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.
3 comments:
There are pressures on the Fed not to cut at all.
Inflation, which apparently now is beginning to be recognized as including the necessities of life.
The dollar.
Our creditors abroad who like to think that their loans will not become completely worthless.
I note that Credit Agricole, one of the real basic institutions of French life, has just announced a 2.5 billion euro loss on debt associated with American real estate.
Without dwelling on the sales job on one side and shocking stupidity on the other that went into making this debacle (the French are very good at mathematical modeling: you would think they could understand that "marking to model" might not always work), I would say that the French are not going to lend money to just anyone in the US ever again. And securitization, to the the extent it survives at all, is going to have to feature a damn iron-clad mark to market capability if anyone outside the 50 states is going to participate.
93 commercial banks out of 7238 (# excluding non-bank, GSEs, etc.) exchanged $20b in collateral for 28day loans (until after year-end) with the Term Auction Facility (the Federal Reserve).
These depository institutions were probably forced out (didn't qualify for the lower FFs (unsecured) interest rate, & elected not to borrow at the higher discount window cost, & didn’t have other sources of fundings/arbitrage).
Unless these were major banks (hold a substantial percentage of all earning assets), and or their individual borrowings are dis-proportionately large, this seems like a manageable number.
discount window borrowing results:
http://research.stlouisfed.org/fred2/series/TOTBORR?cid=122
Note aside: Bernanke's monetary policy is "tight". Apparently he learned his lesson from last year. Bernanke is a very capable Chairman.
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