Let’s review the week that was shall we.
After closing last Friday at 870.8 the S&P took the down elevator to Floor -14.4% thru yesterday and was stuck there until the announcement that Prez Elect Obama was going to select NY Fed Prez Geithner as his Treas Sec. The market proceeded to rally $400 Billion (talk about your executive pay package). Here’s looking at you Timmmmmy ! So for the week the S&P only lost 9%. Phew I am glad of that.
In other strange sightings the 30 year US Treas rallied 8 points yesterday (not a misprint) to a new all-time low yield and the 10 year hit the Eisenhoweresque lows of 2003. A 0% Fed Funds rates is becoming accepted (konichiwa) and spreads on everything but interest rate swaps continued their upward ascent led by commercial mortgage backed securities which reached spreads of 700-1000bp for AAA rated tranches with healthy credit support yesterday and fell 180bp TODAY . This is a market where exciting days used to be measured in spread changes of 1-2 bp. In an homage to No Country for Old Men the CDS market came for Uncle Warren’s noggin this week as spreads on Berkshire debt spiked to over 500bp and the stock dropped like a stone. Bank debt also continued to weaken with bell weather TXU changing hands at 66% of par yesterday. On the contrary, however, interest rate swap spreads to Treasuries rocked especially in the long end. The 30 year interest rate swap spread to the 30 year Treasury reached -59bp yesterday (and no the negative sign in front of that number is not bad typing on my part). In financial parlance that is up there with the sun rising in the west. Exotic options and mortgage hedging are to blame. I guess. On the economic front the news was, well, really bad. We had the worst negative CPI print since the Depression, the NAHB (home buider index) fell to 9 (a new low), jobless claims rose to 572k (a post 1982 high) and prominent hedge fund managers are predicting Q4 GDP at -6-10%. To be clear the US has not suffered a negative nominal GDP print since (there’s that word again) the Depression.
Those picking bottoms thus far have not fared well. Moral of the story:
Don't Get Out of the Boat!
(do not click if you don’t like R rated movies and the things the rating portends)