Bear Market

Theme upgrade

March 31, 2010 by · Leave a Comment 

We are excited to announce the immediate availability of our new and improved theme.

Our old layout was dated, old, and all-around "frumpy", so we've taken the time to liven it up.  The new high-contrast pink theme is trendy, modern, and oh so cute!

Ok, yes – this theme is atrocious, and I had a very hard time writing the above with a straight face.  We almost had a Console version of te site set up for April Fools, but I decided to do a theme change instead.

The old theme comes back April 2nd, I promise.

Read more….

New York Fed Discloses CDO Holdings Of Maiden Lane Portfolios

March 31, 2010 by · Leave a Comment 

Zero Hedge

In a surprising move, the FRBNY has just released the holdings of Maiden Lane I, II and III. Here is what the Fed is saying about this development:

The Federal Reserve Bank of New York today announced that it has
expanded the information that it makes available to the public related
to the Maiden Lane portfolios. The new information includes nearly all
of the holdings of Maiden Lane LLC (ML)—with the exception of
residential whole loans as that would violate individual borrowers’
privacy—and all of the holdings of Maiden Lane II LLC (MLII) and Maiden

The additional information includes the CUSIP number, descriptor,
and the current principal balance or notional amount outstanding for
all of the positions in each of three Maiden Lane portfolios. The Federal Reserve recognizes the importance of transparency to its
financial stability efforts and will continue to review disclosure
practices with the goal of making additional information publicly
available when possible. The release of this information today comes
after reaching agreement on issues of confidentiality with JPMorgan
Chase with respect to the assets of ML and the American International
Group, Inc. (AIG) with respect to ML II and ML III.

As a reminder:

ML was formed to facilitate the merger of The Bear Stearns
Companies, Inc. and JPMorgan Chase. The New York Fed extended credit to
ML to acquire certain assets of Bear Stearns.ML II and ML III were formed to facilitate the restructuring of the
government’s financial support to AIG. The New York Fed extended credit
to ML II to purchase residential mortgage-backed securities from the
securities lending portfolio of several regulated U.S. insurance
subsidiaries of AIG. The New York Fed extended credit to ML III to
purchase multi-sector collateralized debt obligations from certain
counterparties of AIG Financial Products Corp.

Some preliminary observations:

  • ML 1, in addition to holding a boatload of CDOs, has quite a few Residential whole loans, a variety of single names CDS, of which the bulk is CMBX, AMBAC, MBIA, PMI, CDS on Commercial Real Estate, CDS on Munis, CDS on non-agency RMBS, CDS on Non-residential ABS, some treasuries, and just under $3 billion in Interest Rate Swaps.
  • ML 2, as noted, contains $35 billion of Non-Agency MBS. It also contains $280 million in cash, held with a Goldman Sachs account. (GOLDMAN SACHS FIN SQ GOVT FS)
  • ML 3 consists of a variety of CDOs whose notional value is given as $56 billion. Once again, the Fed parks its cash of $383 million in this account with Goldman Sachs.

We will dig through these in detail shortly.

Full listing of assets:

ML 1

ML 2

ML 3

Attachment Size
ML 1.pdf 212.92 KB
ML 2.pdf 73.42 KB
ML 3.pdf 52.13 KB

More articles from Zero Hedge….

Meet The Ex-Goldman Banker Who Is In Charge Of Greece’s Debt Issuance Strategy

March 31, 2010 by · Leave a Comment 

Zero Hedge

The guy who may have crushed Greece’s hopes for a slow and steady bond issuance strategy by rushing head over heels to raise as much as his underwriters promised him could be done, with the result being getting hit on just 39% of the €1 billion in the recent 12 year reopening, is former Goldman banker Petros Christodoulou, director of the Greek Public Debt Management office. Here he is an a Bloomberg TV interview conducted earlier, during which he answers such questions as:

1. How much debt do you need to raise in May (now that April is allegedly done)?

P.C. $11.6 billion needed in May (and April is contingent on several sucessful T-Bill auctions which one should most certainly not take for granted).

2. Will you raise dollar denominated debt?

P.C. Roadshow for global dollar denominate debt deal will take place in end of April, early May.

3. What do you consider a reasonable spread for Greek debt?

P.C. I would expect toward the end of the summer to see the current spread of 300 down to 250, and later to 200. [If even with full EU and IMF backing this has not happened yet… good luck]

4. Are you disappointed by the 7 year trading below the break price?

P.C. The 7 year is not a popular sector (let’s blame it on the investors). This is the best we could do. We need to give it time and things will stabilize. And, presto, it is the holiday week [yes, yes, Easter’ fault]

5. So why did you decide to go ahead with the 12 year auction the next day?

P.C. The auction was not intended. It was a technical operation to take care of an abnormality in the market. Continuous fails at -10, -20 on the repo caused Primary Dealers to force us to issue it. [Good to know who calls the shots  in Greece.]

6. What are total funding cost needs in Greece thru end of 2010?

P.C. $32 billion

7. And how will you entice investors?

P.C. Something about having 3rd longest average Treasury maturity in Europe. Not sure how this is relevant, seeing how the entire curve is going through the roof.

8. At what point would you go to EU and tap them for aid?

P.C. When we have no access to the market, which is not the case now. [Lehman deja vu]

9. Is there a change in the investor base of people who buy bonds?

P.C. Some banks have reduced limits on bank holdings, which courtesy of the bailout have been lifted, these limits should be lifted. Dealers should be more comfortable holding Greek debt.

10. Are you enjoying your job right now?

P.C. It is a challenge

Full interview

More articles from Zero Hedge….

Moody’s Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks

March 31, 2010 by · Leave a Comment 

Zero Hedge

 From Moody’s
Downgrades Five Greek Banks

Moody’s Investors Service said Wednesday it downgraded the deposit and
debt ratings of five of the nine Moody’s-rated Greek banks due to a
weakening in the banks’ stand-alone financial strength and anticipated
additional pressures stemming from the country’s challenging economic
prospects in the foreseeable future.
[Moody’s is late to the party, but their logic is solid, see Greek
Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on
  followed by our forecast of the weaker vs. stronger Greek
banks (premium content subscribers only) – File Icon Greek Banking Fundamental Tear Sheet


 The affected banks are: National Bank of Greece (to A2 from A1), EFG
Eurobank Ergasias SA (to A3/Prime-2 from A2/Prime-1), Alpha Bank AE (to
A3/Prime-2 from A2/Prime-1), and Piraeus Bank (to Baa1/Prime-2 from
A2/Prime-1). Moody’s has also downgraded the deposit and debt ratings of
Emporiki Bank of Greece SA (to A3/Prime-2 from A2/Prime-1), but as a
result of a reassessment of the credit enhancement associated with
systemic support for this institution. The outlook on all five banks’
ratings remains negative. This action concludes the review of these
banks initiated on 3 March
2010. [It looks as if Moody’s peaked at the blog’s subscription
content 🙂


The agency said that the rating actions were prompted by the country’s
weakening macroeconomic outlook and its expected impact on these banks’
asset quality and earnings-generating capacity. Pressures on the
macroeconomic fundamentals have been evident for the past year and are
expected to intensify as the year unfolds, said Moody’s. [Subscribers, see File Icon Banks exposed to Central and Eastern Europe
as well as the links above,
then all readers should reference
Depression is Already Here for Some Members of Europe, and It Just
Might Be Contagious!
Although additional measures taken to address fiscal imbalances at the
national level may have a positive impact over the longer term, Greece’s
fiscal challenges will weigh negatively on economic growth over the
short to medium term. As recently noted by the Bank of Greece, the
magnitude of the economic contraction this year is likely to be more
pronounced than was anticipated at the beginning of the year. Negative
growth will give rise to unemployment, lower consumer disposable income
and reduced profitability in the small- and medium-sized enterprise
(SME) and corporate sectors. Moody’s expects the upward trend in
non-performing loans, which began in 2008, to continue in 2010 and,
possibly, 2011. Combined, these factors will place additional pressure
on the banking sector’s already weakened asset quality and
Over the past year, Greek banks have increased their dependence on
short-term market funding as access to the wholesale capital markets has
been limited due to the global financial crisis. This, in turn, has led
to a rise in maturity mismatches. In recent months, negative market
sentiment towards Greece has further constrained the banks’ access to
the bond and interbank markets. As a result, Greek banks have had to
increase their reliance on European Central Bank (ECB) funding by an
estimated 50%. Going forward, the agency expects a rise in the average
cost of funding as banks seek longer-term maturities, which in turn will
pressure interest margins. 
Moody’s takes comfort in the fact that the ECB will remain a reliable
source of funding for the banks until market confidence returns.
Continued access to ECB funding has been part of Moody’s mainstream
scenario since the beginning of the crisis…

National Bank of Greece SA 
Moody’s downgrade of NBG’s deposit and debt ratings to A2 and bank
financial strength rating (BFSR) to C- (which maps to a Baseline Credit
Assessment (BCA) of Baa1) reflect the deterioration in the bank’s
financial fundamentals, especially its asset quality, earnings and
funding/liquidity indicators. Non-performing loans (NPLs) as a
percentage of total loans have risen to 6.4% in December 2009 (2008:
4.0%); earnings fell by 40% in 2009 on the back of increased provision
charges and slower revenue growth; while the bank has increased its
reliance on short-term market funding, with “due to banks” (including
ECB funding) increasing to 19% of total liabilities. For the current
year, Moody’s expects asset quality to deteriorate further, and access
to the wholesale capital markets to remain limited, with the bank’s
revenue/earnings indicators unlikely to record any material improvement…
EFG Eurobank Ergasias SA 
Moody’s downgrade of EFG Eurobank’s deposit and debt ratings to A3 was
triggered by the lowering of its BCA to Baa2 from Baa1 and reflects the
deterioration in the bank’s financial performance both in Greece and
abroad. The bank’s BFSR was confirmed at C-. For the year-ended December
2009, the bank’s foreign operations reported post-tax losses of EUR44
million compared to profits of EUR135 million the previous year. Similar
to its local competitors, EFG Eurobank’s credit quality indicators have
weakened, with NPLs rising to 6.7% of gross loans as of December 2009
and provision charges absorbing 75% of pre-provision earnings, while its
reliance on short-term market funding has increased and accounts for
20% of total liabilities. All these issues will likely continue to
adversely affect the bank’s financial performance and funding profile
for at least the remainder of 2010. 
Alpha Bank AE 
Moody’s downgrade of Alpha Bank’s deposit and debt ratings to A3 were
triggered by the lowering of its BCA to Baa2 from Baa1, and reflects the
deterioration in the bank’s financial performance and its increased
reliance on ECB funding. The bank’s BFSR was confirmed at C-. For the
year-ending December 2009, the bank has witnessed an increase in NPLs to
5.7% – likely to be accelerated further in 2010. Profitability also
fell by 32%. Alpha Bank’s ECB funding increased to 15% of the bank’s
total liabilities; this percentage is the highest among the Greek rated
banks, with the current market conditions indicating that the reliance
on ECB funding is unlikely to be substantially reduced during the course
of the year. 
Piraeus Bank SA 
Moody’s downgrade of Piraeus Bank’s deposit and debt ratings to Baa1 and
BFSR to D+ (mapping into a BCA of Baa3) reflects the bank’s increased
dependence on short-term market funding and its deteriorating financial
performance. The bank’s “due to banks” (primarily ECB and interbank repo
funding) accounts for approximately 26% of total liabilities as of
December 2009 — the highest percentage among the big Greek banks —
while its liquid assets and investments account for 21% of total assets,
down from 27% in 2007. Similarly, the bank’s 2009 bottom-line
profitability fell by 36%; for 2010 Moody’s expects continued pressure
on the bank’s asset quality and profitability indicators as the
weakening economy hits the SME sector, which accounts for nearly 50% of
Piraeus Bank’s loan portfolio. 
Emporiki Bank of Greece SA 
Moody’s downgrade of Emporiki Bank’s deposit and debt ratings to
A3/Prime-2 reflects Moody’s assignment of a lower systemic uplift given
the relatively small size of the institution. Moody’s notes however that
Emporiki’s deposit and debt ratings continue to benefit from a five
notch uplift as a result of parental and systemic support. The
institutions is 91% owned by Credit Agricole SA. 
The ratings of the other four Greek banks rated by Moody’s namely,
Agricultural Bank of Greece ( Baa1/Prime-2), Attica Bank
(Ba1/Not-Prime), General Bank of Greece (Baa1/Prime-2) and Marfin
Egnatia Bank (Baa1/Prime-2), are not affected by today’s announcement.

All ratings carry a negative outlook.



Of particular interest may be the prospects of the various banks caught
in this interwoven web (premium subscription material). To date, this
analysis have proven to be right on the money:


I will soon be releasing the foreign claims model which will reveal all
types of juicy stuff to both subscribers and the public that I am sure
Moody’s either overlooked or didn’t elaborate on.

For the complete Pan-European Sovereign Debt Crisis series, see:

  1. The
    Coming Pan-European Sovereign Debt Crisis
     – introduces the crisis
    and identified it as a pan-European problem, not a localized one.
  2. What
    Country is Next in the Coming Pan-European Sovereign Debt Crisis?
    illustrates the potential for the domino effect
  3. The
    Pan-European Sovereign Debt Crisis: If I Were to Short Any Country,
    What Country Would That Be..
     – attempts to illustrate the highly
    interdependent weaknesses in Europe’s sovereign nations can effect even
    the perceived “stronger” nations.
  4. The
    Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western
    European Countries
  5. #993300; font-weight: normal;”>
    Depression is Already Here for Some Members of Europe, and It Just
    Might Be Contagious!

  6. #993300; font-weight: normal;”>
    Beginning of the Endgame is Coming???

  7. I
    Think It’s Confirmed, Greece Will Be the First Domino to Fall

  8. Smoking
    Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer
  9. Financial
    Contagion vs. Economic Contagion: Does the Market Underestimate the
    Effects of the Latter?
  10. Greek
    Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on
  11. Germany
    Finally Comes Out and Says, “We’re Not Touching Greece” – Well, Sort
  12. #1f1f1f;”>
    The Greece and the Greek Banks Get the Word “First”
    Etched on the Side of Their Domino

  13. #1f1f1f;”>
    I Warned Earlier, Latvian Government Collapses Exacerbating Financial

  14. #1f1f1f;”>
    You Catch a Few EU Countries “Stretching the Truth”, Why Should You
    Trust the Rest?

  15. #1f1f1f;”>
    Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

  16. #1f1f1f;”>
    Ovebanked, Underfunded, and Overly Optimistic: The New
    Face of Sovereign Europe


More articles from Zero Hedge….

A Different Take

March 31, 2010 by · Leave a Comment 

Zero Hedge

This article is in response to Michael Panzer’s post: “The Latest Red Flag – The Market’s Rate of Melting Up”. Here is a different take.

From the Panzer article, I quote: Based on data going back 90 years, whenever the 12-month rate of change (ROC) in the Dow Jones Industrials Average has exceeded 40 percent, it has generally signaled trouble ahead.”

I would disagree with that statement, and to understand why, let’s put together a very simple study and replicate Panzer’s observations. Like Panzer, our data set is the Dow Jones Industrial Average going back 90 years. I will also use the 12 month rate of change (ROC) indicator, and my strategy is to “buy” the DJIA when the indicator exceeds the 40 percent level. I will sell my position after holding it for exactly 12 months.

Now the purpose isn’t to develop a trading strategy, but to show you what happens to the DJIA after the ROC indicator exceeds the 40% level, and the best way to demonstrate my “different take” is through the use of the maximum adverse excursion (MAE) graph. See figure 1.

Figure 1. MAE Graph

MAE assesses each trade from the strategy and determines how much a trade had to lose inpercentage terms before being closed out for a winner or loser. You put on a trade and if you are like most traders, the position will move against you. MAE measures how much you have to angst and squirm while you are in that position. Because once you close the position out for a loss or a win, you are done worrying about it. As an example, look at the caret in figure 1 with the blue box around it. This one trade lost 16% (x-axis) before being closed out for a 8% winner (y-axis). We know this was a winning trade because it is a green caret.

So what does the MAE tell us about our strategy of buying the DJIA after the ROC indicator exceeds 40%? We had 12 trades since the 1920’s. Two trades had excessive or portfolio ruining draw downs (or MAE’s) and these were 1929 and 1987. 7 trades had MAE’s less than 6%, and this would be the trades to the left of the blue vertical line. I would consider this a very tolerable draw down especially since 4 of those trades returned over 20% for the 12 month holding period. More importantly, 9 of the 12 trades were winners, and even a moderately excessive MAE of 16% recovered.

I think utilizing the MAE graph and methodology is a much better way to look at the data. Panzer states that on 11 occasions “rapid advances have been followed by notable corrections”. This statement doesn’t take in to account possible losses or draw downs experienced by the investor. For example, a 10% correction could have occurred after the DJIA had already run up 15% or so. In this instance, the investor would not have suffered a loss of principle despite the correction. Panzer’s statement isn’t as informative as the MAE graph, which actually shows how much an investor has to angst or squirm because he has lost his principle.

One other graph is worth introducing and this is the maximum favorable excursion graph (MFE). MFE measures how much a trade runs up before being closed out for a loss or a win. See figure 2 for the MFE graph for this strategy, and look at the caret with the blue box. This one trade ran up or had gains of 15% (x-axis) before being closed out for a 9% (y- axis) winner. So this trade gave back 6% before being closed out a winner, and we know this is a winner because of the green caret.

Figure 2. MFE Graph
So what does the MFE graph tell us about this strategy? 8 out of the 12 trades had MFE’s of greater than 14%, so at some time over the next 12 months after exceeding a 40% 12 month gain the DJIA ran up some 14% or more from the entry point 75% of the time.

Now, let’s focus in on the caret inside the red box. This is the trade from 1929. As it turns out, this trade actually made 31% before being closed out for a 19% loser after experiencing a 33% draw down or MAE. So let me set the record straight on the 1929 Armageddon trade: 1) the ROC indicator exceeded 40%; 2) the DJIA went on to make 31% over the next 9 months; 3) over the following 3 months, the DJIA lost 38%. So what Panzer has left out is the fact that the 1929 trade had a 30% plus run up that the market eventually gave back.

When considering the MFE and MAE graphs and what really happens after the DJIA makes 40% in a year, I would have to disagree with Panzer’s assessment. When the ROC indicator exceeds 40%, it doesn’t always signal trouble ahead. Even the 1929 trade actually had a 31% gain before being closed out for an 18% loss. If a trader or investor “gives back” that much, they probably should not be in the market in the first place.

I can easily make the argument that a 40% gain in over a year implies strong momentum that is likely to continue. But I won’t make that argument, and instead, I will just state that this appears to be what it is: another data point that doesn’t provide too much clarity.
TheTechnicalTake now offers Premium Content for short term traders.


This data, which has proved to be very actionable, is now available for a nominal yearly fee. This service should help you to improve your market timing!


More articles from Zero Hedge….

Goldman Shaken By ADP Number, Unstirred, As It Keeps Friday NFP Estimate At +275,000

March 31, 2010 by · Leave a Comment 

Zero Hedge

Is there just a little trepidation in Jan Hatzius’ typing as he reconfirms his +275,000 Friday NFP Target?

Downside Surprise Calls Private-Sector Hiring into Question

BOTTOM LINE: ADP report weaker than expected, showing a decline of 23k in March and raising questions about whether private-sector hiring has truly begun.

ADP report says private-sector payrolls -23k in Mar vs median forecast +40k.

1. The ADP report on private-sector payrolls falls in March, coming in substantially weaker than expected. (The February number was revised down very slightly from -20k to -24k.) Employment at all firm sizes fell in March, with small firms showing a slightly bigger decline (-12k) than medium (-4k) and large companies (-7k). Employment losses were concentrated in goods producing sectors (-51k) and manufacturing (-9k), while employment in services rose (+28k).

2. With little evidence of weather effects in the ADP report, the slightly negative figures reported for February and March call into question the growing presumption that private-sector firms have turned the corner from job shedding to net hiring. Our forecast of +275k for Friday’s report on nonfarm payrolls is based on this premise (an underlying increase of 50k, including non-Census government, plus another 100k for a weather rebound and 125k for temporary Census hires). We have not changed this estimate but will keep it under review, as we always do, pending more information on hiring (Conference Board and Monster), claims, and the ISM’s mfg employment index.

Look for a late Thursday NFP revision out of Goldman, as tends to happen in contentuous situations.

More articles from Zero Hedge….

Canada Leads the U.S. in Real Estate Recovery

March 31, 2010 by · Leave a Comment 

Mark J. Perry submits:

Canadian home prices in January were up 7.5% from a year earlier, according to the Teranet-National Bank National Composite House Price Index (see top chart above), which was released today. January was the fourth consecutive month in which prices increased from a year earlier, after 10 consecutive months of 12-month deflation. The turnaround is due to nine straight monthly increases in the countrywide index (see bottom chart above) that followed eight straight monthly decreases. Compared to the previous peak in August 2008, home prices in Canada have increased by 1.6%, to set a new record high level in January.

To get an idea how home prices in Canada compare to the U.S. since 2001, the chart below tells the story. Home prices in both countries increased by about 80% since 2001, but peaked much earlier in the U.S. (early 2006) than in Canada (mid-2008), and U.S. home prices fell by much more from the peak (-30%) compared to the drop in Canada (-9%). Home prices have now completely recovered in Canada, whereas it might be many years before home prices in the U.S. return to the 2006 level.

Read more…. »

Housing / Employment Correlation Underscores the Chaos of This Economy

March 31, 2010 by · Leave a Comment 

Ryan Avent submits:

In comments to Tuesday’s post, my friend David Schleicher noted:

Ryan — you should pair this with the lists on which cities have seen year-on-year increases in property values. The in-flow data is interesting all on its own (thanks for blogging it!), but it doesn’t paint a full demand-side picture without price.

Read more…. »

Housing and Cognitive Dissonance on Wall Street

March 31, 2010 by · Leave a Comment 

Michael Shulman submits:

Cognitive dissonance is best defined as “an uncomfortable feeling caused by holding two contradictory ideas simultaneously.” The Street suffers from cognitive dissonance a good part of the time but is approaching new limits to scale with the bullish view of housing – or the lack of understanding what a broken housing market means for the economy and, over time, for equities.

Yes, housing is broken in the United States. It is not at a bottom; it is not in a depression or at recession levels; it is broken and this reality is having profound impacts on employment, feelings of consumer wealth, consumer spending, and the economy. And it will have greater impacts on the banks and corporate profits in the second of this year and in 2011.

Read more…. »

The Case-Shiller Index Meets the ‘Gated Ghetto’

March 31, 2010 by · Leave a Comment 

Wealth Daily submits:

By Steve Christ

The nation’s housing bulls received some good news yesterday if you’re willing to stretch your imagination just a tad.

Read more…. »

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