What’s Movin’ Markets – Thursday, August 28th

  • Germany’s August Unemployment Rate Declines to Lowest Level in 16 Years Storm (Bloomy
  • Euro Rises a Second Day as Rate Advantage May Draw Investors on ECB Signal (Bloomy) 
  • Gustav May Halt Oil Output in U.S. Gulf (CNBC)
  • Fannie’s Mudd Shakes Up Management to Bolster Confidence After Stock Falls (Bloomy)
  • Toyota Cuts 2009 Sales Forecast as U.S. Gasoline Prices Damp Truck Sales (Bloomy
  • Goldman Profit Estimates Cut by Analysts on Valuation Concern (Bloomy
  • Georgia War Shows Bulked-Up Russian Army Now a `Force to Be Reckoned With’ (Bloomy)
  • U.S. Worker Confidence in Job Market Lowest Since Recession in 2001 (WSJ)

What’s On OUR Minds:

We learned late yesterday that the head of Fannie Mae, My Name Is Mudd, was making some management changes in effort to bolster the confidence in his stock. We HAVE to point out that we’ve first hand knowledge of just this sort of maneuvering – having relatives involved in professional football, and sometimes on the wrong side of the axe that is swung in order to save the dude at the top. OUR point is that these moves aren’t done within winning organizations. They are done as moves of desperation and typically end up with that dude swinging the axe, getting axed himself. WHY? Because that dude at the top is NOT the one out on the line of scrimmage blocking and tackling, catching (or NOT catching) passes and committing fouls. If you have NO talent or the wrong sort of talent for the league you are IN, well then the writing is on the wall. Sorry for the lengthy rant/analogy but again, we’ve seen this movie before and it is in OUR opinion (which is based on similar first hand experiences) all SMOKE AND MIRRORS – the underlying fundamentals of the housing and securitization market did NOT change overnight in the wake of My Name Is Mudd’s management’s Cury Shuffle!


Back to more important matters at hand and at the moment we’re ALL consumed with a couple of things that offer a push-pull, in as far as our opinions and best-foot-forwards go. On the top of the very short list of things to do is our desire to be punting in some sort of Tsy curve flattener. Given it’s 5yr auction day today, we’ll start here with the following picture of 5s:





In that positions still matter and last we checked – SMRs Duration Survey out yesterday afternoon that folks out there are as short as they’ve been since early 2005 – leads us to thinking that as widely advertised as it may be, the large’ish Lehman month-end index extension trade might still provide a few bps of ALPHA … Therefore, we’d like to ALSO consider the following picture – very short term flattening PUNT – selling 5s vs LBs:




Items Of Interest:

Bloomy’s Econ Calendar August 28th


Bloomy’s Fed-speak Calendar August 28th


GPs Key Econ Indicators (August 19th, 2008) -> Our “Economic Graph Package” is used by some of our clients to include in their monthly or quarterly reports. We have most of the major economic indicators included to give an accurate snapshot of the economy.


GPs 5yr & Under Summary (August 25th, 2008) – > This is our chart package we call the “One to Five Year Daily”. It tracks agency bullet spreads to Treasuries, date to date, to compute the real maturity spread levels (in basis points) out to five years. We track agency callables against agency bullets and Treasuries. We compare equal maturity dates when tracking these spreads because the effective durations of callables are not stable. So over time we have a consistent methodology that we use to determine “value”. Please give us a call for more in depth explanation.


GPs Index Spread Summary (August 19th, 2008) -> We use certain Merrill Lynch indices, which are described at the top of each graph, to try and determine optimal entry and exit points for each sector. Though the indices should have similar durations, they commonly don’t match precisely so we’ve included the green line (which should be read off from the right axis) to allow you to take the curve into account when looking at historical spread relationships.


GPs Daily Pivots (August 28th, 2008) The pivot point is essentially a mechanism for analyzing the short-term supply and demand factors affecting the market. It has limited applications for long- term decision making. Professional futures floor traders, also known as locals, are the biggest proponents of the pivot technique. Scalpers, brokers, market makers, and other short-term traders also use the technique, while upstairs or longer-term traders occasionally look at the pivot for ideas of what the floor traders are doing. The pivot point is basically the weighted average price of the previous trading day, calculated as the average of the previous trading day’s high, low, and closing prices. It represents the major point of inflection each day. Unless there has been significant market news between the previous trading day’s close and the current trading day’s opening, locals often try to test the near term support, resistance, and pivot point. For example, many floor traders cover their shorts and go long into the pivot level if the market opens above the pivot point and starts to sell off.


McCulley of PIMCO – waxing poetic as only HE can about Jackson Hole and the Fed NOT tightening despite the ‘inflation nutters’ … even THO ‘real FedFunds’ is negative, it NEEDs to be … one of his BETTER reads and ONLY 4pgs …


StreetStuff – Weekly, August 25th


StreetStuff – Daily, August 28th

  • DB: Sizeable upward Q2 GDP revision expected on net trade
  • GS: Goods Orders: Don’t Be Fooled by Inflation – Durable goods orders beat expectations with a 1.3% month-on-month increase in July.  But the apparent strength is due to higher prices, not stronger activity…
  • KBW: With Balance Sheets Paralyzed Profitability is Dim – We are revising lower our FY3Q08 ests. for the big brokers with qtrs. ended August to reflect 1) expected residential mortgage/other asset write-downs, 2) weaker investment banking revs, 3) lower trading revs. LEH est. revisions are the most stark from $0.26 to ($3.66) for 3Q08; GS est. is now $2.17 vs. $4.00; MS is only a minor adjustment to $0.73 from $0.78. Given the uncertain recovery we have also lowered 2009 ests. and adjusted price targets. Caution is warranted if investing in these names as volatility remains intense.
  • LehDRV: U.S. Muni-Treasury Yield Normalization Stalling, but Still Room for Outperformance as High-Grade Munis Remain Attractive at 95% of 10-Year and 107% of 30-Year U.S. Treasury Yields
  • BofAs Situation Room: More Misery – The “Jobs Hard to Get” component of Consumer Confidence indicates that the unemployment rate could soon reach 6%, which could prevent the misery index from declining as headline inflation moderates.


Technicals – Daily, August 28th

  • JPM: Cash Tens: Bullish Outside Day Retests 3.765-3.76% July-Aug Yield Lows
  • CSFB: Holding a long. Add on weakness to 116-14/07, stop/reverse below 115-21. Square longs on strength to 118-00. Below 115-21 would turn the trend lower for 115-06, then 114-295/265.
  • UBS: Current Recommending Positions: Long at 116.16 targeting 118.10 with stops for now at 115.22. I will add to this on a settlement above 117.035.
  • ML: Bullish outside daily sessions: early selling pressures rejected yesterday as recovery gains produced bullish outside daily patterns for most US fixed income markets


In The Press NOW:

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