The Market Ticker

Ok, so Oracle spins off an IPO and both get an insane pop. Yeah, ok.

Bear Stearns posts a colossal loss. No "sovereign bailout" either. Yet they are bid up over $2 premarket. Huh? "Lose more, go broke faster?"

The credit insurance problem with the monolines is totally unappreciated and is likely the 900lb gorilla that is going to smash all the china, starting in the credit markets.

It won't be for long when the swaps that they put together (many of which they were stupid enough to hold as "super senior" CDO components!) are written off as worthless.

See, what most people don't understand is that "super-senior" tranches of most of these issues aren't really debt (a bond) at all - they're effectively an insurance policy, or swap, written by these guys. In some cases they're written by banks and then laid off on these guys. When that goes "boom" its like dropping a bomb on the top of the pyramid of these structures instead of losses being taken from the "bottom up" as everyone expected.

Decapitation.

For how long does a "headless horseman" ride?

The "leash" (or fuse, if you prefer) appears to run out in mid-January when collateral posting has to be made - "or else." Oh, and that is just one "or else"; there are more to come as the credit quality continues to deteriorate. This is a story that has major legs, and is not being reported with the sobriety that it should be. For now.

Or is it?

Fitch just came out today and said that MBIA may be below "capital adequacy ratios" to maintain AAA ratings. Oops. Those are fighting words guys and gals - that's the concern for all of this, and if it gets legs you're going to see a major dislocation in the markets - in the credit markets first, and in the equity markets immediately thereafter. This is always how major dislocations initiate - in the credit markets.

You have just been given what may be the last warning you will get!

Beware!

Refusing to downgrade a company that has insured $3.3 trillion worth of bond issues with only $22 billion in capital, when ~30% of that is "asset backed securities" (read: CDOs backed by mortgages), means that you can't realistically expect more than 2% of those to default - with zero defaults in anything else.

That is total crap. Clearly, given what we know of defaults in the subprime mortgage space and CDOs, there is absolutely no chance that less than 2% of those will default, or that there will be no defaults anywhere else.

How do the ratings agencies justify not downgrading ACA until it went on the pink sheets - being delisted from the public exchanges? How do they justify not taking ratings actions NOW while there is still time for people to act on their investments before they become worthless?

It is my view that this refusal to act is an act of FRAUD.

This is no longer about free speech. It is now about intentional sticking of one's head in the sand because these guys know that if they do their actual job and downgrade them that the business will implode.

But wait a second? What's this about the business imploding with less than an "AAA" rating? How's that happen, exactly? And why are we fawning over companies that REQUIRE an "AAA" rating to be viable in the marketplace? Isn't that on its face an admission that the business model is broken?

Hmmm...

Oh, by the way, that warning? You might have run out of time.

How would you like 173,000 issues on negative ratings watch? No, that's not a misprint - it really is one hundred seventy-three thousand bond issues placed on negative ratings watch!

Let me guess - its all going to be ok. Uh huh.

Oh, here's another nice piece. President Bush apparently has been reading the petition off the top of the blog! He is now demanding that the marks be taken and the Enron-esque games end! Hot damn!

"'Wall Street needs to . . . put it all out there for everybody to see. They need to have . . . the off-balance sheet [items] . . . put out there for investors to take a look at,' the US president said at his year-end press conference. 'And if there’s some write-downs to be done, they need to do it now.'"

The economic data today was horrible. Not only were unemployment claims up but the real shocker was the Philadelphia Fed Index, which came in negative - way, way off expectations. And the LEIs came in awful as well, below consensus of -0.3% with reality being -0.4%.

Did the market care? Nope. Today, options expiration and the O/I on the SPX 1500 strike is ruling the day.... at least through midday. Then the pumpers are out again this afternoon... big surprise - NOT!

RIMM is en fuego, with everyone expecting a total smash-out on the quarter. That, of course, is dragging up the entire NDX to nutty levels - a more than 1.5% move. Sane? Oh fuck no, but does anyone care? Of course not. 4:15 will come and we shall see if this optimisim was justified or not. Anyone bet on the "not" side? Well, you need brass balls, but plenty of people have 'em both ways on this one - the volume on the options is pretty nutty, with the $100 PUTs and $110 CALLs being the featured items - both going out tomorrow. The market is pricing in more than a $10 move on the release on a non-directional basis (a straddle). Given past performance, that's probably not a bad bet.

And the answer is.... its not a bad bet at all. $119.45 in the aftermarket so far.

We'll see how this holds in the evening as the conference call progresses......

Tomorrow we get PCE, the Fed's preferred "inflation gauge."

God help the markets if it comes in hot (and didn't the CPI and PPI both come in hot last week?), given that the idiots in the credit market are once again pricing in a 100% chance of a 25 bips rate cut in January.

Yeah, ok - if the Fed cuts in January it will be because the credit demand in the short end has gone totally in the toilet (which, by the way, I believe might well happen!)

Here's the technical!