What’s Movin’ Markets – September 26th

  • Government Bonds Rise Around World as Bailout Plan Stalls, WaMu Collapses (Bloomy)      
  • JPMorgan Buys WaMu’s Deposits, Branches as Thrift Is Seized by Regulators (Bloomy)     
  • Money-Market Rates May Rise After U.S. Government Bank Bailout-Talks Stall (Bloomy)   
  • Muni `Hydra’ Bites Denver as Borrowing Rates Hit Record; New York Pays 9% (Bloomy)      
  • European Central Banks Offer More Dollars From Fed in Coordinated Action (Bloomy)       
  • John Paulson Sees Better Alternative to U.S. Treasury’s Bailout Plan (WSJ – see below) 
  • Morgan Stanley Lost Almost Third of Prime-Brokerage Assets Last Week (FT – see below)
  • Morgan Stanley, Goldman Delay Year-End Bonus Decision, Await Clarity (FT – see below)
  • JPMorgan Has $23 Billion Secured Claim in Lehman Bankruptcy, Filing Shows (Bloomy)
  • Housing Deals Falter as Mortgages Become Tougher to Arrange (Daily News)
  • World Economy Needs Emergency Rate Reductions, UBS Economist Magnus Says (Bloomy)      
  • Bailout May Be Granddaddy of All Carry Trades: Commentary by John Berry (Bloomy)
  • Citadel, TPG-Axon Stumble Toward Worst Year as Crisis Hammers Hedge Funds (Bloomy)     
  • Goldman Sachs, Morgan Stanley Aren’t Dead Yet: Commentary by Roy C. Smith      
  • Fortis Options Soar After Report Dutch Clients Are Deserting ABN Amro Unit (Bloomy    
  • Nobel Laureates, Economists Urge Congress Not to Rush on U.S. Rescue Plan (Bloomy)
  • Wamu Seized By FDIC; Deposits Secured By JPM Chase (CNBC)
  • Barney, Nancy & Steny Suggest McCain ‘Slowed Talks Down’ w/Counter-Proposal
  • Paulson Already ‘DKs’ Counter-Proposal
  • Barney Back To Work – Another All-Nighter As Accord Up In Air While Some Claim Deal Is Dead (CNBC)
  • Small Business Struggling As Credit Dries Up (CNBC)

Whats On OUR Mind:

KEEPING IT SHORT AND SWEET FOR OBVIOUS REASONS. For the record, we’re NOT big fans of trading 2s or 5s on each and every sneeze and cough by Barney Frank and Nancy Pelosi. That being said, you will hopefully understand why we’re hung up on the minutia at the moment. In fact, we’d offer that we’ve ALL got $65mil reasons to be P!SSED. Allow us to explain:


10mins BEFORE the 1pm bidding deadline for 5yr Tsies, Bloomy h’line hits wires:        


*Sen. Dodd Says Senate Prepared To Act Expeditiously


At first blush, that’s good, right? Almost hard to imagine, given ‘how smart’ politicians are and worldly and all. This ‘good news’ led the Tsy mkt to TANK as most everyone that COULD, tried pulling their bids for 5s. Right, thanks. The auction then tailed almost 5bps (4.9bps for all you wonks who really care) and being conservative, Sen. Dodd’s ‘good news’ midday cost Hank about 6bps. WHICH IN TURN COST YOU AND US – USofA TAXPAYERS ABOUT $65mil. THE MATH: $24bil 5yrs @ $452/mil (val of an ’01’) multiplied by 6bps = $65,000,000.00. Thanks guys. As Mom always said, and who knew she would be SO right, TIMING IS EVERYTHING … And oh yeah, here’s a visual in case you were in too good a mood on this rainy Friday here in the North East!


Couldn’t Hank suggest that Dodd WAIT 10mins to share his GLEE with the rest of us?


Back to your cars. Shows over folks. Lets watch and hope something gets done quickly in DC! HA. Did I just say that!! Now THAT RIGHT THERE was funny …

FINALLY, something we saw early on yesterday and couldn’t resist …


Given we’ve maintained essentially the same attitude (for as long as we can remember – thinking STILL that the next move, wrong or right, WILL BE an ease) as one of the better independent thinkers of our time, we feel NO need to try and reinvent the wheel and say IT any differently …

Nancy Lazar of ISI says it best here in the following video clip:


Items Of Interest:

Bloomy’s Econ Calendar September 26th


Bloomy’s Fed-speak Calendar September 26th


GPs Key Econ Indicators September 16th -> 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 September 24th, 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 September 15th, 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 September 26th, 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. 


StreetStuff Weekly – September 22nd


StreetStuff – September 26th

  • DB: Next jobs report distorted by weather and strikes
  • DB: Russia – the other crisis
  • GS: The Housing Supply Adjustment Stalls
  • JPM: Forecast change: Now expecting US GDP to contract; Fed to ease further
  • Citi: Treasury Issuance Would Have To Grow Substantially To Fund TARP Proposal
  • BofAs Rate Strategery: How Do We Finance This? The TARP will lead to a one year spike in the financing need, but will reduce issuance in the coming years. There are potential issues for the futures markets. On the curve, we expect the belly to fare the worst, but the issue is more complicated than looking at Treasury issuance alone would suggest. Be cautious about supply-driven spread positions. We think LIBOR will settle down somewhat after quarter end.
  • BofAs Situation Room: Pass or Fail – The Paulson TARP plan inched towards passage with an agreement on broad principles reached this afternoon, though doubts on a final agreement continue
  • CSFB Weekly (a day EARLY!?!): Strategy. The market remains caught in the tug-of-war between a worsening fundamental outlook and hopes that TARA will be able to stem the tide of deleveraging. Regardless of the details of TARA, the process of deleveraging is under way and at best a successful fiscal operation will only make this process more orderly. According to the Fed’s Flow of Funds, the first net reduction in household debt on record occurred in 2Q2008.
  • ML: 2 notes from YEST – How to save the world, Libor and make $10bil ALSO, from YEST – Today’s US banking crisis is neither unprecedented nor unique. A just-released paper by the IMF tallies 124 distinct banking crises over the past 27 years. We review the conclusions


Technicals – September 26th

  • JPM: Dec Tens- Short Term Range Breakdown Nears the 113.28 200 Day MA
  • CSFB: Short, stop above 115.225. Cover shorts on weakness to 114-06/02, reinstating below for 113-065. Above 115-225 would suggest a recovery back to 116-035 then 116-22/28. Re-sell here, stop above 116-30.
  • UBS: Current Recommending Positions: Short at 114.125 targeting 113.18 with stops at 115.23, I would add to this position at 115.03 today.
  • CitiFX: Market stresses remain


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