Thursday, December 17, 2009
Macro Man isn't sure that we learned much from the FOMC last night, but that doesn't mean that markets have receded into a pre-Christmas stupor. It's hard to know what the DGDF crowd was looking for...but whatever it was, they certainly didn't get it. Cue the by-now predictable battery of stop losses from dollar shorts and, dare we speculate, initiation/expansion of dollar longs by the CTA community.
In any event, one could argue that there was a significant development last night, via S&P's downgrade of Greece and maintenance of a negative watch. Greece will soon be knocking on the door of the lower threshold of eligible ECB collateral; one doesn't need a terribly vivid imagination to conjure an idea of what might happen should that occur. 15-month Greek paper is currently trading north of 3.5%.
In a possibly related development, it's interesting to observe that the ECB now wants to lift the hood on the collateral that it's holding and find out how bad the turds are. Macro Man wonders if they won't find that they've been the victim of the old "flaming bag of poo" prank. Perhaps that could be the catalyst for untangling the web of deceit that surround the global banking sector.
Even when there's no malfeasance and information is publicly available, it's surprising how easy it is to misunderstand the current state of play. Gallows humour has been a staple of trading desks everywhere for the past couple of years, and Macro Man isn't immune to the odd jibe here and there. When he talks to mates at Citi, he sometimes muses that perhaps he should buy a few C shares p.a. at the current knock-down price, since "I can leave my stop only three and a half bucks away."
As you can see below, the once-mighty C has seen its share price is down some 48% from the 2008 close, so it's badly underperformed the braod market. Or has it?
Sure, if you've been long since last year, you're rather out of pocket on your investment. But for the insitution as a whole, it's been something of an annus mirabilis; thanks to its capital raising/share issuance, etc., C's market cap has nearly tripled this year. The company's now worth nearly $100 billion!
Betcha didn't know that. Even more remarkable is fact that Wells Fargo's market cap is now at all time highs (at least at the close of the year.) Yes, this is the same institution that has both hands thrust deep in the stinking morass that is the Califoria real estate market and that has employed every trick in the book to avoid fessing up.
Readers are invited to judge for themselves what, if anything, this remarkable recovery in bank market caps means for 2010. It certainly suggests that something should be changing, and it doesn't take Sherlock Holmes to deduce where Macro Man's bias lies.....