Today's $26 billion 10 year auction has priced and while it was not the complete rout many had expected, it did tail, pricing wide of the WI, at 3.34%, which is 70 bps compared to a month earlier, and the highest yield since the May 3.548% auction. Bid To Cover came at 2.92, on the low side of all 2010 auctions. In terms of participation, Indirect take down dropped from 56.6% last auction to 44.4%, which was low, but has been worse in 2010 (29% in January), as Directs stepped up again and bought 11.4%, with the balance of 44.2% of course purchased by the Primary Dealers. We expect at least a small part of this issue to be monetized by Brian Sack in as little as two weeks. Lastly, those hoping for a respite from blowing out rates better pray that Democrats manage to squeeze the Build America Bond provision in the tax rate extension, or else the bottom will fall out of the muni market, forcing Bernanke to unleash QE3: the broke state version.
Janet Tavakoli shares a presentation she prepared for the Federal Housing Finance Agency Supervision Summit earlier today, in which she attempts to explain to politicians how banks made fraud into a "business model" and how the damage can be repaired. It may not be easy: as she says, MBS became a "widespread interconnected ponzi scheme" - "Securitization professionals at several financial institutions knowingly bundled fraud riddled loans into RMBS. New investors needed to pay-off old investors. To delay being busted, they escalated and sped up the fraud. This required more “complexity” and the involvement of more cronies. Many CDOs and virtually every CDO-Squared were more fraud to cover-up fraud." Of course, the same can be said about the global economy, as now everyone is aware that the global Keynesian system is nothing less than Madoff's scheme taken to the infinite degree. But nobody will ever go to jail for that. For any remaining questions on the motives, the schemes, the payoffs, and, most importantly, the players, both the protagonists and the bribed co-stars, the below presentation attempts to answer all. And, unfortunately, Ms. Tavakoli's suggestion for how to fix this, which is remarkable precisely the same one we have been espousing since our advent, will never happen as it means the end of the Ponzi and the elimination of trillions in generationally stolen middle-class wealth.
Pentagon Papers' Daniel Ellsberg And Other Ex-Intelligence Officers "See Plusses In WikiLeaks" DisclosuresSubmitted by Tyler Durden on 12/08/2010 - 13:39
WikiLeaks has teased the genie of transparency out of a very opaque bottle, and powerful forces in America, who thrive on secrecy, are trying desperately to stuff the genie back in. The people listed below this release would be pleased to shed light on these exciting new developments.
How far down the U.S. has slid can be seen, ironically enough, in a recent commentary in Pravda (that’s right, Russia’s Pravda): “What WikiLeaks has done is make people understand why so many Americans are politically apathetic … After all, the evils committed by those in power can be suffocating, and the sense of powerlessness that erupts can be paralyzing, especially when … government evildoers almost always get away with their crimes. …”
So shame on Barack Obama, Eric Holder, and all those who spew platitudes about integrity, justice and accountability while allowing war criminals and torturers to walk freely upon the earth. … the American people should be outraged that their government has transformed a nation with a reputation for freedom, justice, tolerance and respect for human rights into a backwater that revels in its criminality, cover-ups, injustices and hypocrisies.
In a slightly unorthodox note to his readers, "Sovereign Man" Simon Black looks at the next potential escalation in the Julian Assange trainwreck, which may soon become a diplomatic fiasco all on its own, and without the need for leaked cables: it turns out that Australia is now seeking to strip Assange of his passport. However, there courtesy of a recent loophole, Assange has applied for UK citizenship (British mother). Will the UK - America's staunchest supporter, follow through with its laws, and grant the Australian a passport now that even his own nation seeks to betray him? As Black points out: "There are two important lessons in here for all of us: 1. Like Julian Assange, you never know when your own government will stand ready to "sell you out." Prepare accordingly. 2. Though you may have looked at all avenues for obtaining a second citizenship based on your family background and place of birth, it pays to constantly review the laws. Governments are always tinkering with them. Usually this is a bad thing... but as Tim's shining example shows, sometimes it works to your advantage." Lastly, one never knows when the proverbial TSHTF, and as such one should always be aware of all options should living in the US become, shall we say, problematic.
Confused what the upcoming rate hike in China means for the domestic economy (if reports of an imminent rate hike are to be believed), bursting of the global credit bubble aside? Luckily, here is JPM's Jing Ulrich (no relation to Lars) with all the charts one needs and then some to make some sense out of the most complicated and misrepresented control economy in the world.
Today the Fed monetized $1.6 billion in TIPS from across the entire curve, with purchases as recent as bonds due 2012 all the way back to 2040. Curiously, the most remarkable TIPS issue ever, the MY3 of 2015, issued this October which came at an unprecedented negative -0.55% yield, was not bought back. Actually, we take that back: that particular Issue is now trading at a huge loss to everyone who was so sure deflation was inevitable as recently as two months ago... Which judging by the entire TIPS curve is everyone. Below we present a compare and contrast from the TIPS breakeven as of October 13, which did not anticipate inflation for about 7 years, to today: the current breakeven is at about 4 years, as the herd has panicked and from all out deflation is now sensing that despite the Viceroy of the Printers 100% confidence that he will not blow up the world, it may be prudent to take the other side of the bet. In the meantime, the collapse in rates continues.
Both gold and silver are having a rough day to say the least. After a forced slide in the gold complex pushed the metal to sub $1,380, fueled in part by recurring rumors of a large macro/commodity fund taking profits ahead of the year end, numerous stops were triggered, bringing it to nearly $1,370, almost $50 below the all time high reached, oh, yesterday. And since traders are now desperate for volatility, which has disappeared from stocks, the daytrading crowd has taken over both the precious metals space... and the bond market. That said, momentum chasers entering the gold and bond market may have the makings of the greatest comedy witnessed in markets in the past several years.
During the past two days the differential has narrowed between the US and Germany, but the euro has yet to show much weakness. The shorter cycles on EUR/USD appear quite clear to us and call for euro weakness into Thursday. There is a chance the euro has just formed a significant peak and if it closes below the strong support at 1.3030 it has begun a downtrend lasting into the end of the week of December 27 and will fall to 1.2650, signaling it is headed lower into April or May. If the next few days lack much weakness then the euro will turn higher and a close above 1.3375 signals it is headed higher into the middle of next week and will rally to the 1.3625 area. The movement in interest rates will be a major determinant of which course the currencies take.
Looks like the market does not like the massive flattening we discussed over the past two days. To wit, we present market commentary from a trading desk, appropriately titled "dead cat" bounce: "Another "dead cat" bounce in the Treasury complex as prices are now sitting just above session lows. Additionally, while still outperforming, 30yrs are starting to feel some of the heat. The curve remains mixed depending on what your long end maturity is. Real money remains quiet aside from some light nibbling. Fast/pro/dealer accounts continue their defensive trade and remain in control. Techs are negative but cautious due to oversold conditions."
As more Chinese IPOs come to market in the US (thank you NYSE) providing an endless supply of surefire shorts for addition to the "Chinese Fraud" basket, that epitome of Chinese accounting perfection RINO has reopened, after a nearly one month hiatus, on the pink sheets... and is down almost 70%. Expect many more comparable "inverse fireworks" chart formations out of the recently IPOed Chinese crowd.
Bernanke's 60 Minutes appearance was an unmitigated disaster. Two major failure points, namely "QE is not printing money" and 100% cock-sure-ness, have become an instant butt of jokes. Just because we don't have an economics PhD from a decent department, doesn't mean he should treat us as idiots. Yes, QE doesn't expand the M1 monetary base. But after credit is included, it is expansionary, and this is exactly what he was hoping for. It was embarrassing to watch the Fed chairman talking like a disingenuous, idiotic politician. So, Fed wants inflation, and inflation is what they'll get. 30-yr treasuries yield has shot up since the announcement of QE2, meaning mortgage rates will go up soon. Coupled with the glut of supply and timid demand in housing, we can all thank the Fed for a prolonged housing dip. Yes, the treasury curve has flattened a bit in the last few days, but the bad news is it's by 10-yr yield going up, not 30-yr going down. Oops. Did somebody just say 100% sure about something?
It seems it was just yesterday that the Chairman penned the following famous last words in his Washington Post Op-Ed: "The FOMC intends to buy an additional $600 billion of longer-term Treasury securities by mid-2011 and will continue to reinvest repayments of principal on its holdings of securities, as it has been doing since August. This approach eased financial conditions in the past and, so far, looks
to be effective again. Stock prices rose and long-term interest rates
fell when investors began to anticipate the most recent action. Easier
financial conditions will promote economic growth. For example, lower
mortgage rates will make housing more affordable and allow more
homeowners to refinance." Um, Chairman, so what happens now, a month after your Op-Ed justifying QE2, when the prevailing mortgage rate is about 1% higher, and is resulting in about a 10% decline in home prices to maintain the same level of affordability?
Sick of bears explaining QE2? Prefer to watch Jon Stewart roasting the monetary Hewlett Retard instead? Here is your chance. Somehow catching Ben Bernanke lying on national TV has become not only a national sport, but one that provokes uncontrollable laughter... Ironically that is the laughter of all those whose money on a daily basis is worth less and less, courtesy of the Chancellor (Chairman is so QE1) buying back $50 billion in debt every week. Presumably laughing as one's net worth is getting destroyed makes it more palatable. Just wait as the country collapses into uncontrollable hysteric guffaws as the 30 Year mortgage passes 5%, then 6%, then 7%, etc. destroying up to 25% of household net worth.
As the 10 Year continues to plunge, the one topic nobody on CNBC is daring to discuss is the absolute slaughter for all those calling for a steeper curve, and the resultant misery that banks are again experiencing as a result. With financials supposed to be the new market leaders one can't possibly bring up the sad truth that as QE2 fails, the US financial system will take the brunt of the hit. And even as Goldman and MS get their wish for a sell off in the 10 Year, unfortunately for them this is accompanied by a less than comparable dumping of the long-end, resulting in an even greater flattening of the curve, and validating our call from last night that the bond world is about to get a whole lot more flat. Lastly, as the 30 Year Cash Pay Mortgage jumps by 20 bps W/W, the result is about a $200 billion loss in home net worth in just one week. The Uberprinter is now torn whether QE3 should be one of monetizing municipals, or, as Bill Gross has been positioning so very well for the past two months, throw it all into MBS once again.
Update: Reliable sources in the trading community with closer ties to Wolverine assured us that the story published about Wolverine Trading has zero validity.
We received contacts from several independent sources in our community yesterday that Wolverine Trading, a PMM, options market-making firm in everything from global equities to commodities may have solvency issues. As of this writing this is unsubstantiated. Sources were CME floor members and financial analysts familiar with their business model. The only physical sign we saw was a lack of physical presence in some major commodity option pits for the last two days. If this is true it would be a terrible thing for the markets, as Wolverine was a classic market-making firm, one that provided backstop liquidity in all kinds of assets.