Tuesday, April 21, 2009

Overallotment: April 21

  • Must read: Barofsky bombshell - all TALF 2.0 participants likely to see executive pay restrictions (WaPo) [If true, kiss the TALF goodbye and any hope for a CRE recovery]
  • Kansas Fed's Hoenig: Let insolvent firms fail (CNBC, hat tip Ben Dover) [this guy actually votes on Fed policy so there might be some hope yet]
  • Geithner still has no idea how the U.S. will exit the AIG fiasco (WaPo)
  • Student loans defaults soaring (WSJ, hat tip Keith)
  • It's official: IMF puts financial losses at $4.1 trillion (FT)
  • Japan's largest bank may need to seek public funds (Bloomberg)
  • Credit card issuers brace for stern warning (WaPo)
  • AIG: nothing but smoke and mirrors by the administration (Dealbook)
  • Rick Bookstabber's solution to the M.A.D. problem of Quants: faster processors... maybe we need better tea leaves, Tarots, and Ph.D. with 4 math degrees (Bookstabber, hat tip Janek)
  • Lenders to get stress test results on Friday (WSJ)
  • Does a CRE nuclear bomb go off in the forest if nobody notices? (Mish)
Comment from Bob Savage:

If yesterday was the worst sell-off in six weeks, then its logical that today was the best rally in two weeks. We are doing a dance. This isn’t a tango, clearly not a waltz, rather the chaos of this flip-flop of sentiment has the beat of hip-hop and the gyrations of a belly-dancer. So the sentiment shift from bear to bull in equities which drove markets to rally from down 2% to up 2% came on back of banks again. The US Treasury Geithner comments led and the German Bank Plan leak continued the mood. The risk on and off beat comes from the parade of earnings that prove less painful than feared but less profitable than needed to justify outlooks for 2010. What may be the bigger issue ahead remains the economy and its ability to provide the backdrop for companies to print profits sufficient to justify the longer term price expectations. Yet today was not just about the FX and equity correlation. Oil up and gold down shows some resilience about growth and inflation fears even as the BOC cut rates as did the Riksbank and the RBI. The market paid for growth today and forgot the fears of inflation that follow. Bonds did go down but the 10Y remains below the 3% pivot. For FX the USD was sideways 1.29-1.30 EUR; 98-99 JPY but carry and commodity plays returned with AUD up over 1% along with CAD. The themes ahead will test the music choice for investors with the sustainability of rates being low; trade continuing to grow and global coordination increasing being the band. BOE minutes likely to be important for the fate of the GPB and Gilts. Japan trade data will similarly drive JPY and JGBs. But the lack of US economic data will leave earnings and pundits free reign for continuing the show. Time to get your dance shoes on, this rally back in risk wont be over until the fat lady sings.

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