Monday, November 7, 2011

Ray Dalio's 2009 Hedge Fund Award Speech On Bridgewater, Uncorrelated Alpha and Beta

I found a video of Ray Dalio, founder of the $125 billion hedge fund Bridgewater Associates, giving his acceptance speech after receiving the Lifetime Achievement Award at the 7th Annual Hedge Fund Industry Awards in 2009, which is run by Institutional Investor. He first talked about Bridgewater's culture and then the hedge fund industry. He said there needs to be more "uncorrelated alpha" and less beta replication. Watch the speech after the jump. Dalio's fund performed very well this year while other large funds collapsed (as of September). Related: Dalio Returns 25% With Diversified Bets as Markets Convulse (Bloomberg, 9/7/2011); Ray Dalio On Diversified Uncorrelated Bets and How The Machine Works (BloombergTV Interview, 9/15/2011).

Ray Dalio on Charlie Rose: We Have a Public and Private Sector Debt Issue, Deleveraging, Tapped Out Stimulus

Source: Charlie Rose
Ray Dalio, founder of Bridgewater Associates, the biggest hedge fund in the world with $125 billion under management (via pensions, endowments, foundations, foreign governments, central banks and other institutional clients), was interviewed on Charlie Rose on 10/20/2011 and said he's concerned about the overly indebted public and private sectors of the U.S. and Europe (debtor-developed economies) during this deleveraging period.

Dalio's main concerns are that fiscal and monetary policies are no longer affective and we're lacking the "quality dialogues" needed to deal with these issues, which ends up creating social tensions (ex. Occupy Wall Street). Watch the full interview at CharlieRose. I embedded a clip after the jump as well. Below are important quotes from the transcript (hat tip Zero Hedge). In an FT article recently, Dalio said: “Our character and our political and social systems are now being tested in ways that have typically been tested in past deleveragings.” It's getting serious people.

"I think it`s important to understand that we`re going through a deleveraging. So we have to understand the big picture is -- there`s a deleveraging. Three big themes: first there`s a deleveraging; secondly we have a problem with monetary and fiscal policies are running out of ammunition; and thirdly we have an issue in terms of people most importantly who are at each other`s throats politically and globally in terms of having a problem resolving those."

"I think it`s very important to understand that the government debt is the terrible challenging issue that we should talk about maybe but also more important is the private sector debt. So that resolving the public sector debt does not resolve the problem."

"We can`t solve the problem easily because we still have too much debt. But we can move forward in being able to make the best of it. We can spread it out, we can keep orderly we have a situation now in which we have a very severe situation, not only because we have a deleveraging going on, but we have a situation in which monetary policy cannot work the way it worked in the past, that fiscal policy will not be stimulative."

Sunday, November 6, 2011

Fed's November Economic Projections, FOMC Statement and Bernanke's Press Conference (11/2/2011)

Nothing much has changed... The Fed is keeping rates at 0% and plans to "continue its program to extend the average maturity of its holdings of securities". Watch Bernanke's press conference after the jump (here is the transcript). If they announce QE3, which could be in the form of "large scale MBS purchases" (that was Fed Governor Daniel Tarullo's idea), then that could change the game. Here's a snapshot of the Fed's economic projections vs. June. They lowered their real GDP projections and raised unemployment rate projections.


Full PDF: http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20111102.pdf

Friday, November 4, 2011

Jefferies Discloses All Current Positions In Sovereign Debt Of Portugal, Italy, Ireland, Greece and Spain

Source: FreeStockCharts.com
Today, Jefferies released an update on its net exposure to PIIGS debt. The stock (JEF) is now up 1.75% on the news at $12.22 after trading down 6% earlier. After collateral calls related to european sovereign debt exposure forced MF Global to file for bankruptcy, you can see why Jefferies is disclosing this internal information to the public. They are even going to post on their website "day-end, CUSIP-level holdings in the securities of these countries" later today.

In other news, "MF Global Holdings Inc., the bankrupt futures brokerage, has located $658.8 million in missing customer funds in a custodial account at JPMorgan Chase & Co." (Bloomberg) and "Iowa farmers feel ripples of MF Global bankruptcy" (Reuters). Surreal times.


Source: Jefferies

JEFFERIES DISCLOSES ALL CURRENTPOSITIONS IN SOVEREIGN DEBT OF
PORTUGAL, ITALY, IRELAND, GREECE AND SPAIN

NEW YORK and LONDON, November 4, 2011 – In response to inquiries, Jefferies is disclosing its position as of a few minutes ago in the sovereign risk of the nations of Portugal, Italy, Ireland, Greece, and Spain. It should be noted that the interest-rate risk on such positions is insignificant, with DV01 equal to only $37,000.

Positions stated in USD MM’s
LongShortNet CashFuturesNet Total
Italy2,086(2,011)75(100)(25)
Spain191(209)(18)-(18)
Ireland110(80)30-30
Portugal20(16)4-4
Greece-----
Total2,407(2,316)91(100)(9)


“These are fragile times in the financial market and we decided the only way to conclusively dispel rumors, misinformation and misplaced concerns is with unprecedented transparency about internal information that is rarely, if ever, publicly disclosed,“ said Richard Handler, Chairman and CEO of Jefferies. “Later today, after the markets are closed in Europe and we have completed our inventory control accounting, we will post on our web-site our day-end, CUSIP-level holdings in the securities of these countries. We care for our clients, shareholders, bondholders and employees and want to allay any concern that may have arisen. As was the case yesterday, the facts about our sovereign debt exposure and other matters are straightforward and easily understood. We encourage all market participants and interested parties to review our public filings that contain extensive disclosure of the nature, extent and financing of our assets. Our firm stands on a solid foundation of over $8.5 billion of long-term capital and we look forward to continued success.”

“As is clear from this information, Jefferies has no meaningful credit risk in respect of the sovereign debt of these nations, and an insignificant risk related to interest rate movements,” said Brian Friedman, Chairman of the Executive Committee of Jefferies. “Jefferies is a leading market maker in the securities of these and other European nations, as well as a primary dealer in U.S. Government securities, and will continue to make an active two-sided market for our clients. These positions are held as inventory in the context of our market making activities and turn over frequently. Furthermore, nearly 95% of our financing of these positions is through central clearing houses.”

For further information, please contact:

Peregrine C. Broadbent
Chief Financial Officer
Jefferies Group, Inc.
(212) 284-2338

Jim Rogers: Next Economic Slowdown Will Be Worse Than 2008

Jim Rogers was on Fox Business on 11/2/2011 and said the next U.S. economic slowdown will be worse than 2008.
Source: Wikipedia
"Every four-to-six years throughout history we've had an economic slowdown in the United States for many many different reasons. So we're overdue, we're overdue in 2012-2013. When the next slowdown comes, what's America going to do? We cannot quadruple our debt again. We cannot print staggering amounts of money again. So the next slowdown is going to be worse than 2008, which was worse than 2002. So things just keep getting worse because the debt keeps getting higher and higher."

Unemployment Rate Is At 9.0%, Needs To Keep Trending Down (Charts)

During the month of October, 80,000 jobs were added and the unemployment rate ticked down 0.1% to 9.0%. The U6 unemployment rate, or underemployment rate, is still high at 16.2%, but down from 16.5% in September. The market wasn't pleased about this data, or maybe it was combined with the Greek confidence vote and rise in Italian government bond yields. $SPY is down 1.61% at 124.23, pulling back at ceiling resistance; EUR/USD is down 0.58% at 1.37220; and I'm watching Jeffries Group (JEF), which is down 4.08% at 11.52 (down over 6% at one point). The one positive thing I see on the unemployment rate chart is it's been trending down since the 2009 peak. What we don't want to see is the rate spike towards 10% again during a new recession. Track the unemployment rate at bls.gov.


Chart of Unemployment Rate (BLS.gov)

Chart of Non-Farm Payrolls (BLS.gov)
"THE EMPLOYMENT SITUATION -- OCTOBER 2011

Nonfarm payroll employment continued to trend up in October (+80,000), and the unemployment rate was little changed at 9.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment in the private sector rose, with modest job growth continuing in professional and businesses services, leisure and hospitality, health care, and mining. Government employment continued to trend down.

Household Survey Data

Both the number of unemployed persons (13.9 million) and the unemployment rate (9.0 percent) changed little over the month. The unemployment rate has remained in a narrow range from 9.0 to 9.2 percent since April. (See table A-1.)" (source)

Thursday, November 3, 2011

ECB Cuts Rate to 1.25%, Papandreou Calls Off Referendum, SPY Testing Ceiling Resistance Again

Source: Freestockcharts.com
The market is rallying on stimulative news out of Europe today. First, the ECB lowered rates by 25 basis points, which was kind of expected given the recession fears and austerity measures. In other big news, Greek Prime Minister George Papandreou called off the referendum vote on the EU bailout plan, so that uncertainty is off the table now (right?). From the New York Times:
"After a tumultuous day of political gamesmanship, Prime Minister George Papandreou called off his plan to hold a referendum on Greece’s new loan deal with the European Union, withdrew his previous offers to resign and opened talks on a unity government with his conservative opponents."

EUR/USD is up 0.92% at 1.38233 on the news and SPY (S&P ETF) is up 1.49% at 125.83. SPY is testing ceiling resistance again and is trading in a range between the 50 and 200 day moving average (red and blue lines). It is also fighting a downtrend (lower highs) as you can see, so SPY is at critical resistance levels to watch. EUR/USD ceiling resistance is around 1.40. Jefferies Group (JEF) was down 20% at one point today on European sovereign debt fears, but now it's up 1%!. All good there? All eyes are on the employment report tomorrow. ADP reported that private-sector payrolls in the U.S. rose by 110,000 in October.

ECB Statement:
"3 November 2011 - Monetary policy decisions

At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

The interest rate on the main refinancing operations of the Eurosystem will be decreased by 25 basis points to 1.25%, starting from the operation to be settled on 9 November 2011.

Jefferies Statement on European Sovereign Debt Exposure (JEF -7%, LUK -5%)

Jefferies Group (JEF) is down 7% (was down 20% at one point!) on fears of its european sovereign debt exposure after MF Global went bankrupt. According to Jefferies' press release, they have "long inventory of $2.684 billion" and "offsetting short positions of $2.545 billion as well as offsetting positions in futures instruments" in European sovereign debt. They said its net exposure to Portuguese, Greek, Spanish, Irish and Italian debt was $178 million. See the statement below.

They were downgraded by Egan-Jones yesterday according to Zero Hedge: "Egan Jones Downgrades Jefferies On Concerns About Sovereign Exposure Amounting To 77% Of Equity". If gross exposure doesn't matter in this case, Jefferies went on to say its "combined net short exposure of approximately $38 million equals approximately 1% of Jefferies’ shareholders’ equity, which as previously reported is not meaningful to Jefferies’ shareholder equity." Leucadia (LUK), which owns 27.9% of Jefferies, is down 6%.

Greek Bond Yield Update: 1-year GGB Yield At 224% (11/2/2011)

1-year GGB yield intraday via Bloomberg
Wow, Greece's 1-year government bond yield hit a high of 233% today and closed at 224%. How high will this thing go? Track government bond yields at Bloomberg.com.

Greek 1-year government bond yield GGGB1Y:IND 224.74%
Greek 2-year government bond yield GGGB2Y:IND 96.68%
Greek 5-year government bond yield GGGB5Y:IND 34.58%
Greek 10-year government bond yield GGGB10Y:IND 25.46%
Greek 30-year government bond yield GGGB30Y:IND 17.20%

News for today:

Euro Declines as European Leaders Withhold Aid Before Greece’s Referendum (Bloomberg)

Nicolas Sarkozy tells Greece: If you don't stick to the rules, leave the eurozone (Telegraph)

IMF to consider Greek aid after referendum-Lagarde (Reuters)

Greek cabinet backs PM's referendum decision (Al Jazeera Video)

Wednesday, November 2, 2011

Jeffrey Sachs vs. Niall Ferguson on Occupy Wall Street Movement (CNN Video)

Source: CNN
Economist Jeff Sachs of Columbia vs. Historian Niall Ferguson of Harvard on the Occupy Wall Street movement. Enjoy. Niall Ferguson was also on Yahoo's Daily Ticker today: Poor Public School Education Not Wall St. to Blame for American Inequality, Is the West Doomed to Fail? Yes, If We Don’t Start Working Harder, Says Author Niall Ferguson.

SPY, EUR/USD Make Lower Highs, Greek Referendum Analysis

SPY (the S&P ETF) and EUR/USD made lower highs recently after the S&P posted the biggest monthly gain since 1974 (was cut short on Halloween). They both peaked out in April and have been making lower highs ever since. On 10/31/2011, exhausted SPY and EUR/USD failed at 200-day moving average resistance, broke through the steep uptrend, and re-crashed through the March and June 2011 floor (now resistance again). EUR/USD even sold through its 50 day moving average, but regained that level today on oversold conditions. SPY is still above its 50dma, but it looks testable on this down move. We'll see. The surprise plan for a Greek vote on the EU bailout was the catalyst for the sell-off.


SPY at FreeStockCharts.com 

Tuesday, November 1, 2011

10-year Italian-German Bond Spread Hits 4.52, New High; EUR/USD, Banks Are All Red

10-year Italian-German Bond Yield Spread (Bloomberg)
The 10-year Italian-German Bond Yield Spread is at 4.52, +11%, and the 5-year Italian-German bond yield spread is at 5.27, +11.53%. Since German bonds are considered the safest government bonds in the euro zone, spreads widen when sovereign debt fears rise. I wrote about the 10-year Italian-German spread back in June when it initially broke out to new highs. The 10-year Spanish-German spread broke out in July. Watch the charts on Bloomberg.com to monitor sovereign risk in Europe. It is too bad Bloomberg.com took down down sovereign CDS quotes and charts. For a whole list of spreads to German bunds go to my post with links.

At the end of October, the market was very optimistic that the EU Summit deal reached to save Europe would go as planned. Read the full EU Summit Statement on the plan (the leveraged EFSF aka European Financial Stability Facility, 50% Greek debt haircut and austerity measures). However, now Greek Prime Minister George Papandreou is calling for a referendum (1, 2, 3, 4) that could put the EU plan at risk since 58% of Greeks (1, 2) are against the plan. This puts contagion risk back on the table again if government bond yields continue to rise, Greece defaults, and/or credit default swaps, toxic sovereign debt holdings and sovereign collateralized swaps (repurchase agreements) force collateral calls on banks and then bankruptcy filings. If the plan fails, will the ECB print euros?

List of Events Leading Up to MF Global's Bankruptcy (PDF)

MF's last days in October
Hat tip to Distressed Debt Investing for linking to info on MF Global's bankruptcy case. Visit his site for more info on MF Global's debt and what Jon Corzine, MF Global's CEO, said during the most recent earnings call. In MF Global's bankruptcy declaration by COO Bradley Abelow, he explained the events leading up to the bankruptcy filing. Read the full document here (mfglobalcaseinfo.com) or it is embedded below. See my previous blog post on MF Global's $6.3 billion short-term European sovereign portfolio that ended up killing the company. It shows how equity can get wiped out at these financial institutions in the matter of days from regulators increasing net capital requirements, credit rating downgrades and collateral calls.
"E. Events Leading To Chapter 11 Filing

33. As a global financial services firm, MF Global is materially affected by conditions in the global financial markets and worldwide economic conditions. On September 1, 2011, MF Holdings announced that FINRA informed it that its regulated U.S. operating subsidiary, MFGI, was required to modify its capital treatment of certain repurchase transactions to maturity collateralized with European sovereign debt and thus increase its required net capital pursuant to SEC Rule 15c3-1. MFGI increased its required net capital to comply with FINRA’s requirement.

Monday, October 31, 2011

MF Global Files For Bankruptcy On European Sovereign Debt Exposure via Repo Trades

These swaps and shadow banking markets continue to put financial firms at risk even after the 2008 financial crisis. MF Global went bankrupt (DealBook) today because they took on European sovereign debt exposure, via "repo-to-maturity" trades with so called "limited risk", until things turned for the worse by the end of October. MF Global explained the events leading up to its Chapter 11 filing in a bankruptcy declaration today: 1) On October 24, 2011 MF Global was downgraded by Moody's to one notch above junk; 2) On October 25, 2011 MF reported a $191 million loss for the second quarter and was forced by FINRA to "announce that MFGI held a long position of $6.3 billion in a short-duration European sovereign portfolio financed to maturity"; and 3) on October 27 it was downgraded by Moody's and Fitch to junk, which forced collateral calls from counterparties and concerned clients to pull their money from the institution. Also read the bankruptcy petition (via DealBook). The blog Distressed Debt Investing has more detail on the bankruptcy filing and the bonds.

MF explained their low-risk revenue strategy in an October 2011 fact sheet embedded below. It's another example of how these so called low-risk trades can end up destroying financial institution equity in a matter of days. Here's an excerpt from the fact sheet.

"Revenue diversification strategy

In keeping with MF Global’s ongoing strategy to diversify revenue streams, the firm expanded client facilitation and principal activities across a variety of asset classes. As previously disclosed, we have seen revenue opportunities in the short-duration European sovereign markets. 

The following provides more detailed information on MF Global’s short-term European sovereign portfolio and solid financial position. 

Background on transactions: European sovereign portfolio as of September 30, 2011

• MF Global maintains a net long position of $6.3 billion in a short-duration European sovereign portfolio financed to maturity (repo-to-maturity) 

• We entered into reverse repurchase and repurchase transactions to maturity, as the firm does in U.S. government securities 

• The firm’s European sovereign portfolio financed to maturity (repo-to-maturity) includes:

Source: http://phx.corporate-ir.net/

And towards the end of the document they talk about risk being limited.

Friday, October 28, 2011

Distressed MF Global Is Trying To Sell Its Futures Brokerage, Goldman Buying MF Assets?

MF Global Holdings (MF) Stockcharts.com
MF Global (MF), a world leading broker-dealer for "futures and options, commodities, fixed income, equities and foreign exchange" run by John Corzine, closed at $1.20 today, down from $4 at the beginning of October. MF Global's bonds maturing on 8/8/2016 (MF.AD, 6.25% 6.25% fixed coupon, FINRA has variable not sure why) last traded at 49 cents on the dollar with a 25.20% yield (source: TRACE at finra.org). Are there credit default swaps? MF Global is also "one of the 22 primary dealers authorized to trade U.S. government securities with the New York Fed". It looks like MF is on the wrong side of a few trades in european sovereign debt, or actually repurchase agreements collateralized by euro government bonds.

Bloomberg on their exposure:
"The firm, which has a market value of $198 million, holds $6.3 billion of sovereign debt from Italy, Spain, Belgium, Portugal and Ireland that it’s using in repurchase agreement trades with customers." (Bloomberg)

MF was just downgraded to junk by Moody's and Fitch, and, according to Reuters, some MF Global clients are pulling their money from the brokerage. As a result, MF Global tapped two credit lines and is now trying to sell-off its futures brokerage unit to raise capital ($765 million?).

Dick Bove, analyst at Rochdale Securities, thinks Goldman Sachs is scooping up MF Global assets at distressed prices, and believes they will make a "huge windfall profit" (watch after jump). This reminds me of Dick Bove talking about Lehman on Bloomberg in August 2008 during the financial crisis! The Wall Street Journal, via Fox Business, mentioned there were other firms interested as well. Watch Charlie Gasparino, of Fox Business, explain what's going on after the jump.
"According to The Wall Street Journal, Goldman, State Street and Australia’s Macquarie are all either eyeing New York-based MF Global or its parts. Other firms may also be looking at the company, but any deal would be expected to happen quickly as its stock plunged below $1 on Friday." (Fox Business)

Update: J.C. Flowers, MF Global in Talks (DealJournal). J.C. Flowers already owns 6% of MF Global's preferred stock and is on the board. J.C. Flowers injected $300 million into MF in 2008 after the firm suffered $141 million in trading losses from rogue trades in wheat futures. According to DealJournal, "they cautioned a deal may not happen". Seems like principal trading activities have worked out quite well for financial institutions recently (wtf?).

Links: Euro Deal, Greek Banks, Dalio, Chanos, Birinyi, S&P's Biggest Monthly Gain Since 1974

Greek Bank Investors Facing Wipeout (Bloomberg)

China on ‘Bigger, Faster Treadmill’: Jim Chanos of Kynikos Associates (Bloomberg, Video)

Italy 10-Year Auction Yields Hit New Euro Lifetime High (Reuters)

Goldman Economist Says Chinese Inflation ‘Basically Controlled’ (Bloomberg)

S&P 500 Extends Best Month Since ’74, Euro Rises (Bloomberg, Carpe Diem) *see monthly candlestick chart below

There's A 30% Chance Of Another Global Downturn - Bridgewater Founder Ray Dalio (WSJ, sub)

Video of Ray Dalio on Charlie Rose (CharlieRose.com)

Risk on the rise as political leaders give in to mob rule (Financial Times)

The Great American False Dilemma: Austerity vs. Stimulus (Gregor.us)

Birinyi Associates: Market at Extreme Overbought Levels (CNBC)

Albert Edwards: "The Eurozone Crisis Will Get Much, Much Worse" And "The ECB Will Print" (Zero Hedge)


All about the euro plan, Greek bond haircut and Greek CDS

EURO SUMMIT STATEMENT - 10/16/2011 (consilium.europa.edu PDF)

The euro deal: No big bazooka (Economist)

Wednesday, October 26, 2011

Chart: EUR/USD Sitting On Uptrend Waiting On EFSF Decision

EUR/USD at uptrend + ceiling intersection (freestockcharts.com)
EUR/USD, up 0.03% at 1.39280, is sitting on a steep uptrend line from the October low (as is the S&P), and waiting on the EFSF catalyst to make its next move. As noted on my charts, if EUR/USD reverses sharply and breaks through that steep trend line and the recent highs, it could see a decent retracement to the downside (imo). Overhead resistance is around 1.40, which took five long months to break if you remember, so EUR/USD is at a critical intersection.

Today, the EU summit meetings in Brussels and the German parliament vote will decide the fate of the proposed leveraged EFSF plan (European Financial Stability Facility), and will probably be the catalysts that directionalize the euro and equities. It's a pretty complex plan, and I'm still trying to figure it all out, so I'll refer you to a bunch of articles below for more information. The plan essentially involves the EU, IMF, other countries, sovereign wealth funds and private financial institutions (via Special Purpose Investment Vehicles) throwing money at distressed (toxic) sovereign debt and banks in the eurozone to prevent a major financial crisis. The EFSF, which is funded by EU member states (the majority by Aaa rated France and Germany), would backstop a portion of the losses. That's why the 10-year French-German yield spread hit a 20 year high last week and Moody's put France's "stable outlook" on review. But to make it all worse, should Greece or another country default, there are credit default swaps written on Greek debt with counterparty risk, similar to 2008.




Greenspan: Why European Union Is Doomed to Fail (CNBC Video)
Euro Investment Vehicle 'Giant Sub-Prime CDO' (CNBC)
Satyajit Das: Euro-Zone’s Leveraged Solution to Leverage (Naked Capitalism)
Merkel Puts Rescue Fund to Vote Before EU Crisis Summit (SF Gate)
Europe Struggles for Crisis Cure Ahead of Summit (Bloomberg)
Ferguson Says ECB to `Print Its Way Out of the Crisis' (Bloomberg Video)
Rescue plan could take weeks to fund, draft warns (Irish Times)
Brussels summit: the main issues to be resolved (Telegraph)
German Lawmakers Set To Back EFSF (WSJ)
Hard line adopted on Greek debt loss (FT)
Merkel Gambles on Parliamentary Support for Euro Backstop (Spiegel)
Europe Readies Its Rescue Bazooka (Naked Capitalism)
Annotated European Union Document On EFSF Status (Zero Hedge)
Italy steps closer to meeting EU demands with pension compromise (Deutsche-Welle)
Euro Backstop to Be Leveraged to One Trillion Euros (Spiegel)

Tuesday, October 25, 2011

S&P ETF Pulling Back At 61.8% Retracement, Has Crazy Monthly Candle - Chart

The S&P 500 Index ETF (SPY) is up 16% from the October 4 low and pulling back after hitting the 61.8% retracement level (May 2 high and October 4 low) and ceiling resistance. The 200 day moving average is at 127.61 and sloping downward (SPY hit a high of 125.78 yesterday and is now at 123.20, -1.82%, testing the uptrend). See charts below.

The market is pricing in all of these bailouts/stimulus plans in Europe and the U.S., as well as the potential for QE3 and a soft landing in China. Or, the market is pricing in the rally in credit spreads (Tom Lee of JPM), its own move creating economic growth via reflexivity, or perhaps the move is related to the huge spike in sunspots in October. But, many technical analysts (Katie Stockton, Tom DeMark) and portfolio managers (Jeffrey Gundlach) believe this is just a short squeeze in a bear market. Also, ECRI (Economic Research Institute) provided this reminder: "Flashback to an April 2008 interview discussing how ECRI's recession call remained intact despite a rise in stock prices and other data." See ECRI's recession call here. If the S&P manages to break through the steep uptrend line, it could pullback and retest some support levels (simple as that), then we'll see what happens.

There is a big EU meeting tomorrow and a German vote on the new EFSF (European Financial Stability Facility), which will be used to backstop losses from the Eurozone sovereign debt and banking crisis ("The EU paper, obtained by Reuters, shows two options for increasing the fund's firepower -- an insurance model and a special purpose investment vehicle (SPIV)"). See the linkfest below. This Seeking Alpha article said October could post the largest monthly gain in 54 years. That explains the massive green candle on chart 2. MACD on the monthly saw a downward crossover, just like it did in 2007. Also, if the 50 month moving average crosses the 200 month, that would not be good, imo. The market was able to stay above the 200MMA in August and barely in October.

Monday, October 24, 2011

Tom DeMark: S&P Is Operating Against The Trend; Weekly, Monthly 13s Still In Down Mode (10/20/2011)

Source: Bloomberg
Tom DeMark, founder of Market Studies and creator of the DeMark Indicators, was on Bloomberg Television on 10/20/2011 sharing his views on the market. In bold letters below is his overall view that the market is still in a downtrend. His immediate-term outlook was more confusing though, at least in words. He said he sees downside risk in the near-term after this monster rally off of the October low, which generated a daily 13 signal. However, he said there's a possibility that the market could thrust to 1,250 on a positive catalyst out of Europe, but that would be "indicative of a market top" on good news. That is for the immediate term only. He thinks if the S&P hits 1246-1254 and sells off, the market would see an "extended period of sideways movement and then be resolved to the downside." Watch the video for more info.
"On May 2, we had a coincidence of what we call the combo and sequential indicators. They all spoke on a monthly, weekly and daily basis; they all produced 13s exactly the day and the week of May 2 (also in February). And at the August 9 low, combo and sequential only spoke of one voice, and that was a daily 13. The weekly and monthly are still in a down mode. So we're really operating against the trend."

Steve Jobs' Biographer William Isaacson On 60 Minutes (Video)

Last night, Steve Jobs' biographer, William Isaacson, was interviewed on 60 Minutes about his new book on Jobs' life story. Watch part 1 and 2 below. I also added the extra clip where Jobs talks about Bill Gates, Larry Page and Mark Zuckerberg. Interesting story.

Sunday, October 23, 2011

JP Morgan's Tom Lee Still Expects S&P to Hit 1,475 By Year-End (Videos - 10/17/2011)

Source: Breakout on Yahoo Finance
Tom Lee, JP Morgan's Chief Equity Strategist (who's been bullish on the stock market since June 2009), was interviewed by Matt Nesto on Breakout (Yahoo Finance) on October 14 and 17, and told viewers that he expects a 20% rally in the S&P into year-end (1,475 target), which is a new bull market high.

"I think that this rally that we've seen since October is much more credible than the ones we've seen since July. The reason being, I think a very important market to watch when you're looking at equities is the high yield market. And the high yield market had been selling off on almost every rally, so you really had a big divergence. Since October 4, we've seen the biggest rally in high yield in 2 years. So I think you're basically getting a confirmation that investors are embracing risk again, which means the stock rally I think has a lot more legs to it." (video #1).

"And then as I look at Q4. We have to think about the fact that Brent Crude is down $25 from its high, that's almost a $3 tailwind to S&P earnings. And then these economic momentum indicators, like the Citigroup Surprise Index, have actually moved up. Historically that's been associated with an upward revision in S&P earnings." (video #1)

"I think it's going to be very possible to see something like a 20%+ rally from current levels in the S&P." (video #2)

S&P at 1,475 is in the 2007-2008 channel, around the peak (stockcharts.com)

Reasons why:

1) "Europe is moving towards the endgame" (finding a solution).

2) Macro risk of a hard landing in China is off the table.

3) Hedge funds have been net short the market, and historically get positive (bullish) when credit spreads rally and economic surprise turns up.

4) "High yield bond prices, which are 91% correlated with S&P price/book, are telling us the S&P should be fairly valued close to 1,400" (interesting).

He provides individual stock picks in the video clips below. Let's see if he can time the top of the bull market, or at least get close (in the media).

Friday, October 21, 2011

Watch 'Margin Call'' Trailer (2008 Financial Crisis on Wall Street)

A new Wall Street horror film is in theaters today. 'Margin Call' takes place in an investment firm "during one perilous 24-hour period in the early stages of the 2008 financial crisis". Hopefully it's better than Wall Street 2. You can watch it on Youtube for $6.99 at LionsGateVOD.

"When entry-level analyst Peter Sullivan unlocks information that could prove to be the downfall of the firm, a roller-coaster ride ensues as decisions both financial and moral catapult the lives of all involved to the brink of disaster." (via Google movies)

Fed Governor Daniel Tarullo's Plan For Large-Scale MBS Purchases (Text From Speech)

Saving is for wimps!  I have a plan for affordable housing.
Source: woodleywonderworks on Flickr
Below is an excerpt from Fed Governor Daniel Tarullo's speech yesterday at the World Leaders Forum at Columbia University (10/20/2011). He's calling for a "large-scale MBS purchase program" to bring down MBS rates and tighten the MBS-Treasury yield spread. But more importantly, he believes this will induce investors "to shift to other assets, including bonds and equities. But it could also have more direct effects on the housing market. By increasing demand for MBS, such a program should reduce the effective yield on those MBS, which in turn should put downward pressure on mortgage rates. The aggregate demand effect should be felt not just in new home purchases, but also in the added purchasing power of existing homeowners who are able to refinance. Indeed, homeowners who refinance get the equivalent of a permanent tax cut."

That sounds like QE3 to me. Will another recession be averted via Fed-backed reflexivity?. Below is more on his MBS plan.

Greek 1-Year Bond Yield Hits 189%; See The Highest Leveraged European Banks (Dexia Was Second On List)

1-year Greek Yield Hit 189% high!
Look how the market is pricing-in the risk of Greece defaulting on its debt. After hitting a high of 189% this morning, 1-year Greek government bonds are currently yielding 182%. And as of yesterday's close, Greece's 5Y credit default swap (CDS) spread is at 5897.45 basis points (58.97% a year to insure 5-year Greek government debt). See for yourself at Bloomberg.com (Greek 1-year bond yield, Greek 5Y CDS).

In John Hussman's recent note (Europe: Just Getting Warmed Up), see a list of european banks with the highest gross leverage ratios. Dexia SA was second on the list, after Landesbank Berlin, with a leverage ratio of 52.83. On October 9, Dexia was rescued by France, Belgium and Luxembourg and provided a "90 billion-euro, 10-year guarantee to cover funding needs" (Bloomberg). Now it's all up to the EFSF (European Financial Stability Facility) to prevent a Lehman-esque euro-zone financial crisis.
"The corresponding calculations for several major European Banks are below. These calculations essentially mirror Weil's list. Landesbank Berlin, Deutsche Bank and Credit Agricole are of greatest concern. While Danske Bank technically has a higher leverage ratio than Commerzbank, it has a larger buffer in the form of common equity - Commerzbank has only 1% of tangible common equity against its assets, the other 2% being more bond-like preferred equity.

When you consider the fact that most U.S. banks, just before the U.S. credit crisis in 2008, sported gross leverage ratios of about 12 (where Citigroup, Morgan Stanley, Goldman Sachs and JP Morgan remain today), the gross leverage ratios of European banks today are truly astounding." [continue reading at HussmanFunds.com]

1-Year Greek Bond Yield (source: Bloomberg)


Greece 5Y Credit Default Swap (Source: Bloomberg)

SEC: Citigroup to Pay $285 Million to Settle CDO Fraud Charges, Total Monetary Recoveries Equal $1.8B

Source: SEC pdf
On October 19, the SEC said they will receive $285 million from Citigroup. Below is some LOL text from the SEC release. According to this SEC chart, the SEC has been paid $1.881 billion so far from banks settling CDO fraud charges (or related).

"According to the SEC’s complaints, the Class V III transaction closed on Feb. 28, 2007. One experienced CDO trader characterized the Class V III portfolio in an e-mail as “dogsh!t” and “possibly the best short EVER!” An experienced collateral manager commented that “the portfolio is horrible.” On Nov. 7, 2007, a credit rating agency downgraded every tranche of Class V III, and on Nov. 19, 2007, Class V III was declared to be in an Event of Default. The approximately 15 investors in the Class V III transaction lost virtually their entire investments while Citigroup received fees of approximately $34 million for structuring and marketing the transaction and additionally realized net profits of at least $126 million from its short position."

Citigroup to Pay $285 Million to Settle SEC Charges for Misleading Investors About CDO Tied to Housing Market (SEC.gov, 10/19/2011)

Watch Humanoid Robots Play Ping-Pong, People Juggle Hologram Balls (HoloDesk 3D by Microsoft)

Start off your Friday watching humanoid robots, built by Zhejiang University, play ping-pong with each other (and a human), and then watch people juggle hologram balls and stack virtual blocks using Microsoft's HoloDesk. DV has been tracking the progress of humanoid robot and hologram technology. Hat tip Zero Hedge and Huffington Post for these videos.

Florida Builder St. Joe Back At 2009 Low (14.51), Fairholme's Co-Manager Resigns (JOE)

It's been a long year for St. Joe Corp (JOE:NYSE), which is majority owned by Bruce Berkowitz's Fairholme Capital Management (Fairholme Fund). I just read that Berkowitz's co-manager, Charles Fernandez, resigned on October 17, 2011. So far, the gang of JOE short sellers, led by Greenlight's David Einhorn and T2's Whitney Tilson, have won the battle against Bruce Berkowitz (publicly). When looking at JOE's chart, the stock is now back at the March 2009 low ($14.51).

As of June 30, 2011, Fairholme Capital Management owned 28% of the company, and as of 9/14, the fund is now permitted to acquire 50%. Berkowitz has said repeatedly that he'd buy more shares if the price moved lower. We'll see if JOE hits $7-10 per share. I haven't seen an update from Einhorn or Tilson in a while. Here's a 5-year chart of JOE showing the retest (via StockCharts).



More articles:

Shakeup at the Fairholme Fund - WSJ
Fairholme big looking for new home after surprise exit - Investment News
Fairholme Fund loses half its value and its co-manager - Fortune Magazine

Wednesday, October 19, 2011

Moody's Downgraded Spain to A1 (Negative Outlook), Spanish 10Y Note Yield At 5.38%

Source: Bloomberg
and S&P downgraded Spain to AA- on 10/13/2011. Spain's 10-year note yield is currently at 5.38% +0.45%, down from a high of 6.32% on 8/4/2011 (so no new highs on the downgrades). The ECB (European Central Bank) was actively buying Spanish debt in August.
"Moody's downgrades Spain's government bond ratings to A1, negative outlook 
Global Credit Research - 18 Oct 2011

London, 18 October 2011 -- Moody's Investors Service has today downgraded Spain's government bond ratings to A1 from Aa2. This rating action concludes the review for possible downgrade that Moody's had initiated for Spain's rating on 29 July. The ratings carry a negative outlook.

The main drivers that prompted the rating downgrade are as follow:

(1) Spain continues to be vulnerable to market stress and event risk. Since placing the ratings under review in late July 2011, no credible resolution of the current sovereign debt crisis has emerged and it will in any event take time for confidence in the area's political cohesion and growth prospects to be fully restored. In the meantime, Spain's large sovereign borrowing needs as well as the high external indebtedness of the Spanish banking and corporate sectors render it vulnerable to further funding stress.

(2) The already moderate growth prospects for Spain have been scaled back further in view of (i) the worsening global and European growth outlook and (ii) the difficult funding situation for the banking sector and its impact on the wider economy. Specifically, Moody's now expects Spain's real GDP growth in 2012 to be 1% at best, compared with earlier expectations of 1.8%, with risks mainly to the downside. Over the following years, the rating agency continues to expect a very moderate pace of growth of around 1.5% on average per annum.

(3) Lower economic growth in turn will make the achievement of the ambitious fiscal targets even more challenging for Spain. Moody's expects the budget deficits for the general government sector to be above target both this year and next. In particular, Moody's continues to have serious concerns regarding the funding situation of the regional governments and their ability to reduce their budget deficits according to targets."
Continue reading the release at Moodys.com

10Y French-German Yield Spread Hits 20-Year High On Moody's Review, EFSF Guarantee (Chart)

Source: Bloomberg.com (h/t business insider)
On 10/17/2011, Moody's Investors Service announced they were monitoring France's "stable outlook" as a result of the sovereign debt and banking crisis in Europe and its involvement in the EFSF (European Financial Stability Facility). French bank credit default swap spreads (SocGen, Credit Agricole, BNP Paribas) have been widening for months now, sensing default risk. Fitch Ratings just put French banks on "rating watch negative" on 10/13.

Moody's currently has France rated at Aaa, but there's speculation that guaranteeing toxic sovereign debt in the EFSF would result in a downgrade (and lower the amount of guarantees). All of this news caused the 10-year French OAT - German Bund spread to break out and hit a 20 year high. FT Alphaville has the 20-year chart. There's an EU summit on Sunday where decisions will be made ("Merkel Says EU Summit Will Be Important, Not Final, Crisis Step"). We'll see what happens. What about China, Brazil and India providing support. Here is some information to arbitrage.

Moody's on France:
"However, Moody's notes that the government's financial strength has weakened, as it has for other euro area sovereigns, because the global financial and economic crisis has led to a deterioration in French government debt metrics -- which are now among the weakest of France's Aaa peers. Moody's nevertheless continues to deem France's financial strength to be very high, particularly when compared with debt affordability (interest burden in relation to government revenues) which remains comfortable. But very high debt finance-ability in an uncertain financial and economic environment, which is a crucial feature of Aaa governments, rests on investors' confidence in the government's ability and in its willingness to tackle unforeseen challenges. France may face a number of challenges in the coming months -- for example, the possible need to provide additional support to other European sovereigns or to its own banking system, which could give rise to significant new (contingent) liabilities for the government's balance sheet.

The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government's Aaa debt rating. Moody's notes that the French government now has less room for manoeuvre in terms if stretching its balance sheet than it had in 2008. France's continued commitment to implementing the necessary economic and fiscal reform measures as well as visible progress in achieving the targeted sustainability improvements will be important for the stable outlook to be maintained. Over the next three months, Moody's will monitor and assess the stable outlook in terms of the government's progress in implementing these measures, while taking into account any potential adverse economic or financial market developments."

Articles on France, the EFSF and related:

To monitor more spreads to German bunds, visit this post with links to quotes and charts.

John Taylor, Gabriel de Kock Predict Euro Falls to 1.20 and 1.25 (FX Concepts, Morgan Stanley)

John Taylor, founder and CEO of hedge fund FX Concepts, and Gabriel De Kock, Executive Director of FX Research at Morgan Stanley, both said a few weeks ago during interviews that they thought the euro (EUR/USD) would fall to 1.20 and 1.25. I transcribed a portion of the videos below. Below is also a chart of EUR/USD going back to 3/2010 with longer-term trend lines and resistance levels. 1.40 looks like ceiling resistance EUR/USD needs to break, and then you can see the new downtrend line when using the May and August 2011 lower highs. EUR/USD just went from a low of 1.314 on 10/4 to a high of 1.391 on 10/17. Nice move. John Taylor's "conservative" 1.20 target for EUR/USD is around June 2010 support.

EUR/USD since March 2010 (courtesy FreeStockCharts.com)

John Taylor on Bloomberg TV, 10/11/2011 [not from an official transcript, click for video]
"In the near-term I believe that Greece has to default. Whether it's called a haircut or whatever, Greece needs to be completely restructured. And the banks need to be recapitalized (he thinks Greece will stay in the Euro-zone)."
"I think the dollar is going to move higher because of this de-leveraging in the world and the fact that both the Euro and the U.S. will be going into a recession. Surprisingly enough, that's good for the dollar because the U.S. banks aren't lending out more dollars, they're being reluctant and pulling their money back. And so many people are already short the dollars that they're forced to repay their loans."
"I think now I'm feeling more conservative in saying that the Euro is going to go to 1.20 by the end of the year. But I would be surprised to see the euro hold above 1 (parity) through this crisis. And it's not over...."

Tuesday, October 18, 2011

SocGen Asia Equity Strategist Lashes Out At Financial Blogs!

Societe Generale's Asia Equity Strategist, Todd Martin, thinks the blogosphere has gotten out of control and should be regulated like Wall Street. Read Zero Hedge's response (via Reformed Broker) and watch the Bloomberg video below. Are blogging departments coming soon to Wall Street? Start one up free and easy at blogger.com.

Monday, October 17, 2011

Gundlach's Views on Mortgage Credit, PrimeX and the Bear Market Rally in Stocks (CNBC)

Source: CNBC.com
On 10/13/2011, Jeffrey Gundlach, co-founder, CEO and CIO of DoubleLine Capital with $17 billion under management (Total Return Bond Fund DBLTX is up 8.75% YTD), shared his views on the "quiet crash" in mortgage credit, the technical move in PrimeX, and the bear market rally in stocks.
"What hasn't shared in the rally at all is mortgage credit, which has been in kind of a quiet crash for the past 6-months to a year. In the sub-prime world, the ABX Index has dropped by over 35% in the past year. And now in the past week even, the PrimeX market, which nobody really knows much about, it was rally designed to be the prime sibling of the ABX sub-prime index, it's been persistently weak." 
"The prices have been a little bit weak since the later part of September on the mortgage assets because of some large selling. There were some large blocks that were selling out of some hedge funds. The PrimeX index has been persistently overvalued. It really trades about 10-12 points higher in price than where real cash bonds trade in the market. Basically, there are two reasons for that. The first is the PrimeX has a higher interest coupon that it pays and that's worth about a handful of few points right there, and then people can leverage it. Leverage is very hard to get in the cash bond market because people still have a hangover effect from the 2008 disaster in financing. So, you can leverage up these synthetic indices, and for that reason... It's kind of weird isn't it? People pay more because they can leverage it, so they're overpaying for something and leveraging it. I always feel like leveraging an overvalued asset seems like a uniquely bad idea.
PrimeX Index courtesy of Markit (see prices and charts)
ABX Index courtesy of Markit (see prices and charts)

Now, PrimeX is tiny, the float is only $11 billion. Back in late 2008, the subprime index was more than 10x that size. So it's very susceptible to technicals. So when the selling came in late September out of the hedge funds, it started to hit the PrimeX market..."

"So it's probably something of a weak spell here as there is this technical problem, and let's face it, the fundamentals in housing just aren't that good. You have..."

Btw, the interview was interrupted with footage of Raj Rajaratnam walking out of a courthouse after his sentencing.

Links: Kyle Bass, Jim Rogers, Volatility Exchange, TRX-II, Kinder Morgan Buys El Paso for $38B

I've tweeted most of these links already, but here's a quasi-post/linkfest.
  • Kinder Morgan (KMI) to Buy El Paso (EP) for $38 Billion (includes assumption of debt outstanding at El Paso Corporation and debt outstanding at El Paso Pipeline Partners, L.P. (NYSE: EPB) - BusinessWire
gold cast bar
source: flickr
  • Hedge fund manager Kyle Bass, of Hayman Capital, who timed the subprime mortgage crash right (via credit default swaps) and banked coin, was featured in Michael Lewis's new book "Boomerang: Travels in the New Third World", and it appears Bass is bullish on gold and guns and has a fort ready for battle. Ultimate risk management. "Kyle Bass had purchased what amounted to a fort: a forty-thousand-square-foot ranch house on thousands of acres in the middle of nowhere, with its own water supply, and an arsenal of automatic weapons and sniper rifles and small explosives to equip a battalion" (h/t ZH). What about a high voltage fence?

    Michael Lewis provided a lengthy excerpt from his book at TODAY Books, where he mentions Bass's sovereign CDS bets (Greece and France). Bass thinks there will be a "cluster of sovereign defaults" and is hedging against currency debasement. He also said to buy put options on Japanese government bonds at the Delivering Alpha conference.
  • "Bored With The Blowout In PrimeX? Looking For The Next "Big One"" - Zero Hedge [Markit's TRX-II is a synthetic total return swap index referencing CMBS]  - read post on PrimeX
  • US to Experience Stagflation Worse Than 1970s: Jim Rogers - CNBC
  • Here is more information on the VolX Indices and VolContract Futures (VolX pdfVolContract Futures charts). You can trade the realized volatility of an underlying asset, index, or instrument intra-day via 1-Month 3-Month, and 12-Month VolContract futures. When comparing VolContract futures to implied volatility instruments, this was an interesting explanation from their FAQ"VolContract futures give the market participant exposure to both implied-like pricing and realized pricing all in one instrument. In other words, the contracts have perception of the future risk and the reality of actual risk embedded within their structure. Instruments on implied volatility can only address the perception of risk – and they can capture that only through options pricing."

Saturday, October 15, 2011

PrimeX Index Shows Weakness In Prime RMBS Market, Three Indexes Below Par (Charts)

PrimeX.FRM.2 via Markit
It's starting to get interesting again in MBS CDS land (the most interesting indexes in the world). Markit's synthetic CDS (credit default swap) indexes "referencing" buckets of residential mortgage-backed securities have been falling in value since February (ABX, PrimeX). Credit fund managers (or speculative hedge funds) can trade RMBS without actually buying or selling the securities (synthetically) via credit default swaps (RMBS insurance contracts). It's really trading "exposure" on RMBS. Listen to Goldman Sachs' CFO David Viniar explain to Senator Carl Levin that GS's mortgage desk had synthetic positions on to offset cash long positions. There needs to be a synthetic credit trading show on CNBC (boo-yah!²).

I remember Jeff Gundlach, founder of DoubleLine Capital, alerted CNBC viewers in May that the ABX index, which references subprime RMBS, dropped 20% in 3 months (link has chart). Remember when ABX.HE.AA.07-2 went from a high of 97 to a low of 3.75? It currently trades at 6.23. Crazy times, and we still haven't recovered from the housing and mortgage crash.

Now the action is in Markit's PrimeX CDS index, which references a basket of non-agency prime RMBS issued between 2005 and 2007, and backed by jumbo mortgages that couldn't be financed by GSE's (Fannie Mae and Freddie Mac). There are four PrimeX indexes; two that reference fixed-rate loan securitizations and two that reference hybrid-ARM securitizations (PRIMEX.FRM.1, PRIMEX.FRM.2, PRIMEX.ARM.1, PRIMEX.ARM.2). Here are closing prices on 10/14/2011 via Markit's website.

For more info, I found a guide: Pricing ABX index for Newbies

Buying the PrimeX index allows someone to "synthetically" gain short exposure to non-agency prime MBS and selling PrimeX allows someone to "synthetically" gain long exposure to non-agency prime MBS. If you're reading this and have no idea what I'm talking about, read the description at Markit or read their presentation from early 2010 on the PrimeX indices. You can see 7-month charts of CDS indexes on their website for free. I found an article from 2006 at risk.net that explains why the ABX Index (ABCDS) was introduced ("Synthetic ABS is hot property"). Interesting stuff.

Paulson & Co., run by billionaire John Paulson, started buying the ABX Index in 2006 and ended up making his firm billions of dollars when the subprime mortgage market crashed (and CDS spiked). When ABX indexes first dipped below par in 2007, some say that was the initial catalyst that fueled the financial crisis. When the PrimeX index was first announced, Bloomberg noted:
"Wells Fargo & Co. analyst Glenn Schultz suggested investors consider selling jumbo-mortgage securities because PrimeX trading could drive down their prices, as happened with subprime bonds and the ABX indexes he had called “Frankenstein’s monster.”

"Analysts such as Schultz said that in 2007 and 2008, more investors wanted to use the indexes to short subprime notes than take the opposite bets because the banks and asset managers already owned enough housing debt, allowing them to tumble."

As of Friday's close, three of the four PrimeX indexes have dipped below par. Look at the charts below. FT's Tracy Alloway talked about this risk in a video on 10/10/2011 and Zero Hedge had a post on 10/7/2011 with multiple follow-ups thereafter. FT Alphaville has been all over it as well, see the PrimeX linkfest below.

I was searching for an ETF with non-agency Prime MBS, and all I found was an Invesco PowerShares index that didn't exist yet: "The PowerShares Prime Non-Agency RMBS Opportunity Fund will seek to provide total return by investing, under normal market conditions, at least 80% of its assets in non-agency mortgage-backed securities collateralized by pools of Prime residential mortgage loan" (pdf, 1/28/2009).

On October 5, Fitch Ratings, in a press release promoting their report, said that 1 in 3 U.S. prime mortgage loan borrowers were underwater.
"Recent analysis by Fitch shows that more than a third of all prime borrowers in private-label securitizations are currently in a negative equity position, or as it is commonly referred to, 'underwater', on their mortgages.
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