A lot of this is the front month getting hurt technically by the futures funds caught in the nearby months with massive rolls to do each month.
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Daily Archives: February 12, 2009 @ 3:20 pm (Thursday)
Re: Ross Says Investors to Wait for Banks to Write Down
(email exchange)
As I’ve said all along, the problem is best addressed from the bottom up- restore incomes and employment via a payroll tax holiday and a check for $300 billion for the states.
That ends the financial crisis and its effect on the real economy.
Then Congress attempt to rationally address other fiscal action on its merits beyond fixing the crisis.
>
> On Thu, Feb. 12, Morris wrote:
>
> Part of the problem the banks confront is that their
> loans continue to deteriorate. This limits their ability
> to initiate new loans, makes them tighten lending
> standards and clouds their business visibility. The
> proper visual is a ship taking on water while the
> crew is trying to bail out the ship. If the ship takes
> on water too quickly it will sink, if the crew can plug
> the whole and bail out the ship the ship will float.
> This is state of affairs of most banks at the
> moment. The ultimate success of these bailouts &
> workouts will take hold when the rate of credit
> deterioration slows or stops.
>
Ross Says Investors Will Wait for Bank Writedowns
by Jason Kelly and Carol Massar
Feb 12 (Bloomberg) — Wilbur Ross, the billionaire investor who focuses on distressed assets, said private funds won’t join President Obama’s plan to buy toxic mortgages until banks reduce the value of the
securities on their books.
“The reason the assets haven’t changed hands is they haven’t been
properly marked,” Ross said in an interview with Bloomberg Television
yesterday at his New York office, referring the process of valuing investments based on market prices. “His idea of doing public/private partnerships is correct. The private sector is very good at price
discovery.”
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Re: Saudi blend leading the way?
Thanks, who would have thought the Saudi blend would lead the way…
>
> On Thu, Feb 12, 2009 at 12:09 PM, David wrote:
>
> U.S. CASH CRUDE MARS
> $1.00 TO RECORD $8.00 ABOVE WTI – TRADER
>
> I believe this is the Saudi sour equivalent here in
> US.
>
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Trichet says rising deficits are ‘problem’
Agreed!
They are risking the solvency of the national governments.
The national governments are beyond the point where they can write the check should any of their major banks be declared insolvent.
Trichet Says Rising Deficits are ‘Problem,’ Osnabruecker Reports
by Matthew Brockett
Feb 12 (Bloomberg) — European Central Bank President Jean-Claude Trichet said rising budget deficits in the euro region are an “important problem” and urged governments to respect the Stability and Growth Pact, the Neue Osnabruecker Zeitung reported, citing an interview.
Trichet also said the situation in the banking sector remains “difficult” and should be monitored closely by governments and central banks, the newspaper reported on its Web site today. Measures such as so-called bad banks should be competition neutral, Trichet said, according to Neue Osnabruecker.
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Re: China’s new loans rise by record on stimulus efforts
(email exchange)
Yes, they use lending from their state owned banks as a fiscal adjustment, by lending with little concern about getting paid back.
The question is how much is going to domestic demand and how much is going to subsidize exports. Probably mainly the latter.
>
> On Wed, Feb 11, 2009 at 11:48 PM, EDWARD wrote:
>
> The government mandates the lending, hence the concerns about loan
> quality and writedowns…but the government is also providing money and
> the rules are not necessarily the same as in the West…they may be
> effective to a point as the net aggregate demand lost from failure in the
> export sector needs to be replaced.
>
China’s New Loans Rise by Record on Stimulus Efforts (Update 1)
by Kevin Hamlin and Luo Jin
Feb 12 (Bloomberg) — China’s new loans rose by a record in January and money supply expanded more quickly as the government implemented a 4 trillion yuan ($585 billion) stimulus package to revive the world’s third-largest economy.
Banks extended 1.62 trillion yuan ($237 billion) of new local-currency loans and M2, the broadest measure of money supply, climbed 18.8 percent from a year earlier, the fastest pace in more than a year, the People’s Bank of China said today on its Web site.
China’s government has put pressure on banks to boost lending as the government rolls out a stimulus package to reverse the nation’s economic slide. Loan default risk is the biggest single threat to Chinese lenders, which face “a choppy 2009” because the potential for credit losses is rising, Fitch Ratings said last month.
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Payroll tax cut from stimulus package
Unbelievable…
It strikes me as ironic that both houses found payroll tax cuts the only thing they could agree to drop.
Barack H. Obama made this cut his central promise and it is the most stimulative element in the package.
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RBOB moving up
Even as spot crude prices remain low, and the front contango extreme, RBOB (unleaded gasoline) has been steadily moving up, and the crack spread widening substantially.
This fits with anecdotal reports of gasoline consumption remaining reasonably firm with year over year declines under 4%.
It’s not going to take much of a recovery to give the Saudis cover to get crude prices back up to whatever price they want them to be.
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FRA/OIS Update
The 18m into 1yr FRA-OIS is now 51 bps mid vs 40 in January
The FRA-OIS curve has steepened since January
Mar 09 1) 90.00
Jun 09 2) 83.38
Sep 09 3) 78.50
Dec 09 4) 81.50
Mar 10 5) 63.00
Jun 10 6) 55.00
Sep 10 7) 47.00
Dec 10 8) 47.00
Mar 11 9) 35.00
Jun 11 10) 28.00
Sep 11 11) 26.00
Dec 11 12) 32.00
Mar 12 13) 34.00
Jun 12 14) 29.00
Sep 12 15) 29.00
Dec 12 16) 28.00
Mar 13 17) 30.00
Jun 13 18) 28.00
Sep 13 19) 28.00
The Jun11 and Sept11 FRA-OIS is pricing in virtually zero term premium for 3mLIBOR
Meanwhile front end OIS spreads have widened by 9 making the “roll-up” more attractive
3mLIBOR did find a floor in the 1% area as we expected (at least so far…):
Option on continued financial distress and/or a new paradigm for FF-LIBOR spreads.
From a fundamental standpoint the forward timing of these spreads coincides with termination of TLGP guarantee issuance and other Fed/Trsy financial support programs.
Mar09 (Front)
Jun11 (sweet spot)
Fed Funds effective rate currently 9bps:
But where will 3m LIBOR be? Currently 1.3975%.
Thus current spot setting is 130bps.
Front rolling OIS-LIBOR:
5th rolling OIS-LIBOR:
9th rolling OIS-LIBOR:
The long term floor for FF-LIBOR has been 12-15bps:
1y FF-LIBOR basis swap:
Banks are still not lending to each other unsecured for term.
The term premium for funding will remain steep as long as financials want to keep flexibility in their cash holdings.
The premium for term LIBOR is further supported by the level of financial CDS:
It is hard to imagine banks lending to each other at levels below those implied by CDS (unless Government or FDIC guaranteed):
Bank 5yr CDS
| BANK | 5yr CDS |
| American Express | 245.6 |
| BBVA | 81.1 |
| BNP | 59.1 |
| Banco Santander | 82.2 |
| Bank of America | 110.1 |
| Barclays | 140.5 |
| Citigroup | 164.5 |
| Commerzbank | 73.1 |
| Credit Agricole | 69.2 |
| Credit Suisse | 165 |
| Deutsche Bank | 119.600 |
| Goldman | 246.3 |
| HSBC | 90.1 |
| ING | 113.2 |
| JPMorgan | 110.1 |
| Opec Country | Jan Est. |
| Lloyds TSB | 93 |
| Merrill Lynch | 112.5 |
| Morgan Stanley | 357.4 |
| RBS | 112.8 |
| Soc Gen | 95.3 |
| UBS | 194.7 |
| UniCredit | 104.7 |
| Wachovia | 111.4 |
| Wells Fargo | 110.1 |
| Average | 131.7333 |
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2009-02-12 USER
- Advance Retail Sales MoM (Released 8:30 EST)
- Advance Retail Sales YoY (Released 8:30 EST)
- Retail Sales Less Autos MoM (Released 8:30 EST)
- Initial Jobless Claims (Released 8:30 EST)
- Continuing Claims (Released 8:30 EST)
- Jobless Claims ALLX (Released 8:30 EST)
- Business Inventories MoM (Released 10:00 EST)
- Business Inventories YoY (Released 10:00 EST)
Advance Retail Sales MoM (Jan)
| Survey | -0.8% |
| Actual | 1.0% |
| Prior | -2.7% |
| Revised | -3.0% |
Karim writes:
- Retail sales rise 1% in January for first rise in 7mths.
- December revised to down 3% from down 2.7%.
- 3mth annualized rate of change improves from -25.5% to -24.3%.
Advance Retail Sales YoY (Jan)
| Survey | n/a |
| Actual | -9.7% |
| Prior | -10.5% |
| Revised | n/a |
Retail Sales Less Autos MoM (Jan)
| Survey | -0.4% |
| Actual | 0.9% |
| Prior | -3.1% |
| Revised | -3.2% |
Initial Jobless Claims (Feb 7)
| Survey | 610K |
| Actual | 623K |
| Prior | 626K |
| Revised | 631K |
Karim writes:
Continuing Claims (Jan 31)
| Survey | 4800K |
| Actual | 4810K |
| Prior | 4788K |
| Revised | 4799K |
Karim writes:
- Continuing claims rise 11k to new cycle high
- Chicago Fed Prez Evans yesterday that further policy accommodation was needed
Jobless Claims ALLX (Jan 31)
Business Inventories MoM (Dec)
| Survey | -0.9% |
| Actual | -1.3% |
| Prior | -0.7% |
| Revised | -1.1% |
Business Inventories YoY (Dec)
| Survey | n/a |
| Actual | 0.9% |
| Prior | 2.9% |
| Revised | n/a |
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