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HomeBusiness as Usual
Posted by Larry Doyle on June 19th, 2009 7:28 AM |
“That’s the way we’ve always done it!!”
How often have you heard a person answer in that fashion when asked why something is done a certain way? A lot, I’m sure. Why? Change is stressful. Adjusting to change is perhaps even more stressful.
As we are forced to adjust to the Brave New World of the Uncle Sam Economy, we will certainly witness many individuals, business units, and industries resist change. I’m seeing them all around me. Let me share a few with you:
1. FINRA: at a time when our economy is screaming for increased transparency and accountability, this Wall Street self-regulatory organization has not yet released its 2008 Annual Report. Why? I view it as unacceptable.
The facts, figures, and transactions for 2008 are in the books. A mere accounting should be simple and straightforward. With the exception of Bloomberg, do you even hear of FINRA from major media outlets?
Rest assured, I will review the FINRA Annual Report thoroughly, with particular focus on their investment activities, and question them as need be. At some point, perhaps, the mainstream media may want to engage them as well.
2. Wall Street: why do banks so badly want to pay back TARP funds? The primary reason is compensation. In fact, in recently speaking with a number of colleagues on the street, banks are again paying “guaranteed” contracts to recruit personnel. Certain of these banks remain flush with government funds.
What propels banks to do this? Because they can, meaning there is no transparency or accountability. Additionally, they do not want to “cede turf” to startup firms which can offer opportunity but no guarantees. In layman’s terms, the large banks are flexing their muscles to impede smaller organizations from gaining a foothold in their ‘hood.’ Fair and open competition is one thing, but using taxpayer funds to pay guaranteed contracts is an entirely different issue.
3. Banking: why do banking industry execs feel compelled to maintain the perks of prior years? Ego. The Wall Street Journal highlights CEOs of Bailed-Out Banks Flew to Resorts on Firm’s Jets.
Business is business and executives, whether working at firms flush with government aid or not, need to compete. That said, if the executives are at firms still in receipt of government assistance . . . “back of the bus, pal.”
LD
10yr Treasury Auction and Wall Street Compensation!
Posted by Larry Doyle on June 10th, 2009 12:56 PM |
In 10 minutes time, Wall Street will underwrite $19 billion 10yr notes. In the face of this supply, a major topic on the agenda today is Wall Street compensation.
Secretary Geithner announced earlier today that the SEC would be involved in crafting “say on pay” legislation. This legislation will focus on trying to align risk and compensation, providing greater disclosure on compensation, and creating proper incentives within the financial industry. The devil will be in the details.
Make no mistake, though, the focus on this issue will serve to lessen overall compensation.
Will Wall Street send a message to Washington that they are not happy with this proposal? How might they do that?
Fade their bids on the 10yr auction. That is, lower the price on the auction thus charging Uncle Sam a higher rate of interest.
Check back shortly and I will report on auction results.
As of 12:55pm, the 10yr Treasury note is trading at a 3.95% rate, which is higher by approximately 5 basis points relative to last evening’s closing level.
LD
***UPDATE AS OF 1:05PM
AUCTION RESULTS and MARKET REACTION:
The 10yr auction did “tail” and was underwritten at a 3.99%. The “bid to cover” ratio was a very respectable 2.62 times. That said, the bidders priced in a healthy discount to buy these notes.
The higher Treasury rate will clearly have a knock on effect across all sectors of the bond market but especially the mortgage market. As rates move higher, the affordability of mortgages and housing overall lessens. To this end, mortgage applications fell last month.
Nobody on the street would ever open Pandora’s Box and openly confess to fading a bid on Uncle Sam. That said, I view today’s price action as providing a hint that the Wall Street crowd is not happy with Washington.
Wall Street will have another opportunity to express their displeasure tomorrow as Uncle Sam will be selling $11billion 30yr bonds.
How is the equity market responding to these higher rates? Earlier today the major market equity averages were higher by 1%. We have seen a complete reversal of that upward move and they are now down by 1% on the day.
Lots of hills, valleys, and undulations as we navigate the economic landscape!!
LD
For more on why interest rates continue their move higher, please also read:
