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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (41410)	11/18/2005 3:22:57 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

GM, Delphi, CDO Swings Can't Derail Derivatives: Mark Gilbert Nov. 18 (Bloomberg) -- The $270 trillion derivatives market, that occult corner of the global financial forest where regulators fear pyromaniacs play with money matches, is turning out to be a safer place than its detractors would have us believe. Junk credit ratings for General Motors Corp. and Ford Motor Co., a dislocation in the pricing of collateralized debt obligations and the bankruptcy of Delphi Corp. all threatened this year to expose any fault lines embedded in the derivatives edifice. Instead, the market looks stronger than ever. In credit derivatives, where fivefold growth in the past two years has spawned $12.4 trillion of securities according to the International Swaps and Derivatives Association, prices are often a better guide to what's bugging investors than watching bonds. In June, holders of Italian debt weren't fazed as the nation's politicians raised the prospect of quitting the euro. Investors were just grateful to be earning 20 basis points more for owning 10-year bonds than they could get by lending to Germany. In the credit-default swap market, by contrast, the cost of insuring Italian debt against default doubled in eight weeks. The annual price of 10-year cover to defend 10 million euros ($12 million) of debt peaked in mid-June at 28,250 euros. Index Plays Default swaps, which gain and lose value as the creditworthiness of the corporate debt they insure improves or deteriorates, are supplanting bonds as the vehicle for investors to make a bet on the credit market. Use of the Itraxx and Dow Jones CDS indexes, which allow traders and investors to speculate on baskets of investment-grade and junk-rated companies, has surged, with as much as 40 billion euros a day trading in Europe. By contrast, the European corporate bond market is shrinking, as redemptions of old bonds outpace sales of new issues by non-financial companies. Suki Mann, a credit strategist at Societe Generale SA in London, says the market contracted by 11 billion euros last year, and will shrivel by a further 21 billion euros this year and by as much as 36 billion euros in 2006. When Pacific Investment Management Co. wanted to bet that debt sold by General Motors and Ford would rally earlier this year, it used the derivatives market. Pimco, which had never used the securities to make a bit bet, sold ``several billion dollars'' of default swaps in April and May and said in July that it made a profit on the transactions. Short-Lived Ripples The derivatives market absorbed the slump to junk ratings by GM and Ford in May without too many ruffles. Tremors in synthetic collateralized-debt securities, which bundle together the creditworthiness of a bunch of borrowers, swiftly dissipated. The absence of trauma, given that the two automakers owe bondholders more than $180 billion, was remarkable. Even Delphi's decision to file for bankruptcy protection from creditors on Oct. 8 was successfully metabolized. Delphi owed bondholders about $2 billion; the magic of the derivatives market had produced as much as 10 times that amount in default swaps at the time the insurance was triggered by the collapse of the auto-parts maker. Once a default swap is activated by bankruptcy, the seller of the insurance typically pays out the full amount insured, and the buyer hands over the defaulted debt. The shortage of available bonds to settle Delphi swap contracts was resolved by holding an auction to agree on a price for cash settlement instead. Paper Trail There are still some growing pains to be worked out. The spectacle of market overseers, including the U.K. Financial Services Authority and the Federal Reserve Bank of New York, chastising 14 of the world's biggest banks because of their inability to confirm trades for months is pathetic. It becomes laughable once you learn that the world's most sophisticated market still depends on faxes, not e-mail. And it may yet have to tackle a bankruptcy filing by GM. Derivatives traders are now demanding what are known as upfront payments, a signal they're growing more concerned that the company's managers will seek Chapter 11 protection. To insure $10 million of GM bonds for five years, you have to hand over about $2.2 million upfront in addition to paying an annual premium of $500,000. A year ago, you'd have paid about $220,000 a year for bankruptcy protection. GM's current market value of about $12 billion makes it a smaller company than Coach Inc. by about $800 million. No disrespect to Coach, but when investors deem a designer of leather bags and accessories more valuable than the world's biggest automaker, you can tell there's a problem. The credit derivatives market also needs a proper exchange- traded futures contract. The failure to make progress on establishing a standardized security that investors can use to cheaply hedge their corporate bond investments, as they can for government debt, is inexcusable. It smacks of banks enjoying the fruits of a high-margin business and trying desperately to keep the good old days going for as long as possible. Sacrificing the potential for future growth to make an extra buck today is never clever. quote.bloomberg.com

To: Knighty Tin who wrote (41410)	11/18/2005 3:38:18 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

US 30-year mortgage rates highest since Sept. 2003 today.reuters.com

To: Knighty Tin who wrote (41410)	11/18/2005 4:15:26 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Hi, this is Tim Hannagan, and it is Friday, November 18th and this is my weekly review- C O R N. Let’s back up to Monday. Our first report was our weekly export inspection report showing 39 m.b. were inspected for near term export up from 39 the week prior and 37 a year ago. Year to date inspections are 358 m.b. versus 356 a year ago. The inspections marketing year began September 1st. It is not a bullish demand signal but at least a friendly to good demand signal. Monday’s crop progress report put harvest at 95% complete and as good as in trader’s minds. Thursday’s weekly export sales report showed 1.496 m.m.t. of corn was sold last week up 69% from the week prior and 58% over our four week average, with sales to Asia at 550 t.m.t. showing no slow down in feed sales to Asia yet. With harvest at completion, cash prices have firmed up in rural areas as farmer’s lock up the tail end of harvest in on farm storage allowing the pipeline of grain moving to export terminals to begin drying up at a time when harvest low prices are triggering good demand. This looks to continue to firm cash prices paid at elevators but futures hit new contract lows this week on a endless supply of Asian bird flu virus discoveries in Asian markets especially China a key U.S. grain buyer. Since markets trade fear before fact and like to price in the future it fears that eventually demand will fall off appreciably. Looking into next week I would expect lower trade Monday and maybe Tuesday’s opening followed by a late Tuesday into Wednesday short covering rally ahead of our Thursday Thanksgiving Holiday. Grains are open next Friday. B E A N. Monday’s weekly export inspection report showed 20.1 m.b. of beans were inspected for near term export, down from 34 the week prior and 45 a year ago. Year to date inspections starting the new marketing year September 1st are 214 m.b. versus 280 a year ago. I was disappointed by the low number as well was the trade. Thursday’s weekly export sales report showed 644 t.m.t. of beans were sold last week up 11% from the week prior but 16% under our four week average. Chinese sales totaled 345 t.m.t. off 30 t.m.t. from the week prior. It is still a good overall number as China buys beans for protein for human consumption but a hint of feed demand slowing was in the soy meal sales. Even though they were up two and a half times the week prior and 25% over our four week average, no sales went to China. Funds were heavy sellers this week as they initially entered the week long the market. After a 25 cent short covering rally after our November 10th USDA crop production report we fell 36 cents off our Monday high as each day brought news of another bird flu outbreak in China. Remember over 70% of our feed grains go to Asian markets. There have been 19 different outbreaks the last 30 days and two human deaths from eating diseased chicken. With a big harvest on our back and a good planting pace in South America with Brazil at 50% planted as we start the week, the market sees only the fear of potential lost export business ahead. I am sure the media will dig for new bird flu instances over the week end and report them on Monday giving us a lower early week pricing, but we should export a short covering rally off Tuesday’s low as traders short cover and balance books ahead of the Thanksgiving Holiday. W H E A T. Monday started with our first demand report our weekly export inspection report coming in at 15.1 m.b. off from 17 the week prior and 20 m.b. a year ago. Year to date inspections are 454 m.b. versus 521 a year ago. Note, wheat’s marketing year is different than corn and beans which starts September 1st. Wheat’s year begins June 1st. Needless to say, this is a bearish demand indicator. Thursday’s weekly export sales report fared no better showing 563 t.m.t. of wheat was sold last week down 59% from the week prior and 13% under our four week average. Additionally, Argentina has begun harvest of their wheat crop. Due to poor growing conditions production is down 4 m.m.t. from a year ago with declined quality levels. This means they will be flooding their market with feed quality wheat for cattle leaving our hopes to sell our low quality wheat to them dashed. Wheat remains a bearish demand side market until a price low enough is met to price wheat into the feed ration. There is not much hope for milling quality wheat for human consumption to find its way to market as process are too cheap and growers with high quality milling wheat have it locked up on the farm for hopefully higher prices later. Here is wheat’s best hope for a late month rally. One, weather in our far southwestern winter wheat states remain dry looking to show further quality declines on Monday’s crop condition report. With funds and large speculators holding a huge short position we could see short covering ahead of our Thanksgiving holiday Thursday and the following week has only three days to cover shorts before December 1st deliveries begin. March wheat has support at the 3.19 area. A close under here and 3.05 is next support.