Whew. That was fast. It didn't take long for Wall Street to figure out how to game Obama's new mortgage modification program, did it? The plan was hyped as help for "struggling homeowners", but it turns out, it's just another stealth bailout for pudgy bank-execs. It's funny, the program hasn't even kicked in yet and, already, bigtime speculators are riffling through their filing cabinets looking any garbage paper they can find to dump on Uncle Sam.
Summarizing last week's key economic releases in a few simple charts, as well as an overview of Barclays' macro outlook for the rest of the year.
Goldman Joins JPMorgan On The PR Offensive Against The US Middle Class, As Americans Find A Surprise Champion In The Face Of Fed's Tom HoenigSubmitted by Tyler Durden on 04/02/2010 - 16:04
The campaign by the big banks against the people of the US is getting louder by the day. First, it was JP Morgan' Jamie Dimon, who segued into the Goldman "god' banker" refrain that all megabanks are not just critical but need to get even bigger in the form a 36-page lament to shareholders (in which among other things he repeats that even though JPM was bailed out, and even though it was handed Bear with Maiden Lane I left to pick up all the crap he did not want, none of those activities by the US taxpayers were necessary), and today it is none other than Goldman Sachs, which after prudently keeping a low public profile for a few months, is about to remind everyone who runs the world. And with the US public comprised of phlegmatic sheep, or morts as Michael Lewis put it very graphically, it appears that nobody is willing to stand up to those who run not just the markets, the economy and the administration, than the Fed's contrarian Tom Hoenig. In an exclusive interview with HuffPo's Shahien Nasiripour, Hoenig indicates that even among members of the Fed, there are people who not only think rationally, but realize that should the big banks/hedge funds (really just JPM and GS at this point) get their wishes to continue the status quo, the next leg of the crisis can't be far behind.The only problem: this time America itself will go down with the big banks: remember - all negative swap spreads indicate is that the banks insured by America, are now perceived as less risky than America itself.
Jim Grant Presents A Prospectus For The United States, Discusses The Death Penalty For US Coinage DebasersSubmitted by Tyler Durden on 04/02/2010 - 14:46
Jim Grant joins Morgan Stanley (and contrary to Rosenberg's expectations) in anticipating US rates to rise promptly, primarily due to the world's negative "reappraisal of the US Treasury." This is not so much a debate on inflation or deflation, as it is a call on the (un)trustworthiness of the US as a lender. To that end, Grant has put together a Treasury prospectus (which we will post as soon as we procure it) which as Jim puts it "is a compendium of the salient facts about the Treasury as if it were an issuer that did not have a printing press... All you need to know about the credit risk of the US." The first risk factor, via the GAO, "improper payments that should not have been paid by the Treasury totalled $98.7 billion, equivalent to 5% of Treasury outlays." Keep in mind the UST raised $333 billion in net debt in March, as we pointed out yesterday. Grant also discusses the Coinage Act of 1792, whose section 19 stipulates "that the penalty for anyone who would debase the coinage of the US, is death." By that logic, a firing squad may soon need to be sequestered to Washington. Grant's concludes that there is a "great suspension of disbelief in out US monetary system on behalf of the world over. One wonders when people will say no."
We are back testing the support on the daily chart in bonds today following NFP. Number did not beat expectations but speculative pressure and fear of a discount rate hike next week (we think it probably won't happen and if it does it should not impact rates materially) helped push the market lower. The support here is key at 114-25, if we break below the next level is 111-26. Looking at the 30-minute chart, I think we have a very clean ABC formation and the next move could well be up. Since we are right on support I would look at being long via option structures, and quickly reverse to shorts if we close below 114-25. - Nic Lenoir
As was expected in light of recent FX moderating overtures by Beijing, China will not find out if it is or is not a currency manipulator on April 15. The NYT reports that the decision from the Treasury will be deferred until after China President Hu Jintao visit Washington. "China experts said it was unlikely that China would have agreed to the visit unless there was at least an informal assurance by the Treasury Department that it would not be named a currency manipulator either on or around April 15 — the deadline for the Obama administration to submit one of its twice-a-year reports on foreign exchange to Congress." This does not mean that China will refloat the CNY, but that we are merely back to square one, after some loud TV appearances by politicians, and some even louder columns written recently by so-called pundits.
The great Pali experiment is over, after Pali Holdings, the parent of Pali Capital, filed for chapter 11 yesterday. The company listed $716,300 in assets and $31.8 million in debts. The reason for the bankruptcy was provided in the filed affidavit as follows: "Pali Capital experienced consistent pre-tax losses commencing with the second quarter of 2008 and continuing through and including the fourth quarter of 2009, caused by among other things, a substantial slowdown in sales and trading by Pali Capital’s primary institutional clients. These losses are projected to continue into at least the first quarter of 2010. As a result, it was difficult for Pali Capital to maintain adequate levels of excess regulatory net capital to support normal business operations, although Pali Capital is in compliance with its minimum regulatory net capital requirements through February 28, 2010." So after 4 CEOs in 17 months all Pali is left with is a list of secured and unsecured creditors. And in probably not the wisest move for the privacy of said creditors, the firm has listed the home addresses of Kevin Fisher, Ari Nathan, Leon Brenner and some other rather high profile financiers.
The first ever BLS web chat is over and the results are below. To be sure, none of Zero Hedge's more probing (or any) questions were honored but that's ok: we don't claim to be well-connected administration/banking system insiders, on the fast track to hard cover book releases (and maybe sales) any time soon. The overall theme is that for the most part the people who cared enough to participate in this chat a) didn't believe much of what is coming out of the BLS, and b) ridiculed assumption that things are getting even remotely better. Although not even an hour had passed from the release that Robert Gibbs (@PressSec) twitted the following: "Looking at jobs numbers...in first 3 months of '09 averaged 753,000 jobs lost - first 3 months of this year, average of 54,000 jobs created." And then they wonder why the population, which is not as dumb as the admin wants to believe, does not believe a single governmental release.
Goldman On The NFP Number - "Little Underlying Improvement...Productivity Gains Have Diminished Sharply"Submitted by Tyler Durden on 04/02/2010 - 09:34
Following Goldman's last minute revision to the NFP which brought the firm just 40K away from the true number instead of almost 120K as it was before, here is Jan Hatzius' take on the just released NFP. Select quotes: "March Shows Little Underlying Improvement But Other Data Firm" and "With the recovery of workweeks in March, the index of total hours worked rose 0.4%. For the quarter as a whole, hours worked were up 2.1% at an annual rate. With the "bean count" for real GDP still fairly consistent with our estimate of a 2.5% annualized increase, the implication is that productivity gains have diminished sharply."
March Non Farm Payrolls: +162K, Below Consensus, Unemployment Rate 9.7%, Ex-Census, Weather and Birth-Death NFP Change Is -67KSubmitted by Tyler Durden on 04/02/2010 - 08:32
Key data points for March: change in NFP: 162K; of these - Census +48K; Weather ~+100K; Birth/Death +81: Net -67,000. Underemployment increased to 16.9%. In the meantime the dollar is surging, and the 10 Year is approaching 4.00%
In March, the US government issued a massive amount of debt: $332.8 billion - the biggest amount ever since the all time record of $545 billion raised (most of it purchased by the Fed) during the apex of the financial crisis in October 2008. The US Treasury had $12.717 trillion in debt subject to limit at the end of March, compared to just $12.384 trillion in the beginning of the month. The private-to-public debt transfer is going as planned, still in the full absence of the shadow economy.
Now that QE is over and the Fed's $1.25 trillion of MBS has been formally purchased, the Fed's balance sheet will gradually settle all the pending transactions through early June. In the meantime, we will instead focus on the change in duration of the Fed portfolio. Over the past month the Fed's duration has been pushed slightly outward: the reason for this has been the reduction in the ultra-short duration Term Auction Facility to just $3 billion, as well as the roll and maturity of about $10 billion in Bills from the 16-to-90 Day bucket. Next week another 18$ billion will likely roll off which is the total current balance in the Under 15 Days total. Yet the biggest issue as pointed out earlier, is the massive holdings of both long duration MBS, as well as the increasing Treasury holdings in the 5 year and over Treasury category. As Jefferies noted earlier, the DV01 on the Fed's balance sheet is roughly $1 billion.
Advance Notice of a Meeting under Expedited Procedures
It is anticipated that a closed meeting of the Board of Governors
of the Federal Reserve System at 11:30 a.m. on Monday, April 5, 2010,
will be held under expedited procedures, as set forth in section 26lb.7
of the Board's Rules Regarding Public Observation of Meetings, at the
Board's offices at 20th Street and C Streets, N.W., Washington, D.C.
The following items of official Board business are tentatively
scheduled to be considered at that meeting.
Meeting date: April 5, 2010
|Matters to be Considered:|
Review and determination by the Board of Governors of the advance and discount rates to be charged by Federal Reserve Banks.
A final announcement of matters considered under expedited procedures
will be available in the Board's Freedom of Information and Public
Affairs Offices and on the Board's Web site following the closed
"What I would like to do today is to explain in some detail the logic underlying this expectation that economic conditions will warrant exceptionally low levels of the federal funds rate for an extended period...There has to be a further demand impulse— be it a decline in household saving rates, a rise in business investment relative to profits, a further expansion of fiscal stimulus or an improvement in the net trade balance via an increase in exports relative to imports." Bill Dudley of Goldman Sachs, wait, formerly Goldman Sachs, now just of the New York Fed, who implores Americans to be patriotic and stop saving. Dudley hints at the inevitable endgame: "The fact that our foreign indebtedness is for the most part denominated in our own currency is a huge advantage in the event the dollar were to come under significant downward pressure."