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Thursday, May 28, 2009
No Recovery For Mortgages
Just as the futures buying hand starts gobbling up them spoos on the horrible housing and mortgage news, mortgages fail to stage any recovery. But please, keep equities artificially high - money out of treasuries into equities, on the road to 7% mortgages, is exactly what the doctor ordered.
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The Next Shoe To Be Bailed Out
From Bloomberg's chart of the day, reflecting the massive lag in muni weakness compared to the compost heap that is the general economy.
Bloomberg had this to say:
hat tip the irish, er, scottish, dude with a thing for young ladies Sphere: Related Content
Bloomberg had this to say:
This year, 16 municipal issuers have failed to make payments on $426 million in bonds. In 2008, 140 issuers defaulted on a record $7.6 billion.Among the latest to default: the Memphis Redbirds Foundation, which in 1998 sold $72 million in sports facility revenue bonds to help pay for a minor-league baseball franchise and a 14,000-seat stadium in downtown Memphis.Since 1999, issuers have defaulted on $24.13 billion in municipal bonds out of a total of $3.4 trillion issued, according to Thomson Reuters.Good thing all those wraparound bond-insurance companies are alive and cracking... Oh wait, producer telling me... what's that... oh... really... hm.... well that's just not good now is it.
hat tip the irish, er, scottish, dude with a thing for young ladies Sphere: Related Content
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CNBC On Full Schizophrenic Tilt Today
So just which is it? Did the streaming ticker not pay its real time bill today?
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Mortgage Delinquencies Hit Record High, New Home Sales Disappoint
Green shoots spinning in their grave - 12 percent of homeowners with a mortgage are behind on their payments or in foreclosure. Half of all adjustable-rate loans to borrowers with shaky credit were past due or in foreclosure. And we still have to see the Option ARM hurricane. California, Nevada, Arizona and Florida accounted for 46 percent of new foreclosures in the country.
Also new home sales rise to a below consensus 0.3%, "up" from a majorly downward revised March decline of -3.0%.
Amusingly, homebuilder confidence climbed to an eight-month high in May. Mortgage applications to purchase homes are also up 9 percent from February's nine-year low. We shall see how confidence fares now that mortgage rates are at pre QE levels.
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Also new home sales rise to a below consensus 0.3%, "up" from a majorly downward revised March decline of -3.0%.
Amusingly, homebuilder confidence climbed to an eight-month high in May. Mortgage applications to purchase homes are also up 9 percent from February's nine-year low. We shall see how confidence fares now that mortgage rates are at pre QE levels.
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The Treasury Price Matrix
A useful chart showing the historical levels of the various prices along the Treasury curve. Whoever put the steepener trade on in late 2006 (about the time Bernanke started calling the sho(r)ts) is by now rich, retired, sitting on a beach, collecting 20%.
hat tip Günter Leithold Sphere: Related Content
hat tip Günter Leithold Sphere: Related Content
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Must Read: Ira Sohn Conference Notes
For the latest and greatest thoughts in the investment community. Created by Mike O'Rourke of BTIG.
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Obviously, this is not Zero Hedge investment advice. Hat tip Jared.
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Obviously, this is not Zero Hedge investment advice. Hat tip Jared.
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Daily Highlights: 5.28.09
- US is considering the possibility of a single regulator for banks.
- April Existing-home sales climbed 2.9% as buyers took advantage of foreclosures.
- Treasury Yield curve steepens to record as sales of govt debt surge.
- AutoZone's Q3 net rises 9.5% to $173.7M, revs up 9.3% at $1.66B.
- BofA says has raised $26B in capital plan to date.
- GM bankruptcy is considered 'inevitable' as bondholders reject swap offer.
- GM has asked for an addln $415M for its Opel unit, stalling talks with Fiat, Magna Intl.
- Jo-Ann Stores beats by $0.19, posts Q1 EPS of $0.30 as revs rise 3.1% to $460M.
- PNC Fincl Srvcs raised more than the $600M after stress-test results.
- Polo Ralph Lauren Corp.'s Q4 net tumbled 57% amid $69M in write-downs.
- RF Micro Device: Demand for products in Jun qtr is better than expected.
- Samsung, SanDisk agreed to a patent licensing deal that heads off the threat of litigation between two players.
- Staples profit falls 33% in Q1 to $143M despite a 19% rise in sales to $5.82B.
- Terex announced that it is seeking ~$600 mln in new financing.
- Time Warner plans to separate AOL.
- Visteon files for bankruptcy protection.
- Warburg Pincus said to mull $1.4B sale of cable operator, FiberNet.
- Zale misses by $0.27, posts Q3 loss of $0.73/sh. Revs fell 20.5% to $379M.
- Economic Calendar: Data on Durable Goods Orders, Initial Claims, New Home Sales & Crude Inventories to be released today.
Companies to watch: Bank of Nova Scotia, Big Lots, Costco Wholesale Corp, dELiA*s, Fred's, Genesco, H.J. Heinz Co, J.Crew Group, Novell, Perry Ellis Intl, Sanderson Farms, The Wet Seal, Toronto Dominion Bank.
Recent Rating Actions by Egan-Jones
ALLEGHENY TECHNOLOGIES INC (ATI)
KEYCORP (KEY)
STAPLES INC (SPLS)
HORMEL FOODS CORP (HRL)
GOODYEAR TIRE & RUBBER CO/THE (GT)
GENERAL MOTORS CORP (GM)
RADIOSHACK CORP (RSH)
CON-WAY INC (CNW)
YRC WORLDWIDE INC (YRCW)
SUNTRUST BANKS INC (STI)
GREAT ATLANTIC & PACIFIC TEA CO (GAP)
CAMPBELL SOUP CO (CPB)
GAP INC/THE (GPS)
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Frontrunning: May 28
- Time Warner approves spin off of AOL (AP)
- Initial claims drop, continuing claims rise for 17th "record" week (AP)
- Commerce department says soon to be downward adjusted durable goods order rose by 1.9% in April, after a [surprise, surprise] huge downward revision in March, from -0.8% to -2.1% (AP)
- Oil holds above $63, aircraft companies/gas guzzlers luvin' every minute of it (Bloomberg and Reuters)
- The financial version of the swine flu in Germany (Absolutideas)
- Will Bernanke get four more years at the fed (RealClearMarkets)
- Weil: Morgan Stanley bullying is least of SEC's woes (Bloomberg)
- America sneezes and the world is germ-free (TimesOnline)
- Never profitable Christian Lacroix files for bankruptcy (NYT)
- California budget blues (The Nation)
- Is a commercial real estate bust inevitable? (Fortune)
- Is the Geithner plan still necessary? (The New Republic)
- Groupthink: China won't dump our debt (WSJ)
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Visteon Files For Bankruptcy
The auto supplier firing squad just had its first casualty. Not surprising, and definitely not the last one. The bankruptcy was filed in Delaware. From the CEO:
Visteon's legal advisor is Kirkland & Ellis LLP; its restructuring advisor is Alvarez & Marsal and its financial advisor is Rothschild Inc.
The 3 month chart of Visteon's Term Loan is below. Now that the uncertainty about the bankruptcy is removed, and as auto suppliers become the next UAW-safeguarded sector, look for this loan to spike in price.
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"Visteon is taking this step to maximize the long-term value of the company. During the reorganization period, we will seek to address our capital structure and legacy costs that are not sustainable given the current economic environment. The results of these actions, combined with our innovative products and excellent product quality, will allow Visteon to emerge a financially sound and well-positioned company."Interesting is that Visteon's DIP comes from none other than primary beneficiary of the supplier's parts - Ford.
Visteon's legal advisor is Kirkland & Ellis LLP; its restructuring advisor is Alvarez & Marsal and its financial advisor is Rothschild Inc.
The 3 month chart of Visteon's Term Loan is below. Now that the uncertainty about the bankruptcy is removed, and as auto suppliers become the next UAW-safeguarded sector, look for this loan to spike in price.
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Wednesday, May 27, 2009
Overalottment: May 27
- Tom Lauria seeks GM bondholders for new fight (Bloomberg)
- Chrysler asks bankruptcy judge to approve Fiat sale [and seal the farce] (Bloomberg and Reuters)
- Japan's PPT - Epic Fail: Japan to scrap $520 billion plan to prop up stock market [at least they are open about it] (Bloomberg)
- What's cheaper than a fire-sale? A government give away (Reuters)
- US to create single bank regulator (Marketwatch and AP)
- Korean Won falls for fourth day on military threats (Bloomberg)
- Germany says Opel talks stalled on GM's new cash demands (Bloomberg)
- Humor: GM gives out early paychecks to calm fears (Fox Business)
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The Chrysler Travesty Hearings Continue Tomorrow
Nothing too exciting today at One Bowling Green, just 10 hours of cross examinations of Tom Lasorda, former president and Vice Chairman of Chrysler, Alfredo Altavilla, chief executive of Fiat's powertrain business and, most notably, Robert Manzo of Capstone's Advisory Group, the de facto financial advisors for Chrysler (yes, Greenhill, we know you are submitting monthly invoices too, a question arises what exactly for, but taxpayers will let that slide for now). I say de facto, because Chrysler's Liquidation valuation analysis was prepared and submitted as an expert report by Capstone, so one would imagine they would have to be unbiased, objective, and fair. I will get back to this in a second.
I mentioned Robert Manzo, who had a very critical role in today's hearing. First, i present Robert's Curriculum Vitae, which is Exhibit A in the above filing.
Based on this, one would imagine that Mr. Manzo may, in principle, pass as an auto expert, even though looking at his debtor representations, which include Cumberland Farms/Gulf Oil, Camelot Music and Virgin Entertainment, one would presume Mr. Manzo is better suited to prepare "expert reports" for the likes of CBS, Omnicom, and other entertainment-related companies.
Now as part of his obligation to find the best and final bid for Chrysler, Mr. Manzo was busy. He was so busy he contacted a whopping 9 entities (presented below, Exhibit B from the above filing), of which he executed a confidentiality agreement with one single party. Presumably Mr. Manzo was busy thinking of what is the best way to invoice 23.5 hours a day for his hard "bankruptcy" work instead of actually trying to see if there are any interested overbidders to the Fiat stalking horse bid.
However, what demonstrates beyond a reasonable doubt how Mr. Manzo (and Capstone) transformed their financial advisory obligation into a complete procedural travesty is the following: Glenn Kurtz, a White & Case attorney who represents the Indiana pension funds, procured an email during discovery. It captures Mr. Manzo's reaction to a proposal of eliminating the banks' secured debt after they rejected a pittance equity stake in Chrysler, and I quote:
The following is a statement from Manzo which explains why his "expert" opinion in this case should be unbiased and impartial:
The entire liquidation analysis prepared by Manzo and Capstone is presented below. When read in the context of the email discovery presented above, this report has zero credibility, and it also destroys the credibility of Mr. Manzo as an expert witness in any future testimony (if nothing else, then simply for lacking any foresight that all his emails would be subject to discovery and a phrase like the one above, under circumstances where he did not have Barack Obama on his side, would have been a dealbreaker).
Tomorrow, the complete travesty that is the Chrysler bankruptcy case continues. As the final outcome of this rigged from the beginning bankruptcy at this point is more than obvious, Zero Hedge has decided against sending representatives to the hearing, as it would be a complete waste of time.
I mentioned Robert Manzo, who had a very critical role in today's hearing. First, i present Robert's Curriculum Vitae, which is Exhibit A in the above filing.
Based on this, one would imagine that Mr. Manzo may, in principle, pass as an auto expert, even though looking at his debtor representations, which include Cumberland Farms/Gulf Oil, Camelot Music and Virgin Entertainment, one would presume Mr. Manzo is better suited to prepare "expert reports" for the likes of CBS, Omnicom, and other entertainment-related companies.
Now as part of his obligation to find the best and final bid for Chrysler, Mr. Manzo was busy. He was so busy he contacted a whopping 9 entities (presented below, Exhibit B from the above filing), of which he executed a confidentiality agreement with one single party. Presumably Mr. Manzo was busy thinking of what is the best way to invoice 23.5 hours a day for his hard "bankruptcy" work instead of actually trying to see if there are any interested overbidders to the Fiat stalking horse bid.
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However, what demonstrates beyond a reasonable doubt how Mr. Manzo (and Capstone) transformed their financial advisory obligation into a complete procedural travesty is the following: Glenn Kurtz, a White & Case attorney who represents the Indiana pension funds, procured an email during discovery. It captures Mr. Manzo's reaction to a proposal of eliminating the banks' secured debt after they rejected a pittance equity stake in Chrysler, and I quote:
"Oh baby!!!!!!!! They get what they deserve."Now that email from anyone else would be explainable - after all in the Chyrsler case there is a plethora of obviously conflicted entities (the U.S. government aka the UAW being #1) who had everything to gain and nothing to lose by screwing over the secured lenders. However, that particular phrase, coming from the man who singlehandedly put together Chrysler's liquidation analysis - the cornerstone for the entire case, upon which rests the premise that there is really no value here to creditors unless the sale is completed in the fastest fashion imaginable - is simply borderline criminal (or criminally stupid - not sure which).
The following is a statement from Manzo which explains why his "expert" opinion in this case should be unbiased and impartial:
"Under the May 20 Liquidation Analysis, the First Lien holders are expected to recover less than 18% of their secured claims at the time of filing. In fact, on the low end of the range, if Chrysler’s assets must be liquidated, the First Lien holders may not recover anything at all for their claims."If Judge Gonzalez is so stupid to be unable to put two and two together, and to notice this clearly inexcusable and impermissible bias from a "valuation expert" then he should simply be disbarred from his judicial role.
The entire liquidation analysis prepared by Manzo and Capstone is presented below. When read in the context of the email discovery presented above, this report has zero credibility, and it also destroys the credibility of Mr. Manzo as an expert witness in any future testimony (if nothing else, then simply for lacking any foresight that all his emails would be subject to discovery and a phrase like the one above, under circumstances where he did not have Barack Obama on his side, would have been a dealbreaker).
Tomorrow, the complete travesty that is the Chrysler bankruptcy case continues. As the final outcome of this rigged from the beginning bankruptcy at this point is more than obvious, Zero Hedge has decided against sending representatives to the hearing, as it would be a complete waste of time.
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Cramer Bair'ed
Sheila Bair on Cramer today. Instead of pandering her flawed policies in front of a small (if any) cable audience, with such pearls as "insured depositors have nothing to worry about", maybe Ms. Bair can finally get back to Zero Hedge in its FOIA request attempting to obtain some/any information on just what is the compensation/fee structure for FDIC's advisor, and the real man behind the curtain, Perella Weinberg. How is this private investment bank/hedge fund, whose succumbing to Ratner's bullying attempts recently was the main reason for the non-Tarp lenders to abandon their fight to block the Chrysler 363 asset sale, incentivized to advise Sheila and her henchmen when it comes to deciding which bank(s) to close. And not just that, but one would be interested in finding out just what role did Perella Weinberg play in the negotiations between Carlyle, Blackstone and Ross when they acquired BankUntied, and, more relevantly, what fee did P-W get out of that deal.
Please Ms. Bair - at least a flat out refusal to our FOIA request would be sufficient. In the meantime, if readers would like to join this effort, the FDIC's FOIA submission page is here.
Listen to the interview below and focus on the language about economists and examiners (~2 minutes into the interview): these are the people on whom the fate of the financial system lies.
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Please Ms. Bair - at least a flat out refusal to our FOIA request would be sufficient. In the meantime, if readers would like to join this effort, the FDIC's FOIA submission page is here.
Listen to the interview below and focus on the language about economists and examiners (~2 minutes into the interview): these are the people on whom the fate of the financial system lies.
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Steve Rattner Can Relate To The Middle Class
The Auto Task Force Car Czar formerly known as Steve Rattner has reported an overall net worth of between $188 million and $608 million. Obviously the former NYT reporter can relate to the UAW's loss of its healthcare benefits. Among his assets:
- Between $500,000 and $1 million in Goldman stock.
- Less than $1,001 apiece in Bear Stearns Cos., Citigroup Inc., and Lehman Brothers Holdings Inc.
- Sold between $1,000,000 and $5,000,000 of LCDX10 CDS protection (long loans) on 3 occasions between October and December, 2008, and IG11 on three occasions (long investment grade credit).
- Less than $1,001 in Ford.
- Between $500,000 and $1 million in Cerberus Institutional Partners LP Series 2. (yes, the same Cerberus that owned Chrysler).
- An airplane, valued between $5 million and $25 million, used in an air charter business.
- A horse farm in North Salem, New York, valued at between $5 million and $25 million.
- 150,000 in General Motors Corp.’s senior secured loans using a credit-default swaps index that guarantees the secured debt of 100 companies, including GM, the filing shows.
- $105 million in various Quadrangle investments.
Zero Hedge is going through this filing with a fine toothed comb. Where are the assets of Rattner's recently DUIed wife, Marueen White?
Where do we find these people?
- Between $500,000 and $1 million in Goldman stock.
- Less than $1,001 apiece in Bear Stearns Cos., Citigroup Inc., and Lehman Brothers Holdings Inc.
- Sold between $1,000,000 and $5,000,000 of LCDX10 CDS protection (long loans) on 3 occasions between October and December, 2008, and IG11 on three occasions (long investment grade credit).
- Less than $1,001 in Ford.
- Between $500,000 and $1 million in Cerberus Institutional Partners LP Series 2. (yes, the same Cerberus that owned Chrysler).
- An airplane, valued between $5 million and $25 million, used in an air charter business.
- A horse farm in North Salem, New York, valued at between $5 million and $25 million.
- 150,000 in General Motors Corp.’s senior secured loans using a credit-default swaps index that guarantees the secured debt of 100 companies, including GM, the filing shows.
- $105 million in various Quadrangle investments.
Zero Hedge is going through this filing with a fine toothed comb. Where are the assets of Rattner's recently DUIed wife, Marueen White?
Where do we find these people?
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Pequot Shutting Down, Insider Trading Implicated
A stunner - Art Samberg is shutting down Pequot Capital, after alleged insider trading allegation disclosure has "cast a cloud over the firm and have become a source of personal distraction."
Full letter via Dealbreaker:
Full letter via Dealbreaker:
May 27, 2009Now, how 'bout them quants? Sphere: Related Content
To Our Clients and Friends:
I am writing to you, our loyal clients and friends, to let you know that I have reached the painful conclusion that it is necessary to wind down Pequot's business.
In the coming months, we plan to liquidate the Core Funds and return cash to investors while spinning out Matawin under the leadership of Mike Corasaniti and Special Opportunities under the leadership of Rob Webster and Paul Mellinger.
As you know, my trading in 2001 on behalf of the Core Funds has been the subject of investigations by the SEC and US Attorney's Office. Those agencies closed their investigations in 2006 without bringing any charges, but Pequot nonetheless suffered from adverse publicity. In late 2008, the government reopened its investigation. Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction. With the situation increasingly untenable for the firm and for me, I have concluded that Pequot can no longer stay in business as an investment advisor.
I am enormously proud of Pequot's long-term track record. A client who invested in the Pequot Partners Fund at inception earned a net annualized 16.8% return over 22 years vs. the S&P's 8.5% return during this period. More recently, the Pequot Partners Fund has generated net annualized returns of 10.1% over the past five years and 1.8% in 2009 through April 30 vs. the S&P's declines of 2.7% and 2.5%, respectively.
We intend to distribute to Core Fund investors a significant amount of cash by June 30, with the remainder substantially paid out over the next few months, pending completion of the year-end audit, liquidation of certain less liquid assets and payment of expenses. Details for each individual fund will be forthcoming. Pequot will retain the necessary infrastructure to support the wind down process.
The Matawin and Special Opportunities funds will become independent entities no later than year-end, and we will take steps to ensure a smooth transition. These funds will have a robust infrastructure and we believe they will be well positioned to deliver strong returns in the years to come. Investors in these funds will receive information about the process shortly.
I know this news may come as a surprise to you, but I am convinced it is the right decision for all concerned. I remain grateful to all who have contributed to Pequot's success over the years. This has been an extremely difficult decision for me, especially because of the impact it will have on our talented and dedicated employees. The Pequot team is the best of the best, and I thank them as I thank you for many years of loyalty and friendship.
Sincerely,
Arthur J. Samberg
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Time For QE2?
The bond market has spoken, and it demands QE2 (the equity market is insane - it has no idea what it wants). The way treasuries and mortgages are trading, the situation threatens to very quickly spiral out of Bernanke's control (and then how will Wells and BofA pretend like they have some recurring cash generating power? On the non-recurring front, AIG has already been tapped dry.) The table below indicates that based on 2009 supply (not to mention outstanding notionals) the Fed will have to reach into its toolkit for some other (very drastic) measures.
It is painfully obvious that the status quo will not suffice. So the real question is what is the Fed waiting for?Is Ben merely afraid of China's reaction to the imminent launch of QE 2-xxx - that would seem like an irrelevant issue as marginal refi/lenders are about to be priced right out of the market, at the same time as house prices are still dropping, thus destroying absolutely any incentives for (highly confident) consumers to lever themselves up.
Of course, the traditional repricing of govvies would involve a dropping stock market (and actual, non-transferable corporate risk), however with all the garbage propaganda about green shoots and all that other crap, combined with government backstop programs of every kind and with a disappearing market liquidity, Bernanke et al have made it impossible to price equities properly: one mere needs to observe the lack of sellers after any plateau.
As for the dollar, while it has gotten phenomenally cheap recently, it is only a matter of time before the Eurozone caught up, as it starts to feel the true impact of the trillions of toxic assets, which are allegedly marked at even more ludicrous levels than their U.S. counterparts. Of course, there is the South Korean Won safe haven...
So while Bernanke contemplates the Catch 22 of his most recent Frankenstein, I present the chart of the 30 Year (not the 10 Year I have been focusing on). Although, one would not know that by looking at it.
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It is painfully obvious that the status quo will not suffice. So the real question is what is the Fed waiting for?Is Ben merely afraid of China's reaction to the imminent launch of QE 2-xxx - that would seem like an irrelevant issue as marginal refi/lenders are about to be priced right out of the market, at the same time as house prices are still dropping, thus destroying absolutely any incentives for (highly confident) consumers to lever themselves up.
Of course, the traditional repricing of govvies would involve a dropping stock market (and actual, non-transferable corporate risk), however with all the garbage propaganda about green shoots and all that other crap, combined with government backstop programs of every kind and with a disappearing market liquidity, Bernanke et al have made it impossible to price equities properly: one mere needs to observe the lack of sellers after any plateau.
As for the dollar, while it has gotten phenomenally cheap recently, it is only a matter of time before the Eurozone caught up, as it starts to feel the true impact of the trillions of toxic assets, which are allegedly marked at even more ludicrous levels than their U.S. counterparts. Of course, there is the South Korean Won safe haven...
So while Bernanke contemplates the Catch 22 of his most recent Frankenstein, I present the chart of the 30 Year (not the 10 Year I have been focusing on). Although, one would not know that by looking at it.
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Daily Credit Market Summary: May 7 - Wide Nights
Spreads were mixed in the US with IG worse, HVOL wider, ExHVOL weaker, XO stronger, and HY rallying (although all indices were well off their intraday tights and in fact closed at intraday wides). Indices typically underperformed single-names (although single-names seemed unable to keep up with index weakness in the afternoon) with skews widening in general as IG underperformed but narrowed the skew (IG’s skew is as narrow as we have seen in IG12), HVOL underperformed but narrowed the skew, ExHVOL's skew widened as it underperformed (ExHVOL is now cheap to intrinsics), XO's skew increased as the index outperformed, and HY's skew widened as it underperformed.
The names having the largest impact on IG are American International Group, Inc. (-145.24bps) pushing IG 0.64bps tighter, and Motorola Inc. (+5.5bps) adding 0.04bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 2.84bps tighter, and Motorola Inc. contributing 0.19bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both National Rural Utilities Cooperative Finance Corporation (-42bps) pushing the index 0.42bps tighter, and Loews Corporation (+3bps) adding 0.03bps to ExHVOL.
The price of investment grade credit fell 0.08% to around 98% of par, while the price of high yield credits rose 0.0575% to around 79.94% of par. ABX market prices are lower by 0.18% of par or in absolute terms, 1.11%. Broadly speaking, CMBX market prices are lower (improving) by 0.1% of par or in absolute terms, 0.1%. Volatility (VIX) is up 1.74pts to 32.36%, with 10Y TSY selling off (yield rising) 18.3bps to 3.73% and the 2s10s curve steepened by 12.9bps, as the cost of protection on US Treasuries fell 0.48bps to 43.5bps. 2Y swap spreads tightened 0.4bps to 44.13bps, as the TED Spread widened by 2.5bps to 0.52% and Libor-OIS deteriorated 1.2bps to 46.3bps.
The Dollar strengthened with DXY rising 0.54% to 80.519, Oil rising $0.72 to $63.17 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 1.35% today (a 1.69% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $1.85 to $950.15 as the S&P is down (891.4 -1.9%) underperforming IG credits (147bps -0.08%) while IG, which opened tighter at 144.5bps, underperforms HY credits. IG11 and XOver11 are -0.25bps and -7.22bps respectively while ITRX11 is -1bps to 121.5bps.
Dispersion fell -10.6bps 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 decreasing more than expected today indicating a less systemic and more idiosyncratic narrowing of the distribution of spreads.
Only 37% of IG credits are shifting by more than 3bps and 47% of the CDX universe are also shifting significantly (less than the 5 day average of 52%). The number of names wider than the index decreased by 1 to 40 as the day's range fell to 7.75bps (one-week average 8.9bps), between low bid at 140 and high offer at 147.75 and higher beta credits (-2.09%) outperformed lower beta credits (-1.16%).
In IG, wideners were outpaced by tighteners by around 3-to-2, with only 27 credits notably wider. By sector, CONS saw 24% names wider, ENRGs 13% names wider, FINLs 29% names wider, INDUs 14% names wider, and TMTs 26% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 121.75bps and the latter at 117.28bps.
Cross Market, we are seeing the HY-XOver spread decompressing to 384.4bps from 379.38bps, but remains above the short-term average of 376.51bps, with the HY/XOver ratio rising to 1.52x, above its 5-day mean of 1.5x. The IG-Main spread decompressed to 25.5bps from 22.5bps, but remains above the short-term average of 21.97bps, with the IG/Main ratio rising to 1.21x, above its 5-day mean of 1.18x.
In the US, non-financials outperformed financials as IG ExFINLs are tighter by 2.2bps to 117.3bps, with 57 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 0.76bps to 150.21bps, with Banks (worst) tighter by 0.29bps to 181.54bps, Finance names (best) tighter by 18.27bps to 691.71bps, and Brokers tighter by 2.19bps to 182.7bps. Monolines are trading tighter on average by -42.82bps (2.04%) to 2504.59bps.
In IG, FINLs underperformed non-FINLs (1.89% tighter to 2.85% tighter respectively), with the former (IG FINLs) tighter by 7.6bps to 336.8bps, with 13 of the 21 names tighter. The IG CDS market (as per CDX) is 26.9bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (120.08bps), with the bond ETFs outperforming the IG CDS market by around 7.59bps.
In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 1.13bps to 121.75bps (with ITRX FINLs -trending wider- better by 0.5 to 120.5bps) and is currently trading tight to its week's range at 0%, between 128.81 to 121.75bps, and is trading sideways. Main LoVOL (sideways trading) is currently trading tight to its week's range at 4.53%, between 86.93 to 82.29bps. ExHVOL underperformed LoVOL as the differential decompressed to 6.08bps from 3.57bps, but remains above the short-term average of 1.15bps. The Main exFINLS to IG ExHVOL differential compressed to 33.17bps from 36.5bps, but remains below the short-term average of 39.66bps.
Commentary compliments of www.creditresearch.com
Index/Intrinsics Changes
CDR LQD 50 NAIG091 -3.21bps to 172.08 (14 wider - 27 tighter <> 28 steeper - 21 flatter).
CDX12 IG +1.75bps to 146.75 ($-0.07 to $98.02) (FV -3.09bps to 152.16) (27 wider - 71 tighter <> 70 steeper - 53 flatter) - No Trend.
CDX12 HVOL +1.38bps to 332 (FV -7.72bps to 379.09) (5 wider - 21 tighter <> 17 steeper - 11 flatter) - Trend Tighter.
CDX12 ExHVOL +1.87bps to 88.25 (FV -1.76bps to 87.82) (22 wider - 73 tighter <> 42 steeper - 53 flatter).
CDX11 XO -1.5bps to 323.2 (FV +0.04bps to 417.62) (16 wider - 14 tighter <> 13 steeper - 21 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $+0.06 to $79.9375 / -2.2bps to 1122.9 (FV -22.12bps to 991.93) (41 wider - 44 tighter <> 48 steeper - 45 flatter) - No Trend.
LCDX12 (65% recovery) Px $+0.37 to $80.85 / -23.08bps to 989.48 - Trend Tighter.
MCDX12 0bps to 180bps. - Trend Wider.
CDR Counterparty Risk Index fell 0.76bps (-0.51%) to 150.21bps (6 wider - 9 tighter).
CDR Government Risk Index rose 0.4bps (0.64%) to 62.96bps..
DXY strengthened 0.54% to 80.52.
Oil rose $0.72 to $63.17.
Gold fell $1.85 to $950.15.
VIX increased 1.74pts to 32.36%.
10Y US Treasury yields rose 18.5bps to 3.74%.
S&P500 Futures lost 1.9% to 891.4. Sphere: Related Content
The names having the largest impact on IG are American International Group, Inc. (-145.24bps) pushing IG 0.64bps tighter, and Motorola Inc. (+5.5bps) adding 0.04bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 2.84bps tighter, and Motorola Inc. contributing 0.19bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both National Rural Utilities Cooperative Finance Corporation (-42bps) pushing the index 0.42bps tighter, and Loews Corporation (+3bps) adding 0.03bps to ExHVOL.
The price of investment grade credit fell 0.08% to around 98% of par, while the price of high yield credits rose 0.0575% to around 79.94% of par. ABX market prices are lower by 0.18% of par or in absolute terms, 1.11%. Broadly speaking, CMBX market prices are lower (improving) by 0.1% of par or in absolute terms, 0.1%. Volatility (VIX) is up 1.74pts to 32.36%, with 10Y TSY selling off (yield rising) 18.3bps to 3.73% and the 2s10s curve steepened by 12.9bps, as the cost of protection on US Treasuries fell 0.48bps to 43.5bps. 2Y swap spreads tightened 0.4bps to 44.13bps, as the TED Spread widened by 2.5bps to 0.52% and Libor-OIS deteriorated 1.2bps to 46.3bps.
The Dollar strengthened with DXY rising 0.54% to 80.519, Oil rising $0.72 to $63.17 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 1.35% today (a 1.69% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $1.85 to $950.15 as the S&P is down (891.4 -1.9%) underperforming IG credits (147bps -0.08%) while IG, which opened tighter at 144.5bps, underperforms HY credits. IG11 and XOver11 are -0.25bps and -7.22bps respectively while ITRX11 is -1bps to 121.5bps.
Dispersion fell -10.6bps 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 decreasing more than expected today indicating a less systemic and more idiosyncratic narrowing of the distribution of spreads.
Only 37% of IG credits are shifting by more than 3bps and 47% of the CDX universe are also shifting significantly (less than the 5 day average of 52%). The number of names wider than the index decreased by 1 to 40 as the day's range fell to 7.75bps (one-week average 8.9bps), between low bid at 140 and high offer at 147.75 and higher beta credits (-2.09%) outperformed lower beta credits (-1.16%).
In IG, wideners were outpaced by tighteners by around 3-to-2, with only 27 credits notably wider. By sector, CONS saw 24% names wider, ENRGs 13% names wider, FINLs 29% names wider, INDUs 14% names wider, and TMTs 26% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 121.75bps and the latter at 117.28bps.
Cross Market, we are seeing the HY-XOver spread decompressing to 384.4bps from 379.38bps, but remains above the short-term average of 376.51bps, with the HY/XOver ratio rising to 1.52x, above its 5-day mean of 1.5x. The IG-Main spread decompressed to 25.5bps from 22.5bps, but remains above the short-term average of 21.97bps, with the IG/Main ratio rising to 1.21x, above its 5-day mean of 1.18x.
In the US, non-financials outperformed financials as IG ExFINLs are tighter by 2.2bps to 117.3bps, with 57 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 0.76bps to 150.21bps, with Banks (worst) tighter by 0.29bps to 181.54bps, Finance names (best) tighter by 18.27bps to 691.71bps, and Brokers tighter by 2.19bps to 182.7bps. Monolines are trading tighter on average by -42.82bps (2.04%) to 2504.59bps.
In IG, FINLs underperformed non-FINLs (1.89% tighter to 2.85% tighter respectively), with the former (IG FINLs) tighter by 7.6bps to 336.8bps, with 13 of the 21 names tighter. The IG CDS market (as per CDX) is 26.9bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (120.08bps), with the bond ETFs outperforming the IG CDS market by around 7.59bps.
In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 1.13bps to 121.75bps (with ITRX FINLs -trending wider- better by 0.5 to 120.5bps) and is currently trading tight to its week's range at 0%, between 128.81 to 121.75bps, and is trading sideways. Main LoVOL (sideways trading) is currently trading tight to its week's range at 4.53%, between 86.93 to 82.29bps. ExHVOL underperformed LoVOL as the differential decompressed to 6.08bps from 3.57bps, but remains above the short-term average of 1.15bps. The Main exFINLS to IG ExHVOL differential compressed to 33.17bps from 36.5bps, but remains below the short-term average of 39.66bps.
Commentary compliments of www.creditresearch.com
Index/Intrinsics Changes
CDR LQD 50 NAIG091 -3.21bps to 172.08 (14 wider - 27 tighter <> 28 steeper - 21 flatter).
CDX12 IG +1.75bps to 146.75 ($-0.07 to $98.02) (FV -3.09bps to 152.16) (27 wider - 71 tighter <> 70 steeper - 53 flatter) - No Trend.
CDX12 HVOL +1.38bps to 332 (FV -7.72bps to 379.09) (5 wider - 21 tighter <> 17 steeper - 11 flatter) - Trend Tighter.
CDX12 ExHVOL +1.87bps to 88.25 (FV -1.76bps to 87.82) (22 wider - 73 tighter <> 42 steeper - 53 flatter).
CDX11 XO -1.5bps to 323.2 (FV +0.04bps to 417.62) (16 wider - 14 tighter <> 13 steeper - 21 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $+0.06 to $79.9375 / -2.2bps to 1122.9 (FV -22.12bps to 991.93) (41 wider - 44 tighter <> 48 steeper - 45 flatter) - No Trend.
LCDX12 (65% recovery) Px $+0.37 to $80.85 / -23.08bps to 989.48 - Trend Tighter.
MCDX12 0bps to 180bps. - Trend Wider.
CDR Counterparty Risk Index fell 0.76bps (-0.51%) to 150.21bps (6 wider - 9 tighter).
CDR Government Risk Index rose 0.4bps (0.64%) to 62.96bps..
DXY strengthened 0.54% to 80.52.
Oil rose $0.72 to $63.17.
Gold fell $1.85 to $950.15.
VIX increased 1.74pts to 32.36%.
10Y US Treasury yields rose 18.5bps to 3.74%.
S&P500 Futures lost 1.9% to 891.4. Sphere: Related Content
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Detroit Auto Loans Get Nitrous Boost
First, it was the GM Term Loan B which benefited from hedge fund exuberance, taxpayer generosity, and the administration's soon to be nationalization, and hit 95 earlier today after trading in the 80s on Friday, and much cheaper over the past month, as the consensus has emerged that the administration will pay off the loan at par (a bit of a change from the fulcrum security treatment at Chrysler).
Now it is Ford's turn, whose TLB traded at 71.5 today, from a 65 bid yesterday. Not surprisingly, a major cheerleader emerged in the face of Merrill which had this to say about Ford's TL: "We believe Ford is well positioned to benefit from the struggles at GM and Chrysler, likely picking up market share and realizing similar UAW concessions to those negotiated in Chapter 11."
Once Ford emerges as a stalking horse bidder for Good GM (or as a buyer of the government's equity stake for $0.99), it will pick up even more market share, and will result with about 40 car lines, of which roughly 38 will be as redundant as they have been over the past 5 years. Sphere: Related Content
Now it is Ford's turn, whose TLB traded at 71.5 today, from a 65 bid yesterday. Not surprisingly, a major cheerleader emerged in the face of Merrill which had this to say about Ford's TL: "We believe Ford is well positioned to benefit from the struggles at GM and Chrysler, likely picking up market share and realizing similar UAW concessions to those negotiated in Chapter 11."
Once Ford emerges as a stalking horse bidder for Good GM (or as a buyer of the government's equity stake for $0.99), it will pick up even more market share, and will result with about 40 car lines, of which roughly 38 will be as redundant as they have been over the past 5 years. Sphere: Related Content
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2s/10s Curve Just Surpassed Record Steepness
The treasury curve has just imploded, with the 10Y, a massive outlier (especially in a 2s10s30s curve), just hitting a record steepness. The 2s10s just broke the previous wide of 273 bps and at last check was trading at 275 bps. Stocks, as expected compliments of the mysterious Spoos (in)visible hand, still defying gravity.
Zero Hedge friend Mojakus has put together some very interesting thoughts on the negative convexity phenomenon (self fulfilling prophecy) in treasury action today.
The effect is finally being felt in stocks which are getting pounded. Amusingly, while yesterday CNBC had a BREAKING NEWS: MARKET SURGES alert for 4 hours straight, for some odd reason the MARKET PLUNGES alert is nowhere to be found. SHOCKING.
As for what is happening in Bernanke's promised land of cheap mortgages, the chart below does not need an explanation:
hat tip credit trader Sphere: Related Content
Zero Hedge friend Mojakus has put together some very interesting thoughts on the negative convexity phenomenon (self fulfilling prophecy) in treasury action today.
The effect is finally being felt in stocks which are getting pounded. Amusingly, while yesterday CNBC had a BREAKING NEWS: MARKET SURGES alert for 4 hours straight, for some odd reason the MARKET PLUNGES alert is nowhere to be found. SHOCKING.
As for what is happening in Bernanke's promised land of cheap mortgages, the chart below does not need an explanation:
hat tip credit trader Sphere: Related Content
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As Ben Is Playing Mortgage Chicken, The 10 Year Is In The Woodshed
First Treasuries have gotten walloped, to far beyond pre QE levels (the 10 UST is getting monkeyhammered as I type, see below), next the 2s10s curve has steepened to almost record levels (at 271 bps recently, record wide at 273 bps, a mere 2 bps away), and now the pain is slowly shifting into mortgages. Despite the successful sale of $35 billion of 5 year notes at 2.31% on demand mostly by foreign central banks (who presumably aren't too excited about seeing the Fed overtake them as the biggest US global) credit , the farther end of the curve keeps bleeding on questionable demand, and the 10 Year UST vs the FNMA 30 Year Current Coupon has gotten so uncomfortably tight, that in the ongoing game of bond chicken played between Bernanke and the market the first to blink could well suffer irreparable harm.
Naturally, if it is in fact Bernanke who blinks first, the consequences for mortgage rates could be so dire, even Bloomberg has finally picked up on the issue.
Chart hat tip The Irish Menace, Credit Trader.
Sphere: Related Content
Naturally, if it is in fact Bernanke who blinks first, the consequences for mortgage rates could be so dire, even Bloomberg has finally picked up on the issue.
Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds climbed to 4.3 percent as of 10:25 a.m. in New York, the highest since March 10 and up from 3.94 percent on May 20, data compiled by Bloomberg show.All that talk of cheap refinancings is now officially out of the window, and all the recent mortgage refi activity which has been the primary reason for banks benefitting from the abovementioned 2s10s curve will cease shortly, absent another major overhaul of Quantitative Easing. So the market is basically saying that it will now only believe the inflation rhetoric if the Fed is willing to throw another $1 trillion in UST/MBS purchases. As Zero Hedge discussed, the Fed's balance sheet is already at a pro forma level of about $3.2 trillion: what happens if its hits the $4 trillion+ stratosphere is anyone's question. In the meantime, stocks continue trading on no volume, hugging the flatline as if everything is hunky dory, totally oblivious to the Nightmare on Elm Street mauling that is going on in the mid/far end of the curve. In fact every micro uptick in the S&P500 (likely the result of a latency burst catching up with the SLPs over in the NYSE) causes another major selloff in 10 Years.
Chart hat tip The Irish Menace, Credit Trader.
Sphere: Related Content
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Like A BankUnited Sex Crime
In the annals of rank regulatory intercourse there isn't much more severe debauchery than the distant history that is the BankUnited story. Yes, big bank failures have become so common that they seem to pass through the cycle news unnoticed, untapped and unexplored. The ugly girl on prom night. Attended to briefly, then discarded in the blinding haze of hangover blurred Sunday morning sunshine, a rueful shake of the head and the cursed oath never again to drink Jagermeister. Even the deep investigation into IndyMac seems to have joined the ranks of early morning beer goggle mistakes and is now attended by an endless chorus of "who cares" or perhaps "so what?" Last we checked the remnants of BankUnited were about to be acquired by W.L. Ross & Co., Blackstone Group and Carlyle Group. We wonder if some due diligence details haven't escaped their notice in the rush to vacuum up the marbles.
Picking through some of BankUnited's public filings we discovered some interesting details.
From BankUnited's 2007 10-K:
2007: $4.9 million
2006: $3.6 million
2005: $3.5 million
2004: $3.6 million
2003: $3.7 million
2002: $2.3 million
2001: $2.1 million
2000: $2.5 million
1999: $2.7 million
1998: $2.2 million
We run out of data on specific payments to Camner, Lipsitz and Poller in 1998 not because we run out of 10-Ks or DEF-14As, but rather because these disclosures are not made prior to the 1998 DEF-14A. We do have disclosures on the overall professional fees paid by BankUnited to parties unknown, which are in the 10-Ks:
1997: $1.6 million
1996: $0.9 million
Of course, it is claimed that a substantial portion of these fees are "rebated back," but it is not clear what portion that is, exactly, how long the rebating takes (this would constiute an interest free loan after all) or how those payments are structured, exactly.
Forgetting this for a moment, we have about $31 million in inflation-unadjusted cash flowing from the bank into a small, dedicated law firm run by the Bank's Chairman and CEO. Coincidentally, it is not clear from the filings what portion of these fees went to the principals of Camner Lipsitz and Poller or its predecessor Stuzin and Camner.
Is it possible that Camner Lipsitz and Poller and/or Stuzin and Camner have been charging above market rates as a means to supplement the incomes of senior bank executives and circumvent reporting requirements? If so it certainly wouldn't be the first time this tactic was used to avoid disclosure.
Camner's 2006 employment agreement shows his salary as $475,000. Pulling only 10% of the revenue paid into Camner Lipsitz and Poller (a total guess on my part) increases his cash compensation to $835,000.
Slide.
All of this still leaves many questions unanswered.
Picking through some of BankUnited's public filings we discovered some interesting details.
From BankUnited's 2007 10-K:
For the 2007, 2006 and 2005 fiscal years, BankUnited retained the law firm of Camner, Lipsitz and Poller, Professional Association ("CLP"), as general counsel. Alfred R. Camner, Chief Executive Officer and Chairman of the Board of Directors of BankUnited, is the Senior Managing Director of CLP. For the 2007, 2006 and 2005 fiscal years, BankUnited paid CLP approximately $4.9 million, $3.6 million, and $3.5 million, respectively, in legal fees allocable to loan closings, foreclosures, litigation, corporate and other matters. Errin Camner, Managing Director of CLP, is the daughter of Alfred R. Camner.Camner, Lipsitz and Poller and its predecessor Stuzin and Camner prior to 1998 seem to be no more than single-client (or nearly single client) firms designed to extract fees from a public institution. This has, unsurprisingly, been going on for a long time. Going back through 10-Ks and DEF 14As we find the following amounts paid to Camner, Lipsitz and Poller:
In fiscal 2005, CLP subleased approximately 2,223 square feet of office space from BankUnited in Coral Gables, Florida. The sublease extends through January 31, 2014 and may be renewed for up to four additional five-year terms, subject to BankUnited's exercising its right to renew under the master lease. Under the terms of the sublease the minimum annual rent for the property is $61,249. Payments from CLP to BankUnited during the fiscal year 2007 totaled $79,026 consisting of rental payments and $12,533 paid to BankUnited as reimbursements for tenant improvements for the fiscal year 2006 and $87,161 consisting of rental payments and $22,598 paid to BankUnited as reimbursements for tenant improvements for the fiscal year 2006 and in fiscal year 2005 BankUnited was paid $52,265 in rent. BankUnited believes that the terms of the sublease reflect market rates comparable to those prevailing in the area for similar transactions involving non-affiliated parties at the time the sublease was made. (emphasis added)
2007: $4.9 million
2006: $3.6 million
2005: $3.5 million
2004: $3.6 million
2003: $3.7 million
2002: $2.3 million
2001: $2.1 million
2000: $2.5 million
1999: $2.7 million
1998: $2.2 million
We run out of data on specific payments to Camner, Lipsitz and Poller in 1998 not because we run out of 10-Ks or DEF-14As, but rather because these disclosures are not made prior to the 1998 DEF-14A. We do have disclosures on the overall professional fees paid by BankUnited to parties unknown, which are in the 10-Ks:
1997: $1.6 million
1996: $0.9 million
Of course, it is claimed that a substantial portion of these fees are "rebated back," but it is not clear what portion that is, exactly, how long the rebating takes (this would constiute an interest free loan after all) or how those payments are structured, exactly.
Forgetting this for a moment, we have about $31 million in inflation-unadjusted cash flowing from the bank into a small, dedicated law firm run by the Bank's Chairman and CEO. Coincidentally, it is not clear from the filings what portion of these fees went to the principals of Camner Lipsitz and Poller or its predecessor Stuzin and Camner.
Is it possible that Camner Lipsitz and Poller and/or Stuzin and Camner have been charging above market rates as a means to supplement the incomes of senior bank executives and circumvent reporting requirements? If so it certainly wouldn't be the first time this tactic was used to avoid disclosure.
Camner's 2006 employment agreement shows his salary as $475,000. Pulling only 10% of the revenue paid into Camner Lipsitz and Poller (a total guess on my part) increases his cash compensation to $835,000.
Slide.
All of this still leaves many questions unanswered.
- Stuzin and Camner, Camner's prior firm, seems also to have been a single-client (or nearly so) for Citizens Federal Savings (also with Camner's involvement). Were similar billing practices employed there?
- How much, exactly, flowed to BankUnited insiders in these arrangements?
- How much is *actually* reimbursed to the bank for mortgage closing work?
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