C.M.O. 2.5.2010
Credit Market Overview
February 5, 2010
The 21st century’s version of O. Henry’s Cisco Kid in many ways epitomizes “The Caballero’s Way” but in a more modern sense. Modern in that he’s dropped a vowel and is now the CSCO Kid and also modern in the sense that instead of wrangling up the bad guys he’s wrangled together a group of companies under his own umbrella that has made his firm much stronger than the one that was almost on the wrong end of the gun after the tech bubble burst in 2001.
While announcing 4Q09 earnings on Wednesday John Chambers, a.k.a. the CSCO Kid, remarked, “This is one of the most robust positive turn-arounds I’ve seen in my career”, adding that he thought the economy had entered a new “phase of the recovery”.
All we can say is that it must be a very different phase; the kind where you have a very optimistic maverick of a corporate chief thinking things are going absolutely gang busters while the equity markets drop 7.57% in a mere 12 trading days.
The 3,000 workers Mr. Chambers said he planned to add was also encouraging to hear but is, unfortunately, a thimble full in the ocean when compared to the number of un and under employed at the moment (U-6=13.5MM per the BLS). Even Nancy Pelosi’s number published on her blog, The Gavel, of 3.6MM lost jobs in the current recession dwarfs the 1.6MM number from the 1990-1991 recession and the 2.7MM from the 2001 downturn.
If there is a silver lining in all of this it would be that Manpower Inc. says they have “seen a healthy start to January and now believe U.S. temp help could achieve year-on-year growth during 1Q10”. Whether that concurs with what the BLS sees will be known very shortly this morning.
The investment grade CDS index had moved to a post 3/6/2009 low of 76bps on 1/11 before bouncing to 96bps level on 1/22. That stocks moved higher during most of this period, peaking on 1/19 is further evidence that the timing of these two can be as random as anything else you see as you walk down Wall St. This was only compounded by the fact that as stocks began to drop after closing at 1150.23 on the 19th, that same CDS index retreated to 92bps before abruptly turning tail and adding 8bps or 8.69% in a single day yesterday as the SPX broke through its recent previous low close dropping 3.11% in the process.
The Sovereign situation seems supreme to anything the BLS can say this morning at 8:30. The prospect of unions striking in Greece to oppose any sort of fiscal restraint is all too similar to the UAW’s demands from GM last year and we all know how that turned out. The budget freeze the current U.S. administration is proposing, after a 24% increase last year mind you, is palliative at best and with Uncle Sam’s CDS breaching the 50bp level yesterday and closing at 57bps, it would appear the vigilantes are back in force and are operating on a global scale.
Enjoy the weekend.
Jim Delaney
