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After a week of credit market histrionics, Monday morning ushers in a moment of calm…

Greek spreads ease; Portugal under pressure – WSJ

WSJ reports European sovereign CDS spreads were generally tighter Monday, with the cost of insuring Greek and Spanish debt against default falling, although Portugal remained volatile with spreads widening. According to CMA DataVision, Greece’s five-year sovereign credit-default swap spreads—a key measure of credit risk—moved back below 4.00 percentage points in early trading Monday to be quoted at 3.97 percentage points. That’s around 0.1 percentage point tighter than Friday’s close of 4.07 percentage points. That means the annual cost of insuring €10 million ($13.7 million) of Greek government debt against default for five years had fallen €10,000 to €397,000. The pressure on Spain also eased slightly, with the country’s CDS spreads tightening around 0.05 percentage point to 1.61 percentage point, according to CMA. Portugal, however, bucked the trend with the cost of insuring the country’s debt against default for five years rising to 2.34 percentage points, against a close Friday of 2.27 percentage points, according to CMA.

However, this calm is most likely the eye, as opposed to the end, of the hurricane. Speculation runs rampant as to the cause of the Greek tragedy…

 Two Hedge Funds One Bank? Is There A Concerted Effort To “Destroy” Greece?

In the pre-math of the Greek collapse, conspiracy theories are swirling about who keeps blowing Greek CDS spreads wider. The answer, so far completely unconfirmed, is that a large US investment bank (we “wonder” just which US investment bank dominates the sovereign CDS market), and two major hedge funds are behind the CDS “attacks” on Greece, Portugal and Spain. According to Jean Quatremer, and his Coulisses de Bruxelles, UE blog, the plan involves blowing spreads to record levels, and is prompted by the hedge funds’ anger at not having been allocated substantial amount of the recent €8 billion GGB issue, in order to lock in profits from their CDS long exposure. Being thus unhedged with a short bias, their alternative is to continue buying protection else risking to mark losses on their extensive CDS short risk exposure. Read more…

While the previous story sounds plausible and is certainly entertaining, a more pressing and definitive issue plagues Greece….

ZeroHedge: The latest escalation in the Greek crisis comes courtesy of Greek daily Banking News which notes that the latest nail in the Greek coffin comes from formerly major Greek players, Deutsche Bank and Unicredit, which over the past 2-3 weeks have ceased accepting Greek collateral and have pulled out of the Greek repo market altogether….

…Yet even as Greece is concerned about collateral eligibility with the ECB in 2011, the sad truth about its precarious and increasingly non-existent collateral exposure will come much earlier than that. Gradually, the country is becoming financially isolated: if the repo market collapses it is certainly game over as no semi-developed country can continue to exist without this core pillar of the shadow economy. In the meantime the vultures keep on circling.

The equity and commodity markets get rocked as Sovereign debt woes resurface.

The burning question: Will the dramatic widening of credit spreads in Sovereign debt, beginning to resemble the CDS collapse of 2008 in the private sector, lead to a revisit of a 2008 type credit crisis and all the fallout associated with it?…

Greece, Portugal woes intensify – WSJ The Wall Street Journal reports the cost of insuring the debt of euro-zone members with large budget deficits against default rose Thursday, dashing hopes that the European Commission’s qualified endorsement of Greece’s budget plan would calm investor fears. Greece, Portugal and Spain were in focus, with their five-year sovereign credit default spreads moving sharply wider. Greece’s five-year sovereign credit default swap spreads were recently at 4.14%, compared with Wednesday’s closing level of 3.97%, according to to CMA DataVision. Portugal’s five-year sovereign CDS spreads were at 2.09 basis points—their widest level ever—after closing Wednesday at 1.96%. Spain’s sovereign CDS spreads widened to 0.12 percentage point to 1.64%. The moves followed news Wednesday that the European Commission had put Greece under more pressure to cut its deficit; that the Portuguese government sold only EUR 300 million of treasury bills at an auction, compared with an indicative offer of EUR 500 millon; and that the Spanish government had raised its budget deficit forecasts for 2010 through 2012. Spanish and Portuguese stock markets fell sharply for the second consecutive day, with banks leading decliners on sovereign debt worries.

…The jury is still out on the above question but market participants are voting today.  As usual, voting like this is detrimental to long term investment decision making.  I would suggest all take a step back relax and reassess after the smoke of today’s battlefield clears. In the meantime, tomorrow’s employment report may shed some light on the absurdity or validity of  today’s flight into the US$. I stress the word, may, because government released employment numbers are notoriously manipulated.  For those who wish to debate this manipulation issue and wish to cast aspersions about conspiracy theorists please view the following story…

Explaining The Government’s 1.8 Million Job Overestimation In Pictures

Last October the BLS announced it would revise historical payrolls lower by 824,000 on February 5 (this Friday’s NFP release). While this number will not impact the actual January NFP report (a loss of nearly one million jobs in a month would probably even take out the persistent SPY algo that has been hugging the bid for the past 10 months), it will be prorated across all months in the 2008-2009 reporting period. The reason for this adjustment has to do with a huge glitch in the birth-death model, which is exactly the same problem that the rating agencies faced when housing prices plummeted: the birth/death model assumes, in the long-run, jobs are created, not destroyed. Any period of excess volatility in the stock market therefore translates into major prior downward revisions to already disclosed payrolls. And while we know what the current revision will be, the scarier prospect is that the next historical adjustment, due out in early 2011, will be even larger, at least 990,000. This means that the government has overrepresented running payroll data by over 1.8 million jobs over the past 20 months. Read More…

Today, world equity markets suffer, the “risk” trade is reduced and scared investors run into treasuries and the US$.  Meanwhile, the underlying fundamentals of the US$ continue to deteriorate….

Zerohedge: It’s Official: Congress Passes Debt Ceiling 231-195; All Republicans, 20 Democrats Vote Against Raise.  Congress Democrats have just signed off on the US hitting 100% debt/GDP.  About 140% if one adds GSE liabilities which also should be on the budget.

Initial Claims 480K vs 455K consensus, prior revised to 472K from 470K

Continuing Claims rise to 4.602 mln from 4.600 mln

NY Fed’s Dudley says “nothing is on automatic pilot” when asked about ending MBS purchases in March, according to AP – Reuters (The expected end of Q.E. in March has been a major factor in the strong US$ theory since Dec.. Now we see, at the 1st sign of trouble, S&P500 down 3%+ today, the Fed begins to backtrack – surprise, surprise.)

A recent survey by TKS Solutions revealed that 10% of hedge funds have considered switching administrators during the past 12 months due to issues stemming from timeliness and accuracy of partner and shareholder accounting reports.

“Based on feedback from our hedge fund customers,” Ronald Kashden, President of TKS, said, “We discovered that many administrators were still struggling under the weight of convoluted spreadsheets.”

One particular vexing aspect of automating fund processing is the reality that every client is different and has unique reporting needs.

“We are advancing our software to address this through the use of user-defined reporting fields.” Kashden said, “Now the user can create custom reporting fields for their clients that extend the database and the application’s reporting capabilities, which can be associated with investors, funds, or even transactions. Once created, the application is instantly aware of any of new fields and the relevant screens and reports are automatically adjusted to reflect these fields. By combining these fields with the built-in report writer, administrators can easily tailor reports to the needs of each client.”

Perspective: US$ vs. Gold

Based on January performance for the Credit Suisse Long/Short Liquid Index (”LAB Long/Short Liquid Index”), Long/Short Equity funds posted negative returns in January but outperformed global equity indices, according to Jordan Drachman, Head of Research for Alternative Beta Strategies at Credit Suisse.

Dr. Drachman noted, “The LAB Long/Short Liquid Index was down 1.46% for the month as managers struggled to find profitable positions amid falling equity markets. Despite overall negative performance, Long/Short Equity hedge funds outperformed major global equity market indices in January. On the other hand, the Credit Suisse Global Macro Liquid Index (”LAB Global Macro Liquid Index”) finished the month up 1.18% in January as many macro managers removed some of the risk from their books in the new year.”

About Liquid Alternative Beta (”LAB”) Indices

LAB (formerly known as Alternative Index Replication or “AIR”) is a series of indices that seek to replicate the aggregate return profiles of alternative investment strategies using liquid, tradable instruments. The LAB umbrella currently includes the Long/Short Liquid Index and the Global Macro Liquid Index which enable investors to gain liquid, transparent insight into the Global Macro and Long/Short Equity sectors of the Credit Suisse/Tremont Hedge Fund Index.

FINRA has recently issued guidance and Q&A on registered reps use of social networking web sites, blogs and other forms of social media. Use of sites such as Facebook, Twitter and LinkedIn for business purposes by reps falls under FINRA’s rules on communications with the public and requires policies and procedures as they apply to each firm’s recordkeeping, suitability and supervision responsibilities. A firm’s WSP should be updated accordingly, including procedures for monitoring and reviewing e-mails, content and blogs via social media.

Also see FINRA Regulatory Notice 07-59.

The following is from www.zerohedge.com.  This piece is so profound that a reprint is required:

The SEC passes regulation that only STRENGTHENS the case to own Gold

Suspending Money Market Redemptions Is Now Legal; SEC Approves New Money Market Regulation In 4-1 Vote…

…Well, in a nearly unanimous vote, Money Market Funds now have the ability to suspend redemptions, courtesy of the SEC’s just passed 4-1 vote. This explains the negative rate on bills: at this point, should there be another meltdown, money market investors will not, repeat not, be able to withdraw their money purely on the whim of Mary Schapiro. As the SEC noted: “We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares.” Too bad investors’ hardships considerations ended up being completely irrelevant.

Anyone who sees this regulation and feels safe leaving their money in money market funds needs to have their head examined. The “intent” is to prevent a “run” on money market funds when the next crisis hits. Essentially the passage of that regulation signals the high probability of such a crisis happening.

As alluded to in the post, the rate on 1-month T-bills has gone negative today. Think about what this means. When a big investor is willing to invest short term money and have returned less money than was invested just 30 days ago, it tells us that the investor is more concerned about getting his money back than he is about making money on his money. The investor is essentially paying a small fee to insure that his cash is returned with little loss (30-day T-bills would be considered riskless since the Gov’t can print money to honor the claim). Think about the signal from big investors that is being given here about the perception of systemic risk and the probability of systemic failure. The rate on 30-day bills went negative for quite some time before the collapse of Lehman and AIG.

This phenomenon only strengthens the case that investors should be putting as much as they can into gold and silver as vehicles for protecting and preserving wealth. When you own gold, you are not subjected to, and victimized by, the bad decisions and moral hazards being implemented by our policymakers, many of whom are puppets for the big banks who fund their positions of leadership (see today’s Congressional inquisition of Geithner and Paulson). When you own physical gold in your own possession (or a trusted custodian), your investment does not have any risk of counterparty claim AND you have no Government/SEC restrictions placed on your investment, like the SEC regulation just passed.

I will end with a quote from none other than the king of fiat money, Alan Greenspan, who said on September 9th, 2009: “gold still holds reign over the financial system as the ultimate source of payment.” Keep this in mind when you get your next investment statement from your broker or advisor.

As Gary and I discuss this issue another thought occurs that bares scrutiny.  All are aware of the massive debt load this country sags under.  The Fed has made it clear rates will remain low for an extended period.  However, other methods are required to support the Treasury bond market and effectively keep rates from rising when worldwide ability to support said debt becomes increasingly dubious.  We pose the question:  Are the rule changes on the $3+trillion money market business designed to force conservative money directly into treasuries? Will we see in details of future treasury auctions an increase in the amount purchased by “households” ?

The answers to these questions are unpleasant to ponder and only time will reveal the secrets.  While your mind churns, read the next story and see how it fits into the puzzle.

SEC says more changes for money-market funds – WSJ

WSJ reports money-market funds could be forced to pay out less interest under new federal rules designed to make them sturdier. With memories still raw from the 2008 meltdown of Reserve Primary Fund, the SEC released rules on Wednesday that require funds to hold more liquid and higher-quality assets and disclose the value of their assets per share more frequently. The trade-off: These safeguards also will put pressure on yields that are already near zero. The changes likely will reduce yields by about 0.10 percentage point, said Pete Crane, president of Crane Data. This isn’t good news for money-fund sponsors already suffering from redemptions because of their low rates. Investors pulled about $540 billion out of money-market mutual funds last year, bringing assets to $3.3 trillion, according to Crane.

It’s back to 2004 levels for fundraising, asset valuations and underwriting standards…

United States

• The economic downturn of 2009 severely impacted the fundraising industry, reflected by the lowest levels of capital commitments since 2004. As a result, the amount of time taken to raise a fund increased significantly, averaging approximately 18 months (twice as long as in 2005), as more general partners remained on the road seeking a severely limited supply of capital. The outlook for 2010 is brighter: according to a recent Preqin survey, a majority of LPs plan to make their next allocation(s) to private equity this year, saying that their current private equity investments have met or exceeded their expectations. Also, now that the associated risks of leverage-generated returns are better understood, LPs and GPs expect a return to private equity fundamentals (i.e. value-add strategies and a realignment of interests between LPs and GPs). Yet it is clearly still a “buyers market” and LPs are most apt to select strategies and managers where they have familiarity with proven pedigrees or realizations versus ones that are opportunistic, novel or emerging.

• Lower- and middle-market buyout and growth equity strategies make up the most broadly popular private equity funds at this time. These funds may be too small for large state plans and sovereign wealth funds, but more LPs talk about these strategies than any other. A “back to basics” movement has brought GPs to the surface that can build value for investors by working with investee companies to improve operations, management and market reach – achieving returns in tough credit markets without financial engineering. In addition, deals are getting done at a growing pace given the tens of thousands of companies that make up the lower- and middle-markets, and the financing crunch the majority have faced.

• Distressed funds have gained significant traction within the past year as managers move to take advantage of numerous distressed sellers offering quality assets. Distressed plays are interesting across private equity, real assets and soon, real estate; the attraction goes far beyond owning distressed securities as control is paramount. The general consensus is that the opportunity to make significant gains in liquid trading strategies has passed; rather, distressed-for-control remains popular given a wealth of ongoing market opportunities, and given that control funds resemble closed-end private equity funds, they are a natural fit for most investors.

• The timing for mezzanine is also very attractive right now, resulting in its growing popularity as LPs see the ability to: (a) diversify within the lower- and middle-markets, (b) add downside protection and (c) earn buyout-like returns with less risk. Mezzanine is also popular given opportune timing and strong recent returns. The demand for mezzanine capital is enormous given the private equity overhang and a wave of debt coming due soon which will drive a flood of refinancings. The supply of mezzanine financing has decreased significantly as hedge funds, business development companies and others have or are exiting the space. New mezzanine financing requirements over the next five years for private equity activity could amount to $400 billion. This could double when refinancings are taken into account. Today, only a mere $21 billion is being sought by mezzanine funds actively fundraising, according to Preqin.

• With regard to secondaries, residual effects from the credit crisis continue to apply pressure on managers to unload non-core portfolio holdings. While significant global interest in owning strong underlying portfolios from historically well-performing GPs remains, the bid-ask spread generally remained great enough to consistently stall execution. Secondary funds-of-funds seem to have high return hurdles and at this time last year were only looking for deals from highly motivated sellers and corresponding deep discounts. Seller distaste resulted in a pronounced removal of offering from the market. However, we anticipate that 2010 should see increased deal activity as buyers and sellers begin to align their expectations. New buyers like pensions, endowments and foundations will also continue to make their appetite known, as many see a perfect buying opportunity to buy into funds at a discount from managers they know and have already internally due diligenced and approved. To this point, a recent industry study predicts the secondary volume of partnership interests to double this year as compared to 2009.

• Real assets strategies stood out in the past year as investors sought strong and stable cash flows with downside protection. We expect real assets to continue drawing interest as lower commodity prices combined with seller distress should result in a favorable deal-entry environment. Fund managers are opportunistically stepping in to fill the financing gap left in the wake of decreased traditional capital markets activity and are finding attractive entry points in investments associated with oil and gas exploration and production; pipelines and other midstream energy investments; utility-scale wind and solar installations; timber, agriculture, mining and other commodity-focused investments; and other energy infrastructure. Real assets strategies will continue to attract investors as they seek to position themselves for an environment of increasing inflationary pressures over the medium to longer term as the global economy continues to recover.

• Interest in infrastructure in particular has cooled as we wait to see if deal flow in North America ever materializes in the volume predicted. Even as states face huge financial problems, the obstacles to privatizing infrastructure (both political and financial) prevailed in 2009. Given that $90 billion in fund capital has been raised over the last 5 years, and only $6 billion in 2009, LPs are clearly waiting for proof of investment thesis, not to mention that well over half of the $90 billion has yet to be deployed. However, given that trillions of dollars of assets, resources, and companies are owned privately in the energy and power industries in particular, LPs have been able to mount exposure to these industries and play the infrastructure card, versus waiting for bridges and tunnels to come to market or perform.

• After a turbulent 2008, hedge funds responded well in 2009. On average, managers were up 20%, making the past year the best for the industry in a decade. By the second half of 2009, redemptions had stabilized and investment activity increased as investors positioned to reduce their cash reserves and redeploy cash released by managers who had invoked gate. This trend was confirmed in the third quarter when funds experienced net inflows for the first time since the recession. Some limited partners who invest across asset classes looked to decrease their exposure to illiquid investments in favor of more liquid strategies, including hedge funds. This year looks to be a promising year for the industry as a renewed focus on liquidity and transparency will continue to drive investor interest among institutional limited partners. In the same way 2004 was a record year for hedge fund growth on the back of a market rebound in 2003, this year has the potential to be impressive from a capital-raising standpoint.

• Real estate transaction volume was down significantly from the peak years of 2006 and 2007, largely due to the return of traditional underwriting standards, much higher equity requirements and a nearly nonexistent CMBS market that last saw meaningful issuance volumes in the first half of 2008. For 2010, we expect to see both fund managers and investors continue to focus on troubled legacy assets as headline transactions (largely work-outs) will begin to set new comparable values enabling investors to mark their existing portfolios. It is anticipated that mid-2010 will reflect the bottom for commercial property values, much as the United Kingdom is said to have bottomed in the Summer of 2009. Fundraising remains available only to the highest quality Tier 1 managers without legacy distractions and with a demonstrated track record of distressed performance and/or those niche oriented operators who can unlock value through repositioning.

Europe

• European investors have seemingly retreated from the global stage, focused on local managers on the Continent. We believe European investors continue to chase alpha but are more protectionist at the same time, supporting European managers in their domestic and global efforts.

• Private equity continues to avoid large cap and highly leveraged buyout transactions given rebounding capital markets are unwilling to support significant debt and PIK financing. As a result, institutional investors feel the best opportunities in the space include lower- and middle-market buyout, growth equity and sector and country funds. Distressed, secondary and direct purchases of fund interests on the secondary market have also gained notice and commitments from European LPs.

• The majority of European LPs have pushed their 2009 real estate allocations into 2010 due to concern over the global macroeconomic picture and capital adequacy ratios. Uncertainty regarding the U.S. and Asian macro-economic situations and currency risks have mitigated European demand for non-Europe domiciled funds. Current LP interest in the UK market has shown indications of leveling valuations and a turnaround in the commercial real estate market. Additionally, there is building interest in Western Europe, but it lags the U.S. recovery given it is increasingly viewed as a local market. Continued stabilization of property markets, combined with revaluations downward of existing portfolios should drive improved LP interest for European focused opportunities.

Asia

• 2009 was characterized by increased confidence in private equity throughout Asia due to its relative better performance during the financial crisis as compared to the U.S. and Europe. Managers have recognized the significant market potential for China, India and Japan, leading many to establish country-specific funds to take advantage of those regional economies. Funds-of-funds continue to be attractive as well given that they allow LPs to access a number of geographies that require strong local networks and experience. Asia and other emerging markets continue to have a compelling value proposition – growth capital for growth companies in growth markets.

• In terms of real estate, Asia, especially China, proved itself one of the most resilient property economies globally with its markets and deal rankings in 2009. Seven out of 10 of the most active real estate markets in the world are located in China, led by Shanghai, which is recognized by Urban Land Institute Asia as the most attractive market for development or investment in the Asia region for 2010. The three most active global buyers of property are all Chinese development companies. Indeed, most investors believe the best proxy for China’s organic growth may be real estate. Investors are also realizing that securing a local partner and a local operating partnership is a critical key to success in China, as tax efficiency and local networks provide distinct advantages.

• Real assets strategies have been relatively slow to gain traction. The need for investment in India, Southeast Asia and other emerging markets is large, but we do not believe LPs are being offered the right opportunities. Real asset investment in most parts of Asia, especially in terms of infrastructure, is dominated by government initiatives or led by government-owned entities. The private sector has found it difficult to secure deals at an appropriate risk-adjusted return level. In addition, management teams that are both strong in operations and politics/regulations are critical to strategy execution. Funds focused on more liquid assets like transportation and toll roads have gained better traction with LPs.

• 2010 is likely to see a disproportionately positive rebound in fundraising for Asia, especially in private equity and real estate. On the macro front, China and India expect to have GDP growth of 9% or greater in 2010, but investors should be wary of the overheating credit market and inflation threat in the region. Look for private equity, specifically in the clean energy and infrastructure sectors, to gain significant ground this year as Chinese and Japanese authorities introduce regulations aimed at reducing the barrier for entry for private equity partnerships and allocations.

• The domestic LP base should continue to expand, especially as sovereign wealth funds including CIC and KIC replaced the void left by Western LPs last year. In fact, CIC reportedly may be due to receive a follow-on investment from Chinese authorities roughly equal to the $200 billion it launched with in 2007. Also, expect global LPs to target Asia to rectify relative under-allocation to Asian private equity in most institutional portfolios as well as to take advantage of strong regional economic performance.

If you would like to speak with Jeff Davis, Director in the U.S., Frank Chang, Director in London and/or Dave Love, Managing Director in Shanghai, about the trends/predictions noted above, please contact:

• Jon Schubin at Walek & Associates on 212-590-0529 or jschubin@walek.com or

• Mary Beth Kissane at Walek & Associates on 212-590-0536 or mbkissane@walek.com

About C.P. Eaton Partners, LLC

Founded in 1983, C.P. Eaton Partners, LLC is one of the most experienced global placement agents in the world, having raised more than $33 billion for 57 funds across 850 institutional investors worldwide. Raising institutional capital is the firm’s only business. C.P. Eaton’s normal calling universe is limited to large institutional investors with a desire to invest relatively large amounts of capital. The firm’s average commitment is $50 million. Partnering with a select number of the highest-quality fund managers, C.P. Eaton has worked with some of the most innovative funds of the last two decades. With extensive institutional relationships, deep sector knowledge, fresh insights and a partner-driven approach, C.P. Eaton is dedicated to every client’s success.

C.P. Eaton, with 35 total employees, has a seasoned and diverse team of 23 professionals across four offices: Rowayton, CT; La Jolla, CA; London, UK; and Shanghai, PRC. The firm is among the largest independent, boutique placement agents. C.P. Eaton is currently distributing 14 alternative investment funds (including a co-investment), targeting over $8 billion of capital. The firm’s products encompass a wide range of private equity, real estate, real asset, and hedge fund / liquid strategies. C.P. Eaton works with established managers and first-time managers, many whose professionals have emerged from larger asset managers and have become successful brands themselves. Over the past five years, C.P. Eaton has established itself as one of the leading placement agents in Asia, and is one of the first placement agents to have opened an office in Mainland China (Shanghai, September 2007). The firm actively represents a range of Asian strategies and has also penetrated the Asian limited partner base in its cross-selling efforts. In addition, over the past 10 years, the firm has developed a strong reputation in the area of real assets, inclusive of: energy (both traditional and renewable), natural resource and infrastructure strategies. C.P. Eaton is a FINRA registered broker/dealer and FSA approved.

The Ben Bernanke Brouhaha follow up: Markets are quiet this Monday as the Bernanke reappointment story begins to take shape. The Obama administration rallied the troops over the weekend and a stay of execution seems likely…

Embattled Bernanke edges closer to a second term – Reuters

Reuters reports Federal Reserve Chairman Ben Bernanke edged closer to winning support for a second term after the Senate’s Republican leader predicted confirmation and Democrats aimed to have a vote this week. Bernanke’s prospects appeared shaky last week when two Senate Democrats announced their opposition. A spokesman for Senate Majority Leader Harry Reid said on Sunday that the senator hoped to have a vote to confirm Bernanke this week. Bernanke’s term expires at the end of the month. Top Senate Republican Mitch McConnell said he expected Bernanke to be approved. “He’s going to have bipartisan support in the Senate and I would anticipate he’d be confirmed,” McConnell told NBC’s “Meet the Press.” But McConnell would not say how he would vote. Concerned about the surge of opposition to Bernanke’s renomination, President Barack Obama contacted the Democratic Senate leadership Saturday to make sure there were enough votes. “The president is very confident that the chairman will be confirmed,” White House senior adviser David Axelrod said on CNN’s “State of the Union” program Sunday. “The readings he’s getting from his conversations are that Chairman Bernanke will be confirmed.” At least 29 senators have said they will back Bernanke or are leaning toward supporting him and at least 17 senators have either already voted against him in committee, come out against or said they are leaning against the central banker, according to a check by Reuters.

…Meanwhile, the weekend brought tidings of an EU that is no longer in jeopardy of a Greek default.  Trouble for the Euro seems less imminent. Fear caused by the Bernanke Brouhaha and the Greek Tragedy are beginning to abate, which in turn takes some steam out of the US$ rally….

Greece bond issue met with success – WSJ

WSJ reports the Greek government enjoyed a much-needed boost Monday as investors piled into its new €5 billion ($7.07 billion), five-year syndicated bond issue, registering more than €20 billion of orders in around three hours. But while getting some cash in the bank is the top priority, Greece is paying a chunky premium to ensure success. The huge demand for the bonds bodes well for the fiscally-challenged nation as it suggests Greece will be able to secure the €5 billion it was aiming for, which should give it sufficient funds to repay debt maturing until the start of April. The transaction also marks a show of strength from the Greek authorities, which could have opted to place bonds privately with domestic investors. However this could have been seen by markets as an effort by the Greek government to avoid direct exposure to international markets. “A successful takedown of this deal is in our view pivotal for a change in the current bearish moment in Greek spreads,” ING Strategist Wilson Chin said.

…We continue to monitor the housing situation as it is key to any sustained economic turnaround. Today’s news does not surprise us in the least. We predicted, in fact illustrated in Rumplestiltskinesk detail, existing home sales would plummet in December….

December Existing Homes Sales 5.45 mln vs 5.90 mln consensus; -16.7 % m/m

Existing Home Sales Plummet

Existing home sales fell 16.7% to 5.450 million in December. While a drop in sales was expected, the consensus predicted a much more modest decline of 9.8%. The supply of existing homes increased from 6.5 months in November to 7.2 months in December. The drop in sales was the aftereffect of the government tax credit for first-time homebuyers. The credit was originally set to expire in November and potential buyers rushed into the market before the expiration date. As a result, purchases that would have been made in December and January were instead completed in October and November. Since first-time homebuyers tend to buy lower priced homes, the drop off of these buyers from the market allowed the median and average home prices to increase 4.8% and 6.4% respectively.

…However, I would like to remind the reader bad news for the economy is good news for the equity markets. All three stories above are US$ bearish, commodity and equity market bullish. As long as the administration remains the same and Quantitative Easing is the tool of choice to default the economy then a bullish stance on equities and commodities should lead to successful investing.

On that note, I would like to offer up the thoughts of a respected colleague who monitors the debt markets. Debt has led equity during this dramatic rollercoaster ride of the last few years. Debt signaled trouble for the equity markets well in advance of the 2008 equity market collapse and again gave the all-clear sign over a month in advance of the March bottom in 2009.  So it behooves us to give the debt markets a little respect and see what signs, if any, were generated last week….

 M.S. Howells & Co.

Bank Credit Curves do not support the magnitude of the VIX spike – Michael Johnson

 …The difference between the traded spread of the CDX IG13 Index and the average spread of the index’s underlying members widened to nearly 10bps as of last Friday’s close. The difference between these two measures, often called the skew, indicates that a large portion of last week’s sell-off was driven by market sentiment and momentum trading rather than on the deterioration of individual company credit concerns. This same type of phenomenon has occurred numerous times since the rally began last March, and ended up whipsawing investors who believed the market was heading for a major correction…

 …The increase in systematic market risk, as measured by the VIX Index, is overemphasizing the White House’s decision to pursue a “War on Banks.” Money Center Bank 5-year CDS spreads have widened in response to the “War” rhetoric, however the steepening of their 1-to 5-year CDS credit curves indicate that the widening does not reflect a heightening of short term default risk….

…Taken as a whole, the performance of the credit markets indicates that the recent spike in the VIX index is an opportunity to short equity market volatility. We expect the continued performance of the credit markets will gradually cause the White House’s rhetoric to fall on increasingly deaf ears.

Obama: “We simply cannot accept a system in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers and that could pose a conflict of interest. And we cannot accept a system in which shareholders make money on these operations if the bank wins but taxpayers foot the bill if the bank loses.”

“Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers.” The President said, “If financial firms want to trade for profit, that’s something they’re free to do. Indeed, doing so –- responsibly –- is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.”

Remarks by the President on Financial Reform – Transcript