What’s Movin’ Markets - Tuesday, November 18th
What’s On OUR Minds:
Yesterday was much less exciting than it appeared in some respects while in others, it was actually MORE exciting. What we mean is that IF you were involved yesterday you would more than likely complain about the lack of volume (Treasuries traded about 66% of the 10day moving avg as best WE understand it) which produced a bullish flattening of the yld curve. Without ‘new’ news and in light of the refunding settlement, we can at least say that we understand the activity of yesterday. Does this mean we would have been LONG for it? Nope. In fact we were early sellers with some friends who were lugging around some ‘auction longs’ in 10s when they traded @ 100-16 (3.69%), leaving this most recent 1/2pt on the table. Good job! We never cry over the spilt milk and try NOT to say ‘what if?’, but on days like yesterday when volumes are terrible, well, enough said. Booking of profits is ALWAYS a good thing and we’d offer the following picture of 10s, which may very well be breaking out. We’ll need some more time at these higher prices to tell for sure and we’re gonna get an awful lot of INPUT today (PPI, Ben and Hank testimony as well as the auto companies going up to The Hill and taking a knee) and this may very well resolve itself. FYI, here’s what WE’re looking at and why selling (to take profits) still makes some sense to us, despite that 20/20 hind-sight. We’re not good enough to pick tops and bottoms but we’re trusting enough of ranges and the nature of the trading environment we’re in. Selling before ‘resistance’ then is The Plan, as is buying dips ahead of ‘support’. The next question will be if this is start of something bigger – a range break? WE think it’s too early to tell but offer the following and ask your opinion:
Moving on then, and trying desperately to get our arms around all the various inputs we’ll get today (mentioned just above) we’ll say that inflation isn’t a problem currently. Ben told is it wouldn’t be, many many months ago. He’s now being proven correct. Face it, this guys good. We ARE anxious to hear how both he and Hank field questions from some angry law-makers who feel as though they were victims of the classic ‘Bait – And – Switch’. We’ve NO idea what might come of this all and therefore we’ve NO idea how to position for it. What we MIGHT think is that in light of recent decisions to pass on requesting more funding to fix the problems along with the days round of ‘grandstanding’ by the politicos, well, this should breed even more contempt, confusion and uncertainty. Last we checked these are NOT the things that risk – asset manager’s dream of and therefore could and should keep pressure on those markets.
One other thing to make mention of, aside from the aforementioned theatre up on Capitol Hill there will be some grown men groveling with hats in hand, suggesting that they too need access to the TARP funds. We’ve plenty of opinions but honestly the webpage is not nearly long enough to express it – call if yer interested – and suffice it to say that if you wanna know just how bad things ARE and are gonna get if/when a big auto company is let go, well today’s the day you’ll get an idea. What we think is amusing, to put it kindly, is that just in case things weren’t bad enough, well GM has taken it upon itself to ENSURE things are gonna be really CRAPPY so as they’d have a leg to stand on in their argument up at The Hill - please read the following story from Bloomy: GM Delaying Dealer Incentive Payments as It Calls for U.S. Government Aid (Bloomy) …
Um, ok. If that didn’t make you feel all warm and fuzzy we’d urge one and all to scroll down and check out Thomas Hoenig’s comments on last night’s PBS biz report where he suggests that the Fed’s done enough and need NOT save everyone and must draw the line … We’re not able to be making this stuff up and, well, this all adds up at the moment to present what WE see as clearly NOT a value proposition. It doesn’t need to be. We’re NOT looking at various markets from that perspective and we long for the day when we’ll be talking about stocks rallying 10, 20 or 30% from the lows but in advance of that, and any concrete news out there that suggests its coming, well, keeps the current market MoJo in place.
To be clear, we’re watching all the Capital Hill theatre for any and all signs something good is on the horizon. Meanwhile as fixed income guys we’re adding all the current facts up and they seem to point to more of the same – bull flattening – until it doesn’t. Where will the more bearish bond mkt news come from? Perhaps some sort of cabinet being formed by GoBamaNomics? Perhaps with some solid, believable plans by the Big 3 to produce cool cars that we all wanna buy? Donno but think we at least know where and what to watch for and will have plenty of time to react accordingly. Sorry for such a lengthy rant … Enjoy the Capitol Hill fireworks today. Should we pop the corn??
Items Of Interest:
Bloomy’s Economic Calendar November 18th
Bloomy’s Fed-speak Calendar November 18th
GPs Key Econ Indicators November 17th, 2008 -> Our “Economic Graph Package” is used by some of our clients to include in their monthly or quarterly reports. We have most of the major economic indicators included to give an accurate snapshot of the economy.
GPs 5yr & Under Summary November 17th, 2008 - > This is our chart package we call the “One to Five Year Daily”. It tracks agency bullet spreads to Treasuries, date to date, to compute the real maturity spread levels (in basis points) out to five years. We track agency callables against agency bullets and Treasuries. We compare equal maturity dates when tracking these spreads because the effective durations of callables are not stable. So over time we have a consistent methodology that we use to determine “value”. Please give us a call for more in depth explanation.
GPs Index Spread Summary November 17th, 2008 -> We use certain Merrill Lynch indices, which are described at the top of each graph, to try and determine optimal entry and exit points for each sector. Though the indices should have similar durations, they commonly don’t match precisely so we’ve included the green line (which should be read off from the right axis) to allow you to take the curve into account when looking at historical spread relationships.
GPs Daily Pivots November 18th, 2008 -> The pivot point is essentially a mechanism for analyzing the short-term supply and demand factors affecting the market. It has limited applications for long- term decision making. Professional futures floor traders, also known as locals, are the biggest proponents of the pivot technique. Scalpers, brokers, market makers, and other short-term traders also use the technique, while upstairs or longer-term traders occasionally look at the pivot for ideas of what the floor traders are doing. The pivot point is basically the weighted average price of the previous trading day, calculated as the average of the previous trading day’s high, low, and closing prices. It represents the major point of inflection each day. Unless there has been significant market news between the previous trading day’s close and the current trading day’s opening, locals often try to test the near term support, resistance, and pivot point. For example, many floor traders cover their shorts and go long into the pivot level if the market opens above the pivot point and starts to sell off.
StreetStuff - WEEKLY November 17th
StreetStuff - November 18th
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DB: A leading indicator of GDP points to a sharp contraction
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GS: Fourth-Quarter GDP – How Bad Could It Be? With recent economic news consistently disappointing the market’s pessimistic expectations, and setting 20- or 30-year lows in many cases, clients have naturally begun to wonder whether the fourth-quarter could see an even deeper contraction than our estimate of -3.5% annualized GDP growth.
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BofAs Situation Room: The “Whack-a-Mole” Market - The shifting TARP focus from asset purchases to capital injections solves one problem, creating another. Last week, cash CMBS gapped out to LIBOR +870 as the implied support from asset purchases gave way to a new focus on capital injections on display as Treasury today announced a new term sheet for private banks, released a revised list of banks receiving capital, insurance companies extended the range of industries seeking TARP funds and the Senate proposed legislation to modify the TARP to make loans to auto manufacturers and suppliers. We highlight potential forms of the liquidity facility for highly rated AAA asset-backed securities, noting that prior intervention efforts suggest the Fed and Treasury program could significantly support these markets.
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BofA: $1 Trillion US Budget Deficit - Deepening recession and falling profits are widening the budget imbalance dramatically, primarily by weakening revenues. The new fiscal stimulus program to be debated by Congress is expected to cost about $300 billion, driving the budget deficit up toward $1 trillion, or nearly 7% of GDP. The dramatic increase in indebtedness will exert financial burdens. US Treasury interest rates are very low, reflecting recession and recent declines in inflationary expectations. Eventually, rates will rise to reflect the ballooning Treasury borrowing requirements, a shrinking of the recent excess global savings and US economic recovery.
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MLs David Rosenberg: As bad as it is, it’s still not the 1930s for the economy; Introducing the Merrill Lynch QuEST TrendWatch Monitor - Quantitative, Economics, Strategy and Technical (QuEST) TrendWatch Monitor that we will publish on a monthly basis. The QuEST is signaling caution for equities
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MS: Business Conditions: The Anatomy of a Recession - Market implications: Investors want to know how deep the downturn will be and how long it will last. The MSBCI confirms that the recession is deep and likely to stay that way. While a lot of bad news is in the price of risky assets, ongoing downward revisions to earnings and the uncertainty about the outlook imply further pressure on equity markets.
Technicals - November 18th
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JPM: Dec Tens: Oct-Nov Rally Moves Deeper into 117.16-118.02 Targets
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BarCap:; US Treasuries - 10s and 5s: 10s hold the bid, as yields push toward range resistance; Eurodollars and Cash 2s: Curve risks a correction, but the steepening bias remains; Bunds hold
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Mizuho: Buy at 117.20, adding to 116.00; stop below 114.00. Add to longs on daily and weekly closes above 118.00 for 119.00/119.16. Then careful as we shall expect hesitation and possibly sharp price swings at the pivotal 3.25% benchmark yield.
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UBS: Still Developing Recovery While Trading Above 116.305, Breaks of 117.24 the Trigger to 118.02, Even 119.02. Current Recommending Positions: Flat. Current YTD All Market Trade Recommendations P&L: +25.92%
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ML: Robust UST theme extends; equity vulnerability and mounting breakdown risk; US 10yr lower yield bias within the H2 consolidation range; Continuous Commodity Index key support threat
In Press NOW:
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CREDIT MARKETS: Fannie Pays Higher Premium on Return to Debt Market
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MARTIN FELDSTEIN How to Help People Whose Home Values Are Underwater The economic spiral will get worse unless we do something about negative equity.
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Insurers Buy Banks in Bid for Aid U.S. life insurers are seeking a slice of bailout funds by buying up tiny banks in a move aimed at converting to S&L holding companies.
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Paulson Will Keep Reserve To Stay Flexible for Future Paulson, in an interview, said he prefers to use the remaining funds from the $700 billion rescue for emergencies rather than new programs.
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Investors Hit BofA Loan Modifications Investors holding securities backed by Countrywide mortgages are criticizing Bank of America’s move to modify loans following a settlement.
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For Geithner, Rescue Ties Cut Both Ways New York Fed chief Geithner, a key fireman in the financial crisis, presents a dilemma for Obama as a Treasury secretary candidate.
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AHEAD OF THE TAPE Stock Market Still Seems Too Sanguine One truism about markets is this: No matter how pessimistic stock investors are, the bond markets are almost always more despairing.
- A British Lesson on Auto Bailouts By NELSON D. SCHWARTZ In a classic example of a futile government intervention, British Leyland went through billions in taxpayer money before going out of business.
- Economix Blog: How Many Jobs Depend on the Big Three?
- Paulson hedge fund buys into mortgage securities Move to profit from depressed prices
- Bondholders urged to take investment cut Private equity firms seek to buy time
Volcker issues dire warning on slump
Paul Volcker, the former chairman of the US Federal Reserve, warned that the economic slump has begun to spread, threatening to overwhelm the incoming Obama administration.
Kansas City Federal Reserve Bank President Thomas Hoenig’s Dismal View of the Economy Kansas City Federal Reserve Bank President Thomas Hoenig says there’s no easy way to get the economy moving again. Read More |
What’s Movin’ Markets - Weekend/Monday, November 17th
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Japan’s Economy Slides Into First Recession Since 2001; GDP Shrinks 0.4% (Bloomy)
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G-20 Plan for Tighter Financial Rules Signals Smaller Profits After Crisis (Bloomy)
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European Bonds Trounce Treasuries as ECB Plays Catch Up On Lowering Rates (Bloomy)
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FDIC May Revise its $1.4 Trillion Debt-Guarantee Plan After Banks Complain (Bloomy)
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U.S. Recession to Extend Into 2009 as Spending Falls, Economist Group Says (Bloomy)
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UPS Won’t Predict Peak Holiday Shipping on `Unusual Times’ in U.S. Economy (Bloomy)
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Freddie Asks Treasury for $13.8 Billion Capital Infusion After Record Loss (Bloomy)
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Freddie Mac, JPMorgan Clash in Dispute Over Who Takes Losses on WaMu Loans (Bloomy)
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Stanley Druckenmiller’s Hedge Funds Posting `Single Digit’ Gains in 2008 (Bloomy)
What’s On OUR Minds:
Sitting around chatting about the weekend press and asking ourselves what NOW? Seems that there’s enough uncertainty out there at the moment (G-20, auto sector, alphabet soup solution center at Tsy and Fed failing to instill giNORMOUS amounts of confidence) that equities are more at risk at the moment, then let’s say the US Treasury market. We don’t think this is any statement of value with regards to the Treasury market and to be honest we don’t think it needs to be at the moment. The theater will heat up with more drama this week given the fireworks set on Capitol Hill courtesy of the auto sector. We find it strange to think about em being bankrupt. We have a hard time saying they shouldn’t be bailed out and yet we find it hard to understand what the money will do? Will $25 or $50bil make a good car we’ll wanna buy? Better yet, given the current status of things, isn’t it odd given how bad things are (or at least are being portrayed) that when WE go to our local Ford dealer and suggest that we’re here to save them and actually buy a vehicle, they suggest that really, everything’s just fine. When questioned on it, they suggest that um, fleet sales have been up and oh yeah, the price of gas has dropped so they are selling more and more gas guzzling SUVs than they were a couple of months ago so don’t believe any of that hype on the TV. Seems as that only pertains to TV and not to us getting any deals. Right. Donno but that strikes us as odd.
BUT we digress. As we contemplate who and what we wanna be and do this week, we can’t help but think about data (didn’t Ben keep telling us inflation would eventually cooperate – look for this week’s data to do just that) and also about today’s refunding settlement. There are issues that at the moment are all at a handsome profit. There is more than ample cash coming IN to pay for the settlement and this is all a prelude to an even bigger question. What are folks gonna wanna do with month-end index extensions, that given 3s and Bonds should provide enough wiggle room IF one wanted to make some sort of duration statement. That’s still another couple weeks away but just need to throw that out there. Finally, we wanted to share the following couple of pictures that we stumbled across reading that blog thingy – The Big Picture which is now located HERE. First is about stocks and we’re sorry to labor the point as bond guys watchin stocks – the correlation has left much to be desired – and the 2nd picture, well is just amusing:
FINALLY … From Dilbert - an instant classic:
Items Of Interest:
Bloomy’s Economic Calendar November 17th
Bloomy’s Fed-speak Calendar November 17th
GPs Key Econ Indicators November 17th, 2008 -> Our “Economic Graph Package” is used by some of our clients to include in their monthly or quarterly reports. We have most of the major economic indicators included to give an accurate snapshot of the economy.
GPs 5yr & Under Summary November 17th, 2008 - > This is our chart package we call the “One to Five Year Daily”. It tracks agency bullet spreads to Treasuries, date to date, to compute the real maturity spread levels (in basis points) out to five years. We track agency callables against agency bullets and Treasuries. We compare equal maturity dates when tracking these spreads because the effective durations of callables are not stable. So over time we have a consistent methodology that we use to determine “value”. Please give us a call for more in depth explanation.
GPs Index Spread Summary November 17th, 2008 -> We use certain Merrill Lynch indices, which are described at the top of each graph, to try and determine optimal entry and exit points for each sector. Though the indices should have similar durations, they commonly don’t match precisely so we’ve included the green line (which should be read off from the right axis) to allow you to take the curve into account when looking at historical spread relationships.
GPs Daily Pivots November 17th, 2008 -> The pivot point is essentially a mechanism for analyzing the short-term supply and demand factors affecting the market. It has limited applications for long- term decision making. Professional futures floor traders, also known as locals, are the biggest proponents of the pivot technique. Scalpers, brokers, market makers, and other short-term traders also use the technique, while upstairs or longer-term traders occasionally look at the pivot for ideas of what the floor traders are doing. The pivot point is basically the weighted average price of the previous trading day, calculated as the average of the previous trading day’s high, low, and closing prices. It represents the major point of inflection each day. Unless there has been significant market news between the previous trading day’s close and the current trading day’s opening, locals often try to test the near term support, resistance, and pivot point. For example, many floor traders cover their shorts and go long into the pivot level if the market opens above the pivot point and starts to sell off.
StreetStuff - WEEKLY November 17th
Technicals - November 17th
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JPM: Dec Tens: Rally Probes Interim Targets at 117.16-118.065
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CSFB: Flat. Re-try a long on weakness to 116-30/26, stop below 116-20, for 118-00/02, where we would take profit. Re-instate above for 119-115. Below 116-20, re-try a long at 116-05/115-30, stop below 115-25.
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CSFB (wkly): 2yr yields have staged a bullish break; 5yr notes have rallied for a test of the key 2003 peak at 117-01; Eurodollar key support at 97.77/75 is the barrier to a near-term corrective dip; 5s10s curve has cleared key resistance at 122/127bps.
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UBS: Developing Recovery While Closing Above 115.30, Risk to 118.02, Even 119.115; Current Recommending Positions: Flat. Current YTD All Market Trade Recommendations P&L: +24.33%
In Press NOW:
![[pic]](http://s.wsj.net/public/resources/images/OB-CR447_BA_Cov_NS_20081114231647.gif)
Dear Mr. President by Jim McTague Our open letter to Barack Obama outlines eight steps he should take to restore order to financial markets and bolster the economy.
Defusing the Credit-Default Swap Bomb by Jonathan R. Laing Reforms are defusing the danger in the credit-default swap market.
CURRENT YIELD Can Uncle Sam Keep Paying the Piper? by Randall W. Forsyth Look out: New handouts will strain Treasury.
UP AND DOWN WALL STREET Another Bum Market Signal by Alan Abelson Beware shills hawking market bottoms. Why the crowd’s all wet on next year’s earnings.
Sifting Cautiously Through the Ruins by Lawrence C. Strauss AN INTERVIEW WITH HOWARD MARKS: All we know is that “nobody knows.”
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THE OUTLOOK: Banks Keep Lending, but That Isn’t Easing the Crisis
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Japan Enters Recession The world’s second-largest economy has slipped into recession for the first time since 2001, joining Europe in a global economic downturn.
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CREDIT MARKETS: Rise in Libor Is Seen as Temporary
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GM Seeks to Set Terms On Auto Bailout GM, hoping to sway the battle in Washington over an auto-industry bailout, told officials that a bankruptcy filing by the car maker would hammer suppliers and dealers — and in turn its Detroit rivals.
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Fidelity Plans New Layoffs After giving pink slips to 1,300 employees Wednesday, Fidelity told workers to prepare for another 1,700 layoffs in 2009.
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AIG Ends Deferred Plans AIG will pay $503 million from deferred-compensation plans to workers to remove an incentive for them to quit.
- If Detroit Falls, Foreign Makers Could Be Buffer By LOUIS UCHITELLE
- Experts say the foreign carmakers could take control of the industry and its supplier network more quickly than is understood.
- When Big Isn’t Enough A hedge fund manager wants to add to his 35,000-square-foot mansion.
- Downturn Drags More Consumers Into Bankruptcy By TARA SIEGEL BERNARD and JENNY ANDERSON Tony and Carrie Forsyth filed for bankruptcy to keep their house in Tamarac, Fla. “There was no other way for us to live and support our family,” Mr. Forsyth said. With their credit cards drained, the latest bankruptcy filers are deeper in debt than those in previous downturns
- Market Bottom? For Some Investors, It’s Close Enough By PAUL J. LIM
- The elusive market bottom may be finally in sight. But don’t count on being able to time the market
- A Rescue Plan Without Taxpayer Money By GRETCHEN MORGENSON
- There are many smart ideas floating around about how to solve the twin problems posed by securitizations and resetting mortgages.
- As the Economy Worsens, Is There Money for Play? By KATIE THOMAS
- General Motors has cut spending at a time when the sports industry is having a harder time attracting dollars.
- Poor Economy Starting to Shape Sports Landscape
- Will the Safety Net Catch the Economy’s Casualties? By STEVEN GREENHOUSE Programs to cushion and counter economic downturns have been sharply curtailed since the 1981-82 recession
- Automakers Offer Big Incentives to Spur Sales By NICK BUNKLEY Automakers are offering cash rebates and dealers steep discounts to try to make room on lots for new models.
Traders to collect big on slick bet
Oil speculators set to reap return of over 2,000%