A rather prescient piece in the NYT the other day highlighted the problems in the debt securitization markets, which banks rely on to make room on their books for new lending:

To be sure, certain corners of the securitization market are percolating again, thanks to the government’s Term Asset-Backed Securities Loan Facility, or TALF, which provides attractive financing for investors who buy the securities.

Bonds backed by consumer debt — credit card debt, auto loans and some student loans — are being issued at costs close to those before the financial crisis, an indication that the market is functioning again.

But the program applies only to borrowers with stellar credit. It does not cover credit card debt or auto loans for people with blemished credit histories.

“The market is coming back, but a lot of it is because of TALF,” said Hyun Song Shin, a Princeton economist who studies securitization. “The big question is, Will the private issuance market stand on its own two feet without TALF, or has there been a fundamental change in the market that it is somehow hobbled permanently?”

The latest Consumer Credit data provided by the Fed today underscore this point, revealing that revolving credit decreased by an astonishing 13.5% in August (on an annualized, seasonally adjusted basis), accelerating an already existing downward trend.

Delving into the numbers a bit further in the second table (note these are non-seasonally adjusted numbers here), commercial banks, finance companies and the like actual increased slightly their revolving lending in August.  The culprit is the pools of securitized assets, down to $432.3 billion from $465.6 billion in Q2 2008.

As Zero Hedge noted, TALF was recently altered to an end that encourages shopping amongst ratings providers.  The big question, from our perspective, is how long into an anemic holiday shopping season will it be before TALF 3.0 is released, replete with overt accommodation for subprime consumer credit assets?

Veteran gold traders can attest that piling onto breakouts, especially in highly leveraged futures, can quickly become a losing proposition on a reversal.  While yesterday’s surge in gold was confirmed with gold priced in other currencies (especially impressive with the confirming moves in the commodity currencies of the CAD and AUD):

…there is a slight seasonal negative at work here until the end of October:

Traders should recall that the second week of October 2008 began a painful slide after a strong September.  The forced deleveraging from all instruments on margin call mania exacerbated the move last year, to be sure.  But it seems prudent to wait for a move back to the 1025 to 1031 area (basis Dec 09 contract), which is the 61.8% to 50% retracement box from the breakout of last week’s highs at the 1011 area.   Gold could even retrace to the 1010 (61.8% off 985.50 low) with the medium term bullish trend in tact.

In our opinion, better to be careful and potentially miss a move than to get caught up in the euphoria of a market that has burned many short term leveraged traders.

10:45 am EDT:  Though the ES sold off pre-market a bit farther than we would have liked to 1045.25 (below the combined session pivot), it is consolidating the overnight range now and we maintain our slight bullish intraday bias.  Longs can enter between 1049 and 1051, but we would not stick around below 1048.  If the pre-market low of 1045.25 is tested and/or broken immaterially and quickly reversed, we would also jump in long.  Otherwise, we hold out for a gap fill down to the monthly pivot of 1038.25 before thinking long.  If the ES can climb to the 1056 to 1058.25 area, we are still willing to fade short.  However, if the position does not quickly become profitable and it looks like the ES is accepting value in this upper area, there is a decent chance of a move up to the 1062 to 1064 area in the afternoon.

The Precise Take – ES consolidating at resistance

Leaders Analysis:   As we updated yesterday (free registration), gold’s strength has been confirmed in other currencies, including the CAD and AUD, despite the Australian central bank’s tightening announcement yesterday.  We are still seeing Yen strength, with the USDYen and EuroYen in danger of breaching strong support.  For equities to continue the rally, we would like to see a definitive move away from support in the Yen crosses.  Perhaps the global risk/carry trade is being delevered from the Yen and primarily into the USD, but we see no inherent strength in the Yen or BOJ tightening ahead that would cause this.

Trading Today:  Yesterday’s rally traded into last week’s market profile value area and sold off sharply, only to see an impressive late day rally to recover much of the early gains.  We would be buyers down to the combined session pivot at 1047.00.  There is still the risk of selloff, so we would…

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