Minneapolis Fed President Expects Fed's Balance Sheet To Normalize... By 2020; The Parable Of The Fed And SarahSubmitted by Tyler Durden on 04/06/2010 - 15:03
Minneapolis Fed president Narayana Kocherlakota gave a presentation before the Minnesota Chamber of Commerce earlier today. While still following the party line, Kocherlakota continues to demonstrate out of the box type type thinking, which hopefully will push him into the Hoenig camp before it is too late. His biggest warning, which is inline with prevailing common sense arising out of the fact that the Fed's SOMA has a $1 billion DV01, is that Bernanke will have to sell "a nontrivial amount of its MBS holdings if it is to be able to normalize its balance sheet in the next two decades. Such sales might cause untoward jumps in interest rates unless the Federal Reserve is able to credibly commit to a sufficiently slow pace." Yet even Narayana does not see any normalization in the monetary picture until 2020: "I am optimistic that we will be able to normalize our balance sheet by the end of the teens." Which means, no rate hike until 2015 theearliest, and possibly later. And you all thought the Maestro was bad.
Valuations are above the levels where future will not please the buy & hold crowd (in the developed ex Japan world),
even if we go back to the good old days, the credit bubble stops deflating, growth reaches pre-2007 level in a sustainable
manner …At 1200 on the S&P 500 will be priced more expensively than during all of the structural tops pre-2000 (well 1997-
2000) except the final tail of the 1929 move... And you have to remember that assets quality is not what it was in the past and
that there are signs that accountants are working overtime. This does not imply that the markets will fall in the short or even
the medium term but that a further rise will only have speculative and no investment merit if bought and that if one buy
today to hold for the long-term, negative capital gains should be expected in the next 7-10 years. - Damien Cleusix
Mr. Hoenig dissented because he believed it was no longer advisable to indicate that economic and financial conditions were likely to warrant “exceptionally low levels of the federal funds rate for an extended period.” Mr. Hoenig was concerned that communicating such an expectation could lead to the buildup of future financial imbalances and increase the risks to longer-run macroeconomic and financial stability. Accordingly, Mr. Hoenig believed that it would be more appropriate for the Committee to express its anticipation that economic conditions were likely to warrant “a low level of the federal funds rate for some time.” Such a change in communication would provide the Committee flexibility to begin raising rates modestly. He further believed that making such an adjustment to the Committee’s target for the federal funds rate sooner rather than later would reduce longer-run risks to macroeconomic and financial stability while continuing to provide needed support to the economic recovery.
Strong demand for the just closed $40 billion 3 Year Bond auction:
- Yields 1.776% vs expected 1.766%
- Bid To Cover strong 3.1 versus 3.13 previous and 3.05 average
- Indirect Takedown of 52.20% vs Average 54.13 (previous 52.01)
- Indirect Hit Ratio: 69.3%
- Direct Take Down: 10.8%, 10.3% previous, all time high of 23.4% in January 2010
EIA Issues Short-Term Energy And Summer Fuels Outlook, Expects WTI To Average $81 This Summer, Sees Stock At 58 Days Of CoverSubmitted by Tyler Durden on 04/06/2010 - 13:12
EIA's projections for West Texas Intermediate (WTI) crude oil spot prices have changed very little over the last five Outlooks even as spot crude oil prices continue to fluctuate on a daily basis. EIA expects WTI prices to average above $81 per barrel this summer, slightly less than $81 per barrel for 2010 as a whole, and $85 per barrel by the fourth quarter of 2011. EIA estimates that commercial oil inventories held in the Organization for Economic Cooperation and Development (OECD) countries stood at 2.67 billion barrels at the end of the first quarter of 2010. This level is equivalent to about 58 days of forward cover, and is about 69 million barrels more than the previous 5-year average for the corresponding time of year.
Greece Observes Plunge In Bonds, Panics, Backtracks on Demand to Remove IMF From Bailout Group, Issues StatementSubmitted by Tyler Durden on 04/06/2010 - 12:57
The insane asylum has issued a statement. G-Pap has seen that his country would be Friendo'ed if Greece does not agree to austerity (which was part of the original agreement but whatever) and so has issued the following statement: "Responding to questions by journalists regarding actions taken by Greece to change the recent EU summit aid mechanism, the Greek Finance Minister clarified that there has not been any action on behalf of our country to change the terms of the recent EU Summit agreement." In the meantime rich Greeks have likely moved pretty much all their domestic deposits to some other Goldman Sachs controlled provenance.
The Fed's response to the financial meltdown was twofold: Interest rates were effectively set at zero, and the monetary base was increased 140%. While it is not known exactly what formula the Fed used to arrive at the 140% increase of the monetary base, the expansion from roughly 800 billion to 2.2 trillion roughly correlates with the asset backed securities since purchased by the Fed. Quantitative easing is nothing new, as between 2001 and 2006, Japan used QE to gradually increase the monetary base by about 70% in an attempt to spur loan growth and promote inflation. The extra liquidity provided by the Bank of Japan did increase lending and promote inflation, but once the liquidity was withdrawn, the deflationary pattern resumed. Apparently liquidity alone did little or nothing to promote long-term price stability.
Weakest 4 Week Auction Since July 2009 Closes at 0.16%, Bid To Cover Of 3.56 Lowest Since August 2009Submitted by Tyler Durden on 04/06/2010 - 12:17
Another $34 billion 4-Week auction closed, whose high rate of 0.16% was not only the highest in 2010, but the highest since July of 2009. The Bond vigilantes are finally stirring, not only on the long end, but are starting to question the quality of Bernanke's alleged royal flush quintuple all in. The Directs come to save the day as usual, taking down 16.6% of the auction, well over double the one year average Direct Take Down of 7.2%. Today we also saw a $26 billion 52 week auction close, which just like the 4 Week ended at the weakest rate, 0.49, since 2009, June to be precise when the auction closed at 0.55%. The Bid To Cover came in roughly as expected at 3.66.
BLS Releases Latest Job Openings Data, Number Of Unemployed People Per Open Spot Increases In February To 5.5Submitted by Tyler Durden on 04/06/2010 - 11:41
The number of unemployed persons per job opening has started to increase again, hitting 5.5 in February, as just disclosed by the BLS' most recent Job Openings and Labor Turnover Survey. In February, the total number of job openings declined from 2.85 million to 2.72 million sequentially. The job openings rate was little changed over the month at 2.1 percent. The hires rate (3.1 percent) and the separations rate (3.1 percent) were also little changed in February. Most importantly, there is no improvement in the rate of Hiring, which declined from 4.09 million to 3.96 million. Attached are the main charts of relevance along with BLS commentary.
As an indication of just how royally... busted... things are in Greece, note the most recent GGB curve below. While the 10s30s inversion is not too surprising as at this point nobody expects Greece to be solvent for 30 years, what is more amusing is the inversion of the 6 Month - 1 Year points. Furthermore, the surge between 3 and 6 months over almost 300 bps indicates that the market is pretty much convinced D-Day for Greece will occur, as we expected, sometime between July and September. Which is two months before the Mid-Terms.... And is two months before the deadline that the Israeli Deputy Secretary of Defense said Israel will likely have to attack Iran by. Second half of 2010 should be significantly more volatile than the past 12 months.
The US Military issues its official retort to the Wikileaks video. Here are the official US Army recommendations based on that episode:
I ratify the appointment of the investigating officer, MAJ [Blanked out]
The recommendation that:
-(10a) Members of the press be encouraged or required to wear identifying vests or distinctive body armor within the MND-B AOR is (approved) (disapproved) (remanded to the BCT Cdr).
-(10b) Coalition Forces be notified when members of the press are operating in their AORs is (approved) (disapproved) (remanded to the BCT Cdr).
-(10c) Condolence payments be made to families of the two children wounded in this engagement is (approved) (disapproved) (remanded to the BCT Cdr).
I remand the matter to the 2/2ID Cdr for appropriate action.
Rumors That US-Targetted Greek Bond Issuance Scrapped, As Americans Have Purported "Short Party" In Greek BondsSubmitted by Tyler Durden on 04/06/2010 - 10:03
According to Bankingnews.gr, yesterday's disclosure that Greece would attempt to raise money by targeting US bond investors is now being refuted, and that this will likely "not happen." With record wides across the bond complex, it is not difficult to see why. In the meantime the entire high beta euro sovereign market is melting down. We are stunned US stocks are not up on this latest piece of horrible news: the market has proven quiet resilient in climbing the wall of sovereign bankruptcy in recent months. And now for some comic relief: after alienating Germans in perpetuity, Greece is now targeting the US, and the IMF and specifically its main backer - the US. I guess if you have to go down in flames, might as well try to burn all those who are trying to help you, if only you would cut your profligate ways... Which simple requirement, as was already disclosed, is out of the question. Bankingnews.gr is blaming the plunge in 10 Year GGB on American selling. We are not sure if a "Short Party" is the same as a "Pants Party." We don't want to find out.
"While the pundits and the papers try to force fit the economic data to the market action, currency controlled again.
Quite simply, you could credit the better numbers in the ISM service sector and in Pending Homes sales for moving stock prices higher. With a little finesse you could even credit that data with sending crude prices higher (economic recovery, etc.).
It is less easy to credit that data with helping to push gold higher. Today’s rule of thumb is that if the Troika (oil, gold and stocks) is moving in the same direction, the catalyst is currencies. If the Troika is up, odds are that it’s based on a weakening in the dollar. Conversely, if the Troika is down, you can bet the dollar is probably firming.
Is that boring and frustrating? You bet it is! But it is the dominant force in today’s markets." - Art Cashin
We know it blends. The real question: is there an app for GETCO's DMMs to "see" the order flow ahead of everyone else? Time for an iPad push on the floor?