I wish I had time to write extended and thoughtful pieces on each of these thoughts. And hey, if my ad revenue increases by a mere factor of 50 I can probably quit my job and just write all the time!
- It seems increasingly obvious that Bank of America is buying Countrywide for reasons beyond normal economics (which is what I had thought when it was announced). I suspect that CFC has significant liabilities to BAC which makes the de facto price BAC is paying less than the $7/share. Of course, that doesn't explain why they don't try to negotiate something lower now. Anyway, I'm really pissed off about Bank of America's claim of "no assurance" about Countrywide's debt. I'm not a holder of anything related to either company, so its really nothing to me. But its total bullshit that Bank of America could gain the economic benefit of owning Countrywide without the economic risk. This is exactly like the SIV mentality. Just keep Countrywide as a off-balance sheet, highly leveraged mortgage play! When has a plan like that gone wrong?
- I think the markets are too optimistic right now. We've seen very few economic reports which indicate actual strength. Most have indicated things are better than expected. And look, that's fine. We've gone from deep recession with a banking crisis to a mild recession with banks successfully raising capital. Great. But I don't buy why the S&P will keep moving higher without economic reports which are actually good. Same goes for Treasuries, especially 5 years and in. I think they are oversold. For what its worth, I personally bought some S&P puts near the close yesterday.
- Credit is tougher because its coming off such a huge trough. So I don't feel like getting short credit even though I acknowledge that should the S&P pull back 5% or so that spreads will almost have to widen. I just think the fundamentals behind credit are too good to fool around with short-term technicals. I feel like you run a serious risk of getting your fingers blown off.
- On Treasuries: one problem is that technicals are pretty bad. There might be psychological support around 4% on 10's, but its broken decisively through the 120 MA after bouncing a couple times off the 3.87 level. I saw 3.90% as significant resistance, but its trying to break that today as well. Then I don't see anything between here and 4.07%. Plus you have plain old supply coming, with a 10-year auction today. So I think the play in the short-term is a bear steepener, but that's purely on technicals.
- No one really knows why Fannie Mae rallied on ugly earnings. The most logical answer is OFHEO's annoucement that they'd be lifting some capital restrictions, which should make FNM more profitable in the future. It fits with the fact that Fannie Mae debt spreads widened modestly from about +55 on 10-year senior bonds to about +60. I think you can't discount short covering as part of the problem. We might be in a place where shorting mortgage-exposed companies just ain't going to work.
- UBS is exiting the muni business, and are looking to sell the unit. They were the #3 underwriter, so it would have to be someone quite large to buy the business. Let's see, who among the large dealers doesn't have much in munis? I know! Bear Stear--... Er... Actually I don't know who the hell will buy UBS' muni unit. If they do want to make a move they need to do it fast. Otherwise rivals will start picking off the best muni bankers one by one until finally there is nothing left of the unit worth buying. One reader and I had a off-line chat about this and he suggested that there could be a re-regionalization movement in municipals. In other words, a movement away from consolidation in New York and toward mid-sized dealers gaining more power in that market. Lately spreads (meaning commission spreads) have been wider, especially in secondary trading. If that keeps up, look for regional brokerages to benefit.
- I'm watching the MCDX closely. I think if the 5-year hits 50 or so, its a screaming sell.