Daily Commentary

There's lots of green print on the Bloomberg WEI page this morning reflective of almost universal strength in the equity markets.  Credit spreads have rallied, or held firm, for 12 straight weeks and today is no exception.

Volumes are currently pretty light.  Secondary volume was only moderate on Friday which is somewhat surprising for a month end.  I've heard a few times this morning that new issue volume will be relatively light this coming week.

While the headline lead the news, GM bonds were not market moving this morning with long bonds up ~$1.  

Economists can and will argue ad naseum whether or not commodities actually drive inflation. Hopefully, both sides of this argument noted that commodities had their strongest month since 1974 during May.  Given that backdrop, you'll note that a fund advised by Nassim Taleb is allegedly positioning itself for hyperinflation.  

The insurance sector continues to rally.  The reasons I can cite are fairly weak, unconvincing and largely technical; so I'll leave you to ruminate and speculate.  Prudential's equity offering has insurance sector credit spreads much tighter this morning.  As I've mentioned before, Allstate remains one of the largest outliers of the gap between it's equity and credit spreads.  Credit spreads are 'predicting' an ALL equity price of ~$37 (vs current $26).

I thought Bill Gross had a succinct observation on the coming impact of government support on the markets:

 "redistribution and reregulation lead to slower economic growth, but the financial flows from it will be haircutted and “burden shared” by stakeholders. In turn, the present value of those flows should reflect an increasing risk premium and a diminishing multiple of annual receipts."

There do seem to be increasing populist anti-debt currents growing in our culture.  Margaret Atwood's new book Payback notes that in ancient Aramic, debt and sin were the same word.  Also, the new blockbuster hit Drag Me to Hell's main character is a mortgage lender and servicer who forecloses on homes (here is info if you didn't see the movie).

Forgive me for straying too far into the mortgage sector, but I believe this blog has an interesting 'discovery' of an aspect of the Treasury's "Making Home Affordable"program.  Investors in mortgages will have their payments covered even if the homeowner re-defaults on his already modified mortgage.