What’s Movin’ Markets – Thursday, December 11th

  • U.S. Banks’ Hard-to-Value Assets Rose to $610 Billion in Third Quarter (FT)
  • U.S. Credit-Card Companies Face Increasing Defaults, Deepening Losses (WSJ)
  • Foreclosure Storm in 2009 May Force 1 Million Homeowners From Properties (Bloomy)
  • Treasury Bubble Talk Grows as Investors Give U.S. Government Free Money (Bloomy)
  • ECB Sees Rebound Later in 2009; Stark Says Rate-Cut Room Is `Very Limited’ (Bloomy)
  • IEA Says Global Oil Demand Will Fall This Year for First Time Since 1983 (Bloomy)
  • Money-Market Fund Yields May Fall to Less Than Zero on Fed Cut, Crane Says (Bloomy)




What’s On OUR Minds:

Bloomberg TV newsflash from yesterday … Pimco’s Bill Gross Says Treasury Market Is `Overvalued’ … Click on video for 11min interview from YEST, IF you missed it and certainly click on it if yer a fan of Star Wars:



Right. And now back to our regularly scheduled rant. Following the brightest bulb in the room is admittedly a very hard thing to do SO. Now what? How about a look at the equity market that is trying it’s hardest to do very good things. Namely, break out ABOVE it’s 50day moving average:




Continuing on this theme (stocks), we would strongly recommend a click thru to the following website – www.dshort.com where you’ll find a much more extensive picture and description of stocks, regressing to their mean. Over the past 137yrs! NOT misprint. An excerpt:


“The Bearish View – About the only certainty in the stock market is that, over the long haul, overperformance turns into underperformance and vice versa. Is there a pattern to this movement? Let’s apply some simple regression analysis to the question.

Here’s a chart of the S&P Composite stretching back to 1871. The chart shows real (inflation-adjusted) monthly averages incorporating data collected by Yale economist Robert Shiller. We’re using a semi-log scale to equalize the vertical distances for the same percentage changes regardless of the index price range. The regression trendline drawn through the data clarifies the secular pattern of variance from the trend — those multi-year periods when the market trades above and below trend.

The peak in 2000 marked an unprecedented 160% overshooting of the trend, which is double the overshoot in 1929. The index has been above the trend for 17 years. We also see that the major troughs saw declines in excess of 50% below the trend. If the S&P 500 were sitting squarely on the regression, it would be hovering around 820. If the index should decline over the next 12 months to a level comparable to previous major bottoms, it would fall to the vicinity of 400-425. More … the bullish alternative

HAVE AT IT, if you are preoccupied with the stock market, as we find OURSELVES more often than NOT lately.


FINALLY, we are also sticking to our theme by offering so much to read that you’ve NO time to trade and or invest. Seems that is STILL the safer plan of action these days and will be again, today AHEAD of the 10yr reopening. For the record, yesterday’s 3yr auction process stuck to the script that’s been laid out – fade INTO the auction, tail, and then rally to UNCH near end of the day. We’ve NO better plan at the moment for the 10yr sector EXCEPT TO SAY that we like the longer end of the curve relatively speaking. We’re not alone and therefore the ‘fade into the process’ might be of more interest to the few ‘out there’ who ARE still watching and playing in the markets. That is strictly more food for thought than a recommendation, to be sure.


Back to the matters at hand of offering some other things to read, the following were up on the Bloomy and we didn’t wanna let em pass us all by:


  • Deflation Says Buy Bonds; Supply Screams Sell: Commentary by Mark Gilbert
  • Central Banks Can Do Better Than Mopping Up: Commentary by Caroline Baum
  • Oppenheimer Bond Fund Fell 55% in Past Month on Mortgage-Backed Debt Bets (Bloomy)
  • Hedge Funds Shrink by $64 Billion Amid Global Recession, Eurekahedge Says (Bloomy)


Last, but not least, the following pictures are worth 1,000 words (and a few laughs, we hope):

Here’s a few favorites from Business Pundit:







Items Of Interest:

Bloomy’s Economic Calendar December 11th 

Bloomy’s Fed-speak Calendar December 11th 

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 11th, 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 11th

  • DB: Mortgage rates need to fall; Bring back original TARP?
  • DBs GEP: The limits of “unconventional” monetary policy – From the Japanese experience, we conclude that monetary policy on its own, in either its traditional or non-traditional forms, is unlikely to lift the economy out of recession (or avert deflation) in the wake of a broad-based asset price down-turn and financial crisis. Recent monetary policy action has been essential to avoid a break-down of the financial system. But to have a decent chance for success in the fight against recession and deflation, it needs to be combined with decisive fiscal policy action.
  • GS: Thoughts on Fed Debt Issuance – Earlier today, news reports indicated that Fed officials may be considering issuing debt.  They certainly do not need this to expand their balance sheet, but it may be motivated either by perceptions that existing options (reserve expansion) are too inflationary or by considerations of how to fund the acquisition of longer-term risky assets.  The idea is not without risk as the existence of Federal Reserve debt would provide the basis on which markets could then take positions on the solvency of the central bank.
  • GS: Global Markets Daily: Our Top Trades for 2009
  • GS: Accounting Policy Update: Pension accounting primer – the “how to” guide for modeling 2009 – Funded status continues to deteriorate – We estimate that the GAAP funded status of the US DB plans of S&P 500 companies declined to 84% as of early December. This compares to a 108% aggregate funded level as of the end of 2007 and 91% as of our last pension report in early October. Continued weakness in equity markets combined with the recent fall in long-term high-quality corporate bond interest rates, which alters the discount rate, has led to the further decline.
  • BofAs Situation Room: Senate in Driver’s Seat – Following negotiations between House Democrats and the White House, a modified version of the Auto Industry Financing and Restructuring Act passed in Congress and now moves to face the more significant hurdles for Senate approval. Key changes to the proposed Act include language that preserves existing debt terms, as opposed to the automatic cram down; also, the ability to comply with state fuel efficiency requirements is no longer a requirement. The new version of the bill also explicitly states the maximum size of the loan program at $14 billion and provides that the “czar” only controls transactions over $100 million. Finally, we highlight that the Act now caps government ownership of common stock through warrant exercise at 20% with any additional ownership in the form of preferred. We discuss CDS implications of the changes below.
  • ML: The Treasury suggested the 7-year may return while also noting that additional funding need increases might require a “novel” approach
  • Dick Berner/MS: A Deeper Slump Triggers Aggressive Policy Responses






Techncials – December 11th

  • BarCap: Risk is for bonds over stocks in 2009 – Bonds over stocks – Cash left an inside day on the charts while futures, not an inside day, accomplished little. Our view is for choppy conditions but lower prices/higher yields. We like risky assets such as stocks short term, as ultimately, December should be a countertrend month: higher stocks, higher yields, before the greater risk-averse trend comes back into play in Q1. As mentioned, through 121-30/2.80% support (December 8 low and November 20 high) is needed trigger a move towards 120-14/119-07 (June 2003/March 2008 highs, November 24 low/September 16 highs). As shown above, bonds have been outperforming stocks for the past two years. The stock/bond ratio (bonds and tens) suggests (given the double tops) that this trend will remain in place in the first quarter or two of 2009.
  • JPM: March Tens: Near Term Bears Would Gain Traction Below 121.285 – March Tens: Trace out a potential Head and Shoulders short term top, around the 124.205 Dec 5 high. A close below 121.285 would confirm, seeking 121.095-119.14 4th-wave objectives, and the 119.045 H+S measure. The 118.00 Sept 16 high/breakout should mark an interim floor. Short term, the market needs to work off the record 96% bulls DSI 10 dayMA. However, medium term momentum still looks OK, favoring new highs into 1Q09. 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
  • ML: Fatigued UST setbacks yet to even dent minor support; Equity and FX consolidation points to alleviation in risk aversion; US 10yr fatigued, but resilient
  • CSFB: Long stopped, flat. Retry a long at 122-13/03, stop/reverse below 121-28. Reverse longs back to a short at 124-16/20, stop/reverse above 124-28. Below 121-28 would see the accelerated uptrend break, clearing the way for further weakness to 121-16/13, then 120-315/255.
  • UBS: Cautious But Attempting to Develop Recovery While Trading Above 122.025, Breaks of 123.225 the Trigger to 124.205. Current Recommending Positions: Flat. Current YTD All Market Trade Recommendations P&L: +41.07%







In Press NOW:






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