CDS

One of the more useful information items in Goldman's periodic filings is granular disclosure on the firm's CDS holdings, and specifically segregated data by maturity bucket and by spread as pertains to "maximum payout and notional amount of written credit derivatives." In essence, due to the firm's monopoly in CDS inventory and, therefore, trading, this is the squid's beating heart: between buying and selling (hopefully offsetting positions) CDS in billions of dollars worth of notional daily, and being able to capitalize on wide spreads, courtesy of the extinction of such traditional competitors as Bear and Lehman, the firm will continue to make hundreds of millions in profits every day, month and quarter, due to its newly found monopolist exposure when it comes to trading CDS, both as principal and as agent.

Below are the heatmaps for the North American components of IG, as of November 3 intraday and Month to Date. We will provide today's update as soon as we have it. Notable yesterday was that not only 5 Yr AIG widened even as the stock was melting up ever higher, the curve was flattening, with 7 and 10 years of both AIG and ILFC (right AIG column) tightening. The days of flat (or, heaven forbid, inverted) curves, so ubiquitous a year ago, just may make a come back yet. The widening in financials was all of the place, with only Black and Decker, Clorox, MOT, Constellation and CBS moving tighter. It is still too early in the Month to Date category to extract any trends.

AIG speculative mania has gripped the markets. not only was AIG stock up more than 15% on nothing really, but AIG CDS was also the biggest mover wider today, hitting 780 bps, 15 bps wider close to close. Additionally, GE, which we discussed earlier as having some pretty notable balance sheet issues, was wider by the same amount, as was yesterday's top mover Sempra. In the opposite category were Anadarko and ERP, as well as Buffett's latest stamp of approval, mentioned roughly 800 times on CNBC today, Burlington Northern, which tightened by 4 bps to 55.

One of the key unique premium features of Bloomberg, its universe of proprietary ID codes for securities in the stock, bond, options and other financial verticals, is going freeware. The entire data set can be now used by anybody at the following website: http://bsym.bloomberg.com. While unique pricing data will not be available (at least not yet, but give it a few weeks before some enterprising entrepreneur plugs this into some free pricing data feed), and even though CDS data still seems to be missing, this is a curious step by Bloomberg which heretofore has guarded its security universe dataset with religious zeal.

These are some of the more important headlines coming from around the World this morning.

Today's top CDS movers wider were almost all health insurers, likely still reeling from the potential adverse fallout of any new health bill. Additionally, Sempra Energy was the day's biggest mover at +16 bps. In the tightening camp, VNO and CEG lead the pack, with old Zero Hedge favorite NRUC making the top five list as well.

China: Be cautious

Japan: Uh-oh ...

The sudden surge of optimism regarding the global economy resulted in the massive reduction in the costs of sovereign debt insurance. While the drop is not a surprise, the reasoning and the actions behind it surely are.

An interesting report coming from McClatchy, concerning Goldman Sachs bets on the housing crash.

Zero Hedge is starting a presentation of credit heatmaps, specifically CDS: easily the most liquid product in the market currently (unfortunately still not for retail consumption but give it 12 months...)
Our first such heatmap just so happens to coincide with a day in which it may as well be called a redmap. We hope to make this a daily feature on Zero Hedge (the heatmap, not the bloodbath).

Spreads were broadly wider in the US as all the indices deteriorated (as IG and HY closed at their wides with the former making its largest jump wider since 10/01). IG trades 7.8bps wide (cheap) to its 50d moving average, which is a Z-Score of 1.3s.d.. At 109bps, IG has closed tighter on 63 days so far this year (217 trading days) and we note that the distance to the average is getting close to its largest since this rally began (a critical break over 9-10bps above the average would suggest we are in a new era. Yesterday's crack of IG not being able to break the 50-day average (while technical nonsense) is notable in that we have not seen an upside break and unsuccessful test of the average since the March rally began in credit.

While the logic of how a US economy equates to a weaker dollar escapes those who think before pushing buttons and chasing trends, a glance at intraday currency performance indicate a substantial divergence in then Yen relative to the global "short-dollar" complex. Even as the euro, cable and OZ are powering higher, the yen has been caught in a weak zone, and has been declining all day long despite a stronger than expected US economy (yes, it does make sense...but don't think about it too hard). The oddity in the FX market is compounded when juxtaposed with Japan CDS levels: as of several minutes ago, Japan CDS was trading around 63 (white line on the chart below): a level last seen in April. This begs the question: what does someone know about Japan, and will this weakness translate into weaknesses for other non-US currencies?

Hey, the little banks are doing their derivative thang too!

Spreads were broadly wider in the US as all the indices deteriorated (moving to their widest levels since 10/02). Curves were modestly flatter but roll trades saw significant decompression (both in HY and IG) especially between series 9 and 12/13. At 109bps, IG is within 1bps of its widest close since 09/04 (as we note intraday wides of almost 115bps as a significant eye-ball level for many to watch).

I remember quite clearly walking home in 1990 after seeing “GoodFellas” and wondering why such obviously clever people as the gangsters portrayed in the movie would resort to crime to get ahead. Why not just apply that cunning to legitimate work, and make a legitimate living—even a legitimate profit. Now I know where all the gangsters went: They went to Wall Street.