Staffer at SEC had warned of Madoff (WaPo, h/t dartmont)
Recovering ABS may relapse if TALF support pulled (Reuters)
Arnold's IOUs will pay 3.75% (Bloomberg) which Bank of America can't wait to launder with taxpayer money (PR)
China needs domestic consumption for economic recovery (Bloomberg), in other words a US-style credit bubble, combined with compelte fake economic data, can only go so far.
The Taleb - Tavakoli vendetta post-it update (Alphaville)
The chart below indicates that while the market is exactly where it was in early December 2008, the VIX has droped by almost 60%. And traditional theories that suggest that the corporate risk is merely being offset to sovereing don't seem to hold much sway- US CDS is again trading at a ludicrously tight level. So the question arises: just who is selling 1 month forward vol, and just how are they hedging effectively. Granted, one could make the argument that risk was priced at "total chaos" levels in November and December, the market was running even more like a headless chicken in March and breaching lower lows, yet the VIX was unable to even threaten penetrating prior resistance levels.
Alternatively said, even with net option open interest increasing, the VIX shows barely any indication of widening. Who is writing these options? Who is buying these options? Why (for both camps), and what do they know (don't know) that we don't know (know).
Failure Friday is early today: today's bank shooting green all the way to the grave is John Warner Bank, from Clinton, IL. Likely more to come today.
The FDIC and State Bank of Lincoln entered into a loss-share transaction on approximately $31 million of The John Warner Bank's assets. State Bank of Lincoln will share in the losses on the asset pools covered under the loss-share agreement. The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector. The agreement also is expected to minimize disruptions for loan customers.
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $10 million. State Bank of Lincoln's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. The John Warner Bank is the 46th FDIC-insured institution to fail in the nation this year, and the seventh in Illinois. The last FDIC-insured institution to be closed in the state was Bank of Lincolnwood, Lincolnwood, on June 5, 2009.
Update: First State Bank, IL and Rock River Bank, IL failures #2 and #3
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It seems quite a few individuals noticed our post attempting to justify some very peculiar language in not just a certain Goldman Sachs Internet disclaimer, but also the strange wording prominently featured in critical GS-client agreements. One happened to be Goldman Sachs itself. We take this opportunity to present the response by Goldman Sachs' spokesman Ed Canaday:
Dear Mr Durbin:
This is in response to your recent blog about our web site disclaimer. It is quite usual for websites to have disclaimers that refer to the monitoring of site usage. Most web sites, including yours we noticed, track usage by their visitors. This is primarily used for marketing and to help inform decision about enhancing content.
Your suggestion that we monitor our web site to facilitate front-running is untrue and offensive.
Sincerely
Ed Canaday Vice President Goldman, Sachs & Co.
____________________ Ed Canaday Office: xxx-xxx-xxxx Cell: xxx-xxx-xxxx
We are happy to have caught the attention of Mr. Canaday. We believe this is the start of a great ongoing dialog. In that vein, Marla has replied to Mr. Canaday and Goldman Sachs, attempting to elaborate on some of the point that Ed did not touch upon. I present it below and am looking forward for Goldman's forthcoming reponse:
Dear Mr. Canady:
Thanks for your quick reply.
For your future reference, the correct spelling for "Tyler" is "Tyler Durden." (A re-viewing of "Fight Club" might be in order, but I know Goldman VPs probably rarely have time for such luxuries).
Obviously, we want to make sure we have our facts correct so I am pleased to see your email. Perhaps you can lay to rest some questions we have for the record:
1. Indeed, data use disclaimers are a common feature on most websites. Still, I think you will agree that where usage patterns are so directly linked with potential investment activity and customer intentions it is a bit unusual not to have a more explicit description of the kind of use Goldman intends here. This is particularly so where customer attitudes are concerned, and appearances are important. "Internal business purposes" is a bit vague in this respect, don't you find? This seems unlike Goldman, usually a firm known for very careful attention to detail. Why is a more specific description of such purposes not included? I would think that easier than explaining the matter repeatedly to random bloggers (and customers).
2. I notice that you have not taken the opportunity to address similar disclaimer language in the form contracts used by Goldman and Spear, Leeds and Kellogg. Was this omission intentional or an oversight? (For your reference you can find the language we are curious about here: http://www.zerohedge.com/node/12083). "You acknowledge that we may monitor your use of the Services for our own purposes (and not for your benefit). We may use the resulting information for internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory body and in compliance with applicable law and regulation."
Not to be a stickler, but the drafting here seems quite careless. Note the differing terms between the website disclaimer "...the resultant information may be used by GS for its internal business purposes OR in accordance with the rules of any applicable regulatory or self-regulatory organization...." (emphasis added) and the form disclaimer "...we may use the resulting information for internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory body AND in compliance with applicable law and regulation...." (emphasis added).
As a reformed legal professional myself, this seems a bit sloppy to me. Can you comment on the language and in particular why a more explicit definition of "internal business purposes" is not included?
3. I also notice that you do not specifically address our question: "...has Goldman has ever actually used 360 submitted information in the decision making process of its prop trading desk?" Could you give us a response there? Perhaps you might augment that to include the decision making process of any Goldman investment decisions rather than just the prop desk and all information Goldman collects about 360 users.
And lastly, while we have your attention, we were hoping you could make a statement for Zero Hedge and its readers on the long discussed topic on our pages regarding Goldman Sachs' effective monopolization of Principal Program Trading in the New York Stock Exchange. In other venues you have attributed this domination solely to Goldman's selection as the one and only SLP currently used by the NYSE. Would you care to elaborate how that fits in with the NYSE's upcoming changes to their DPTR (http://www.zerohedge.com/node/11769) specifically as pertaining to J and K account type indicators. Was Goldman in any way consulted in the making of this decision by the NYSE? Did Goldman have any direct communication with the SEC on this issue?
Thanks for your help with these matters. As an aside, if there is a contact at Goldman we can routinely direct these questions to that might be helpful for both of us going forward. I look forward to hearing from you.
Best Regards,
"Marla Singer"
Zero Hedge
Of course, as soon as we receive additional disclosure on this matter, we will post it promptly.
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We know this is the one you have all been waiting for. Ever since we first reported on the Nigaz JV, our proverbial phones would have been ringing off the hook, of course, if we had any listed phone numbers. Of course, the upside is many sleepless nights at the NSA...
So we are considering it. In the meantime, some late morning amusement courtesy of the Daily Mail. Little commentary is needed... suffice it to say "Nigerians No Nigaz" is likely soon to eclipse "Dennis Kneale Idiot" as the most popular rising term in Google:
When a $2.5billion international venture is being planned you might expect there to be hours of debate over what to call it.
Yet branding is not the forte of some companies, it seems.
Russian Energy giant Gazprom has inadvertently walked into a racism row with the announcement of its joint venture in Nigeria - Nigaz.
Russian President Dmitry Medvedev and his Nigerian counterpart Umaru Yar'Adua last week agreed the deal to build refineries, pipelines and gas power stations in Africa's most populous nation.
The name is meant to be an amalgamation of 'Nigeria' and 'Gazprom', pronounced 'nye-gaz', but it can be read phonetically as an offensive term for those of black African origin.
'How more derogatory can it be. Let's join forces in making our government rename this,' said the creator of 'Nigerians No Nigaz', a group on Facebook.
Many comments on the blunder were from white bloggers.
But others mocked the mistake - one African-American suggested a playlist of songs from U.S. hip-hop artists for the Nigaz launch party.
One Nigerian in Lagos said: 'White people are making too much of this.
'As long as the Russians pay us, they can call it what they like.'
If anyone had told us a year ago that Fitch would at least attempt to be a voice of reason, while Merrill Lynch, which has gotten destroyed on real estate, would be a CRE permabull, we would have punched them in the face. Alas, this seems to have become the case. While readers are all to aware of Zero Hedge's coverage of the Merrill REIT team's follies in "analysis land", a Fitch piece from last week has some surprisingly insightful commentary on REIT. In a report titled "U.S. Equity REIT Liquidity Update: Hold the Applause" the rating agency paints a much more detailed and credible picture than i) expected and ii) than the 20 brand new analysts at ML/BofA could come up with.
From the report:
Challenges remain, including:
Tenuous financing available across the capital markets.
Deteriorating performance in commercial real estate and the sizable overhang of debt maturities for equity REITs looming in 2011.
Limited visibility regarding net operating income capitalization rates, which continues to stress commercial property values constraining the magnitude of institutional investor-secured debt lending volume.
Also included is a pretty extensive laundry list for all the companies out there who still have not used ML's magical stock underwriting services.
Likely Reduced Revolving Credit Facility Commitments: Most REITs’ unsecured revolving credit facilities mature beyond Dec. 31, 2010. Within the tables on page 47, Fitch has reduced the borrowing capacity under revolving lines of credit by 33% for REITs that have revolving lines of credit that mature before Dec. 31, 2010 after taking into account extension options for illustrative purposes. This capacity reduction reflects a “what if” scenario for certain REITs as revolving credit facility maturities approach. While a limited number of REITs have either recently extended or increased the borrowing capacity under such revolving facilities, Fitch believes that many of these facilities will be reduced in size. For its rated universe, Fitch does not believe that many of these facilities will be converted from unsecured to secured given the strong lending relationships most of the seissuers have with their banking groups. That said, for weaker issuers across the equity REIT universe, the prevalence of secured credit facilities will likely increase given banks’ limited capital and concerns regarding borrower credit.
Limited Unsecured Bond Issuances: Recent unsecured bond issuances do not constitute a panacea for REIT liquidity, as the unsecured bond market remains unattractive to most equity REITs. Credit spreads have tightened, but indicative pricing across the industry remains unattractive to many companies, particularly relative to secured debt.
Near-Dormant CMBS Market: Liquidity remains weak in certain areas such as secured funding in the commercial mortgage-backed securities (CMBS) market. Although the inclusion of legacy CMBS for eligibility under the Federal Reserve’s Term Asset Backed Securities Loan Facility beginning in July may play a role in the restoration of investor confidence in commercial real estate, CMBS issuance volumes are highly unlikely to be restored to pre-2008 levels.
Reduced Bond Tender Activity: While $2.8 billion in bond tender offers executed year to date have allowed companies to reduce uses of liquidity, such transactions have been a byproduct of bonds trading at discounts to par, which have included securities issued by REITs with below-investment-grade issuer default ratings (IDRs). Spreads have tightened recently, shrinking the arbitrage opportunity bond tenders present.
Uncertain Common Equity Issuance: With $12.4 billion in new equity raised year to date by REITs, the re-equitization wave has enabled REITs to strengthen their capital bases. However, investor demand may be driven in part by low share prices relative to net asset values, while share prices of certain other equity REITs are such that prospective equity issuances are unlikely.
And some more good insight:
Encouraging Signs Are Not Ubiquitous
Year to date, 18 REITs have launched tender offers to repurchase approximately $7.0 billion of outstanding bonds and have tendered for approximately $3.1 billion of securities. Many REITs that have launched tender offers have IDRs in the ‘BBB’ rating category. Fitch’s ratings for REITs that have launched tender offers range widely, from Public Storage (which has an IDR of ‘A’ by Fitch, with a Stable Rating Outlook) to Centro NP LLC (which has an IDR of ‘CCC’ by Fitch, with a Negative Rating Outlook). Fitch views consummated tender offers as encouraging in that they demonstrate REITs’ ability to reduce their future funding obligations and temporarily reduce cash interest expense by utilizing low-cost unsecured lines of credit. Such tender offers have been affected by REITs with capacity under their credit facilities. REITs that have not executed tender offers may have limited liquidity to launch tender offers, while others have shorter tem funding needs to address.
Similarly, the equity issuance wave has been encouraging for REIT liquidity, as year to date, 38 REITs have raised an aggregate of approximately $12.8 billion in proceeds. With certain companies reluctant to issue at these prices
It will be interesting what everyone will be saying about REITs in a few months when the impacts of the recent hotel bankruptcies start reverberating through the system, and the full scale of the massive overhang of excess inventory in major metropolitan areas become fully flushed out.
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Moody's sees likelihood of further gradual deterioration of Irish creditworthiness. Other things that will increase the sodium chloride and recycled beer and whiskey content of the Liffey include:
- Does not see any further changes to Ireland’s rating likely in short-term. - Irish fiscal steps broadly appropriate, more spending cuts crucial. - Ireland’s bad bank scheme positive measure. - Sees less pronounced contraction in Irish economy in 2010, growth in 2011. - Sees signs Ireland’s economic downturn may be bottoming out.
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Lots of readers interest yesterday following Joe Saluzzi's Bloomberg interview. I present a White Paper by Themis Trading in which Joe elaborates on many of the concepts that may have flown over the heads of some of the more "beginner" readers. Additionally, I recommend readers search for specific concepts within Zero Hedge - we have covered the topic of program trading and liquidity extensively here over the past 3 months.
I am done commenting on this. However, this is what I sent to DK's producer this morning. I am still waiting for a response.
Dave, I am sure you have by now read my response to Dennis' segment last night. I would like to offer DK the opportunity to defend his position however in a medium away from CNBC: I will let him choose what that is, however I would request several things:
- preservation of anonymity
- no commercial breaks
- ability to finish sentences without interruptions
I am departing the country tomorrow so we can have the debate when I get back on the 13th. I believe this should give Dennis enough time to prepare.
Alternatively, if Dennis would like to send a standalone letter or explanatory piece, Zero Hedge will be happy to publish it.
The company which two years ago activist investor Carl Icahn thought was a steal at $37.25 just filed for bankruptcy (needless to say Suite #4700 at 767 Fifth Avenue is right now painted with sacrificial lamb blood: janitors who are told to clean it all up by tomorrow have just quit). In a press release the Southfield, MI parts supplier said it was hoping for a prompt Chapter 11 process and that it had already received a $500 million DIP compliments of JP Morgan and Citi (the latter probably has to pretend it is still a bank of some sort).
Lear Corporation (NYSE: LEA), a leading global supplier of automotive seating systems, electrical distribution systems and electronic products, announced today that the Company has reached an agreement in principle regarding a consensual debt restructuring with steering committees representing its secured lenders and its bondholders. The Company plans to commence shortly the proposed restructuring under court supervision pursuant to a voluntary bankruptcy filing under Chapter 11 of the United States Bankruptcy Code by the Company and certain of its U.S. and Canadian subsidiaries. The agreement in principle provides that, subject to certain limited exceptions, Lear's trade creditors will be paid in full.
Unfortunately, the Company seems to not have heard that the recession is over:
Given the unprecedented economic downturn and corresponding decline in global automobile production volumes, as well as continued difficult conditions in credit markets generally, Lear's Board of Directors concluded that in order to protect the long-term business interests of the Company, this protective action was the fastest and most effective way to delever its capital structure. During the reorganization process, Lear is committed to continuing to deliver to its customers the superior quality, service and innovation they expect.
Furthermore, an "expedited" restructuring will be contingent on whether the company's bondholders, in turn, have heard about the recession ending:
The Company's restructuring plan has the support of a majority of the members of a steering committee of the Company's secured lenders and a steering committee of bondholders acting on behalf of an ad hoc group of bondholders The Company is seeking support for its restructuring plan from additional lenders and bondholders. However, no assurance can be given as to the level of additional support for the restructuring the Company ultimately will be able to obtain from its lenders and bondholders.
Lastly, it is good to see that Citi is using that juicy TARP cash to lengthen the miserable existence of yet another doomed concern:
The Company has received commitments from a syndicate of secured lenders, led by J.P. Morgan and Citigroup, for $500 million in new money debtor-in-possession (DIP) financing. The proposed DIP financing, subject to customary conditions, provides additional financial flexibility that supplements Lear's significant existing cash balances. Additionally, the DIP agreement provides that, subject to certain conditions, the DIP financing will convert into exit financing with a three-year term upon Lear's emergence from Chapter 11.
Zero Hedge is now taking bets on whether the recovery in the ISDA CDS auction will be above or below 10 cents.
The Company anticipates being in default under its 8.50% Senior Notes due in 2013 and 8.75% Senior Notes due in 2016, as the 30-day grace period applicable to the semi-annual interest payment due on such notes will expire on July 2, 2009. In addition, in light of the pending reorganization plan, the Company has not made principal and interest payments due under its senior credit facility on June 30th.
Tomorrow should be an interesting day for the stock. If GM is any indication, look for the stock to jump from $0.48 to $48.00 on the grandmother of all short squeezes.
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For all you investment bankers out there, just dying to see those league tables in which your bank with 4 deals in the quarter somehow made the Top 10.
Equity indices benefited from optimism carried over from the European and Asian sessions after better manufacturing reports raised hopes that the global recession is easing. The positive sentiment was given a further boost following an in-line reading for the June ISM manufacturing data. However, the upward momentum was not sustained amid lower volumes, as traders turned their focus to today’s NFP report. Further to that, downbeat comments out of GM related to creditor payments, as well as news that California’s governor has declared a state of “fiscal emergency”, put further pressure on stocks later on in the session. Finally, at the closing bell DJI closed up 0.68% at 8504.06, S&P 500 closed up 0.44% at 923.32 and NASDAQ100 closed up 0.28% at 1481.34.
Fixed Income Wrap
Treasuries were lower during the early hours of trade after investors turned their attention to looming supply in the form of TIPS, 3,10 and 30y notes refunding announcement tomorrow. However, T-notes moved off lows after a lower ADP reading raised concerns the upcoming NFP report may top analyst estimates. T-notes then accelerated their ascent after the Fed bought USD 2.99bln of Treasuries in its latest coupon pass with an offer/cover ratio inline with the previous. Finally, the closing stages saw prices grind higher and at the pit close to finish flat at 116.085.
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-Bove revises Citigroup shr view to USD 0.14 from USD 0.13 for 2010, to USD 0.34 from USD 0.32 in 2011 -Bove sees USD 11bln Q2 gain from Smith Barney venture with Morgan Stanley -Bove rates Citigroup buy
The New York Fed on a roll today. This time discussing the nebulous question of how many subprime borrowers have any equity at all in their house. Seeing how the GSEs are going batshit over providing 125% LTV refi options, the Fed could have probably saved $100k in taxpayer money for very unnecessary research and concluded that the answer is "Lots." However, as your money is at work here, it makes sense to at least share the work product.
And, if one were inclined to read the whole paper, the answer is indeed "Lots."
The New York Fed is out with a paper on Emerging Market capital flows. In a nutshell: not much. Probably an opportune time to come out with this piece, as even blind orangutangs can see that the European currency crisis is days if not hours away, and someone, somewhere at the Federal Reserve will be taken to task if they did not have at least a theoretical contingency. Of course, the practical reality with EMs, once the commodity euphoria crashes, will be so ugly that a $1 quadrillion IMF bond raise won't help anyone.
Somewhere, Ben Bernanke is cheering the collapse of the dollar: after all it bought the market another 1%. Of course, forget his sworn duty of protecting the US currency: who cares about hyperinflation when there is a great ponzi stock bubble to reflate.
I have got to say that I think you have been rather less than even-handed in the way that you handled our small disagreement last week about how employees should conduct themselves in (and out of) the workplace. And being placed on suspension by that sycophantic loser in HR was just too much; if he was just a bit taller, I would have punched him!
Before I go to the expense of hiring a lawyer (again), I thought that it would make sense to send you a brief e-mail outlining the events as seen from my viewpoint, which will hopefully result in me being restored to my position as Head of Commodities Trading.
Let me start by confirming that you were correct that I misled you when I claimed my recent two-week unauthorized leave of absence was caused by me going down with the H1N1 flu virus; there was no virus and there was no quarantine. Having said that, and in my defence, I did have a very heavy cold. And, although I know that it looks bad that I returned to the office with what appeared to be a healthy sun-tan, I am disappointed that you chose not to accept my explanation that I had simply fallen asleep while under a sun-bed.
I would also like to point out that I do fully understand the firm's expenses policy, and would like to restate that the bill, resulting from the recent bash I organised for my team and a few clients at that adult entertainment club, was not paid for out of our TARP pot - it came from the internal 'errors and omissions' account which was set-up for this purpose. I would also like to reassure you that I paid out of my own pocket for the services of Benny ('the Giant'), the midget who turned-up to provide the dwarf-tossing entertainment; I even picked up the tab for his hospital care following his unfortunate accident at the party. In hindsight, I do accept, however, that I probably shouldn't have hired that elephant from the circus. Having said this, it was hardly my fault that the animal was old and very short-sighted. And Benny was asking for it by sitting down on his break so close to the beast.
I'd also like to clear up the matter of me trading over my limits and mispricing my asset book. Let me first point out that, when I did this and made a shed-load of money a couple of years back, you promoted me. It seems a bit harsh, then, to use this against me now, just because I got caught short with that oil hedge and lost $564m. OK, I admit that hiding these losses was a bit silly, but it's not my fault that those dumb-asses in Compliance took 9 months to uncover what I had done - that should not be held against ME.
Anyway, now that I've been able to clarify the key points, I trust that we can get back to normal. Unfortunately, I won't be able to return to the office for at least 3 weeks, as I promised Benny I'd take him to Thailand for some fun (the ladyboys apparently get-off big time on midgets over there. And Benny is so excited, he seems almost to have forgot that he got squashed by the elephant). Oh, and if you need a proper tally of my trading book for the auditors, it's hidden in a file on my computer. The file's called 'Losses', and the password is 'Bonus'.
Fannie, Freddie to refinance for homeowners with 125% loan to value ratio. If this is not borderline criminal, nothing is. - Move lifts current 105% limit to aid more borrowers struggling to make payments. - GSEs to offer new 25 year mortgage for some refinances to accelerate debt payments.
Fed purchases USD 2.99bln Aug. 2019 - Feb 2026, Offer/Cover 3.17 vs. Prev. auction of similar maturity 3.14
China has asked the G8 Italy summit to discuss issue of new global reserve currency
Porsche (VOW GY) considering further production cuts in H2 of year due to weak demand
IMF staff recommends USD 150bln cap on the IMF bond issuance
Fitch says Russian banks likely to require at least USD22bln in capital
Moody's says few US bank rating upgrades are likely in 2009
And, surprise, surprise, KB Home founder Eli Broad says housing prices in US near or at bottom now
Joe Saluzzi of Themis Trading on Bloomberg TV, discussing several critical topics extensively covered on Zero Hedge previously: the real state of the economy, high frequency program trading and outright market manipulation. Maybe this will explain some of the persistent questions readers have about Zero Hedge's obsession with Goldman's domination of the Principal Program Trading market.
To quote Joe:
"I have a feeling one day the door is gonna close, everyone is going to be running for the exits, there is going to be a major move in the market and everyone is going to wonder "what happened?"
There is problem structurally in the equity markets that nobody wants to talk about. There is intervention, there is manipulation going on. No one has exact proof of what is going on but it's out there, and the real liquidity has been gone for a while. People don't understand, the liquidity is not coming back."
Everyone who is anyone on Wall Street has at some point used the Goldman 360 portal whether for research, news, keeping a track of prime brokerage portfolio or, disturbingly, for trading, via the REDI Plus 9.0 platform (now loaded with enhanced algo trading features to make life for you, dear soon to be frontran Goldman client, so much easier). A second widely accepted Wall Street concept is that a disclaimer is the last thing that anyone reads, if ever. Yet after taking a close look at the Goldman disclaimer for the 360 portal, which is an umbrella waiver or all downstream websites, including REDI, one discovers the following gem:
Monitoring by GS: Your use of the products and services on this Web site may be monitored by GS, and that the resultant information may be used by GS for its internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory organization.
One second: by using Goldman 360 a client voluntarily allows Goldman to provide keystroke by keystroke data of everything the client does, even if that includes launching trades via REDI, to Goldman for the internal business purposes. The third thing everyone on Wall Street agrees on is that "internal business purposes" usually (and in Goldman's case, almost exclusively) means proprietary trading.
Are Goldman 360 clients (in)voluntarily signing off a release to be front ran by Goldman on any portal-based trade? Could Goldman please clarify just what "internal business purposes" means in the context of this overarching disclaimer, and also whether Goldman has ever actually used 360 submitted information in the decision making process of its prop trading desk? Lucas Van Pragg: the floor is yours.
Update: several readers have presented some other Goldman Sachs and Spear, Leeds and Kellogg form documents that contain an even more crypitc warning in section 4(f) in Use Of Services:
You acknowledge that we may monitor your use of the Services for our own purposes (and not for your benefit). We may use the resulting information for internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory body and in compliance with applicable law and regulation.
NOT FOR YOUR BENEFIT? I mean, come on, how more clearer does it need to get.
We apologize for the speed at www.zerohedge.com; we are experiencing intermittent network traffic issues (which we hope do not originate out of Stony Brook). For the time being, please just use the blogspot site as it mirrors all the content on the new website.
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With the roll behind us, rerisking is back on the table. Of course, judging by the VIX one would think all the risk is out of the game right? Wrong: what is happening is as VIX is crashing, there are non-margin transactions leading to increased net open CDS interest, in effect implying investors are aggressively insuring themselves for when the shit hits the fan. Anyone following the VIX alone as an indication of risk appetite is blindly ignoring the credit market's expectations for what may happen ahead. $31 billion net notional in CDS derisked, on just over 4000 contracts.
Segmented action indicated a run to safety trade: the bulk of rerisking action was in Healthcare and Consumer Goods ($30 and $13 billion, respectively), while Consumer Goods, Sovereigns and Industrials saw more people buying protection.
The week saw total gross outstandings of $26.5 trillion, based on $15.3 trillion in single name CDS, flat from the prior week, while the index collapse trade has picked up again with a $1 trillion drop in gross notional over the prior week (this is big). Seems our conclusion that the index liquidation is over, was premature.
In single names, aside from the usual sovereign action (Italy, Portugal, France, Spain and Austria all getting the finger), a new name that has made a repeat appearance and that would make the CNBC pundits nervous, is General Electric Capital Corp. Not too good for CNBC parent company GE. On the rerisking side, Korea, Turkey, Fujitsu, Wells Fargo and Banco Santander rounded up the top 5. Other top 20 notables were Citi, Greece, Russia, Interval Acquisition, Toll and JC Penney.
Preamble: here is the original post... the supremely ironic thing is I didn't even say anything negative about DK.
First, I ask readers to watch the following clip
I want to make a few points:
First, I have respect for Dennis - he lays out his beliefs (regardless if these beliefs are based on completely flawed foundations or not) and defends them, on prime time TV, in a "financial news" medium whose very existence every viewer realizes is contingent on not only the continued viability of massively bad debt-laden GE (due to its inextricable ties with GE Capital, which lent out more toxic second liens than virtually any other entity), but by implication, the well-being of the overall economy, as well as the continued financial support by PIMCO and other financial company sponsors who have explicit and implicit ties with the current administration, and who profit exclusively from a rising market. In retrospect, one can see where Dennis' viewers may get confused by the blurry line between a hopelessly severe conflict of interest and honest personal opinion.
Second, I want to address some points that Dennis made in his monologue. Zero Hedge received an invite from Dennis' producer Dave at 1:34 pm to appear on the show. Of course, our frequent readers realize this is a non-starter for anyone at Zero Hedge due to the nature of our operation. We countered by offering a telephonic interview at an indeterminate point in the future (and desirous of at least a 24 hour advance notice: again, frequent readers will attest that I tend to post constantly, for about 18 hours a day), and even offered Dennis a forum on Zero Hedge to directly address our readers, whom he, we assume affectionately, had some florid words for. Nowhere did we give the impression we would have a call today, and offered up a date in two weeks for an extended call, which would take place upon my return from a reconnaissance trip to Europe (ironically to check up on some of GECC's major investments in the region: stay tuned for my observations). Our overture was denied, yet somehow Dennis decided to make a point of misrepresenting the communication that took place. We provide a transcript of the email exchange earlier for our readers' convenience.
Third, I would be very happy to have a sensible, rational discussion with Dennis on any topic of his choosing, and to demonstrate my opinion, which he may or may not agree with, as to why I find his conclusion that the recession is now over laughable. However, this will not occur on CNBC's 10 second sound bite terms: a good case in point is Dennis allowing the other blogger exactly 46 seconds of air time to justify his opinion, before cutting him off irreverently and turning off his microphone. Zero Hedge knows very well how prime time media operates. Which is why I, in turn, extend Dennis an invitation to appear on a podcast, or any other non-CNBC hosted venue of his choosing, for a deabte which will be as lengthy as necessary, without commercial or otherwise interruptions, without prepared notes, without tele- or ear-prompters, in which I am happy to deconstruct his thesis point by point, not having to worry about his producer cutting me off, or Fritz Henderson's bathroom break at 1 Bowling Green causing an epileptic fit inducing bout of CNBC Breaking News.
though often maligned (typically by those frustrated by an inability to engage in ad hominem attacks) anonymous speech has a long and storied history in the united states. used by the likes of mark twain (aka samuel langhorne clemens) to criticize common ignorance, and perhaps most famously by alexander hamilton, james madison and john jay (aka publius) to write the federalist papers, we think ourselves in good company in using one or another nom de plume. particularly in light of an emerging trend against vocalizing public dissent in the united states, we believe in the critical importance of anonymity and its role in dissident speech. like the economist magazine, we also believe that keeping authorship anonymous moves the focus of discussion to the content of speech and away from the speaker- as it should be. we believe not only that you should be comfortable with anonymous speech in such an environment, but that you should be suspicious of any speech that isn't.
To this point, and this is where there is obviously major friction in opinions as I am not sure if Dennis, a TV pundit, can quite comprehend this, Zero Hedge is not about personalities, goatees or glasses - it is about ideas, facts and opinions. People come to Zero Hedge not because of my chiseled washboard abs, but because they appreciate my insight into things financial and economic. My personality is not relevant when discussing critical concepts. Who knows - maybe I do not care for being recognized while having diner at Campagnola. Zero Hedge realizes that a little individual humility when evaluating the trillions and trillions of debt which our children will inherit as a result of the current spending spree by the Administration (which may or may not end this immediate recession, only to result in a default of the US 10 years down the line), would come in useful: maybe Mr. Kneale should also consider that as he hopes to build credibility before his CNBC viewers.
Lastly, direct attacks by Dennis against Zero Hedge readers with pejoratives such as "digital dickweed" is somewhat beneath a person who, at least in his personal view, is sufficiently erudite to have an informed opinion on such critical issues as the end of a recession.
In conclusion, I have no bad blood with Dennis at all - I believe it would greatly benefit both Dennis' viewers as well as my readers to have a sensible discussion on this very relevant topic. I have proposed several ways in which this can be achieved: if Dennis would like to take on the challenge, I am game. If not, I understand: after all Zero Hedge is at the forefront of the "anonymous, dark and cowardly" blogosphere, whose corners Dennis would be the last person to brave as we deal not with the ethereal, bright lights of "hope and fortitude" but scary, mysterious concepts like facts and substance.
Sphere: Related Content
In approving the mergers, the directors considered, among other things, each fund's investment objectives, net asset value and stock price performance, income-generating strategy and expenses, and potential cost savings based on operational efficiencies. The mergers will permit fund shareholders to pursue substantially similar investment objectives in a larger fund that has similar investment policies and anticipated lower expenses.
Zero Hedge is anxiously waiting to see the proxy information that will accompany this transaction in order to get justification for the move.
The board also has approved removal of UTF's 20% limit on investing in foreign securities, so that the fund can invest without limit in foreign securities, including securities of companies in emerging market countries, to the extent consistent with the fund's investment objective and other investment policies. The changes will broaden UTF's geographic investment universe and open up potentially higher-growth sub-sectors while maintaining similar investment characteristics.
Nothing like having no size limits in a $1.4 billion fund. Visions of Bill Ackman's PSIV (Target) adventure, and its dramatic returns, start floating. Of course, one needs dry powder for when Merrill strats upgrading and issuing secondaries for the Honduras mall REIT that is 'almost' guaranteed to generate 1000% return once the Honduras SEC pulls all borrow.
Sphere: Related Content
An unexpected drop in consumer confidence data saw equity indices fall on concerns the economic recovery will be slow. Lower WTI prices weighed on the major US averages after the release of consumer confidence sparked a flight to safety in the USD. In turn this saw Exxon (-0.95%) top the laggers table in the S&P 500 index. Following the initial downward move in equity indices, prices were range bound and trading sideways, though did move slightly higher after positive comments on the economy by Fed’s Bullard. Finally, at the closing bell DJI closed down 0.96% at 84447.53, S&P 500 closed down 0.85% at 919.34 and NASDAQ100 closed down 0.44% at 1477.25
Credit Market:
Treasury prices came under pressure in the closing stages of the session to finish lower after Fed’s Bullard said that Fed’s exit strategies are ‘unclear’. Initially, at the open prices plunged after a better than expected improvement in Case-Shiller housing data, though retraced that downward move after the release of disappointing consumer confidence data. Also, the Fed carried out its first coupon purchase of the week which yielded a lower than expected offer/cover ratio and supported a lift in prices. Finally, the closing hour saw Treasuries retreat on the back of comments from Fed’s Bullard after he said demand for liquidity programs is diminishing. At the pit close T-notes finished down 6+ ticks at 116.085.
More and more economic data manipulation is coming to the fore, none of which as blatantly obvious as the California housing market. Some of it is palatable, but when home sales in San Diego get revised from 89% to 6.5% due to a "data glitch", it is no wonder that increasingly more Americans realize every single day they are being blatantly lied to by an Administration whose sole purpose in life is to give out 10 pair of rose-colored glasses to every possible voter in the next election. For the most recent take on this the WSJ chimes in:
The California Association of Realtors expects to make sharp downward revisions in its recent monthly reports of soaring home sales in the San Diego area, Robert Kleinhenz, deputy chief economist of the trade group, said in an interview. Those revisions will mean modest downward revisions in statewide sales, he added.
The revisions are likely to be announced in late July, when the Realtor group reports home sales for June. The problem resulted from a glitch in data from a multiple-listing service in San Diego, Mr. Kleinhenz said. He said a change in computer systems used there resulted in incorrect data being sent to the Realtor association over the past year or so.
Thomas Lawler, an independent economist in Leesburg, Va., who tracks home sales nationwide, raised questions about the San Diego data in a report last week. Mr. Lawler noted that the numbers reported by the Realtors vastly exceeded those from MDA DataQuick, a research firm in La Jolla, Calif., and other sources.
The California Realtors have reported that San Diego sales in April were up about 63% from a year earlier. Mr. Kleinhenz said that is expected to be revised downward to a gain of about 20%. For May, the group reported an 89% increase in sales in San Diego; that will be slashed to about 6.5%, the economist said.
As a result, he said, the state-wide sales gain for May -- reported last week as 35% -- also will be revised down, though it probably will remain above 30%, Mr. Kleinhenz said.
Of course, the problem with this is that as more and more instances of blatant data fudging become obvious, only the most naive citizens will believe anything that is released as "certifiable" economic data.
Zero Hedge is happy to present readers with the NYSE's response to the earlier post on dropping program trading data. I would love to see clarity on what it is that the NYSE classifies "account type indicator data" as opposed to old reliable DPTR. I sure hope this does not mean the source will be the actual account as opposed to the Exchange sourcing the data. I imagine there will be significant statistical data adjustment post fact.
Furthermore, in allowing the SLP program to go into effect on an expedited basis, the SEC said it did so because the program did not affect the protection of investors and impose any significant burden on competition. See page 2 of the linked doc.
"The Exchange believes that this rebate program will encourage the additional utilization of, and interaction with, the NYSE and provide customers with the premier venue for price discovery, liquidity, competitive quotes and price improvement."
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2008–108. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR–NYSE–2008–108 and should be submitted on or before November 26, 2008.
Regardless, I will, of course, present whatever data is available for as long as it is available.
***
Tyler -- I'm with NYSE corporate communications and wanted to let you know that NYSE is not eliminating the weekly report; we're just changing the source of the data to eliminate duplication. As the Information Memo you cite notes:
The Exchange further notes that it will use the existing account type indicator data – which captures program trade information for those orders sent to and executed on the Exchange – to report to the Commission on a weekly basis the program trading statistics for portions of program trades executed on the Exchange. Accordingly, beginning on July 23, 2009, the Exchange will provide the Commission with its weekly statistics on program trading based on account type indicator data rather than DPTR data. Similarly, at the same time, the weekly statistics regarding program trades that the Exchange provides to media outlets will also be derived from account type indicator data rather than the DPTR.
