Some things I am thankful for this year: John Hussman, The Baseline Scenario, AIG, inept government regulators, and of course, Goldman Sachs. Absent these I would have nothing interesting to write about. So, without further ado, here are some interesting links for those of you who are not enticed by the Cowboys vs. Raiders game.
Spreads closed mixed with IG unch and HY marginally tighter as volumes dried up this afternoon ahead of the holiday. With low volumes in indices and less in single-names and intraday ranges in IG and HY at their lowest in months, picking out themes from today's market action seems useless although we do note that between Dubai and Gold, the economic headlines seemed to be forgotten about.
You'll find the ever widening CDS on the fast-growing Hellenic debt. Rather frightening considering that CDS are revisiting march levels (remember: markets were scared by the slump in eastern Europe economies and numerous rumours on the blast of the euro were flourishing).
Today it seems that those fears are materialising: Ukraine is in a deep syncope (borders have been closed for two months due to the H1N1 pandemic) and Greece could be deeply impacted by the unwinding of the liquidity-driven ponzi on the Hellenic market. While this piece of news could be harmless for HFT or robot traders, it is also completely put aside by fat portfolio managers happy to eat up low priced turkeys for thanksgiving (-30%!!!). The EURUSD is flirting with recent highs (like a turkey dazzled by the headlights of the euphoria-maniac rally car).
The widening of CDS spreads on Greek Sovereign debt has caught some attention and now Dubai CDS spreads are on the move: Commentary on Dubai from the EM guys...Dubai in focus as they do another $5b local tranche in the $20b Abu Dhabi program, then ask for extension in Nakheel maturities for 5 months. Very strange. Thought whole point of issuing the bonds was to pay for the Nakheel debt. Dubai CDS +130bps from o'night level of 318 ... seems to be hitting the European markets now.
Sequential popping of bubbles to commence shortly.
Even with equities rocking as gold's top blasted off yesterday, the credit picture was mixed. While most financials outperformed, with the exception of AIG, the action in other sectors was decidedly mixed, with industrials widening by a large margin even as underlying stocks ramped higer. Every product is now left to fend for itself.
Spreads closed marginally wider today amid low volumes as single-name CDS breadth was negative and financials underperformed non-financials. A plethora of data and news today kept equity indices guessing all day (and HY credit) but IG seemed pretty stable as intrinsics and indices saw marginal widening and steepening across the curve although HY felt generally weaker than either IG or stocks all day.
Did Goldman Sachs dissemble and equivocate in its responses to the New York Times? Based on these responses, the answer is yes. Treasury Secretary Geithner may wish to keep that in mind the next time he looks to Goldman Sachs for his answers. Mr. van Praag states “Starting in the mid-90s, we bought credit default swaps from AIG to protect our firm from the risk of a decline in the value of risk we had assumed on behalf some of our clients, (i.e. assets to which we had exposure).” Near the end of his email he again mentions “CDOs from our clients” (emphasis added). His email never once mentions that the problematic CDOs requiring collateral calls from A.I.G. that precipitated its liquidity problems, the one’s referenced in the report, seem to be chiefly 2004/5/6 vintage CDOs. Goldman underwrote the Abacus CDOs on its own list, and Goldman also underwrote CDOs that featured prominently and in large portion on the lists of French Banks SocGen and Calyon as well as Bank of Montreal and Wachovia that also hedged this risk using CDSs with AIG.
In the aftermath of Galleon, the SEC is aggressively ramping up its enforcement techniques, and while we all know that the regulators, in "joint venture" with the Justice Department, are likely eavesdropping on every single telephonic conversation originating or terminating in a financial firm, it is likely that Mary Schapiro has finally realized that some time in the 90's a thing called instant messenger became quite popular and that the bulk of traders and analysts converse not so much via phone but by Bloomberg MSG and IM blasts, as well as via all sorts of other discrete electronic communication tools. And this may be precisely what Robert Khuzami is targeting now as the Galleon net continues to expand ever wider to even what were formerly considered untouchable stalwarts of the hedge fund community.
In the ongoing US bizarro economy, up is down, and economic weakness represents itself by an increase in the stock market, due to expectations of future liquidity injections and fiscal stimuli, further weakening the dollar. Yet as sovereign CDS has recently taken on more relevance once again, we present the relationship between U.S. 5 year CDS and the DXY index, which over the past 18 months have correlated surprisingly close. Observing the recent action in US CDS implies that it may be about time for the downward dollar trajectory to invert. However the question remains whether US CDS is more a reflection of the level of underlying US distress, or is indicative of the euro-denomination of US CDS. With investors seemingly willing to blast Central Bank policies on a daily basis via the gold market, which in turn drives the currency market, the chicken or the egg circularity of whether fundamentals or correlations drive corresponding risk metrics once again rears its ugly head.
- NT: 36.5 million, 18 trades
- DISH: 34.4 million, 9 trades
- RESCAP: 34.4 million, 8 trades
- COOPER: 30.6 million, 17 trades
- ECOPET: 28.9 million, 25 trades
Spreads tightened marginally today as stocks gapped higher at the open and followed through to new highs in early trading. Credit closed near the wides of the day as it leaked weaker for much of the afternoon with HY just edging IG on the day. Breadth was positive in credit as financials outperformed non-financials and while single-name activity was better than average, the moves were far less positive in both IG and HY than in the 'correctly framed' equity markets. Credit's beta (especially HY) to stocks (and the dollar) are becoming more and more muted as risk asset classes are becoming more discriminated between in our view with equities in a world of their own.
With volume in equities on collision course with singularity, courtesy of HFT's vol lim->0 series, Zero Hedge is launching a new daily segment which will indicate the volume and number of trades per any given issue according to TRACE. As we believe the vast majority of human traders have largely shunned equities, the impact of credit trading will only get larger and larger. And while CDS has yet to get the "TRACE" treatment, the availability of this data in cash bonds is the main reason why we will bring it to public scrutiny. Furthermore, we will commence correlating this data with which desk has the most active axes in any given name, and implicitly determining whose Fixed Income division is making the most money on the bid/ask spreads and on traded cash volumes.
Janet Tavakoli Retracts Her Apology To Goldman Sachs, Calls For More Regulation Of The Government Backstopped Hedge FundSubmitted by Tyler Durden on 11/22/2009 10:57 -0500
"In light of the SIGTARP report, I withdraw my earlier apology to Goldman. Public commitments to AIG are currently around $182 billion. If you wonder what Goldman CEO Lloyd Blankfein meant when he said: “[Goldman Sachs] participated in things that were clearly wrong and we have reason to regret and we apologize for them,” think of Goldman’s role in AIG’s crisis, Goldman’s bailout, and Goldman’s ongoing heavy taxpayer subsidies. That way, one of you will be genuinely sorry about it." - Janet Tavakoli
With the equity market sell off yesterday, it is not surprising that the weakness as a result of bad economic data spread to all products, notably credit. The CDS heatmap, or in this case redmap, demonstrates how bad the mauling in IG NA was, where for each name tighter there were 40 credits wider. With all assets approaching a correlation of one, we fondly salute to the memory of relative value analysis.
Diane Urquhart's research has wider implications for employees and pensioners of other companies teetering on bankruptcy. If the explosion of CDS and leveraged buyouts is inducing a wave of bankruptcies, then why should taxpayers borne the cost? I say we tax the funds that are wreaking havoc on the real economy with their sophisticated financial "leveraging and hedging".