An Historic Divergence on the Long End of the Yield Curves

Original Chart from Econompic Data

European Union to Unveil €130 Billion Stimulus Plan

We can only hope that Europe follows the US model and gives the funds to a small group of bankers who, without independent oversight and accountability, can allocate the €130 Billion economic stimulus package to their industry friends and associates for executive pay and bonuses, dividends, and exclusive corporate resorts.

Economic Times
EU plans 130-billion-euro stimulus plan: Germany
20 Nov, 2008, 0359 hrs IST

BERLIN: The European Commission is planning a 130-billion-euro (163-billion-dollar) economic stimulus programme, a spokeswoman for the German economy ministry said Wednesday.

"That represents one percent of gross domestic product for each member state," she told AFP.
"For Germany, that means 25 billion euros."

German news weekly Der Spiegel reported earlier that the Commission would also set aside some of its own funds to arrive at the 130-billion-euro sum.

The Commission is due to present proposals to grapple with the impact of the global financial crisis on November 26.

Commission spokesman Johannes Laitenberger said no decision had been taken on the stimulus package.

"It is premature to talk about the size and specific orientation of the package because the preparatory work is still underway and there has not yet been a definitive political decision," Laitenberger told reporters.

German government spokesman Ulrich Wilhelm stressed that Berlin had just committed 32 billion euros over the next two years to its own economic jumpstart plan and expected that to figure in Brussels' calculations.

"It is unimaginable that our own programme would not be taken into account" by the EU Commission, he told the daily Financial Times Deutschland in an article to appear in its Thursday issue.

Other member states have cried poverty amid calls for a continent-wide growth plan and the European Commission is likely to seek to redirect funds committed to other efforts to the new package.

The 15-nation eurozone confirmed last week it had fallen into recession for the first time ever, with gross domestic product in the economies using the euro falling by 0.2 percent in the third quarter after a similar drop in the second quarter

Trading Note. Approaching our SP Futures Target of 810

We were looking for 810 to the downside and have been riding Index doubler shorts down since yesterday afternoon in our trading portfolios. We make changes to our investment portfolio only a few times each year.

Now we are buying some long positions to offset those shorts since we approach a possible support area.

The longs are individual stocks, precious metal miners and oil producers with strong cashflows and/or dividends, and some of the long index funds.

Please note that these longs are MORE than offset by the remaining short positions. This is a hedged play to take some short profits off the table without necessarily selling them. If we get a rally from here it will be relatively easy to reduce the three short positions. The longs are more diversified so obviously there are many more positions, but less in total dollar and leverage value. We are trading without margin.

We'll have to see how we close and what happens as we approach 800 if we do. If we go lower tomorrow we can adjust the long-short balance in the portfolio to take advantage of the decline.

Recall that we are in an option expiry week, and we have expiry in some of the commodity futures as well.

We offer the occasional example of how we might be trading a market not for specific examples or 'calls' but rather to reflect the style and money management we are using to match the character of a particular market. This one needs a whip and chair. Use of uni-directional positions and leverage are particularly dangerous since even in a bear downtrend, there is room for enormous swings even intraday.

Today did seem a little 'climactic' but it is too soon to tell.

Have a pleasant evening.

What Happened When They Pulled the TARP Out from Under the Mortgage Asset Markets?

The mortgage markets are imploding.

This is not the sort of action we might have expected given the panic story that Hank and Ben presented to Congress when they originally asked for the emergency $750 Billion to immediately buy troubled assets to 'save the system.' Well, from the looks of these charts those assets have become a lot more 'troubled.'

On the surface it appears as though they have washed their hands of the larger financial system, particularly the mortgage markets, after they supplied a select group of banks with no-strings equity investments.

Paulson and Bernanke need someone with experience in crisis management on their team. At this point the broader market can trust nothing that they say since it is inconsistent, opaque, and without principle to the point of seeming arbitrary. Suspicion of favoritism and insider dealing is clouding all that they do.

Bill Poole Thinks the Fed is Confusing the Markets with a Lack of Transparency and Clarity of Intent

The ABX indices are based on credit default swaps (CDS) for tranches of subprime mortgage-backed securities(MBS).

The CMBX is a Commercial Mortgage-Backed Securities credit default index. CMBX is quoted as credit spreads, whereas ABX is quoted as bond prices.