With the Federal Reserve now actively participating in capital markets, it should be noted that just like every other asset manager, the Fed has to be held accountable for its trading efficacy. After all, the Treasury takes every opportunity to remind the US public how courtesy of record amounts of new government debt, it has managed to make "profits" on its assorted investments, which are merely transfers of risk from one entity to another, and the "another" being the US taxpayer, although not directly, but indirectly via the now ludicrous amount of US debt which will never be repaid. Which is why the US taxpayer may want to know that in just the most recent POMO schedule - that from early November to December - the Federal Reserve has lost $2.4 billion in taxpayer capital by its mistimed market operations, primarily due to the recent rise in interest rates. This is $2.4 billion that has not evaporated, but instead has been transferred to Primary Dealers under the "profit on trade" category. This is also money that will be used to determine, and fund, banker bonuses.
PIMCO Shares Its Thoughts On The BAB Dilemma; Discloses How It Is "Protecting" Itself From A Worst Case ScenarioSubmitted by Tyler Durden on 12/10/2010 - 16:03
From Pimco, which is heavily invested in munis, and has a very vested interested in the extension of the BAB program:
- The initial catalyst for the selloff in the tax-exempt muni market
was the sharp selloff in the U.S. Treasury market. Also, a significant
increase in supply weighed heavily upon the muni market.
- It now appears that the BABs program could be in jeopardy, as a
provision to extend the program has not been included in the current
Senate tax bill.
- The supply of tax-exempt municipals remains robust at a time when
many investors do not have the cash flow to add to their muni holdings.
With everybody presenting their ideas and themes for 2011, most of which are replete with crayon drawing of rainbows, koolaid and unicorns, here is David Rosenberg's list of 10 thoughts for what to look for in 2011.
November Budget Deficit $150.4 Billion, Worse Than $138 Billion Consensus, Biggest November Deficit On RecordSubmitted by Tyler Durden on 12/10/2010 - 15:25
The Treasury has released the November deficit, which at $150.4 billion was about $12 billion worse than expected. Total receipts were $148 billion, of which individual income taxes were $64.3 billion, while the government actually refunded $3.1 billion for corporate taxes in the month. While cumulative receipts since the start of the new fiscal year are better than in the prior year period ($135.7 billion compared to $109.1 billion), it is the expense side that is far more important: in November the government spent $299.4 billion, the bulk of which going to the Department of Health and Human Services ($72 billion), social security ($64 billion), and Defense ($57 billion). The department of education saw a whopping $7.6 billion in funding in November. What is more troubling is that the interest expense is starting to rise: in the two months ended November 30, the US government paid $43.5 billion compared to $40.8 billion last year. Of course, this is to be expected, as total US debt is about $1 trillion higher now than it was last year. And, as always, what is most notable is that in November total debt increased by $192 billion to $13.861 trillion from $13.669 trillion. In other words, we are now at a point that every dollar in receipts is matched by 1.3 dollars in incremental debt.
The New York Fed has announced its 2nd POMO schedule. In the next month, Brian Sach will buy another $105 billion in bonds, which is lower than we expected, and may indicate that Sack is not expecting the MBS prepaying to accelerate. There will be 18 POMOs in the next month. And December 21 will be another day that will have two POMOs held: one at 11am and one at 2pm. With negligible trading volume, we expect the ramp in the market then to be ridiculous.
Watch Senator Sanders' 3 Hour (So Far) Long Filibuster On Taxes... Update: At 6:58PM Sanders' Speech Has Ended, Almost 9 Hours LongSubmitted by Tyler Durden on 12/10/2010 - 14:45
Senator Bernie Sanders commenced a filibuster speech at 10:25 am this morning objecting to the proposed tax extension. Three hours later, and now joined by Mary Landrieu, the soliloquy (or is that duoloquy) continues. While the backstage dealing will likely not be impacted much if at all by this speech, it does provide for entertaining viewing. Bernie sure is passionate about the topic.
Score one for the farce team. That scourge to market efficiency, fairness and integrity, Sergey Aleynikov, about whom we have written tomes, has been found guilty. The HFT code in question, that can "manipulate markets" is safe and sound, back with its true master, Goldman Sachs, which firm promises its malicious attempt to squeeze CDS traders in 2007 is completely irrelevant, and the sheeple once again don't understand that the firm's intentions were nothing but pristine.
Lockyer Pulls The MAD Card: California Treasurer Says Taxpayers Would Be Harmed Unless BAB Program Is ExtendedSubmitted by Tyler Durden on 12/10/2010 - 13:48
Now that it appears that the Build America Bond program may end up being pulled in just two short weeks, those who are most reliant on the program for their continued existence are starting to not only crawl out of the woodwork, and make their voices heard, but pull the usual trick of threatening with cataclysms unless they get what they want. Sure enough, enter California Treasurer Bill Lockyer. Per Bloomberg" “Allowing the BABs program to die would undermine the economic recovery and harm taxpayers and working families across the country,” Tom Dresslar, spokesman for California Treasurer Bill Lockyer, said yesterday by telephone. And the justification: taxpayer cocaine is the best damn cocaine money can buy: “I know that stimulus has become a dirty word but you’d be hard-pressed to find an economic recovery program that has worked better.” And that is all that is needed to convince the masses of corrupt politicians: after all as Neel Kashkari made it all too clear both 2 years ago, the world will end unless bankers or their administratively placed cronies get anything they need to maintain the ponzi on their behalf. And lastly let's not forget that the biggest beneficiary of the BAB program is none other than PIMCO...which is incidentally where Kashkari gets his paycheck currently.
And for another confirmation that the Nasdaq is now at the same extreme "irrational exuberance" levels last seen during the dot com crash, we read courtesy of sentimenttrader.com that the Rydex Nasdaq 100 bull/bear ratio is now the highest it has been since just before the dot com crash. "Traders in the Rydex mutual fund family have poured into the Nasdaq 100 long fund at the expense of the inverse fund on the same index. These traders now have 34 times more money invested in the long fund vs. the inverse fund, which is the highest ratio since the bubble days of 2000 and early 2001." And what is scarier, is that unlike during the dot com, investors are using leveraged methods to express their exuberance: "The Bull / Bear Ratio for the leveraged funds isn't quite as extreme...but it's close (on a relative basis)."
From ABC News: "Wikileaks founder Julian Assange, the man behind the publication of more than a 250,000 classified U.S. diplomatic cables, could soon be facing spying charges in the U.S. related to the Espionage Act, Assange's lawyer said today. Justice Department officials declined to comment on the possible coming charges, but earlier this week, U.S. Attorney General Eric Holder said the release of the documents had put the United States at risk and said he authorized a criminal investigation into Assange."
The Apple borg collective has its foot soldiers too. And it turns out if they were to be mobilized, they would represent the world's fifth largest army... at just over 1 million. Bloomberg reports that the number of employees who diligently bring you your iPad, now exceeds a whopping 1 million. This however, does not make the company the biggest employer in the world: Walmart is reported to have 1.8 million "associates" worldwide, but at Foxconn's rate of growth it would not surprise us if even the staple American company were to be surpassed very soon.
With the first schedule of QE2 POMOs over yesterday, everyone's attention shifts to 2pm Eastern today when the New York Fed will announce the second line up of bonds to be purchased through the middle of January. As we have noted previously, we believe that this time around the Fed will buy materially more bonds than the roughly $105 billion acquired in round 1 due to the increasing amount of MBS prepays in November (although if mortgage rates persist higher this level of activity will likely tumble). Coupled with lack of bond issuance over the next several weeks, and we believe the pressure on yields will be moderated, as increasing demand is met with zero new supply, in essence allowing the Fed to accrue bond purchases in this USTreasury sabbatical. That said, here is a complete POMO post-mortem for those who keep track of what and when Brian Sack's team is busy monetizing.
Stunning that anyone in this environment can file for Chapter 11. But that is precisely what is happening: supermarket chain A&P, with law firm Kirkland and Ellis and financial advisor Moelis in tow, is about to file for bankruptcy, Bloomberg reports. It is ironic that instead of passing through costs supermarkets are instead opting out to default. Nonetheless, this is likely telling on the status of food margins at major supermarkets.