More Observations: VIX - Sovereign CDS Divergence

As Zero Hedge postulated a month ago, the VIX - sovereign CDS inverse correlation is becoming more and more evident. Today's action is representative: as VIX continues to slowly trickle lower, US protection is 5 wider. With the G20 pledging trillions to battle every cough and sneeze of the markets, the question becomes what does all this mean for sovereign default risk, and thus VIX, and thus equity markets. With G7 or G20 or Gx debt soon to hit astronomical (this is a technical term) levels, how will all the interest cash flow be funded? How will skyrocketing sovereign deficits be funded? Who will keep on buying UK and German (not to mention US) debt after several failed auctions over the past 3 months?

Many questions with no answers - in the meantime, we either just crossed from deflation into inflation today (which is the most laughable thesis if one actually looks at macro data and the level of consumer wealth: for reference just dial David Rosenberg), or the market is just rallying on the biggest sucker rally in recent years with vanilla, smart, retail and all other sorts of money just hoping for the greatest greater fool effect in generations.

****Update****

Cramer just pronounced the "market depression" that started post Lehman as over. Now we are merely in a recession.

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Credit - Equity Divergence Continues

IG 12 back to virtually unchanged at 197 bps after opening 4 tighter: the credit market is not buying it. Equity market is... well... the equity market. Those who say credit markets have been wrong for the past 6 weeks may be on to something... or not Sphere: Related Content

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The Madoff Rolex Connection

Zero Hedge is happy to introduce its newest contributor, Travis, whose extensive background in the intricacies of the ultraluxury world will provide a welcome perspective on the mysterious world of goods that usually show up in the pages of the Robb Report, on the walls of Stevie Cohen's uber-plumbed mansions and on the wrists of momentum chasing day traders (one has to give it to them: they have made a mint over the past month; their mutual fund brethren who are only now getting involved will be stuck wearing a '98 Ironman). We hope, as the government expands the PPIP and TALF to include such asset classes as BBB tranches on Patek Philippe and Monet-securitized asset pools, to present the information needed to make informed decisions on whether 6x leverage is sufficient to purchase that Murcielago whole loan trading at 22 cents on the dollar which as Kudlow says, is absolutely money good.

The Rolex is Real; But Are the Stories True?

By Travis

Amid BASELWORLD 2009 drawing to a close, “The World Watch and Jewellery Show” (their funny spelling, not ours), rumors abound for perhaps its biggest showcase, the self-crowned “800-lb. Gorilla” Rolex. It seems not only did the fallen financier Bernard Madoff have a penchant for ripping-off golf buddies, club cohorts- the rich, the famous, the charitable and anonymous alike; he also cheated their wrists.

Uncle Bernie didn’t shuck his victims of their shiny bejeweled Rolex Oysters (that would have been seemingly straightforward, almost harmless in perspective) he supposedly Ponzified Rolex, SA- the ultra private, secretly veiled, principally owned charitable trust that manufactures and markets an estimated 1,000,000 wristwatches a year, out of some $900 million dollars. (Like anything and everything else Rolex, this is all heresy, speculation at best.)

Rumors began to swirl, or in Rolex’s solid case of 904L Stainless Steel, Perpetual-ate, when the past CEO Patrick Heiniger abruptly stepped-down due to “personal interests,” only to be replaced by former banker and CFO Bruno Meier in December 2008. Meier is just the fourth CEO in Rolex’s 104-year history. The Heinigers both Patrick and father Andre, having taken-over Rolex’s affairs since the passing of its founder, Hans Wilsdorf in 1960. Was Heiniger responsible for losing the better of a Billion to Madoff? Wouldn’t be the first charity to be shaken down by the Ponzimeister.

Rolex, notoriously quiet and secretive among the hallowed Swiss wristwatch industry (in itself infamously shrouded in a bit of legend and mystique) is controlled by the Hans Wilsdorf Foundation, a charitable trust that supposedly donates a lion’s share of Rolex profits to hundreds, thousands, millions (pick a number, any number) of charities and causes worldwide.

Again, any and all figures, facts and stories confirmed or denied by the company are estimates, with much if not all truth coming from dealers and industry insiders; most of whom are bitter and disgruntled, not only at Rolex, but at the downturn of the luxury goods market whose business has plummeted with the recession by about 40%.

Yet despite a global meltdown of historic proportions, Rolex (as it continually reports every year) set record profits in 2008; forever and always raising the upward bar, along with the watch MSRPs which continue to rise every year, sometimes even a few times a year. Enthusiasts will cheer- “Rolex makes a million watches a year… And they sell everyone of them…” How jaded are the people “watching” really? (Take it from a collector, pretty jaded…)

Though most loosely associated with Rolex are smitten and arrogantly aware of the only wristwatch that really matters, both in value and brand-recognition; the truth is- their dealer networks have been cut short by the company, pulling and controlling franchises of rights, forcing products, controlling prices and dumping inventories on retailers struggling to stay open in the malls across the world, no to mention boutiques on 5th Avenue, Worth Avenue, Rodeo Drive, Bond Street, maybe even shady 47th Street too.

So are the stories true? Ask if the Rolex is a fake? Even if it were, the asshole wearing it wouldn’t tell you anyway. Why should the company? Like anything Rolex, if it’s not purported, it most certainly is perpetual and water-resistant in a perfect storm, a flood, of bad news. Sphere: Related Content

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Mid Day Financial CDS Recap

Bank CDS post-FASB:

BAC 377bp -20,
C 640bp -20,
JPM 190bp -10,
WB 292b -15,
WFC 292b -15,
MER 545b -20,
MS 382b -15,
GS 287b -10

compliments of Mojakus Sphere: Related Content

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Some More Observations On Real Estate, Employment and Car Sales

As the world relishes in its self-reinforcing view that all is somehow well, there are some points that deserve to be pointed out:

1. Default rates at record: The share of FHA mortgages that are “seriously delinquent” at the end of February was 7.46%, up from 6.16% a year ago. the FHA-insured market now is taking some big market share – this is backed by the taxpayer – and in 4Q represented more than a 30% share of originations compared with just 2% in all of 2006. And Fannie just reported that 2.77% of single-family loans held in its $785 billion mortgage portfolio as of January are in default, an increase of 35 basis points in one month – the largest increase on record and double the default rate of a year ago.

2. While residential real estate is still bad, commercial is getting worse. The deceleration rate across both classes is picking up. Class ‘A’ asking office rents in midtown are off 19% YoY as of February, and more deflation can be expected to come with the vacancy rate doubling to 11.3% from 6.4% a year ago; Class ‘B’ rental rates are down 23% (as per Colliers data). Class ‘B’ vacancy rates have climbed to 14% from 9.9%. As a sign of how the commercial real estate space is playing catch-up to residential, the number of delinquencies has shot up 43% YoY as of 1Q: There are now 3,678 properties in distress (from www.rcanalytics.com)

3. As Zero Hedge pointed out yesterday in the distinction of unemployment peaks as a lagging or coincident indicator, here are some observations. On average, unemployment peaks six months after the S&P 500 has bottomed. Here is what San Fran Fed president Janet Yellen had to say on the jobless rate in her speech last week” “First, as forecasters, we distinguish between growth rates and levels. It’s true that the Blue Chip consensus shows moderate positive growth rates in output in the second half of this year. But even so, the level of the unemployment rate would still rise throughout 2009 and into 2010. So, in this sense, the worst of the recession is not expected to occur until next year”. Assuming a very early Q1 peak, the implication is that the market is headfaking this number yet again (which jives with Roubini's point earlier) and this is merely yet another bear market rally, as the real equity lows will not be evident until Q3 of 2009.

4. 9.8 million March SAAR versus a 9.2 million estimate? This was due primarily to record incentives (up30% Y/Y to $3,169 per auto according to Edmunds.com) and new programs that provide guarantees to cover payments in the event of a job loss, which drew in more customers. Also, a rush to beat a 1% sales tax increase starting April 1 boosted activity. Lastly, new information on tax refunds (up 21% YoY in March) likely boosted overall Q1 consumer spending and annualized GDP. Of course, all presented items are one-time in nature, which seems to be the prevalent method the government is using to push "optical" results higher, all the while the recurring basis of the economy keeps slumping lower. Sphere: Related Content

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Mark To Market: Time Of Death 8:45AM, April 2,2009

April 2 (Bloomberg) -- The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies,voted to relax fair-value rules that Citigroup Inc. and Wells Fargo & Co. say don’t work when markets are inactive.

The changes approved today to fair-value, also known as mark-to-market, allow companies to use “significant” judgment in valuing assets to reduce writedowns on certain investments, including mortgage-backed securities. Accounting analysts say the measure, which can be applied to first-quarter results, may boost banks’ net income by 20 percent or more.

****

Well, now that banks are all good in perpetuity (or at least until entire asset pools are remarked from par to zero), there goes the need for the PPIP. Hopefully this at least means that Bill Gross and Larry Fink won't make billions compliments of U.S. taxpayers. But don't take my word for it: the head of the world's largest hedge fund voices these very concerns. In fact, Dalio is so disgusted by the insanity in equity markets, rumor is he has moved out of trading equities entirely.

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Unemployment On Elm Street, Market Shrugs

Initial jobless claims: upward revision for February to 657K, March survey: 650K, actual 669K

Continuing claims: upward revision for February to 5567K, March survey: 5590K, actual 5728K

Market takes one look and forgets: bad news are swept under the market as "in two-three quarters" all will be fine, in the meantime, seasonally adjusted numbers about retail, housing and durable goods spark feverish rallies. Seems market is happy to clutch at straws even as trillions in consumer purchasing power go poof.

As an aside, maybe the best sign of the rally mindset out there is that reverse mortgage ads are back on CNBC. Nothing like monetizing that "equity" in your home. Sphere: Related Content

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Frontrunning: April 2

• Geithner’s Non-Recourse Gift That Keeps on Giving to Bill Gross (Bloomberg)
• Roubini: "Another bear market rally"... (Forbes)
• ...As the FASB makes sure nobody knows what is going on in the markets (Reuters, live FASB webcast)
• Defaults accelerate as worst is yet to come for commercial property (Bloomberg)
• Greenberg: AIG debacle not my fault (WSJ)
• Is the rush to exit TARP a trap (Marketwatch)
• ECB desperately holding on to LIBOR (Bloomberg)
• Estimating the savings rate crunch: the next storm in a cup (Felix Salmon)
• Fun with charts (The Atlantic)
• The discount on the FDIC's TLGP program is now officially over (WSJ)
• What's next for GM and Chrysler (Flowchart)
• Another DIP fund coming out, a $3 billion monster from Blackstone (Reuters)

Picture of the day - it's buy one 30 Yr TSY, get one free day:

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Revenge of the investment bankers!

This article has been making the rounds over the past day as the especially downtrodden finance guys angrily shake their fist in white collar populism while the more astute have to shake their heads at this faux-expose. The basic gist is that after excoriating Wall Street for excessive bonuses, Capitol Hill went ahead and allocated out a - wait for it - $9.1MM bonus pool to the various congressional staffers who constitute the invisible army of our legislative branch. Apparently the authors are pissed that they would dare to do such a thing.

$9.1MM to over 2,000 staff members - are you fucking kidding me? That's one senior investment banker at a bulge bracket, a few months work for a hot shot trader and a wet sneeze for James Simons.

Some of these guys are at the peak of their careers after being at the top of every applicable peer group and are now getting flack for getting (max) a 14k EOY bonus? At the low end, there are people only getting a few hundred.

Sorry Wall Street Journal - we know the bankers are wailing for a counterpunch against those idiots on Capitol Hill but this isn't the pressure point to push on. Sphere: Related Content

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Bullish on AUD following Feb. current account numbers

The Australian current account came in way above consensus numbers; $2.1B vs an expected $700MM. Keeping in line with our overall view, we were ready to dismiss it as a one time blip but after digging through the numbers a larger story emerged.

OVERALL

At the highest level, the surge in current account numbers on a monthly basis was driven by the non-rural goods exports component (which in turn is mostly driven by metals, minerals, ore, etc.). There was a drop in consumption goods, which is most likely explained by a anemic AUD and a more thrifty outlook by Australian consumers as the global depression mentality sets in. Capital goods imports  actually slightly increased but this was in the context of severely depressed numbers from the previous month. Much like many other recently released numbers that went through a bounce from Jan-Feb, there doesn't seem to be much reason to believe the rise in capital good imports is a sustainable increase.

 

EXPORTS

Exports are primarily driven by commodities in Australia, with ~70-80% of exports falling under that umbrella. The rest of exports are driven by services (~15-20%) and rural goods (~5-10%). Services and rural goods are relatively stable by nature and combined with the small share that they command, can safely be ignored as volatility drivers for exports. On a specific commodity basis, we are seeing huge increases on energy related items (coal, natural gas, petroleum, etc.) and precious metals. This is helping to offset the collapses of other commodities including iron (especially following a disastrous 2008 in iron and iron ore).  On a forward looking basis, ZH would expect exports to marginally increase as certain segments are close to their expected bottoms and/or have the potential to increase even further (iron, coal, natural gas, gold). Not coincidentally, these are also the largest components. Services and rural goods can be expected to continue to be stable as they are mostly "staples/necessities" vs. "luxuries" (e.g. shipping & transportation services, meat, wool, etc.)

IMPORTS

Similar to exports, imports are primarily driven by goods with services being a small, stable part of the equation (~15-20%). The drop in imports could best be attributed to a group described as "consumer luxury"; household electric, textiles, toys, non-industrial transport, misc. consumption goods. This is likely a result of the tremendously weak Aussie dollar after the crash last year, and an austerity somewhat imposed by the coverage of the global depression. As we mentioned, capital goods increased last quarter but we are not convinced this is a long term thing. The net picture is a strong view that imports are likely to continue to be weak in the near future.

SUMMARY

With the current account poised to only increase and the RBA looking unmotivated to further cut rates, AUD is looking like a strong play going forward. The risks are relatively straightforward; if oil gets hit even more and/or if the gold rush ends, the account balance could vanish in 1-2 months. However, with every other major country looking to quietly devalue and facing far starker fundamental conditions, AUD is looking like a pretty strong play on a risk/reward basis. 

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The Complete Fairfield Greenwich Smoking Gun

The full complaint filed against Fairfield Greenwich by the State of Massachusetts. As engrossing a read as any John Grisham novel, which is to be expected: this is what earning over $100 million a year from complicit illegal transactions will usually result in.

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Further details on CDS clearinghouse

As we have noted before, we are big fans of the the clearinghouse idea for derivatives - particularly CDSs.  Overall, Geithner's plan is going to have a tremendous influence on the financial markets going forward and Zero Hedge is closely following any details that emerge. On the clearinghouse front , a first step was made today - the Fed demanded further details and got a behind the scenes look into the current clean up of derivatives. 

An interesting detail came out, that 9 banks are now currently using ICE and have executed $50BB in CDS trades since March 13. This is a great first step to getting widespread usage of this exchange up and running after attempts by CME and NYSE failed. A lot of pain could have been potentially avoided if the direct counterparty risk of OTCs was negated and more detailed information of derivatives was available through the exchange. We'll keep you posted as more details emerge.

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Further Escalation Of The AIG-Bank Counterparty Scandal

In a letter released by Barney Frank, the Chairman of the Committee of House Financial Services is requesting information from Geithner and Bernanke as to how AIG may have treated its U.S. bank counterparties differently from foreign banks.

Frank is referencing a letter by Spencer Bachus in which the latter raises yet another aspect of the AIG debacle, namely that disproportionate treatment by AIG may have benefited foreign banks by up to 70%.

Bachus claims that "in contrast with [AIG's] treatment of foreign banks [which were not asked to reduce the sum they received from AIG by any amount whatsoever], AIG is now attempting to force many of its creditors that are U.S. banks to accept severe reductions in the debt owed to them. I am told in some cases that these U.S. banks are being asked to accept reductions of over 70% of the total debt owed to them. The disparity in treatment between foreign banks and U.S. banks is troubling, particularly since the U.S. banks now being asked to take such reductions are some of the very taxpayers that have been funding AIG. In addition to the clear inequity involved, this conduct obviously runs counter to our efforts to stimulate credit in the U.S. economy through bank lending."

While not at the core of the problem Zero Hedge discussed previously about improper liquidations from a "stable company" generating abnormal profits at banks, any discovery in this inquiry could potentially raise yet another significant problem, namely how the U.S. is willing to bend over backwards to not displease foreign entities (and potentially purchasers of U.S. treasuries) at the expense of domestic banks. Then again, if ZH is correct in its prior claims, AIG made sure that even its U.S. counterparties would be more than compensated for any losses they may have had to taken on the abovementioned obligation discounts. And all of this would occur, of course, with U.S. taxpayers footing the bill as is standard these days.

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Unemployment As A Coincident Indicator

Reader Michael points out an interesting observation on the lagging versus coincident nature of unemployment as an indicator of economic health. His thoughts below:

I am skeptical of a lot of the "good news", and note that a recent mini-bounce in the Conference Board Leading Indicator was only due to the expansion in the money supply; all other variables were negative. I also think Rosenberg is on the right track in terms of higher than expected savings rates, and the over-extrapolation of recent housing and production data.

But as for employment, we need to acknowledge the historical reality that prior market bottoms have coincided with terrible (and worsening) employment conditions. This is true even in the very bad recessions of 1957-58, and 1973-75. In the charts below, the orange line shows unemployment, and the blue line the S&P 500; the blue line often troughs while the orange line keeps getting worse. This is the basis for the whole "employment as a lagging indicator" argument. Maybe it's different this time and employment is a now coincident indicator, but that's the case, adherents to such a view should explain why.

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Daily Credit Market Summary: April 1 - Stock Better, Credit Worse Part 2

Creditresearch.com notes: Spreads were mixed to mostly wider in the US today with IG worse, HVOL wider, ExHVOL weaker, XO wider, and HY rallying. Indices generally outperformed intrinsics with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but widened the skew, ExHVOL outperformed pushing the skew wider, XO's skew increased as the index outperformed, and HY outperformed but narrowed the skew.

The names having the largest impact on IG are International Lease Finance Corp. (-33.66bps) pushing IG 0.18bps tighter, and Textron Financial Corp (+89.45bps) adding 0.59bps to IG. HVOL is more sensitive with International Lease Finance Corp. pushing it 0.86bps tighter, and Textron Financial Corp contributing 2.82bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Dell Inc. (-7.5bps) pushing the index 0.08bps tighter, and Boeing Capital Corp (+35bps) adding 0.35bps to ExHVOL.

The price of investment grade credit fell 0.2% to around 95.58% of par, while the price of high yield credits rose 0.5% to around 68.88% of par. ABX market prices are lower by 0.53% of par or in absolute terms, 2.75%. Broadly speaking, CMBX market prices are lower by 0.09% of par or in absolute terms, 0.29%. Volatility (VIX) is down 1.86pts to 42.55%, with 10Y TSY rallying (yield falling) 1.7bps to 2.65% and the 2s10s curve flattened by 2.5bps, as the cost of protection on US Treasuries rose 2bps to 62bps. 2Y swap spreads were unch at 57.5bps, as the TED Spread tightened by 2.7bps to 0.96% and Libor-OIS improved 1.7bps to 95.7bps.

The Dollar strengthened with DXY rising 0.09% to 85.503, Oil falling $1.31 to $48.35 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 2.59% today (a 2.55% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $0.45 to $918.7 as the S&P rallies (809.1 1.8%) outperforming IG credits (202bps -0.21%) while IG, which opened wider at 198.5bps, underperforms HY credits. IG11 and XOver11 are +4.25bps and +13bps respectively while ITRX11 is +6bps to 178.5bps.

The majority of credit curves flattened as the vol term structure steepened with VIX/VIXV decreasing implying a more bearish/more volatile short-term outlook (normally indicative of short-term spread decompression expectations).

Dispersion rose +4.9bps in IG. Broad market dispersion is a little greater than historically expected given current spread levels, indicating more general discrimination among credits than on average over the past year, and dispersion increasing more than expected today indicating a less systemic and more idiosyncratic spread widening/tightening at the tails.

64% of IG credits are shifting by more than 3bps and 69% of the CDX universe are also shifting significantly (more than the 5 day average of 62%). The number of names wider than the index stayed at 49 as the day's range fell to 9bps (one-week average 8.7bps), between low bid at 196.5 and high offer at 205.5 and higher beta credits (2.54%) outperformed lower beta credits (3.26%).

In IG, wideners outpaced tighteners by around 12-to-1, with 99 credits wider. By sector, CONS saw 84% names wider, ENRGs 88% names wider, FINLs 43% names wider, INDUs 93% names wider, and TMTs 83% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 177bps and the latter at 193.04bps.

Cross Market, we are seeing the HY-XOver spread compressing to 719.97bps from 760.53bps, but remains above the short-term average of 714.1bps, with the HY/XOver ratio falling to 1.75x, below its 5-day mean of 1.77x. The IG-Main spread compressed to 23.5bps from 24.5bps, but remains above the short-term average of 20.77bps, with the IG/Main ratio falling to 1.13x, above its 5-day mean of 1.12x.

In the US, non-financials underperformed financials as IG11 ExFINLs are wider by 7bps to 193bps, with 5 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 7.98bps to 273.33bps, with Banks (worst) wider by 9.64bps to 366.79bps, Finance names (best) tighter by 3.37bps to 1168.54bps, and Brokers wider by 5.63bps to 346.45bps. Monolines are trading tighter on average by -9.99bps (0.06%) to 2809.11bps.

In IG12, FINLs outperformed non-FINLs (0.86% wider to 3.77% wider respectively), with the former (IG11 FINLs) wider by 4.7bps to 555.8bps, with 3 of the 21 names tighter. The IG CDS market (as per CDX) is -15.9bps rich (we'd expect LQD to outperform TLH) to the LQD-TLH-implied valuation of investment grade credit (217.86bps), with the bond ETFs underperforming the IG CDS market by around 2.67bps.

In Europe, ITRX Main ex-FINLs (underperforming FINLs) widened 6.12bps to 177bps (with ITRX FINLs -trending wider- weaker by 5.5 to 184.5bps) and is currently trading at the wides of the week's range at 100%, between 177 to 161.25bps, and is trending wider. Main LoVOL (trend wider) is currently trading at the wides of the week's range at 100%, between 113.29 to 102.46bps. ExHVOL outperformed LoVOL as the differential compressed to 2.97bps from 6.82bps, but remains above the short-term average of -2.1bps. The Main exFINLS to IG ExHVOL differential decompressed to 60.74bps from 56.93bps, but remains below the short-term average of 63.69bps.

Index/Intrinsics Changes

CDR LQD 50 NAIG091 +5.27bps to 295.15 (41 wider - 5 tighter <> 25 steeper - 25 flatter).

CDX12 IG +4.75bps to 201.75 ($-0.19 to $95.59) (FV +16.41bps to 238.4) (102 wider - 9 tighter <> 57 steeper - 68 flatter) - Trend Wider.

CDX12 HVOL +13.5bps to 473.5 (FV +16.55bps to 670.31) (25 wider - 2 tighter <> 17 steeper - 13 flatter) - Trend Wider.

CDX12 ExHVOL +1.99bps to 115.93 (FV +4.15bps to 137.37) (77 wider - 18 tighter <> 51 steeper - 44 flatter).

CDX11 XO +8.3bps to 565.3 (FV +15.26bps to 599.94) (27 wider - 4 tighter <> 18 steeper - 15 flatter) - Trend Wider.

CDX11 HY (30% recovery) Px $+0.5 to $68.88 / -27.6bps to 1679.5 (FV -19.47bps to 1325.35) (68 wider - 19 tighter <> 51 steeper - 45 flatter) - Trend Wider.

LCDX10 (55% recovery) Px $+0.04 to $73.04 / -3.43bps to 1601.74 - Trend Wider.

MCDX11 -0.25bps to 229.75bps. - No Trend.

CDR Counterparty Risk Index rose 7.78bps (2.93%) to 273.13bps (14 wider - 1 tighter).

CDR Government Risk Index rose 2.3bps (2.43%) to 96.7bps (6 wider - 1 tighter).

DXY strengthened 0.09% to 85.5.

Oil fell $1.25 to $48.41.

Gold fell $0.45 to $918.7.

VIX fell 1.86pts to 42.55%.

10Y US Treasury yields fell 0.9bps to 2.66%.

S&P500 Futures gained 1.65% to 807.9.

Compliments of www.creditresearch.com

********

For readers who ask about a cheat sheet for what all this gibberish means, here you go:

Paragraph 1 – Spreads wider implies credit markets are deteriorating. In order of creditworthiness the indices that we look at are ExHVOL, IG, HVOL, XO, and HY so understanding where weakness is relative to these levels of creditworthiness is useful to judge investors risk appetite. The intrinsics (which is simply the fair-value of the index) trades differently to the actual index and the difference is called the skew. Monitoring the skew and what is driving it tells investors whether pressure is coming from macro index players (among other players) or from single-name trends. It is not as easy to arb the index skew in credit but we note that if intrinsics trade wider than the index, there is some pressure for index spreads to deteriorate relative to the underlying single-names (and vice versa).

Paragraph 2 – the credits that had the largest positive and negative impact on the indices mentioned.

Paragraph 3 – Top-down breakdown of relative price changes in the IG (investment grade) and HY (high yield) markets and comparisons to more commonly discussed credit indicators.

Paragraph 4 – Cross asset class breakdown from the top-down. Compares gold, oil, equities, and European spreads (ITRX and XOver are the strong and weak credit worthiness indices for Europe).

Paragraph 5 – Insight into term structure changes in credit and how VIX term structures work with that to provide short-term trend indications.

Paragraph 6 – Dispersion is a measure of the distribution of risk in the credit markets. This dispersion tracks movements in the IG index and describes the dispersion (think standard deviation changes) to the index (think mean changes) and what it implies about traders views towards systemic sentiment (buy or sell it all) or idiosyncratic (name picking and pairs trades for example).

Paragraph 7 – Measures the relative activity of the day with number of names moving significantly, daily range relative to recent activity, and low and high beta performance (credit traders are interested in this as a signal for who/what is driving spread movements).

Paragraph 8 – Wideners and tighteners can be thought of as names that deteriorate and improve respectively and we track here what the advance-decline activity was on the day (just as with stocks). This can be thought of as a breadth indicator for the credit markets. The sector-by-sector breakdown of breadth is also provided as well as non-financial performance differential between Europe (ITRX Main exFINLS) and US (IG ExFINLs).

Paragraph 9 – measures the spread differential between the most risky (HY) and Crossover (XO) credits in the US and also between the best quality indices of the US (IG) and Europe (Main).

Paragraph 10 – non-financial versus financial performance and decomposition of the financial sector performance. The CDR Counterparty Risk index measures the risk of the largest OTC derivative counterparties (higher is more risky).

Paragraph 11 – Breaks down the IG index financial performance relative to non-financials (which is different as the financial members of the IG index have different weights than the broad financial universe). We also decompose the relationship between the investment grade credit market and the leading bond ETFs providing investors with insight into potential capital structure arbitrage (or more simply just trading around the ETFs).

Paragraph 12 – Discusses relative performance among the major European credit indices. ITRX Main ExFINLs is the investment grade index in Europe excluding the financial names. Main LoVOL is the investment grade index in Europe excluding the highest volatility names and represents the best quality CDS indices which are tradable.

Index/Intrinsics Changes should be self-evident – FV stands for Fair Value. As discussed above, if we see the index improve but FV deteriorate then it gives us important insight into what/who is driving credit market performance. Wider is weaker, tighter is stronger from a fundamental perspective. Steeper and flatter correspond to the term structures of risk and offer valuable perspective on whether it is the short-term or longer-term that is receiving or giving up risk. Sphere: Related Content

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The Economy Is Contracting A Lot More Rapidly Than The Government Is Reporting, Per TrimTabs

TrimTabs is out with their most recent employment data, which compares to the earlier ADP report, that the market forgot about after the first 30 minutes of trading. According to TrimTabs "the U.S. economy lost 700,000 to 750,000 jobs in March as wages and salaries plunged 4.5% year-over-year. TrimTabs estimated that the economy shed 4.3 million jobs in the past 12 months, the largest annual job loss since 1970."

"Job losses have been accelerating in recent months," said Charles Biderman, CEO of TrimTabs. "Investors who think the economy is bottoming out are going to get quite a shock this spring." TrimTabs uses daily income tax withholdings into the U.S. Treasury to estimate changes in employment. According to TrimTabs, the country lost 2.1 million jobs in the past three months and 3.4 million jobs in the past six months.

Much more interestingly, TrimTabs estimates that Joe Schmoe's conviction that the market has bottomed is translating into returns to good ole spending behavior and savings rates are in fact lower than reported, meaning the as savings rates inevitably run up, the pain for the economy will just get so much worse.

TrimTabs reported that the personal savings rate in February was much lower than the 4.2% reported by the Bureau of Economic Analysis. "Real-time income tax data indicates that personal income is plummeting and that the savings rate was no more than 0.9% in February," said Biderman. "The only reason the savings rate was positive was that income tax refunds were up sharply relative to last year."

And to add to the gloom and doom, which Zero Hedge does not disagree with, TrimTabs concludes: "The key macroeconomic and liquidity indicators TrimTabs tracks show no sign of a bottom for the economy. The economy is still contracting a lot more rapidly than the government is reporting."

Sphere: Related Content

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The Looting Of RBS

Soon coming to a certain Greenwich marina corporate campus near you.




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Macy's, Meet Junk

Moody's is back to its wicked stop-the-stupid-rally ways by junking Macy's. Moody's cut the retailer's unsecured debt rating from Baa3 to Ba2.

"The downgrade reflects the sharp deterioration in Macy's credit metrics to levels that are more appropriate for a mid Ba rating" stated Maggie Taylor, Vice President & Senior Credit Officer. "The downgrade also reflects Moody's expectation that Macy's operating performance will continue to be pressured given the current challenging consumer spending environment." Given this, Moody's expects Macy's credit metrics will deteriorate further over the next twelve months to levels that will be weak even for the new Ba2 rating."

Brave investors everywhere disagree with Moody's assessment, and are lapping up every share of M stock they can get their greedy little hands on. Credit deterioration, pension underfunding, declining cash, dividend cuts, dropping earnings: those are for pussies - bring on the paaaaain. It is amazing what a 0.5% beat on otherwise record low ISM readings, together with a few extra cars sold by a soon to be bankrupt company can do to investor sentiment. Sphere: Related Content

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It's Official: Ratigan Going To ABC

Or so the Fast Money master claims.

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On Second Thought Scrap The GM Digital Option

Bloomberg just out, quoting a "person familiar" saying that the U.S. won't repay the $1 billion converts maturing June 1.

President Barack Obama’s auto task force told the biggest U.S. automaker it doesn’t want taxpayer funds used to repay debt maturities, said the person, who declined to be identified because the talks are private. Detroit-based GM has $1 billion of 1.5 percent convertible securities coming due June 1. The debentures, issued in increments of $25, fell $2.05 to $7.20 as of 1:56 p.m. in New York, which would be the lowest closing price since December, according to data compiled by Bloomberg.

GM Chief Executive Officer Fritz Henderson yesterday said that June 1 was the final deadline for completing the debt restructuring and that the automaker may enter bankruptcy sooner if it’s clear an agreement out of court isn’t possible. “The government has been very specific in providing a deadline by which we have to complete this process and we plan to aggressively pursue them in the next 60 days,” GM spokeswoman Renee Rashid-Merem said, declining additional comment.

So, uh... what is all the hoopla about with this 9.8 million SAAR posturing? GM is filing. Plain and simple. Sphere: Related Content

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