We start with Fixed Income. With supply next week and unemployment report on Friday we had a preference being short fixed income this week. Technically we see that on the bund we have been in a narrow 123/123.65 range, and the slow stochastic is about to turn which has not generated a false signal in quite some time for that market that decent sell-off of at least 2 figures is on the way. 10Y treasury futures have held the 118-10 resistance but curiously look like they are in the process of doing a 5th wave up with potential between 118-27 and 119-05. It is not ou preference to view the recent price action as a bullish impulse with respect to the overall market dynamic since the highs last March but we remain cautious about the possibility of extending further on the upside. The bund paints a slightly more bearish picture for now. Still we are fairly overbought here and we think the risk reward is tilted to the downside. People who do not wish to express this view directionally can engage in a 5s/10s flattener (charted here using implied yield on the future). We see that we are back testing the former wedge support as resistance and we are fairly close to the highs excluding the post-lehman spike in the curve. Negative carry on the position is only 9bps per quarter so it is not too expensive to hold the position as well.
In the past Zero Hedge had respect for Ten. Senator Bob Corker due to his opposition to the nationalization of the bankrupt automakers and making them yet another ward of the ever larger central-planning state. However, after today's hearing with Paul Volcker on the Prop trading ban, any respect we may have had for the Senator has promptly dissipated. While we understand that the pointless bashing of Volcker's proposal by Corker was predicated by his sizable lobby interest (over $21 million raised in the course of his career) and his talking points were undoubtedly a transliteration of a memorandum submitted by one of the Too Big To Fail banks that stand to experience substantial losses should the Volcker proposal pass, one line of argument in Corker's speech that is flagrantly flawed was Corker's naive rhetorical question whether there has been a single instance during the financial crisis where a commercial bank engaging in proprietary trading led directly to that institution failing or having to be bailed out by the taxpayer. Corker assumed the answer is no and kept pouncing on that answer. Well, Senator, you are wrong - meet Merrill Lynch, incidentally one of your biggest financial backers. Also, please meet Merrill's prop basis trade and its prop HVOL4 trade, which combined were the primary reason for the firm's $15 billion writedown in Q4 of 2008 and the subsequent bail out of the firm by Bank of America.
More wishful thinking and generic talking points from the FHFA which will end up being the opposite of what will end up happening. In the meantime, still no update on proposed GSE regulation or why they are still not included in the Federal Budget.
At this point blatant episodes of insider trading are a weekly if not daily occurrence. While we still expect to hear back from our friends over at Mary Schapiro's woefully underfunded Syndicate Encouraging Corruption (SEC), regarding the previously disclosed insider trading in New York Bancorp, here is another one for Mary and her gray matter-challenged subordinated to mull, this time involving clothing retailed Ann Taylor.
January Tax Withholdings Indicate That The Treasury Is Unjustifiably Optimistic In Its Reduced Funding Need ProjectionsSubmitted by Tyler Durden on 02/02/2010 - 16:43
Analyzing the just released Treasury funding expectations, and juxtaposing the data with January tax withholding data indicates that Tim Geithner is unjustifiably optimistic about the Treasury's need to borrow less than expected in the January-March period. Once the Treasury is forced to recognize the incremental borrowing needs, the Treasury market is likely to react adversely due to the apparently lack of foresight exhibited by analysts at the US Treasury Department.
In a seeming reversal of yesterday's FT rumors that Chris Dodd would do everything in his power to undermine the passage of the Volcker rule, as part of his prepared remarks at today's hearing on high-risk investment activities by banks, Dodd said that he "strongly supports" a proposal to restrict large commercial banks from engaging in significant proprietary trading or owning hedge funds or private equity arms.
Paul Volcker's live testimony before Chris Dodd's Senate Committee on Bribery, Vice and Corruption can be seen live here.
With every Tom, Dick and Harry convinced they can take on Goldman's Jim O'Neill and come up with a wittier, edgier, Gen Y/Z BRIC equivalent, Zero Hedge has decided to join the fray. We present the STUPIDs: Spain, Turkey, UK, Portgual, Italy and Dubai. We admit that while the BRICs and some the other more ridiculous sounding acronyms we have seen out there recently are a gauge into various countries' pent up "growth" potential, the STUPID index is merely a countdown to the inevitable sovereign debt implsion that so far has been postponed due to cash printers working on overdrive 24/7. And to make it simple for the armchair acronym specialists, since the index is in CDS, the chart will go up... but not on the pervasive permabullish sentiment.
The latest out of the Richmond Fed is a joke of a paper that while analyzing the possibility that the entire stock market and dollar carry trade is one zero cost of capital-funded bubble, skips over this possibility and instead goes on to analyze the "factors that could contribute to a fundamentals-based explanation for the recent rally in certain risky asset markets." Spoiler alert: No bubble - it's all based in sound reality.
Now that every trigger happy, red-bull OD'ing HiFTer is keenly following every lockbox in possession of Greek bureaucrats to see how many billions more in debt will "suddenly" appear out of thin air, many have forgotten about that "other" sovereign bailout - Dubai. The reason: Dubai World, which was supposed to present a restructuring offer for $22 billion in debt in a meeting with lenders in December, never did. January wasn't any different. February, by the early looks of it, will also be a dud. So as the world grinds along and creditors have no clue what the hell is going on in Dubai, and increasingly so in Greece, everyone has their fingers crossed that not only will there be no default anywhere, but that anyone who dares to mention just what a great big castle in the air the entire sovereign debt arena has become, funded by overt and covert cash transfers by the Federal Reserve, will be (in)voluntarily swept under the rug.
It is no secret that SocGen's Dylan Grice has not been a big fan of the Japanese economy, or stock market for that matter. We have highlighted his perspectives on the island nation in the past, and his concerns about a likely demographic-induced funding crunch have been picked up by the likes of Hayman Capital's Kyle Bass. So when Grice comes out with constructive suggestions on how to play Japanese relative value, especially if it is based on liquidation value considerations, one would do well to listen.
It appears not even one day can pass without some new and improved indication of Greece's economic collapse. The latest comes from website Kathimerini.gr which discloses that the recently appointed "Committee on the Reliability Of Statistics" has uncovered $40 billion of previously hidden debt (one wonders when America will get a comparable commission: no question we are in dire need of one).
Watch Tim Geithner's testimony before the Senate Finance Committee on the President's amusing 2011 budget live and commercial free, here. It is time someone asks why the GSEs continue getting the Federal Budget exemption.
We hope, although it is very unlikely, Senator Bunning somehow makes a guest appearance with some very directed questions.
The January data for the Johnson Redbook retail index is out, missing the MNI consensus for both YoY change, which was at 1.0%, compared to a 1.2% consensus, while month over month Redbook was down 1.5% compared to december, on expectations of a 1.2% drop.