What’s Movin’ Markets – Weekend/Monday, September 29th

  • Fed to Get Greater Power Over Short-Term Interest Rates in Rescue Proposal (Bloomy)
  • Treasuries Rise; Stocks Decline, Paulson Says U.S. Economy Is `Fragile’ (Bloomy)       
  • Bradford & Bingley, Fortis, Hypo Real Estate Rescued as Bank Crisis Widens (Bloomy)
  • Bradford & Bingley Is Seized by U.K. Government; Santander Buys Branches (Bloomy)
  • European Two-Year Notes Rise as Three Governments Agree to Rescue Fortis (Bloomy)
  • Iceland Agrees to Purchase a 75% Stake in Glitnir Bank for $859 Million (Bloomy)        
  • Reserve Primary Investors Face Cash Withdrawal Restrictions, Delays (WSJ)
  • Lehman’s `100% Principal Protection’ Means Pennies on Dollar for Its Notes (Bloomy)    
  • Crude Oil, Metals, Crops Fall on Concern U.S. Bank Bailout Plan May Fail (Bloomy)         
  • Europe Confidence Drops to Lowest Since Wake of Sept. 11 Terrorist Attacks (Bloomy)
  • Paulson Plan Still a Pig, Even With Lipstick: Commentary by Caroline Baum (Bloomy)

 

Whats On OUR Mind:

Wall_street_dept

 

A funny thing happened on the way to thinking about bailout and rescue packages and deals. We couldn’t even spend much time thinking about mkt reactions and curves to whatever Mr. Market has to say about the folks in DC working together to forge an alliance and put aside their differences for the greater good of the American people and our economy. Yeah, a funny thing happened BEFORE we could celebrate …

 

Fortis speculation and rumor has jumped to the fore and we’re now wondering what the rest of today and tomorrow will look like for us, here at GP. I mean I know there will be a ‘tomorrow’ but this all is starting to hit a bit too close to home for all of us here. It’s NOT as if as a taxpayer, it wasn’t close enough … I mean each and every one of us now has ownership in AIG as well as what, one in 10 mortgages in the land? Sheesh. IF that weren’t enough, and we think this is an important point as a reflection of the severity of the problem, now we’re seeing more and more of this crop up across the pond. SO as the ECBs Trichet continues to prove he’s more worried about wage-push inflation, he’s been attending meetings with regards to Fortis and how, whoever it will be (private sector – ING? Or Dutch and Belgian CBs?) will in fact right the good ole ship, USS FORTIS! … Ahoy, there from yer buddies at GP here, ‘state-side. We thank the CBs at the moment for tossing Fortis several BILLION in order to stem the slide. WE can’t help but mention that Fortis troubles are NOT directly sup-prime related but more than likely ‘DEAL’ related and their efforts to be part of a consortium in the largest banking deal in history. THAT is in the process of unwinding and we should be fine. That’s our story and we’re sticking to it at the moment, as we all watch the story unfold in the press. And now, back to our regularly scheduled rant.

 

Reading through the pages of the StreetStuff.pdf attachment (weekly version, just below), there is almost an eerie consensus view that things flat out stink ‘out there’. There are bigger brains than ours ‘out there’ that seem to have all reached a very similar conclusion to the one we’ve been lugging around for quite some time. The important thing to do now is NOT to sit around and place blame. As participants in the capital markets AND TAXPAYERS, we’re all part of the problem and more importantly, part of the solution. The important thing to do at the moment is focus on the future which, last we checked, must hold brighter times. Light as they say, always follows dark. Morning ALWAYS comes after night. You get the picture.

 

We’re stuck in the meanwhile, pondering whether or not stocks explode to the UPSIDE following bank rescue plans and IF said bank rescue plans accompany Treasury yields higher, and curves flatter initially. These WERE the consensus views. They are followed by a long-held view of OURS, and that due to the rescue plan NEED for supply of Treasuries, will eventually result in steeper yld curves. For whatever reason you might see that as the outcome, we can’t help but think it’s ‘the right trade for the right reasons’ … those are the ones that we tend to sleep best at night with. Our only concern at the moment is that it’s one of those consensus views and IF everyone’s looking for it, how then can it happen?

 

We think THIS in combination with continued and different banking sector woes, are behind stocks UNDERWHELMING response to The Bill, leading them to sell off, which in turn has resulted in a return of the flight-to-safety trade of US Treasuries. Given there are too many questions at the moment and they are all too close to call, we’ll just go WITH it.

 

Will have to end here and keep posting if/when our thoughts or ideas change. For now, we’ll offer the following video clip from one of the ‘experts’ out there …  

 

Finally, for those of us out there that need another reason to doubt the self-proclaimed ‘knower of all’ … Jimmy the Mad Man Cramer … one really ought to watch the following video clip (which I came across via Blog thingy The Big Picture, penned by Barry Ritholtz). My first reaction? What an IDIOT. How is it that he went thru Harvard and then, as if that weren’t enough, actually got in and then OUT of Goldman? Really troubling is how ‘they’ bill this guy as the 2nd coming … Part the waters and calling bottoms. Right. Good times. He and his old good buddy Elliot Spitzer ought to live happily ever after! This seals the deal for US but we’ll again defer to ‘the video tape’ and, as the ole IBM/NFL commercial went, “Let YOU make the call”.

So Subprime Blows Up; So What? (July 16, 2007):

 

Items Of Interest:

TARP – AKA The EESA – which stands for The Emergency Economic Stabilization Act. Here is what we’ve thrown together over the last few hours – some of the better in the biz have some initial thoughts on The Bill making it’s way into law over the course of the next few hours and days, which will ultimately be the beginning of the end of this long, drawn out situation. Are we nervous when the politicos in DC are aiming to FIX WALL STREET? You bet. Do we have any alternative, other than to LOVE IT? Not sure …

  • DB: The TARP FAQ
  • GS: Agreement Reached; House Vote Expected Monday
  • GCM: Bottom line – It looks like the TARP will be a reality this week. I think that this will be quite helpful, though it is no magic bullet. Relieving balance sheet pressure still leaves the financial system undercapitalized. The next question is whether and from where Wall Street is going to be able to raise the capital it needs. Still, this legislation should help to accelerate price discovery and hopefully set a bottom on market prices, which should encourage private players to recapitalize the banking system. The aggressive tranching and broad discretion available to Treasury means that Secretary Paulson has his bazooka and can come out firing soon.
  • ML: Tarp doesn’t change the game plan – Congress putting on the final touches on the rescue plan – Well, it looks as though the Congressional leadership is close to putting on the final touches to the TARP rescue plan, and considering what was at stake, a last-minute bipartisan agreement should not have been in doubt. It is extremely important for us to acknowledge how positive it was for our policymakers to come together, late-minute drama aside, and compromise on a bill that aims to break the logjam in the credit markets, with the understanding that there is a corner at which Wall Street and Main Street do intersect.

 

Bloomy’s Econ Calendar September 29th

 

Bloomy’s Fed-speak Calendar September 29th

 

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 29th, 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 – September 29th (weekly)

 

 

Technicals – September 29th

 

  • GS: UST 10yr recovering back above the bull channel base line.  A close above 115.21 would improve the short term technical view.
  • JPM: Dec Tens- Close Back Above 114.16 Pivots and Await Sun Night Volatility
  • CSFB: Assume flat. Re-try a short on strength to 115-20/25 stop above 115-25. Cover shorts on weakness to 114-05/00, reinstating below for 113-065. Above 115-25 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.  Current YTD All Market Trade Recommendations P&L: +16.61%

In The Press NOW:

BARRON’S COVER 

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Making A Mint  by Jonathan R. Laing

Despite the public outcry over the bailout bill, taxpayers and the Treasury are likely to come out ahead.

 

CURRENT YIELD 

Offstage, the Fed Strives Mightily  by Randall W. Forsyth

Fed adds $200 billion to ease the credit crisis as D.C. debates.

 

 

UP AND DOWN WALL STREET 

No Magic Potion  by Alan Abelson

Paulson’s $700 billion blind pool isn’t going to turn recession into recovery anytime soon. Take a leaf from Buffett’s book?

 

 

STREETWISE

A Radical Idea by Michael Santoli

 

ECONOMIC BEAT

Why GDP Will Keep Growing by Gene Epstein

 

FEATURES 

Punishing the Bankers: Why It May Not Pay  by Jim McTague

An attempt to use the bailout plan to punish bankers could backfire.

 

FEATURES 

In Banking, It’s Survival of the Fittest  by Lawrence C. Strauss and Andrew Bary

JPMorgan’s acquisition of a big chunk of WaMu was a smart move.

 

OTHER VOICES 

A Memo Found in the Street  by Barry L. Ritholtz

Uncle Sam the enabler.

 

EDITORIAL COMMENTARY 

Who’s Being Bailed Out? And Why?  by Thomas G. Donlan

Wall Street is not being bailed out by taxpayers.

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