Daily commentary

The equity and credit markets are opening in slightly different directions this morning.  Credit spreads are slightly better as most credit investors realize employment figures are backward looking.  By nature, most credit investors are pessimists so it's only a 'bad' number if it's worse than expected.  I suspect, and hope, that credit investors are more focused on some consumer stabilization combined with sharp production cuts....or perhaps lending picking up in the UK.  

As I've mentioned previously, this recent easing by FASB of the mark-to-market accounting rules will help the financials.  Naively, I hope they reverse the ruling once this crisis passes as it's oft shelter for accounting shenanigans.

The FT's Lex, and others, have noted the irony in the recent interest of the banks in investing with the Fed's PPIP toxic asset program....yes, the same program that is allowing these very same banks to divest of their toxic assets.

The demand for credit continues.  Mutual fund flows into credit funds YTD are +$32B which is ~6.4% of AUM.  Contrast that with equity fund withdrawls of ~2% of AUM YTD.  Also, non traditional investors continue to express interest in buying distressed assets.   

Chapter 11 filings have been occurring at an increased pace.  To high grade investors, they largely pass unnoticed.  However, a recent filing by Idearc, has had wide, but not deep, repercussions.  Idearc is considered a 'successor' (in CDS terms) of Verizon.  Verizon was widely represented in the CDX investment grade credit indices.  Therefore, Idearc too had a tiny footprint in those same indices.  The notional amount for CDX indices 1 through 7 all must be adjusted slightly.  I note this as it serves as a reminder of the complexities of the credit derivatives market and how a seemingly unrelated event can have repurcussions in places you wouldn't expect.  For equity investors, imagine having to change the terms of the next 7 S&P futures contracts....systems, compliance, rich/cheap models....all have to change their inputs (albeit slightly).  The derivatives ops folks are busy today.