Some Closing Comments September 29 2008

September 29th, 2008 4:36 pm | by John Jansen |

Prices of Treasury coupon securities surged dramatically today in a truly historic day of trading. It was a day in which the populist impulse triumphed and the latent suspicion of Wall Street grounded in the middle class heartland rose up to defeat a bill crafted and formed by the ruling elite. (I do not necessarily subscribe to the theory but I think it is what domed the legislation. As I have written in this space before,
$700 billion aint an odd lot!!)

The markets were fragile from the start as credit fears erupted in Europe. The defeat of the rescue package magnified those fears and sent investors scurrying for the safety of the treasury market.

The yield on the 2 year note rotated through a mini interest rate cycle as its yield tumbled 37 basis points to 1.73 percent. The yield on the 5 year note dropped 32 basis points to 2.74 percent. The yield on the benchmark 10 year note fell 23 basis points to 3.62 percent. The yield on the 30 year bond dropped 21 basis points to 4.11 percent.

The 2 year/10 year spread widened 14 basis points to 189 basis points.

The Tips market reflects the collapse in commodity prices and suggests that we are about to usher in an era of deflation. While the yield on the benchmark 10 year note dropped 23 basis points the yield on the 10 year TIP slipped by only 6 basis points, placing that spread at 160 basis points.

I am not sure what to write. We sit on the edge of an historic and potentially destructive financial eruption. This surpasses the fear that I recall in October 1987 when stocks plunged. This is global in nature and chases down its prey ever more rapidly.

The markets have ignored every initiative by authorities to solve the problem and every attempt has failed to halt the deleveraging.I am not sure what sort of plan that the authorities can devise overnight to once more rescue the system. I think that you just stay liquid and pray that you have a seat when the music stops.

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  1. 13 Responses to “Some Closing Comments September 29 2008”

  2. By jt on Sep 29, 2008 | Reply

    JJ, from a bond traders perspective why are the credit markets and by extenstion equities acting this way? Is it trust and transparency (or lack thereof)? If it is, why can’t we force regulatory oversight in three areas ala Karl Denningers plan via


    Just wondering if this is doable from you point of view.

  3. By s on Sep 29, 2008 | Reply

    Bernanke assured us he had the final solution. how many strikes does this guy get. He needs to go and tomorrow would be dragging it out. Bush needs a new surge here and he needs to act fast. Get people with credibility not people who write speeches about their printing money prowess. This guy is a total liability.

  4. By christofay on Sep 29, 2008 | Reply

    Sure, Bush should ask Bernanke to resign. Then Paulson can go live in Beijing.

    And Bush can leave by stealth heliocopter to his heartland the UAE. He can live in Cheney’s pool house, Kato Bush.

  5. By Dave S on Sep 29, 2008 | Reply

    “The markets have ignored every initiative by authorities to solve the problem and every attempt has failed to halt the deleveraging.”

    Well, that’s fine by me. Deleveraging is exactly what needs to happen. Are you high or something? Not trying to be mean… I’m just asking.

    They need to put the off-balance sheet crap on the books for all to see, leverage needs to be greatly reduced, and derivatives need to be put on regulated exchanges.

    Downdraft in equities? Duh! What?… you think a P/E in the mid 20’s on the Dow is ‘Priced correctly?’ C’mon! Get real!!! Jeez!!

  6. By MIchael on Sep 29, 2008 | Reply

    John…thanks for all your work

    found following intersting

    Flowers’s $1.5 Billion Hypo Hit May Hinder U.S. Lender Push

    By Jason Kelly and Jonathan Keehner

    Sept. 29 (Bloomberg) — Days after J.C. Flowers & Co. pooled $2.5 billion from investors to target struggling U.S. banks, a souring bet on Hypo Real Estate Holding AG may blunt the New York firm’s appetite.

    Five months ago, Flowers led a group of investors to buy a 24.9 percent stake in Germany’s second-biggest commercial- property lender for $1.77 billion (1.13 billion euros). That stake today is worth $253.8 million, having plunged after the government gave Hypo a $50 billion loan guarantee.

    Flowers, the firm founded by former Goldman Sachs Group Inc. banker J. Christopher Flowers, joins private-equity titan David Bonderman in getting burned by what proved to be premature investments in flagging banks. A $1.3 billion investment in Washington Mutual Inc. by Bonderman’s TPG Inc. evaporated last week when WaMu was seized by federal regulators.

    “Bonderman and Flowers are two of the smartest private- equity investors,” said Michael Holland, chairman of Holland & Co. in New York, which manages $4 billion in assets. “This crisis is unprecedented in their lifetimes and no one in the business today has ever seen such challenges. For Flowers to be taking a hit shows how perilous the market has become.”

    A call to Flowers’s office seeking comment wasn’t returned.

  7. By SS on Sep 29, 2008 | Reply

    Whenever anyone says so and so are the smartest investors I can’t help but think of “Taleb’s Fooled by Randomness.”

  8. By headlinecharts on Sep 29, 2008 | Reply

    Hi, thanks for this terrific blog. I’ve been reading it regularly for a number of weeks. I think we are all in this together, and blaming Greenspan, Bernanke, Paulsen, etc is misplaced. Its a big anthill and we all live in it and contribute. Sell the rallies!

  9. By Marco Loureiro on Sep 29, 2008 | Reply

    “Well, that’s fine by me. Deleveraging is exactly what needs to happen. Are you high or something? Not trying to be mean… I’m just asking.”

    Deleveraging is quite fine, but can you quantify the economic and opportunity costs to the overall economy? Most of the participants that make such argument tend to focus on the financial costs which can be reasonably quantified.

    Take for instance today’s market action. Bailout plan $700 billion…loss in market capitalization $1.4 trillion. Investors all across America were affected whether there was a bailout or not. With credit markets frozen…responsible businesses that produce tangible goods may not be able to sustain the high financing costs…which will eventually lead to late paychecks, labor cutbacks and slowdown in hiring. These are the economic and opportunity costs that one needs to quantify…

  10. By Peez Dets on Sep 29, 2008 | Reply

    Bail out this, bail out that or no bail out at all – the Great Depression version 2 is assured either way. All this noise doesn’t change the outcome but only the path that leads to it. The longer we try to avoid The Reset the more devastating is the final explosion of the credit ponzi scheme. This is simply a mathematical certainty of the fractional reserve banking. Stocks, bonds and FRN will all become worthless scraps of paper, in this order but on different timescales.

  11. By Dave S on Sep 30, 2008 | Reply

    “These are the economic and opportunity costs that one needs to quantify”

    Yeah… And I say no pain, no gain. How many free lunches have you been served? I sure haven’t seen any. The only debt I have is my mortgage. With the money I have saved, from a half lifetime of real WORK, I could retire half of that nut right now, if I wanted to. I’ve run my life prudently, with minimal leverage. I could be unemployed for a couple of YEARS and would hardly notice it, other than my savings depletion. If you’ve got money in stock funds, or other leveraged instruments, you should be an adult and realize you’re 100% at risk. That’s where you want your nest egg?? You can have it! People that were all-in in this market were nuts… it’s been a casino since 2001, man!

    As far as business goes, if you need to be leveraged to meet your payroll, you need to fire your accountant and learn how to balance your books. Your business is supposed to be profitable, right? What are you doing accessing credit to meet payroll??!!!! Do you guys even hear what’s coming out of your own mouths? It’s insane, man.

    No malice intended… I’m just astounded by some of the stuff I hear in this ‘modern age’. It’s just nuts.

    Oh – and retirement! What a scam!! I’ll probably DIE working. Retirement? I can’t even envision that… it’s ridiculous. Ease up in my later years, yes. Quit working all together? Forget it. Why would I? I’d just be a dead weight on the world, then.

    Save some money for heck’s sake, and you can sleep as well as I do.

    We’ve turned into total slackers. Man up, roll your sleeves and earn back what you’ve lost. I’ve been flat broke twice (as an adult). I came back. It’ll probably happen again someday and I’ll come back from that, too… or die trying. You don’t owe me nothin’… unless I’ve worked for you . And vice-versa.. you can book it, brother.

  12. By Steve Davies on Sep 30, 2008 | Reply

    You said the drop in rates suggests we’re entering a deflationary period, which would not be good for TIPS investors. Yes, there’s a flight to quality, too. But isn’t it possible that we could see an upturn in rates and higher inflation from a)the Fed flooding the system with liquidity and b)a pullback by foreign investors from financing U.S. debt?

  13. By martino on Sep 30, 2008 | Reply

    do you know any blog similar to your for the euro market? would be useful ..

  14. By Pirsey on Apr 22, 2009 | Reply

    The topic is quite trendy on the Internet at the moment. What do you pay attention to when choosing what to write ?

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