What’s Movin’ Markets – Wednesday, December 10th

  • U.S. Federal Reserve Considers Issuing Own Debt for First Time: (WSJ)
  • U.S. Treasury Credit Swap Risk Surpasses Campbell Soup as Debt Increases (Bloomy)
  • U.S. Treasuries Drop as Debt Sales Increase, U.S. Stock Futures Advance (Bloomy)
  • GM, Chrysler Have Three Months to Restructure Under $15 Billion Aid Plan (Bloomy)
  • AIG Owes $10 Billion on Soured Trades; Debts Not Covered in Bailout: (WSJ)
  • Worst Spending Slump Since 1942 Paces `Scary’ U.S. Recession, Survey Shows (Bloomy)
  • Miller of Legg Mason Watches Bets on Freddie Mac, Wachovia Unravel: (WSJ)
  • Goldman Draws Ire for Advising Credit-Default Swaps Against New Jersey (Bloomy)
  • U.K. Economy May Be Shrinking at Fastest Pace Since 1990, Institute Says (Bloomy)
  • Foreign Direct Investment in China Fell 36.5% to $5.3 Billion in November (Bloomy)
  • China Producer-Price Inflation Slows to Weakest Pace in 2 Years on Energy (Bloomy)
  • Treasury Criticized by TARP Oversight Panel, Chided on Foreclosure Surge (Bloomy)


What’s On OUR Minds:

We COULD sit around and think about techna-mentals and facts of the economic and/or equity earnings OUTLOOK and try then to back IN to some sort of fixed-income market outlook, plan and strategery … We COULD do that and it sounds sorta smart on paper but the fact of the matter is that we’re just not sure that’d be time well spent. When we woke up this morning to the news that the Fed is contemplating issuing its OWN debt (CLICK HERE FOR WSJ STORY), we couldn’t help but think the safety of the sidelines at the moment continues to be the smartest ‘plan’ out there. This in mind, we’d offer our less dire outlook for the T-Bill market as it’s funny to think about in the Animal House context – ‘Zero point zero!’ but the fact of the matter is that at this time of year we’re always going to see some sort of funding concerns and off the top of our head, think back to what it was like in and around the year 1999 on into 2000. We don’t want to make light of the fact that folks are willing to PAY for the safe keeping of their cash, essentially suggesting the governments mattress is safer than their very own, as that’s just downright bad, but we wanna NOT forget the context. Year end with lesser liquidity normally and generally speaking combined with fewer dealers out there and historically CRAZY financial market and economic times, well, makes this completely understandable.


As an ‘aside’, we felt compelled to make sure and point out some of the more interesting aspects of these economic times. Firstly, one of those crazy ‘unintended consequences’ that hit up on Bloomy … we just couldn’t pass up the following h’line: “Baltimore Opera Cancels Shows, Files for Bankruptcy” … We’re NOT making this stuff up, folks. We’d take it one step further and offer that this might be one of the ‘brighter spots’ of the economic downturn! That said, and speaking of the economic downturn, it’s NOT just about banks and car companies. This is getting serious. WSJ.com has an article, “Hard Times for Parmigiano Makers Have Italy Ponying Up the Cheddar” … You KNOW things are bad when even the cheese can’t cut it!


That said, one doesn’t have to agree or disagree but we’d offer to you some thoughts from one of the best ‘out there’ … Here’s video link to Bloomy interview with Marty Feldstein, who discusses ‘Auto Bailout Near Agreement, How to Fix the Housing Market as Well as Fannie and Freddie, and 3-Month T-Bills Rates Below Zero’:



Finally, we’d offer the following ‘video’ clip to attempt to lighten the mood just a bit … The 12 days of bailouts – YouTube:


Items Of Interest:

Bloomy’s Economic Calendar December 10th


Bloomy’s Fed-speak Calendar December 10th


GPs Key Econ Indicators December 8th, 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 December 8th, 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 December 3rd, 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 December 10th, 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 December 8th


StreetStuff – December 10th


  • DB: Debunking the surge in housing affordability
  • DB: Economics Special Report – December 2008 – The December Economic Outlook provide a summary of our current assessment of the global economic state and its market implications. We discuss our current views on inflation, fixed income, commodities and FX.
  • GS: Designing a Successful Housing Market Rescue – A bewildering array of proposals has been mooted by policymakers, private sector analysts, housing market participants, and others.  These proposals generally involve one or more of three elements:  1) reduction in borrowers’ monthly payments, 2) forgiveness of principal or other measures to move borrowers into a positive equity position, and 3) actions to spur demand for housing.   Although media and policymaker attention has focused on the first approach, this is unlikely to be sufficient.  Bringing mortgage rates down further is likely to be part of the solution, although the unfortunate truth is that no panacea exists.
  • GSs Abby Joseph Cohen: Portfolio Strategy – Global Themes and Risks
  • BofAs Situation Room: Autos CDS Increasingly Gray – We find arguments both for and against an autos czar triggering CDS. The result may depend on the exact wording of a potential bailout package. However, if an autos bailout happens without triggering CDS, then we see a risk that LCDS, and the autos portion of LCDX, may effectively become orphaned and thereby rally substantially.
  • DickBerner of MS: Global Economics – Risks to the Global Outlook: The Good, the Bad and the Ugly 


Technicals – December 10th


  • JPM: Tens: Choppy Range Unfolds behind 3.56-3.46% Resistance Zone; Tens: Bounce from 2.75-2.85% near term support area, after last Fri’s 2.505% failure from the favored 2.56-2.46% resistance zone. Day bears lose traction back through the 2.67% inflection. However, the RECORD overbought 96% bulls DSI 10 day MA favors more sideways action, to digest the Nov-Dec 150bp rally. Short term range floor at 3.00% Nov inflection. Cash Tens – Hold core 1/3 long, from 3.35%. Look to exit in 1Q, toward deeper rally targets. Twos: Hold 50% long from 1.25%. Look to exit into 1Q, toward deeper rally targets.
  • BarCap: Short term: Holding the bid – While 10yr notes rallied Tuesday as equities corrected lower, we remain of the belief that both moves are countertrend and temporary. Indeed, with equities having completed a two-week head and shoulders bottom (which targets the1056 area), 10yr notes should see further price downside, yield upside in the
  • sessions ahead. The bearish case is even more compelling when one factors in the daily bearish momentum divergences. A closing break of 121-25/2.80% support (December 8 low and November 20 high) would confirm, opening 120-14/119-07 (June 2003/March 2008 highs, November 24 low/September 16 highs), which equates to 2.98/3.06%. Into here, however, we would look for stalling ahead of the resumption of the larger bull trend.
  • CSFB: Holding a long, place the stop below 122-09. Reverse longs on strength back to 124-16/20, stop/reverse above 124-28, as a break can target 125-15/16 next. Below 122-09 can turn the spotlight back to the downside again for 121-285, then 121-16/13. Retry a long here, stop below 121-04.
  • UBS: Cautious But Attempting to Develop Recovery While Trading Above 122.095, Breaks of 123.225 the Trigger to 124.205; For today, US 10Yrs while nothing more than constructive at present, are set to try and develop the current recovery while trades above yesterday’s 122.095 low and as long as this remains the case the expectation is for limited bounces and further price weakness. A break above 123.225 would develop the recovery themes further, opening the door to the 124.205 failure high, although it’s only around this point that we will be able to establish the rue directional risks into next year. Current Recommending Positions: Flat. Current YTD All Market Trade Recommendations P&L: +41.62% 



In Press NOW:

  • Fed Weighs Debt Sales of Its Own  The Federal Reserve is considering issuing its own debt for the first time, a move that would give the central bank additional flexibility.
  • AIG Faces $10 Billion in Losses AIG owes Wall Street’s biggest firms more than $10 billion in speculative trades that have soured, raising questions about how the insurer will be able to raise funds to pay off the debts. 
  • Panel to Blast Handling of Bailout  The panel set up to oversee Treasury’s $700 billion financial-rescue fund is expected to release a report highly critical of the government’s handling of the bailout.
  • Stock Picker’s Defeat Bill Miller spent nearly two decades building his reputation as the era’s greatest mutual-fund manager. Then, over the past year, he destroyed it.
  • AHEAD OF THE TAPE Investors Grope Amid the Fog of Recession Investors lately appear to be buying shares on signs a company can merely survive. They may be making a similar bet in the broader market.
  • Ackman Raises Stakes on General Growth Bet  As General Growth faces a major debt deadline, activist investor William Ackman is doubling down on his bet that the mall giant will be able to avoid bankruptcy. 
  • Hard Times for Parmigiano Makers Have Italy Ponying Up the Cheddar While the world is bailing out banks and car companies, Italy is coming to the rescue of parmigiano cheese.


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