What's Happening

I know this is a TA forum: but sometimes real things are happening that you have to respect. This commentary is not meant to bullish, nor bearish; although the conclusions I draw are bullish. Here's a brief timeline. Tues 11th: Fed announces 200B term loan facility-an unintended consequence of which causes banks (which cannot pledge agency paper) to have a major duration mismatch- one which requires them to suddenly reduce their agency paper holdings, and call in margin loans related to Agency paper. Ben Screwed up. Wed, and Thurs. 12th and 13th: Carlysle, Peloton, Merriwether have losses exceeding 20% on their leveraged portfolios. Carlysle goes into receivership at its PB. Bear Stearns now recognizes it is insolvent, and is in the peculiar position of creating its own demise if it calls in its margin loans to its hedge fund customers. Box Canyon. Friday the 14th (13th without leap year BTW), the hedge funds realize it, and their desperate actions to hedge themselves result in a true edge-of-the-cliff scenario for the market. Meanwhile, the Goldman, JPM and Lehman guys get a hold of Bob Steele at Treasury and tell in no uncertain terms what needs to be done. "We need to sell agency Paper in huge size- now." Weekend: Since the working group realizes that liquidation of the other brokers and hedge funds from agency paper (remember- everything else is illiquid, derivative or otherwise and the Agency stuff was supposed to be the "good" end of the barbell risk wise) precludes BSC from liquidating (at the risk of the other Inv. Bks). So Bear's equity is sacrificed to Morgan, and the New 120 day, we'll take cat's and dogs Term facility is announced. Monday: This day is pretty self-explanitory. The astute recognize that the fed has taken on the balance sheets of the investment banks with an explicit put, agencies are no longer for sale (and BSC is solvent on their Monday mark, but who cares right?). Tues: the rhetoric is created about "inflation" to give cover to a smaller than expected move. The move is designed to work with a quiet intervention in the dollar. After the meeting, word goes out to the investment banks that they are the new hedge fund police. Unless their huge and about to go broke, call in your loans to reduce leverage in the spec community. The brokers are explicitly instructed to use the window to buy agency paper and hold it until the FNM FRE deal is done. This sudden move out of short US paper causes the TED spread to go ballistic. Wed: The smart and connected hedgies find out what has happened. The they simultaneously unwind carry trades across all their positions. Commodities collapse. Without the $ going down, now you have to stare a synchonized global recession in the face. Some of these carries were into S&P500 futures. Yesterday was expiration. You went from being in a roll forward, to complete liquidation. It was very lucky indeed that alot of people now know what's going on, and the futures could be supported at important technical levels. Yesterday's low is now important support and the bottom leg of the trendline for whatever emerges. Thursday: Stock expirations, and an absence of hedge fund players in this space left standing, suggest a reversal of the prior day action, to wipe out the abnormally high put equity, and zero out some huge NTM put positions. Things going forward are not fixed. But they weren't after 9/11 either. And that didn't stop people from having a huge rally. While there's no earnings growth- they'll just buy more of the pie-in-the-sky stuff. Tech, Retail, Biotech. The next shoe to fall is Commercial Loans and CMBS. The numbers here are paralyzingly large, so don't expect to reading about it in the papers- they'll make sure of that. I figure we have 2-3 quarters where we won't hear much about it. Next stop (SPX cash) 1338, then 1368, then 1428. We could stumble there. Use a few ticks under each level as a stop for the next level. I'm talking over the next month or so. For daytrading, buy dips on neg momentum, and sell on oversolds or tech levels. It will be choppy.

I know this is a TA forum: but sometimes real things are happening that you have to respect. This commentary is not meant to bullish, nor bearish; although the conclusions I draw are bullish.

Here's a brief timeline.

Tues 11th: Fed announces 200B term loan facility-an unintended consequence of which causes banks (which cannot pledge agency paper) to have a major duration mismatch- one which requires them to suddenly reduce their agency paper holdings, and call in margin loans related to Agency paper. Ben Screwed up.

Wed, and Thurs. 12th and 13th: Carlysle, Peloton, Merriwether have losses exceeding 20% on their leveraged portfolios. Carlysle goes into receivership at its PB. Bear Stearns now recognizes it is insolvent, and is in the peculiar position of creating its own demise if it calls in its margin loans to its hedge fund customers. Box Canyon.

Friday the 14th (13th without leap year BTW), the hedge funds realize it, and their desperate actions to hedge themselves result in a true edge-of-the-cliff scenario for the market. Meanwhile, the Goldman, JPM and Lehman guys get a hold of Bob Steele at Treasury and tell in no uncertain terms what needs to be done. "We need to sell agency Paper in huge size- now."

Weekend: Since the working group realizes that liquidation of the other brokers and hedge funds from agency paper (remember- everything else is illiquid, derivative or otherwise and the Agency stuff was supposed to be the "good" end of the barbell risk wise) precludes BSC from liquidating (at the risk of the other Inv. Bks). So Bear's equity is sacrificed to Morgan, and the New 120 day, we'll take cat's and dogs Term facility is announced.

Monday: This day is pretty self-explanitory. The astute recognize that the fed has taken on the balance sheets of the investment banks with an explicit put, agencies are no longer for sale (and BSC is solvent on their Monday mark, but who cares right?).

Tues: the rhetoric is created about "inflation" to give cover to a smaller than expected move. The move is designed to work with a quiet intervention in the dollar. After the meeting, word goes out to the investment banks that they are the new hedge fund police. Unless their huge and about to go broke, call in your loans to reduce leverage in the spec community. The brokers are explicitly instructed to use the window to buy agency paper and hold it until the FNM FRE deal is done. This sudden move out of short US paper causes the TED spread to go ballistic.

Wed: The smart and connected hedgies find out what has happened. The they simultaneously unwind carry trades across all their positions. Commodities collapse. Without the $ going down, now you have to stare a synchonized global recession in the face. Some of these carries were into S&P500 futures. Yesterday was expiration. You went from being in a roll forward, to complete liquidation. It was very lucky indeed that alot of people now know what's going on, and the futures could be supported at important technical levels. Yesterday's low is now important support and the bottom leg of the trendline for whatever emerges.

Thursday: Stock expirations, and an absence of hedge fund players in this space left standing, suggest a reversal of the prior day action, to wipe out the abnormally high put equity, and zero out some huge NTM put positions.

Things going forward are not fixed. But they weren't after 9/11 either. And that didn't stop people from having a huge rally. While there's no earnings growth- they'll just buy more of the pie-in-the-sky stuff. Tech, Retail, Biotech.

The next shoe to fall is Commercial Loans and CMBS. The numbers here are paralyzingly large, so don't expect to reading about it in the papers- they'll make sure of that. I figure we have 2-3 quarters where we won't hear much about it.

Next stop (SPX cash)
1338, then 1368, then 1428. We could stumble there. Use a few ticks under each level as a stop for the next level. I'm talking over the next month or so. For daytrading, buy dips on neg momentum, and sell on oversolds or tech levels. It will be choppy.

who is this time line written by?

I know this is a TA forum: but sometimes real things are happening that you have to respect. This commentary is not meant to bullish, nor bearish; although the conclusions I draw are bullish.

Here's a brief timeline.

Tues 11th: Fed announces 200B term loan facility-an unintended consequence of which causes banks (which cannot pledge agency paper) to have a major duration mismatch- one which requires them to suddenly reduce their agency paper holdings, and call in margin loans related to Agency paper. Ben Screwed up.

Wed, and Thurs. 12th and 13th: Carlysle, Peloton, Merriwether have losses exceeding 20% on their leveraged portfolios. Carlysle goes into receivership at its PB. Bear Stearns now recognizes it is insolvent, and is in the peculiar position of creating its own demise if it calls in its margin loans to its hedge fund customers. Box Canyon.

Friday the 14th (13th without leap year BTW), the hedge funds realize it, and their desperate actions to hedge themselves result in a true edge-of-the-cliff scenario for the market. Meanwhile, the Goldman, JPM and Lehman guys get a hold of Bob Steele at Treasury and tell in no uncertain terms what needs to be done. "We need to sell agency Paper in huge size- now."

Weekend: Since the working group realizes that liquidation of the other brokers and hedge funds from agency paper (remember- everything else is illiquid, derivative or otherwise and the Agency stuff was supposed to be the "good" end of the barbell risk wise) precludes BSC from liquidating (at the risk of the other Inv. Bks). So Bear's equity is sacrificed to Morgan, and the New 120 day, we'll take cat's and dogs Term facility is announced.

Monday: This day is pretty self-explanitory. The astute recognize that the fed has taken on the balance sheets of the investment banks with an explicit put, agencies are no longer for sale (and BSC is solvent on their Monday mark, but who cares right?).

Tues: the rhetoric is created about "inflation" to give cover to a smaller than expected move. The move is designed to work with a quiet intervention in the dollar. After the meeting, word goes out to the investment banks that they are the new hedge fund police. Unless their huge and about to go broke, call in your loans to reduce leverage in the spec community. The brokers are explicitly instructed to use the window to buy agency paper and hold it until the FNM FRE deal is done. This sudden move out of short US paper causes the TED spread to go ballistic.

Wed: The smart and connected hedgies find out what has happened. The they simultaneously unwind carry trades across all their positions. Commodities collapse. Without the $ going down, now you have to stare a synchonized global recession in the face. Some of these carries were into S&P500 futures. Yesterday was expiration. You went from being in a roll forward, to complete liquidation. It was very lucky indeed that alot of people now know what's going on, and the futures could be supported at important technical levels. Yesterday's low is now important support and the bottom leg of the trendline for whatever emerges.

Thursday: Stock expirations, and an absence of hedge fund players in this space left standing, suggest a reversal of the prior day action, to wipe out the abnormally high put equity, and zero out some huge NTM put positions.

Things going forward are not fixed. But they weren't after 9/11 either. And that didn't stop people from having a huge rally. While there's no earnings growth- they'll just buy more of the pie-in-the-sky stuff. Tech, Retail, Biotech.

The next shoe to fall is Commercial Loans and CMBS. The numbers here are paralyzingly large, so don't expect to reading about it in the papers- they'll make sure of that. I figure we have 2-3 quarters where we won't hear much about it.

Next stop (SPX cash)
1338, then 1368, then 1428. We could stumble there. Use a few ticks under each level as a stop for the next level. I'm talking over the next month or so. For daytrading, buy dips on neg momentum, and sell on oversolds or tech levels. It will be choppy.

who is this time line written by?

Why, me, of course. I never quote others on an opinion board.

were on the same page, and i like your analysis . the one thing I would lke to add is as to the next shoe, I am not as confident as you, there are contenders - e.g. the CDS issue, which i mentioned earlier with BSC - to simplify, CDS is like (mortgage) insurance, letting holders of paper think they are fully hedged - but they are only hedged if the counterparty is solvent - so machinations like the BSC buyout which does not allow the CDS to be triggered will be seen again - but if it doesnt work so well next time, it wil be very ugly, this stuff is in so many conservative portfolios the effect would be very wide. klh

I know this is a TA forum: but sometimes real things are happening that you have to respect. This commentary is not meant to bullish, nor bearish; although the conclusions I draw are bullish.

Here's a brief timeline.

Tues 11th: Fed announces 200B term loan facility-an unintended consequence of which causes banks (which cannot pledge agency paper) to have a major duration mismatch- one which requires them to suddenly reduce their agency paper holdings, and call in margin loans related to Agency paper. Ben Screwed up.

Wed, and Thurs. 12th and 13th: Carlysle, Peloton, Merriwether have losses exceeding 20% on their leveraged portfolios. Carlysle goes into receivership at its PB. Bear Stearns now recognizes it is insolvent, and is in the peculiar position of creating its own demise if it calls in its margin loans to its hedge fund customers. Box Canyon.

Friday the 14th (13th without leap year BTW), the hedge funds realize it, and their desperate actions to hedge themselves result in a true edge-of-the-cliff scenario for the market. Meanwhile, the Goldman, JPM and Lehman guys get a hold of Bob Steele at Treasury and tell in no uncertain terms what needs to be done. "We need to sell agency Paper in huge size- now."

Weekend: Since the working group realizes that liquidation of the other brokers and hedge funds from agency paper (remember- everything else is illiquid, derivative or otherwise and the Agency stuff was supposed to be the "good" end of the barbell risk wise) precludes BSC from liquidating (at the risk of the other Inv. Bks). So Bear's equity is sacrificed to Morgan, and the New 120 day, we'll take cat's and dogs Term facility is announced.

Monday: This day is pretty self-explanitory. The astute recognize that the fed has taken on the balance sheets of the investment banks with an explicit put, agencies are no longer for sale (and BSC is solvent on their Monday mark, but who cares right?).

Tues: the rhetoric is created about "inflation" to give cover to a smaller than expected move. The move is designed to work with a quiet intervention in the dollar. After the meeting, word goes out to the investment banks that they are the new hedge fund police. Unless their huge and about to go broke, call in your loans to reduce leverage in the spec community. The brokers are explicitly instructed to use the window to buy agency paper and hold it until the FNM FRE deal is done. This sudden move out of short US paper causes the TED spread to go ballistic.

Wed: The smart and connected hedgies find out what has happened. The they simultaneously unwind carry trades across all their positions. Commodities collapse. Without the $ going down, now you have to stare a synchonized global recession in the face. Some of these carries were into S&P500 futures. Yesterday was expiration. You went from being in a roll forward, to complete liquidation. It was very lucky indeed that alot of people now know what's going on, and the futures could be supported at important technical levels. Yesterday's low is now important support and the bottom leg of the trendline for whatever emerges.

Thursday: Stock expirations, and an absence of hedge fund players in this space left standing, suggest a reversal of the prior day action, to wipe out the abnormally high put equity, and zero out some huge NTM put positions.

Things going forward are not fixed. But they weren't after 9/11 either. And that didn't stop people from having a huge rally. While there's no earnings growth- they'll just buy more of the pie-in-the-sky stuff. Tech, Retail, Biotech.

The next shoe to fall is Commercial Loans and CMBS. The numbers here are paralyzingly large, so don't expect to reading about it in the papers- they'll make sure of that. I figure we have 2-3 quarters where we won't hear much about it.

Next stop (SPX cash)
1338, then 1368, then 1428. We could stumble there. Use a few ticks under each level as a stop for the next level. I'm talking over the next month or so. For daytrading, buy dips on neg momentum, and sell on oversolds or tech levels. It will be choppy.

who is this time line written by?

Why, me, of course. I never quote others on an opinion board.

was just wondering...good analysis

Fantastic stuff, Phineas. You sound very knowledgeable about these issues. Question: when you mention commercial loans/CMBS, are there any specific players that come to mind?

LEH, MER, C and every Insurance Company, Pension Fund, Endowment, and Taft Hartley plan in the US.

Fantastic stuff, Phineas. You sound very knowledgeable about these issues.

Question: when you mention commercial loans/CMBS, are there any specific players that come to mind?

Put this link on your favorites list. http://web.mit.edu/c.../credl/rca.html

This dog won't bark all the time, but when it does, pay attention.

Edited by phineas_gage, 20 March 2008 - 12:58 PM.

Well thought out and well put Phineas. Definitely food for thought.

Put this link on your favorites list. http://web.mit.edu/c.../credl/rca.html

This dog won't bark all the time, but when it does, pay attention.

Thanks, will do !