Buy a NYSE Dow 10,000 hat for good cause (you will need to add the "From The Upside" on your own alas... turns out a market correction was not accounted for in the NYSE's marketing budget). Even though the NYSE will not be impacted by the prop trading ban, as the CEO just announced, the fact that they need to reboot their trading servers on almost every down day probably means that an infrastructure overhaul is in order. So here is your chance to kill two birds with one stone - buy a Dow 10,000 hit (from the upside), and support a colo station's infrastructure, somewhere near you, so that some 3 man shady HFT operation can continue scalping each and every of your trades.
Zero Hedge has compiled Treasury Auction data going back to early 2008, for the 3 very critical "no man's land" bonds - the 2 year, 5 Year and 7 Year. We observe that notional increases with each subsequent auction, yet an interesting paradox is that with every single auction (juxtaposed with an ever-greater cumulative sovereign leverage), the demand metrics for auctions have consistently been improving. We compare Bid-To-Cover, Direct Bidder and Tail data. We find as supply increases, both in notional and as a portion of total GDP, demand for USTs increases incrementally more, resulting in ever better auction ratios. We have picked the 2-7 Year points on the curve, as this is where the presumed inflation inflection point will most likely strike based on market expectations. So while purchasing a 30 Year Bond certainly presents inflation expectations considerations as part of the purchase process, the same is not true of 52-week Bills. And the further up the curve one moves, the more of a factor inflation worries become.
Yet oddly, over the past year, it would appear accounts both international and domestic have invested ever more money into the 2-7Y interval. Following today's unprecedented GDP number (which one has the choice of ignoring as David Rosenberg pointed out, due to the certainty that it will not repeat in a long time), one immediate measure of the credibility of this economic data point will be observing the performance of future 2-7 Year bonds (and especially the 7 Year, which has the greatest duration-adjusted sensitivity to yield moves on the curve). If historical trends persist, there is no reason to be concerned that the Treasury will not find a multitude of willing buyers: did Geithner finally figure out how to use Say's law properly? Or is this merely the magic touch of the Federal Reserve and the Primary Dealers, greasing up the market? You decide.
An interesting observation from NYSE's Duncan Niederauer, who is convinced that "separating prop trading, from market making business, from customer facilitation businesses, from principal business" will be next to impossible. For those not on Duncan's side of the trade, we are hopeful that Paul Volcker is just as aware of all this and much more. Although should Obama's proposal be defanged by Geithner's intellectual challenged henchmen when it goes through the Treasury for implementation, Duncan may just be on to something, thus precluding Obama's lofty goal to actually moderate the taxpayer funded risk-taking activities at banks. As is well-known, Niederauer is well-connected within the political circles of DC, where his opinion on what is proper for capital markets carries abnormal sway, so one may wonder, was Obama aware of this all along and was once again merely stringing the morts along, in his epic and unrelenting journey from one TV appearance to another.
Gazprom faces regular opprobrium for its bullying ways of using energy as a pressure and political tool. Seen by some, mostly Russians, as the symbol of a successful and strong Russia, others see it as a dominating juggernaut, economic right arm of the Kremlin implementing, or should we say, imposing its policies by using energy as a weapon.
The funnest news of the day comes from LoanConnector, that follows up on the story of a previously scheduled $126 MM cash loan OWIC due today at 3pm, which was supposed to take place today. The reason for the cancellation: the trader running the auction is out sick. Of course, the dramatic market reversal has nothing to do with it.
A Skeptical Rosenberg On The GDP Number: The Inventory-Imports Dichotomy And The Productivity ParadoxSubmitted by Tyler Durden on 01/29/2010 - 13:03
"The GDP number today represented not just a rare but an unprecedented event, and as such, we are willing to treat the report with an entire saltshaker — a few grains won’t do." David Rosenberg
Asset correlations are high, which is never a good sign for a market as psychotic as this one. Stock weakness translating into UST and dollarstrength almost tick for tick. Curiously, the 7 yr that saw such a vigorous reception yesterday is being sold off the heaviest on a duration adjusted basis. The Yen is surging with the traditional carry pairs dropping. Cable about to break 1.60, and the euro is now below 1.39: dollar just pushed back to highest levels since July.
Paulson Claims Guaranteeing Lehman Would Have Cost Fed Massive Losses; No Mention Of Massiver Losses Coming From GSEsSubmitted by Tyler Durden on 01/29/2010 - 12:22
The man on a book mission, who just incidentally destroyed America with his failed "bazooka threat" containment policy, is out with some new truly brilliant revelations, like for example that the consequences of Lehman's collapse were exacerbated due to the unanticipated actions of PriceWaterhouse Coopers, Lehman's receiver in the U.K., whose freezing of accounts is considered by Hank as the precipitating factor that nearly destroyed the money market system. Hank tops it off by saying that Lehman's $50 billion in impaired CRE loans posed a more substantial threat to the Federal Reserve than the $300+ billion in currently delinquent mortgages on the GSEs' books, which explains why he bailed out one and not the other.
Following the crowd, and going long the Brazilian Real while shorting the Yen has had some disastrous results for carry traders: starting off 2010 with a 9.2% loss is never a good thing to show your boss.
If anyone is confused why the market surged like a stung dog at 9:42 Eastern, don't be: that is the moment when the January Chicago PMI number, which came out at 61.5 (vs expectations of 57.2) compared to 58.7 in December (which of course was downward revised from 60), became available to paying subs. The mere, non-paying morts saw the number for the first at 9:45, when the bulk of the move higher was already completed. And just in case you think we forgot, here is a loving glance at the IOIA shennanigans happening behind the scenes. Guess who is the primary actor at precisely 9:42. Ah, the good ole' microgunning technique - gets 'em every time.
To: Lloyd Blankfein
Re: Winning the Public Relations War
Six months ago, with what I mistakenly took to be your tacit approval, I attempted to address ordinary Americans, almost as equals.
They envied and resented our firm; I sought merely to correct their misunderstandings about Goldman Sachs and send them on their way, so that they might more briskly resume their quest for gainful employment.
In hindsight, I misjudged their ability to see the reality of their situation, and of ours. At the time I accepted your strong suggestion that I never again try to speak directly to mortals -- or, as you referred to them, “The Morts.”
This is how the cold war will look like in the post-Lehman era (when all the debt risk is held on the public balance sheet): one country urging another to sell a third's bonds. According to Hank Paulson's soon to be released memoir, Russia had urged China to sell its GSE holdings in August 2008 "in a bid to force a bailout of the largest U.S. mortgage-finance companies." China refused... That time. Of course, what has transpired since is that China, through the Fed custodial account, has rotated a vast majority of its GSE holdings into Treasuries, in essence doing just what Pimco's Bill Gross has been doing since the beginning of 2009: offloading hundreds of billions of Fannie and Freddie bonds straight to the Federal Reserve. Alas, the Fed is 93% done with MBS QE... What happens when residual selling of bonds finally hits the public market, and the bottom falls out?
- Goldman not only monopolizes FICC, now has best (read fastest) equity desk; And this is why prop can never be seperated from flow at Goldman (Bloomberg)
- Conflicting Greek stories: EU has no Greek "plan B", Finance Chief pledges cuts (Bloomberg), EU reluctantly plans Greece bail out (FT)
- Funds flee Greece as Germany warns warns "fatal" eurozone crisis (Telegraph)
- Geithner's AIG bailout (The Nation)
- Fed chief on shaky footing after confirmation fight; Tough calls ahead on rates (WSJ)
- Stiglitz: Obama's banking proposals are a good first step (LA Times)
The increase in real GDP in the fourth quarter primarily reflected positive contributions from
private inventory investment, exports, and personal consumption expenditures (PCE). Imports, which
are a subtraction in the calculation of GDP, increased...
The acceleration in real GDP in the fourth quarter primarily reflected an acceleration in private
inventory investment, a deceleration in imports, and an upturn in nonresidential fixed investment that
were partly offset by decelerations in federal government spending and in PCE...
Current-dollar GDP -- the market value of the nation's output of goods and services -- increased
6.4 percent, or $221.3 billion, in the fourth quarter to a level of $14,463.4 billion. In the third quarter,
current-dollar GDP increased 2.6 percent, or $90.9 billion.