil! OK, Two (BBG)
  • Spain seeks answers as seven more enter Ebola isolation (Reuters)
  • Iran will sell its oil to Asia in November at the biggest discount (BBG)
  • Redefining honeypot: U.S. DEA 'most interested' in U.S. investors in Canadian marijuana firms (Reuters)
  • UKIP Wins First Commons District With Conservative Defector (BBG)
  • Fake Ebola Patients Help Hospitals Prepare for Next Case (BBG)
 
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Frontrunning: October 9





  • Five U.S. airports to screen for fever (Reuters)
  • Danger, central banks trading with each other: Bipolar U.S. Stocks See Biggest Mood Swing in Three Years  (BBG)
  • Draghi Policies Blunted in Berlin as German Protests Grow (BBG)
  • White policeman kills black teen in St Louis, triggering fresh protests (Reuters)
  • Au Revoir to France’s Welfare Model as Socialists Cut Spending (BBG)
  • Here comes Roberto Cavalski (Reuters)
  • There are 49 U.S. venture-capital-backed companies with a valuation of $1 billion or more—the highest number on record (WSJ)
  • Pressure mounts on Hong Kong leader over payout amid crisis (Reuters)
 
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Frontrunning: October 7





  • Liberian Rubber Farm Becomes Sanctuary Against Ebola (WSJ)
  • The World’s Most Powerful Central Banker: Janet Who? (BBG)
  • Islamic State moves into south west of Syrian Kurdish town (Reuters)
  • Waldorf to Be Biggest Chinese Property Purchase in U.S. (BBG)
  • Spain Seeks People in Contact With Ebola-Infected Nurse (BBG)
  • Hong Kong protests at crossroads as traffic, frustration pile up (Reuters)
  • Immigration: Grim Caseload at the Border (WSJ)
  • China Cuts Thousands of ‘Phantom’ Workers From State Payroll (BBG)
  • U.S., U.K. Regulators Push to Settle Deutsche Bank Libor Case This Year (WSJ)
  • Wall Street Moles Go to NY’s Top Cop, Spurning SEC Cash (BBG)
  • Pimco's outflow headaches only just beginning (Reuters)
  • Japan Lawmakers Flag Need for Exit Strategy as Yen Falls (BBG)
 
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Frontrunning: October 2





  • As we warned in May 2013... Gross Exposes $42 Trillion Bond Market’s Key Flaw in Exit (BBG).... hint: no liquidity
  • WTI Crude Slips Below $90 for First Time in 17 Months (BBG)
  • Traders Thank Fed for Once-in-Decade Surge in Profit (BBG)
  • Islamic State committing 'staggering' crimes in Iraq: U.N. report (Reuters)
  • Philippine Islamist militants threaten to behead German on October 17 (Reuters)
  • Draghi’s Buying Spree for the ECB Might Start Modestly (BBG)
  • Russian Officials Say No Plans for Capital Controls (WSJ)
  • Indians Join the Wave of Investors in Condos and Homes in the U.S. (NYT)
  • Leader of Mexican drugs cartel captured (FT)
  • Dallas Ebola patient vomited outside apartment on way to hospital (Reuters)
 
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High-Yield Credit Suffers Biggest Quarterly Loss Worldwide Since 2011





Junk bond investors suffered their biggest quarterly loss since 2011, losing 1.7% in Q3 pushing yields up to one-year highs (despite Treasury yield compression). Managers, knowing full well the underlying liquidity to handle any further selling is not there are out en masse explaining that "high-yield should bounce back in the fourth quarter," relying on the fact that 'historical' defaults are still low and the economy is recovering (as if that's not priced in already). The worst hit segment of the junk market is CCCs and below - at 22-month lows - as Bernanke and Yellen forced investors ever further along the risk spectrum for yield. Of course, equity markets (Russell 2000 aside) have ignored much of this decline until recently, but the plunge in leveraged loan issuance suggests all that cheap-buy-back-funding is rapidly disappearing (even for the best credits and biggest names).

 
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