Barclays

A topic we have been investigating recently has been the sudden surge in direct bidding, at least as it pertains to the near end of the Treasury curve, and what the identity of the actual entity doing the buying may be. Explanations offered have ranged from China and Petrodollar accounts buying covertly, to primary dealers ramping up their activity to justify to the Fed that they are worthy for admission, all the way to the Fed conducting yet more 'under the radar' QE purchases. Today we present the opinion from Barclays, which provides another, fourth, view on things, theirs being the most benign one, namely that plain vanilla accounts have been purchasing Treasuries via the direct bid.

First Meredith Whitney, then JPM, then everyone else, and now Barclays. The firm that stole Lehman whacked its estimates of GS and MS, on expectations of a 7% decline (after a 6% increase) in equity volumes, due to a "lower ETF volume expectation as well as lower NYSE-listed volumes that benefited handsomely in 2009 from exacerbated trading volumes in highly volatile, low priced financial stocks that we expect to subside in 2010." This new assumption is making Barclays reduce EPS estimates across the board: "In short, estimates are coming down modestly driven by lower return expectations in both equities and fixed income, lower inflow expectations across both asset classes, and lower equities and futures trading volumes as well as debt and equity underwriting volumes. The downward adjustments are not large, but they do reflect the challenging comparisons that most of the companies in our coverage universe are up against in 2010following what, by all accounts, turned out to be a very strong year for capital markets companies in 2009."

Developing story: It was just a matter of time, as previously expected.

Ironically, on September 18th 2008 Lehman would undergo millennia of Chinese water torture just to get the sale done. How everything changes in one short year.

For those that remember the surreal weekend before Lehman filed chapter 11, Barclays was considered an eleventh hour white knight who would swoop in and buy the bank. These rumors were squashed after Barclays pussied out, saying it would not be able to afford Lehman without the Queen's, the Fed's and Santa Claus' blessings... Nonetheless, the bank did its diligence, and 4 days after Lehman filed, Barc used the smoke and mirrors of bankruptcy court to snatch the U.S. broker dealer for metaphorically pennies on the dollar, and literally $1.75 billion.

Barclays/Lehman chief market strategist Barry Knapp came out with a report this weekend predicting a 10% drop for the S&P in this quarter, with a low of 750 to come soon. Why the pessimism? As Barry succinctly puts it "We were recently asked - Isn't all the bad news out? Unfortunately, we believe the answer is - No."

After dropping as low as $6/share, BCS recovered most of its losses and traded as high as $8, before dropping again. Barclays management "We know of no justifcation for share-price decline". It also expects to report pre-tax profit well ahead of the $5.3bn analyst estimates...

Well, we shall see