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  Wednesday, 29 Dec 2010 | 10:42 AM ET

The House That the Housing Bubble Bought

Posted By: Ash Bennington
Photo credit: Google Maps

Is this the house that the housing bubble bought?

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  Wednesday, 29 Dec 2010 | 9:05 AM ET

The Muni CDS Sitdown

Posted By: Joshua Brown|author of "The Reformed Broker"

Various members of the NetNet crew are in and out this vacation and snow-filled week, so we've asked a few friends to fill in. The following is from New York City-based investment advisor Joshua Brown ...

Music: Cue strains of a mournful mandolin.

Exterior: An out-of-the-way red sauce Italian joint in the Arthur Avenue section of the Bronx.

Cut to Interior: The heads of the Five Families hunched over a checkered tablecloth (with attorneys behind them) agreeing to split the municipal bond credit default swaps pie five ways in 2011. "There's more than enough profit here for all of us, boys."

***

This actually happened, you guys (but probably in a not so Mafia-ish way). My flair for the dramatic notwithstanding, the heads of the biggest Wall Street investment banks did in fact get together for a conversation about standardizing muni CDS contracts. This is happening as a prelude to a coming firestorm of activity for 2011 in the muni bond space.

From theWall Street Journal :

Separately, five large derivatives dealers—Bank of America Corp.'s Bank of America Merrill Lynch, Citigroup Inc., Goldman Sachs Group Inc., J.P. Morgan Chase & Co., and Morgan Stanley—met last month in New York to discuss standardizing the paperwork for "muni CDSs" in an effort to attract more buyers and sellers.

The entire muni bond market is under increasing strain heading into the new year. Investors have pulled $9 billion from muni bond funds since Thanksgiving. In the meantime, analyst Meredith Whitney is leading a chorus of bears who are looking for a raft of defaults across the country.

Credit default swaps allow for the hedging of exposure to defaults on bonds. They are used by holders of these bonds as a sort of insurance. They are more notoriously used by hedge funds and high-flying bank traders as a means of speculation. The entire muni bond market is about $2.8 trillion in size — yet there are only $50 billion in outstanding CDS contracts written against it. As holders get nervous and hedge funds come in to the trade betting on drama in the space, more CDS will be written by all the major banks.

The merchant mentality of the banks is always and above all else to give the "cutomers" what they want. And what they want is a more liquid and transparent way to get exposure to the coming pain for states like Illinois and California. This agreement to standardize products is coming just ahead of a massive surge of interest in the products.

***

Interior: "It's agreed then," said one of the Dons as he raised his glass. "In 2011, we feast together! Salute!"

»Read more
  Wednesday, 29 Dec 2010 | 8:57 AM ET

10 Fun Reads for Wednesday

Posted By: James Altucher|author of "Trade Like Warren Buffett"

Various members of the NetNet crew are in and out this vacation and snow-filled week, so we've asked a few friends to fill in. The following is from hedge fund manager and financial columnist James Altucher ...

1. The Wrongologist, Kathryn Schulz, gives her top 10 things that went wrong in 2010 .

2. How I learned to BREAKDANCE, and then master the universe .

3. How 2010 changed the future of cars forever.

4. Whatever happened to the Gulf Oil spill .

5. The Daily Beast celebrates the 25th Anniversary of MSFT Excel .

6. Apple prepares three new versions of the ipad for 2011 .

7. Doug Kass's 15 surprises for 2011 .

8. Great blast from the past. I wish I had applied for that job in 1995. A classified ad from Amazon, pre-launch of theirwebsite .

9. I didn't know that Galileo's greatest achievements came after he was 46 years old. Gives me hope.

10. Applicable more than ever for the boom i think is coming in 2011: 8 reasons not to daytrade.

Read more from Altucher on his blog The Altucher Confidential

»Read more
  Wednesday, 29 Dec 2010 | 8:45 AM ET

M&A Deal Volume Flirts With All-Time Highs—In India

Posted By: Ash Bennington

Blackrock Develops Internal Trading Platform (CNBC via Financial Times) "BlackRock, the world’s largest money manager, expects to launch an internal trading platform next year in a move that would strike at the heart of the profit centers of many Wall Street firms. BlackRock is hiring programmers and other high-tech workers to build the platform, expected to be one of the world’s largest." The article continues to explain: "The plan is that if some BlackRock clients are selling a security and others are buying, the group can “cross” those trades internally without going through a Wall Street bank. But BlackRock insists that the plan is not meant to marginalize Wall Street. Mr Kapito emphasized the important role played by investment banks in trading and the provision of liquidity."

Concerns on Chinese Rare Earth Exports (Reuters) "China has raised fresh international trade concerns after slashing export quotas on rare earths minerals, risking action from the United States at the World Trade Organization. China, which produces about 97 percent of the global supply of rare earth minerals, cut its export quotas by 35 percent for the first half of 2011 versus a year ago, saying it wanted to preserve ample reserves, but warned against basing its total 2011 export quota on the first half figures. The U.S. Trade Representative's office was 'very concerned' about China's export restraints on rare earths and had raised its concerns with China, a spokeswoman said on Tuesday."

"Chinese missile shifts power in Pacific" (Financial Times) "A new Chinese anti-ship missile that will significantly alter the balance of military power in the Pacific is now operational, according to a senior US commander.

Admiral Robert Willard, the top US commander in the Pacific, said the Chinese ballistic missile, which was designed to threaten US aircraft carriers in the region, had reached 'initial operational capability'. His remarks signal that China is challenging the US ability to project military power in Asia much sooner than many had expected."

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  Tuesday, 28 Dec 2010 | 5:24 PM ET

Wall Street on GM: It's a Buy

Posted By: Ash Bennington

Allstate sues Bank of America—and Mozilo (Reuters) "Allstate Corp has sued Bank of America Corp, its Countrywide lending unit and 17 other defendants for allegedly misrepresenting the risks on more than $700 million of mortgage securities it bought from Countrywide. Allstate, the largest publicly traded U.S. home and auto insurer, alleged it suffered 'significant losses' after Countrywide misled it into believing the securities were safe, and the quality of home loans backing them was high. The lawsuit also names several former Countrywide officials as defendants, including longtime Chief Executive Angelo Mozilo. Countrywide was the largest U.S. mortgage lender before Bank of America bought it in July 2008."

PIMCO's Bill Gross Bullish on the Muni Market (CNBC) CNBC's Jeff Cox tells the story of Bill Gross's 'strong buy' on municipal bonds. Said Gross: ''Despite the risk there's always the reward function, and you can get 6.65 percent in New York City Build America bonds, and 7 percent-plus in California,' he said. 'That's decent return relative to the admittedly higher risk these days.'"

European Companies Pay the Price for Eurozone Sovereign Woes \(Financial Times\) "European companies’ relative cost of borrowing has risen above that of US groups for the first time since the financial crisis as the worries about sovereign debt in the eurozone hit businesses. Debt issued by European companies has historically traded lower compared with government benchmark rates than that of their US rivals. But since the end of November, European companies have started paying a higher premium, according to Bank of America Merrill Lynch corporate debt indices. The data suggest European companies are starting to pay the price for the sovereign debt crisis that has hit countries such as Greece, Ireland and Spain. It comes at the same time as growth prospects in the US have improved."

» Read More
  Tuesday, 28 Dec 2010 | 4:44 PM ET

Deadbeat Banks: One Out of Five TARP Banks in Trouble

Posted By: Ash Bennington

About 20 percent of the banks that received TARP funds from the US Treasury have missed payments.

Of the 707 banks that received Treasury funding during the Troubled Asset Relief Program, 139 have not made timely payments to their Treasury Department creditors.

A new paper by finance professor Dr. Linus Wilson, of the University of Louisiana at Lafayette, explores the underlying data. Specifically, Wilson looks at how banks that received over $6 billion in Treasury funds have fallen behind on their dividend payments to the government.

In his analysis of the causes of the defaults, Wilson concludes that: "Banks with weaker core capital ratios, more charged off loans, more allowances for loan losses, more non-performing loans, and lower returns on assets are more likely to miss their Troubles Asset Relief Program \(TARP\) dividends."

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  Tuesday, 28 Dec 2010 | 12:27 PM ET

Roubini: 'Housing Prices Can Only Move Down'

Posted By: Ash Bennington

According to economist Nouriel Roubini, the housing market is in a double dip.

Nouriel Roubini
Photo: Oliver Quillia for CNBC
Nouriel Roubini

And negative Case-Shiller Home Price numbers out today only confirm that unpleasant truth.

"It's pretty clear the housing market has already double dipped," says Roubini. "And the rate of decline is stronger than in previous months," he said of the new housing data.

Aside from below trend economic growth, there are two factors specific to the housing market that are putting downward pressure on home prices.

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  Tuesday, 28 Dec 2010 | 11:05 AM ET

The Three Horsemen of Tech for 2011

Posted By: James Altucher|author of "Trade Like Warren Buffett"

Various members of the NetNet crew are in and out this vacation and snow-filled week, so we've asked a few friends to fill in. The following is from hedge fund manager and financial columnist James Altucher ...

You want to see a "V"? Look at the rebound last year in spending of software and equipment by businesses:

— Basically, tech is going to benefit from two things...

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  Tuesday, 28 Dec 2010 | 10:15 AM ET

8 Articles You Should Read to Begin the Day

Posted By: James Altucher

1. After reading this article, I actually bought some of the applications. One of the few articles I read that actually improved my life a little bit. Top 10 online applications .

2. Is Chinese the new language of the Internet .

3. Online dating, Uri Geller the psychic, and how I met my wife .

4. Will the demand for Silver, Continue into 2011 ?

5. Does the January Effect really work in the stock market?

6. The Microcap Speculator has the macro call of the year : buy Chinese microcaps. I believe this one.

7. The SEC is starting to look into all of the private trading that is going on in Facebook stock, Zynga stock, Twitter, etc.

8. And finally, LuluLemon might've gained a new customer. HowI was talked into doing yoga , the video version.

Read more from Altucher on his blog The Altucher Confidential

»Read more
  Tuesday, 28 Dec 2010 | 9:34 AM ET

Bad Housing Numbers: Case-Shiller Index Drops

Posted By: Ash Bennington

Case-Shiller numbers for October-September are down.

Here's the roll-up:

Non-Adjusted

Composite-10: Down 1.2% — to 159.03 (October 2010)

Composite-20 Down 1.3% — to 145.32 (October 2010)

Adjusted

Composite-10: Down .9%

Composite-20: Down 1%

All of the 20 MSAs—Metropolitan Statistical Areas—have shown declines.

Take a look at the source data .

»Read more

About NetNet

  • NetNet is where you'll find the low-down and the high jinks of Wall Street. It's the place for insider stories, trader gossip, and tales of the foibles of the moneyed crowd and the culture of finance.Wall Street news and commentary served fresh all day long.

 

  • Jeff Cox is finance editor for CNBC.com.

  • Lawrence Develingne

    Lawrence Delevingne is the ‘Big Money’ enterprise reporter for CNBC.com and NetNet.

  • Stephanie Landsman is one of the producers of CNBC's 5pm ET show "Fast Money."

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