Monthly Archives: May 2015

Do Not Bend, Mutilate or Fuld

I woke up today to discover a vigorous "hindsight" understanding of the financial crisis and the fall of Lehman. A mini-Christmas for a left-coast, semi-recluse, front line survivor. The disdain for Fuld (he gave a talk today somewhere) remains high but I was amused by the pedestrian lens that this critical slice of history is being viewed through.

Let's reset the table, shall we?

The big I-banks and the morphing hybrid bank/security firms were all riding the crest of the long credit super-cycle. Securitized mortgages (anything with a time-able cash flow really) were flowing through the system like high octane gasoline. The manufacturing, rating and adjusting anchor to these "things" - it was well known and turned out to be - was completely corrupt on many levels. (Note WSJ article today showing Bcc emails on LIBOR manipulation going to the BOE trade desk !)

These institutions, representing a huge chunk of the SP, were gearing their activities at double digit speeds in recognition that; contrary to the prevailing wisdom that US manufacturing was dead, the business of America was the creation, distribution and accumulation of promised payments. When the music stopped, the regulatory arbitrage that smoke screened the illusion went all the way to the Fed.

MS and GS quickly asked for, and were granted, status as "banks." This allowed the Fed to help them along with the other now exploding giants. Lehman found itself in a tricky spot. Levered up at a higher gear to keep up with its beefier friends, the wholesale funding lock out had them hemorrhaging cash like oil from the Exxon Valdez (#GIK). Unsure of who was to listen to whom, Treasury and the Fed showed a unified voice : We will cover it, but we want the gearing ratios down first. This reality led to the part of the chaos I like to call Fuld's Gambit.

As the others - yeah we're looking at you Merrill - tagged out billions to 22 cent bid lists, Fuld held back, and continued to fund daily in a variety of  common yet sketchy and increasingly difficult ways (Repo 105, nice to see you old friend). This did not sit well with the schphitzing government suits, nor the falling in line competitors. After a few harrowing days, Fuld's tower of promises remained heavily levered as the others had recognized some Costanza-sized shrinkage. The bid would be 45 cents soon, but Lehman had to go for not playing along.

I say, good on you, Dick. You went down with the ship. The others, most now heavily fined, some still revered, remain on the thrones of their hypocritical kingdoms.  TBTF? I'm pretty sure it failed. You might even say..EPIC.

Classical Thursday

30 minute atr

240 minute atr

weekly atr

daily pivots
weekly pivots

upside retracements
downside retracements

regression channels

support and resistance
On the economic calendar:-
08:30 Jobless Claims (Consensus 270 K v Prior 274 K)
09:45 Bloomberg Consumer Comfort Index
10:00 Pending Home Sales Index (Consensus 0.8% v Prior 1.1%)
10:30 EIA Natural Gas Report
11:00 EIA Petroleum Status Report
          3 Month Bill Announcement
          6 Month Bill Announcement

11:30 2 Year FRN Note Auction
13:00 7 Year Note Auction
15:00 Farm Prices
16:30 Fed Balance Sheet
Money Supply

Speaking today:-

14:45 Naryana Kocherlakota (Minneapolis Fed Bank)

Classical Wednesday

30 minute atr
240 minute atr
daily atr
daily pivot
weekly pivot
upside retracements
downside retracements
regression channels
support and resistance
On the economic calendar:-
07:00 MBA Mortgage Applications
08:55 Redbook
11:30 4 Week Bill Auction
          52 Week Bill Auction
13:00 2 Year FRN Auction
          5 Year Note Auction

 

Classical Tuesday

30 minute atr

240 minute atr

daily atr

daily pivots

weekly pivots

upside retracements

downside retracements

regression channels

support and resistance
On the economic calendar:-
08:30 Durable Goods Orders (Consensus -0.6% v Prior 4.0%)
09:00 FHFA House Price Index (Consensus 0.7% v Prior 0.7%)
          Case-Shiller HPI (Consensus 0.9% v Prior 0.9%)
09:45 PMI Services Flash (Consensus 56.5 v Prior 57.8)
10:00 New Home Sales (Consensus 509 K v Prior 481 K)
          Consumer Confidence (Consensus 95.1 v Prior 95.2)
          Richmond Fed Manufacturing Index (Consensus  1 v Prior -3)
          State Street Investor Confidence Index
10:30 Dallas Fed Manufacturing Index (Consensus -10.0 v Prior -16.0)
11:00 4 Week Bill Announcement
11:30 3 Month Bill Auction
          6 Month Bill Auction
13:00 2 Year Note Auction
 
Speaking today:-
12:30 Stanley Fischer (Fed Vice Chair)
19:10 Jeffrey Lacker (Richmond Fed)

It’s Not Me, It’s You

Madame Chair spoke again today and finally floated a view over the marketplace we fully endorse : She'll adjust official funding rates when Mr. Market tells her, not the other way around.

Rather than join "the bond market is manipulated by the Fed," and "the stock market is just addicted to free money" ranters, we have argued (for some time) that the primary missing ingredient to Fed action has been the prevailing term structure of rates. We put it this way, "Show me the place in color coded Eurodollars that is demanding the Fed to act?" Crickets.

Last week, Matt Boesler of Bloomberg  emailed me a chart of my equilibrium FF model over the actual2015-05-22-ktf-rule

The Fed's aggressively easy stance in 2011 and 2012 are the foundation of the expansion. The more recent readings of sluggishness align with the NEUTRAL policy stance of 2013 and 2014. Policy lags of 9 to 18 months are fairly common historically. I'm of the opinion the Yellen Fed would like to know if Mr. Market is up to doing the heavy lifting, as opposed to the plethora of participants mapping their course the other way around. (i.e. the Fed will raise rates on X date at Y time by Z much and it'll be bullish)

So, on this Memorial Day we not only remember our fallen service men and women but take a minute to reflect on something encouraging, a return to the way things used to be.

Classical Friday

30 minute atr

240 minute atr

daily atr

daily pivots

weekly pivots

upside retracements

downside retracements

regression channels

support and resistance
On the economic calendar:-
08:30 Consumer Price Index (Consensus 0.1% v Prior 0.2%)
14:00 SIFMA Rec. Early Close
16:15 Interest Rate & FX Products close
Speaking today:-
13;00 Janet Yellen

 

Piketty, Mao and Wine

 

Today from Bloomberg Business "Hong Kong executive makes $22B and this week loses most of it."

So what is Goldin Financial really worth? In his capacious Hong Kong office, furnished with generous touches of faux Louis XV marble and gold, Pan pauses from a game of solitaire and explains.

“It is important to understand the business behind it,” he says. First, the Hong Kong office tower will start generating cash next year, he says. Second, Pan has notified the stock exchange about plans to inject two massive wine storage facilities located in free trade zones of Tianjin and Guangzhou into the company, whose inventories will steadily increase in value as bottles in the cellars age.

“Goldin Financial wants to be the king of the wine business,” he says.

Third, is a factoring arm, which involves buying receivables from manufacturers at a discount. The business, which Pan describes as low risk and low return, will put the firm “into a different playing field,” he says, once it obtains a license to operate in Shanghai’s free-trade zone.

What's that? Wine ? Storage facilities? I'm  listening.

The anger and trepidation that attach themselves to the US expansion like Remora pale in comparison to the realities of the Chinese credit super cycle. Every day, I negotiate sales of library wine to Asian customers. The stock of late-80s to mid-90s vintages is being hoarded up like copper several years ago. The Government has opened up some licencing in the free trade zones for distribution and  wine shops. Wealthy (on paper) Chinese come to the valley to "Make business with" people like me.

The concept is simple: They want me (and other wine producers) to sell them moderate quantities at significant discount so they can ship it back to themselves and mark it back up. I have come to two understandings from the process:

1. The distrust of  government induced wealth creation runs very deep. The objective is to convert Renminbi into anything else as rapidly as it is acquired.

2. After a generation of Communist price controls the concept of "market price discovery" does not yet exist in "modern" China. (Amazingly, discussing this topic with a younger employee last week, the Millenial admitted he had never heard of "The Little Red Book or Mao !" [ #GIK its available on Amazon] Price is "discovered" in accordance with unspoken deals avoiding tax and government officials. Often, customers demanding deeper discounts bolster their terms with, "I pay cash." An homage to the grey market economy they know as capitalism.

The Bloomberg article is a keeper. This individual's massive wealth swing is not the story. The story is a nation creating a credit induced wealth gap of Grand Canyon proportion. The off-loading of the US credit super-cycle to the East will have far darker consequence than the much feared US Government debt "problem." The Piketty Moment will erupt - someday - over there. Until then? Sure, i make business with you, and I don't care how you pay, the tax is on top!

 

Classical Thursday

30 minute atr

240 minute atr

daily atr

daily pivots

weekly pivots

upside retracements

downside retracements

regression channels

support and resistance
On the economic calendar:-
08:30 Jobless Claims (Consensus 270 K v Prior 264 K)
          Chicago Fed National Activity Index (Consensus 0.10 v Prior -0.42)
09:45 PMI Manufacturing Index Flash (Consensus 54.6 v Prior 54.2)
          Bloomberg Consumer Comfort Index
10:00 Philadelphia Fed Business Outlook Survey (Consensus 8.0 v Prior 7.5)
          Existing Home Sales (Consensus 5.22 M v Prior 5.19 M)
          Leading Indicators (Consensus 0.3% v Prior 0.2%)
10:30 EIA Natural Gas Report
11:00 Kansas City Fed Manufacturing Index (Consensus -2 v Prior -7)
          3 Month Bill Announcement
          6 Month Bill Announcement
          52 Week Bill Announcement
          2 Year Note Announcement
          2 Year FRN Note Announcement
          5 Year Note Announcement
          7 Year Note Announcement
13:00 10 Year TIPS Auction
14:30 Fed Balance Sheet
          Money Supply
Speaking today:-
13:30 Stanley Fischer (Fed Vice Chair)