Morgan Stanley

As was pointed out yesterday, Morgan Stanley's massive Real Estate empire is starting to unravel building by building. With a building here, five buildings there, the shareholder pain, and the writedowns start accumulating. But it was not always makeshift tears and walking away from buidings when your equity is underwater. In those long ago days of 2005 it was hope and bubblemania. Which is why we dug up various Morgan Stanley Real Estate Fund documents and materials, exposing the firm's delirium just as the peak in the real estate bubble was about to set in.

At least a few MDs at Morgan Stanley DO read my blog, but it is obvious that the guys in the real estate division don't. Early in 2008 I named Morgan Stanley the "The Riskiest Bank on the Street". The following is one of the reasons why.

What do these five building have in common?

As Europe continues shouldering the burden of the devaluing dollar, courtesy of a Euro that just wont quit, even as the Eurozone is constantly putting out fires in its own backyard (Greece, Hypo, Latvia, ongoing downgrades), the optimism over European prospects is now more pervasive than ever. In a report titled "Key Surprises for 2010" Morgan Stanley's ever insightful Teun Draaisma has attempted to present the intangibles: the unquantifiable risks. As he points out "if there is a lesson the markets keep telling us, it is the persistence of uncertainty. Unlike risks, which are known and measurable, uncertainty is difficult to calibrate. We can never know the exact payoff distribution for any given investment." In order to conceptualize the 4 key areas of possible systematic impact, the strategist has provided 4 main scenarios he believes may shape equity returns over the coming year in a downside case.

It is good to see who is back in charge. Obama is patiently sitting in the conference room playing Brick Breaker on his Bbery. This probably means that private jets are finally back. Also, not a good endorsement of the Acela train.

"Executives from Goldman Sachs Group Inc. (GS), Morgan Stanley (MS) and Citigroup Inc. (C) are delayed as they try to make it to a meeting Monday with President Barack Obama at the White House, Fox Business Network reports. Flights for Goldman Chief Executive Lloyd Blankfein, Morgan Stanley CEI John Mack and Citigroup Chairman Richard Parsons are being delayed by fog."

Trying to read between the lines of BOJ doctrine, even as the Yen continues rising contrary to what the economic data out of Japan time and time again suggests it should be doing, Morgan Stanley is out with a report that attempts to quantify the probability of a Yen intervention. And even though there has been no official instances of intervention since 2004, MS feels that "increased JPY strength from current levels is increasingly likely to trigger official FX intervention." As this relates to the economy caught in the biggest deflationary vise in the last two decades this does not surprise us very much.

It is no secret that Julian Robertson is not a huge fan of long-dated bonds. In his recent CNBC interview he had some downright nasty words about the back-end of the UST curve, especially if the "downside contingency" case of foreign purchases ceasing, were to pass. However, while many have known about his propensity for the bond steepener trade, his latest trade position is the so called Constant Maturity Swap trade. Moving away from an outright steepener makes sense as it can now only profit from a tail end widening, since the front end of the curve is at zero. Unless Bernanke follows Sweden into negative rates territory, the steepener upside potential has just been mechanically limited by 50%. As for his current preferred iteration of expressing Treasury bearishness, CMS, here is some recent commentary from JR on the topic:

"The insurance policy I would buy is called a CMS Rate Cap, which is the equivalent of buying puts on long-term
Treasuries. If inflation happens the way it could, long-term Treasuries
are just going to explode. Less than 30 years ago, long-term interest
rates got to 20%. I can envision that seeming like a very low interest
rate compared to what might occur in the future."

No surprise then, that Morgan Stanley's Govvy desk has started pimping this trade (including some hedged and Knock Out variants) to anyone who wants to immitate that original Tiger.

One of the key headlines these days has been the unmasking of what has been dubbed the biggest identity theft and credit card fraud case in history, allegedly spearheaded by one Albert Gonzalez, who in 2003 was involved in a comparable scheme however upon being caught, promptly became an informant for the Secret Service and turned over 30 of his hacking buddies. Six years later it is he this time who is in the hot seat, together with most of his associates, including one 25 year old Stephen Watt, who supposedly was the creator of the credit card sniffer software used to hack into over 130 million of various credit cards for merchants such as TJX, Dave And Busters and 7-Eleven, which numbers were subsequently sold for hefty sums to Eastern European purchasers. What is peculiar in all this is that apparently for the entire duration of this operation, Stephen was working in "Application infrastructure development and in house security toolkit development" at Morgan Stanley (earning $99,000 a year as a 21-23 year old programmer in 2004-2007), and subsequently took a brief position with Imagine Software, where he developed "real-time computer trading programs for financial firms." Did Stephen learn the tools of the trading game at MS, while at the same time hacking millions of credit cards, only to take what he learned from both ventures into a new operation, one that counts among its clients the Who's Who of Wall Street? Or, alternatively, did he use his packet sniffing skills at Morgan Stanley? The questions grow...

Zero Hedge recently submitted a FOIA to the Federal Reserve regarding information prepared by Davis Polk and Morgan Stanley in their capacity as legal and financial advisors to the Fed in its negotiations on whether or not to push AIG into bankruptcy. We present their response.

The Vice Chairman of Morgan Stanley Asia destroys any last germinating green shoots.

"Green shoots are a very simplistic way to look at the world." Why is it no surprise that Fed Chairman Ben Bernanke came up with it. 

MS analysts, fully blown out of the water with their prior prediction of a market top at 850, have decided to step into the bailout-infested Oracular waters yet again, this time saying that 950 is the absolute, positive top. How does the house of Mack come up with its conclusion? Simple - by cranking up 2009 S&P earnings by a whopping 20% from 40 to 51, and claiming the earnings trough will occur in Q3 2009.

Must be a slow day on CNBC which just had a special on strippers. Of particular interest, CNBC profiles (in)famous Randi Newton, who has seems to relish the limelight of a laid off former Morgan Stanley analyst. Apparently the media goes apeshit for women with pouty looks and fake breasts. (The irony of Zero Hedge devoting a post to this is not lost)

Just got home from a lovely day filled with interviews.

Must be a slow day on CNBC which just had a special on strippers. Of particular interest, CNBC profiles (in)famous Randi Newton, who has seems to relish the limelight of a laid off former Morgan Stanley analyst. Apparently the media goes apeshit for women with pouty looks and fake breasts. (The irony of Zero Hedge devoting a post to this is not lost)

Just got home from a lovely day filled with interviews.