An Uncontrite Geithner Says It Was "Right Thing" To Pay Off AIG Counterparties At Par, Says His Job Is In Obama's HandsSubmitted by Tyler Durden on 01/14/2010 17:37 -0500
"[A]t a centerpiece of the president's reform proposals is to give the government the tools to unwind, dismember, break up, sell these institutions without the taxpayer being put in the position of having to absorb their losses. That's one of the most important reasons why we have to get reform in place. We had no choice at the time other than to do this. And I'm, personally, very confident it was the right thing to do, and we did it in the best way possible for the American people." - Tim Geithner
Skyrockets In Flight? No, Just Greek CDS Longs' Delight. Greek Default Risk Surges To Another All Time HighSubmitted by Tyler Durden on 01/14/2010 10:27 -0500
Greek CDS hits another all time record at 342.50 bps. Greece is now trading nearly 5 times as risky as the entire universe of investment grade US corporates. In other news, Greek Prime Minister Papanderou repeats for the third time (and fourth, and fifth) that the country will not, repeat not, repeat not, repeat not, repeat not, need a bail out from the EU, and will not (etc) drop the euro or leave the eurozone. If only anyone believed the man. Anyway, where is that damn ESH0 ramp job when you need one? The best way to send a signal that all is good in the world is for Liberty 33 to trade a quadrillion e-mini's with itself.
Spreads were broadly wider in the US as all the indices deteriorated. IG trades 14.3bps tight (rich) to its 50d moving average, which is a Z-Score of -1.5s.d.. At 79.25bps, IG has closed tighter on only 5 days so far this year (268 trading days). The last five days have seen IG flat to its 50d moving average.
Indices generally outperformed intrinsics with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but widened the skew, ExHVOL outperformed but narrowed the skew, HY outperformed but narrowed the skew.
The following are the items demanded by Edolphus Towns and the House Committee on Oversight and Government Reform from the Federal Reserve. We, for one, can not wait to see what ends up being dug up, seeing how the New York Fed has blatantly "forgotten" about our FOIA request for release of precisely the same data.
TABB Group Pinpoints OTC Derivatives Regulatory Impact Of The Wall Street Reform And Consumer Protection Act Of 2009 (H.R. 4173)Submitted by Chopshop on 01/13/2010 12:34 -0500
- New Study Analyzes The Bill’s 200-Plus Pages Covering Derivatives, Outlines Potential Industry Impact And Gives A Timeline Leading To US Senate Passage
- Says New Competition Lies Ahead For Dominant Major Dealers From New Group Of Smaller, Nimble Tech-Savvy Dealers
Dubai - meet Greece. Apparently credit traders appreciate biblical allusions, as Greek Prime Minister George Papandreou "promised" for the third time today that all is good in the debt-stricken country, claiming there is "no way" the country would leave the euro or seek aid from the IMF. Credit's response: Greek CDS surges to an all time high of 327 bps, and the country now represents 24% of SovX risk.
With all the recent outrage over the AIG fiasco focusing on Tim Geithner, is the anger misplaced? Is the real culprit in this situation Goldman Sachs, which allegedly sold its $2.5 billion in extremely profitable AIG CDS prior to March 15, when the full disclosure of the government's measure to preserve AIG became first known; a time in which Goldman, by implication, may well have been in possession of material, non-public information?
A terrific list of questions that the FCIC should ask banker executives, conceived by the trio of Eliot Spitzer, William Black and Frank Portnoy.
Yesterday's Alcoa results were a disappointment because even after an 18% increase in revenues to $5.4 billion, the firm still missed consensus EPS of $0.06, coming out at $0.01 ex items. The take home message is that even with China in full ramp up mode, the margin contraction is fierce and getting worse. A simple observation of the ratio of AA stock price to ALUM price indicates just how far the stock had run ahead of itself.
Yet what caught our attention yesterday were not the weak numbers, but the market reaction to them. While the stock price plunged in the after hours session, initially 5% and today it seems like it can be down as much as 10%, the company's CDS ripped tighter, moving from 160 bps to 140 bps, and ultimately stabilizing at the midpoint: an indication of improving credit perception, and, dare we say it, a return to market normalcy and fundamentals.
In continuing the rant on the possibility of the US entering a stagflationary environment, as was hinted by Alcoa's quarterly report (see "Is My Warning of the Risks of a Stagflationary Environment Coming to Fore?"), I have decided to graphically illustrate the historically most successful inflation hedges as well as demonstrate where North America and Western Europe currently stand.
Chavez threatens speculators with military force, currency crises will go global, Af-Pak war for control of Central Asian energy, Secret negotiations on health care anti-democratic, China is #1 exporter, 'domestic extremism' (wtf!) team investigates Climategate, California request bailout.
A story of how the "vampire squid" caved and offered to help North America's most powerful union...
Spreads are undoubtedly tighter since the New Year as HY has dramatically outperformed IG this week with tighteners in single-names magestically outpacing wideners by 9-to-1. Curves were more mixed with an almost perfect balance between steepeners and flatteners even as index curves steepened significantly (as did the TSY curve). This was the first year since 2003 that the on-the-run IG index rallied in the first week of the year.
The most recent broker to realize that private risk does not exist as a result of global moral hazard is Deutsche Bank, which is actively promoting ta long risk/short sovereign CDS trade. That is happening as IG13 trades at its all time record tights of 77 bps. In other words, buying an index of 125 investment grade credit provides less than 1% of incremental risk return. Pretty soon the ABX trade will be buying IG. Until then, however, the only risk continues being that of sovereign balance sheet, courtesy of onboarding of virtually all private sector risk at the Central Bank and via other backstop mechanisms.