I was out of the office yesterday, finishing up some Christmas shopping. Here are a few quick thoughts.
- MBIA's disclosure surprises me. Not what they've disclosed, but how it happened. First of all, why not reveal all this stuff when you made the pact with Warburg? Second, why does Fitch put them on negative watch, as though MBIA's CDO^2 portfolio was news to Fitch? How could Fitch even begin to analyze MBIA's credit rating without a full accounting of their CDO^2 portfolio? Maybe its just a coincidence, but it seems odd. Anyway, readers of AI know I believe the bond insurers will need more capital to keep their AAA/Aaa rating anyway.
- The Term-Auction Facility's first auction went off pretty well, with a stop out rate of 4.65%. That's below the discount rate and below 1-month LIBOR by about 30bps. I'll note that's the kind of rate Freddie Mac and Fannie Mae get on short-term borrowings. I read this as saying that there weren't many banks out there desperate to borrow over year-end, and in essence the bids they got were at lower interest rates than where big bank CP is. That's not consistent with a liquidity crunch, and makes me wonder whether we really will see the Fed cut as deep as I had previously thought.
- According to multiple sources on the Street, there has been a ton of year-end buying of industrial corporates. Spreads haven't moved dramatically tighter, probably because there bid/ask levels were a little fuzzy anyway going into this week. Dunno if it follows through into January or is merely window dressing. Its a lot easier to be bullish on industrials, both IG and BIG, than financials right now.