Goldman Sachs Defends Action as Market Maker. IMF Said to Offer +€100 Billion to Greek Rescue. Rates Higher
Good Morning... I took in ten hours of Goldman Sachs hearings yesterday.
I learned that GS performs well under pressure and will not cave to political attempts to vilify their business model. I also learned that certain Senators are willing to stoop to very low levels to achieve their goal of vilification. What a show. Yes Goldman representatives seemed to efficiently side-step the same questions...but how else should they reply to misleading statements and inquiries intended to distort YOUR perceptions. Goldman was doing exactly what they were supposed to do when making a market. ITS A TRADER'S WORLD AND GOLDMAN IS KING TRADER.
I thought Goldman came out looking like a winner yesterday. Hate on them all you want...but this is capitalism. Don't hate the player, hate the game. We need reform to be based on core inefficiencies, not a witch hunt.
I once said "NOTICE HOW I DON'T CARE ABOUT GREECE". I guess we all care about Greece now.
The near-sighted big picture question is: Do we now know something new about the global economy? Something we didn't know last week?
No. Nothing new. Just last Friday we learned that Greece had asked the EU and the IMF to activate a €45 billion ($60.5 billion then $59.5 billion now) rescue package to help shore up short-term funding needs. Speaking on national TV, Greece Prime Minister George Papandreou said "It is imperative that we ask for the activation of the mechanism".
Was this a positive event then? At the time the market seemed to view it as a "washing clean" event for Greece. Stocks rallied and the 10 year note ticked all the way up to 3.84% as flight to safety allocations fled the bond market.
Why all of a sudden did the market come to attention after the S&P cut Greece's sovereign debt rating? Wouldn't a ratings downgrade be expected after Greece requested formal rescue? I don't know...perhaps chopping them all the way to junk could be considered overkill. Either way, the market's extremities were numb leading up to this event...nothing seemed to increase trader anxieties, but this move sure did WAKE EVERYONE UP YESTERDAY. As illustrated by vols in both stocks and bonds....this downgrade woke the market from an 8 week nap.
So does this stock selloff stick or is it viewed simply as an opportunity to buy the S&P below 1200? I say rip and run traders! Unless you think the world coming to an end and we should all buy gold and stock up on ammo....come on. While this sovereign event could be seen as a reason for short term consolidation...nothing has changed in the BIG PICTURE. Yes there aren't any "numbers" (size) to the U.S recovery, but at least we are seeing technological innovation and microeconomic earnings growth. Investments are taking place in housing too, we just haven't seen a broad-based move toward owning the hard asset yet. This recovery will be slow and jagged, but the worst case scenario still seems to have been avoided. Is Greece going to drag everyone down? I doubt it. In the long run we will look back on this and say "Wow, I wish I could have bought some stock in XYZ company. It was so cheap back in 2010".
The issue is already being address to avoid further contagion:
There is no reason why the market shouldn't be convinced that Greece and others will be BAILED OUT...especially if the market mechanism forces it. (I know Wilborn I know...fractional lending will end the world).
Stock futures are off yesterday's lows. The June S&P futures contract is +4.00 at 1185.
The 10 yr note is -0-10 at 99-04 yielding 3.732%.
The FN 4.5 is -0-07 at 100-14 yielding 4.454. The secondary market current coupon is 4.443%. CC yield spreads are directionally tighter as TSY yields back up. The CC is +69.2/10TSYs and 67.9bps/10IRS.
I see most lenders are still priced better than yesterday morning.
REPRICES FOR THE BETTER AROUND 100-23
REPRICES FOR THE WORSE WILL BE BAKED IN ON FIRST RATE SHEET RUNS
The FOMC statement will be released today. The only mortgage market specific tapebomb I can think to bring up is an inclusion of verbiage discussing asset sales. But we already let you know how we feel about that in THIS POST. If you are looking for more color on the outcome of the Fed as it relates to mortgage rates THIS POST applies.
$42 billion 5s at 1pm
PS. YOU BETTER BE CHEERING FOR MY CAPS TONIGHT