Freeze Frame

I have been tied up with fun weekend stuff during the past few days. Let's recap the events since last Friday:

Employment: NFP indicated that the country lost "only" 345,000 jobs. Yes, it was better than the forecast loss of 530,000 jobs and a prior revised loss of 539,000 jobs, but a loss of more than 300,000 jobs is not good (some of the improvement was due to a change in the BLS birth /death model). I guess that it is good that the economy is "bottoming". However, I wonder if sailors on a crippled submarine feel that way when they come to rest on the ocean floor. I guess it is better than reaching crush depth, which was possible at one point. Let's hope than the economy does not slip off the ledge into the abyss.

Capital Markets and Rates: The cheerleaders have been thumping their chests about the resilience of the stock markets and the inflation the treasury market appears to be predicting. Ask yourself this question: What would happen if the Fed would remove the ample interbank liquidity programs (TAF, TSLF, etc.) instituted in the wake of the Bear Stearns debacle? The capital markets (and more than a few banks) would collapse. Let's not kid ourselves, the market rebound is almost entirely due to the Fed. That is by design, but cannot last forever.

Long rates are rising because of inflation, but not inflation due to growth. The market is pricing in currency devaluation from the printing of money and issuance of large amounts of government debt. This is also why oil prices are rising.

Autos: The sham that is the auto bailout continues. Supreme Court Justice Ruth Bader Ginsburg has granted a group of Indiana pension funds which are senior secured lenders to Chrysler LLC a stay to hold off the consummation of a deal which would create a merger between Chrysler and FIAT and leave the UAW (whose claim on Chrysler assets is as low as Hell's sub-basement) as the majority owner of Chrysler. Let's hope that justice prevails. The Obama administration and the UAW are fearful it will. This could have implications for the GM bankruptcy as well, should the Supreme Court adhere to the rule of law.

Speaking of GM, GM bondholders will conduct an auction with their CDS counterparties as soon as June 12 to determine workout prices for CDS contracts. This could be delayed pending the court action with Chrysler as that could set a precedent which could be used by GM creditors. Only 54% of GM bondholders agreed to the bankruptcy recovery amounts offered by GM and the government. The Supreme Court could elect to hear arguments from GM creditors. If the rule of law prevails, the UAW could (should) be pushed behind the bondholders in the line for GM bankruptcy recovery.