We present a detailed analysis of international capital flows as disclosed by yesterday's most recent TIC data. Among the key observations we note that while foreign buying of Long Term Treasuries came at a healthy $61.4 billion in total net long-term treasuries, this was coupled by record selling of corporate debt, to the tune of ($24.6) billion. January also saw a net sale of over $5 billion in agency securities, offset by $4.3 billion in stock purchases.
Fed Announcement: No Change, "Exceptional" And "Extended" Language Remains, Vote 9-1, Hoenig Did Not Want "Extended Period...Submitted by Tyler Durden on 03/16/2010 - 13:17
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.
As the attached chart demonstrates, Bloomberg interpolates that there is not even a 1% probability of Fed hike today. The earliest possible hike date is April 28, and even then the probability of a raise to 0.5% is 4.8%. The subsequent date, June 23, has a 14.8% probability of a 14.8% increase, and 0.7% to 0.75%. And even as all is quiet on the Fund Futures side, something is stirring in the Libor market, where 1 week LIBOR has moved to October 2009 levels overnight (in absolute terms, the move from 0.2% to 0.221% is of course a joke; massively leveraged, however, is a different story).
William Cohan: "The Chance Of Seeing Dick Fuld On A Stand At This Point Is An Eight On A Scale Of One To Ten"Submitted by Tyler Durden on 03/16/2010 - 13:03
House of Cards author William Cohan is buying Fuld 2015 correctional facility calls with (with a a 5 year strike). In an interview given earlier to Bloomberg TV, Cohan notes that the "chance of seeing Dick Fuld on a Stand at this point is an eight on a scale of one to ten." The reason: quite simply, as we pointed out first - blatant contradictions between facts and Fuld's version of reality: "Bart McDade, the former president of Lehman, says he told Dick Fuld about [Repo 105] and Dick Fuld was aware of it. By the way Dick Fuld was the biggest cheerleader for this kind of off balance sheet activity. And now Fuld is coming out saying he didn't know anything about it. Seems very hard for me to believe that. The interview also brings up the very pertinent question of how on earth it is possible that not only Bart McDade is currently working as a financial advisor (to Altman's Evercore of all places), but also Dick Fuld is running a comparable gig. "These guys keep moving forward like sharks until they stop. I think they just keep going until someone says 'no more'." Yesterday, Ted Kaufman was the first and so far only person to do that. Will anybody else in this ridiculously corrupt country refuse the bribes, grow a conscience, and follow in Kaufman's example? SEC? FRBNY? District Attorneys? FBI? If you are out there... if anyone is out there... You are alone.
Paulson's Bazooka Reemerges: Greek Finance Minister Wants EU To Put "Loaded Gun" On Table To Protect Him From SpeculatorsSubmitted by Tyler Durden on 03/16/2010 - 12:14
This is getting plain moronic. First, in July 2008 we were hearing all sorts of idiocy, spewed by Paulson about some loaded bazooka that the Treasury had but would never use. Well, the Treasury not only ended up having to use it but it turned out to be the biggest dud in the history of capitalism, Paulson' tendentious blatherings in his publicistic memoir notwithstanding. And now we have the Greeks using precisely the same line. Today in an interview before CNBC, Greek Finance Minister G-Pap II (not to be confused with G-Pap JR, the Prime Minister, or G-Pap 0, the guy who started it all) said he was looking to the EU to put a "loaded gun on the table to defend Greece's financial markets." We were expecting a laugh, a cackle, a snicker, or some indication the man was joking. We all recall that the system started collapsing about a month after the famous Paulson loaded weapon reference. We expect the same this time.
Looks like this is going to get done.
SCHUMER: CHINA FX'ONE OF THE CAUSES' OF GLOBAL RECESSION
SCHUMER: CHINA CONTINUES TO 'GAME THE SYS' ON CURRENCY
SCHUMER: CHINA FX'HAMPERING'GLOBAL ECONOMIC RECOVERY
SCHUMER: 'GROWING CONSENSUS'ON CAP HILL RE CHINA FX MANIPULATION
SCHUMER: WILL TRY TO ADD CHINA FX BILL TO'MUST PASS' LEG
We are now taking bets what China's re-re-retaliation to this next step will be.
Weak 4 Week Auction Anticipates Tightening; Direct Take Down Greater Than Indirect For First Time; Highest Yield Since AugustSubmitted by Tyler Durden on 03/16/2010 - 11:37
Today's $31 billion 4 week auction produced another record. The indirect take down was a disappointing, and all time low, 13.2%, compared to a YTD average of 28.5%, while directs surged once again, hitting a new record high take down of 21.7%, with average YTD take down of 9.6%. The indirect hit ratio was 82.8%, with Indirect tenders to bid only $4.9 billion, with a $4.1 billion award. Most notably, for the first time in what appears history, the Direct take down was greater than the Indirects. At this point it is meritless to speculate who the directs are which now control nearly a third of every auction. Otherwise, the Bid To Cover was 3.79, down from 3.90 previously, and the lowest BTC Year To Date. This was accentuated by the High Rate of 0.135%, which was the highest since August of 2009. In a nutshell, the market is starting to look at tightening as a real threat. Next stop: flattening.
Geithner Hints At State Bailout; Says "There Is No Way [A US Downgrade From AAA] Is Going To Happen"Submitted by Tyler Durden on 03/16/2010 - 11:02
Just reading between the headlines:
ROMER: STATE,LOCAL BUDGETS TO REMAIN 'VERY VERY BAD'
GEITHNER: V.STRONG CASE FOR ASSISTING STATES ON SIGNIF SCALE
GEITHNER: NEED REFORMS FOR STRONGER ECONOMY IN THE FUTURE
GEITHNER: NEED TO CONTINUE TO REINFORCE ECONOMIC EXPANSION
And on the threat of a US downgrade Geithner adds: "There is no way that's going to happen," he replied. "There's not a chance that's going to happen to this country."
Albert Edwards Predicts Deflation Followed By Double-Digit Inflation As "Governments Opt To Default, And Monetization Is Policy Lever of First...Submitted by Tyler Durden on 03/16/2010 - 10:44
Ultimately, as my colleague Dylan Grice writes, I think we head back to double-digit inflation rates as governments opt to default. I certainly again expect to see CPI inflation above 25% in the UK and indeed in most developed nations in my lifetime ? I have happy memories of the three-day week and doing my homework by candlelight. In the near term, however, the deflationary quicksand will suck us ever lower until we suffocate. A key driver for underlying inflation remains unit labour costs. While unit labour costs decline at an unprecedented rate, they are sucking us inevitably into a Fisherian, debt-deflation spiral. Only then will we see how far policymakers are willing to go to debauch the currency. Last year saw them cross the Rubicon. Monetisation is now the policy lever of first resort.
- Albert Edwards, Soc Gen
S&P Sells Out (Again), Confirms Greece At BBB+, Removes Greece From CreditWatch Negative, Sends Market HigherSubmitted by Tyler Durden on 03/16/2010 - 10:09
In case you were wondering what just sent the market and commodities higher, and killed the dollar, look no further: S&P just released a note confirming Greece at BBB+, and removing the country from CreditWatch negative, presumably a major euro positive, a major dollar negative, and today's nitrous boost to stocks... Here is the forest for the trees: the market is again dependent on the moronic filth spewed forth by rating agencies. As to what turbo austerity will do to Greek GDP, ah, who cares. S&P will cross that bridge when Greek GDP plummets 10%.
One of the more vocal economic skeptics (as pertains to the developed world at least, China not so much), CLSA's Chris Wood, chimes in with his latest weekly observations on the economy, which are not for the faint of heart, in the latest edition of GREED and fear. Digging in.
Is It A Bluff Or Is It Battle Preparation? – Several blogs have picked up on reports that the U.S. may be transferring “bunker-buster bombs” to a base in the Indian Ocean. Here’s a part of a story in the Sunday Herald of Scotland:
Hundreds of powerful US “bunker-buster” bombs are being shipped from California to the British island of Diego Garcia in the Indian Ocean in preparation for a possible attack on Iran. - Art Cashin
One can only marvel at how the U.S. market managed to bounce back in the last hour of trade yesterday — the intraday move in the Dow exceeded 70 points. Yet, once again, volume faltered on the major exchanges. This remains one weird market, and reminds us of the story of the pig farmer — one sells a pig to the other for a dollar only to then have it sold back to him for $1.25 and then sold back to the other farmer for $1.75 and so on and so forth. It’s two pig farmers selling the same pig back and forth and driving the price higher in the interim — until of course, the price dynamics shift into reverse. It’s a great story (courtesy of Doug Behnfield at UBS) and probably apropos to what we are seeing today in this low-volume rally but still impressive comeback from the January lows. - David Rosenberg
US-China Re-Retaliation - The Escalation: Senate To Unveil Bill Threatening Stiff Chinese Penalties If No Yuan RevaluationSubmitted by Tyler Durden on 03/16/2010 - 08:45
Just a headline from Reuters for now:
U.S. SENATE BILL TO BE UNVEILED TUESDAY THREATENS STIFF PENALTIES ON CHINA IF IT DOES NOT REVALUE ITS CURRENCY-CONGRESSIONAL AIDES
We are confident China gets Reuters too.
I’ve seen too much about the “trade everyone should be into”—shorting Treasuries. Let’s break this trade down.
- The economics of the trade is poor
- Even though the Fed is jonesin’ for inflation, there is a bet against the Fed embedded in it on some convoluted level
- It is an extremely crowded trade
The short treasury trade has features that make it a bell-weather for the multi-layered screwdness in which the world finds itself.
On the surface it looks pretty appealing. What with a commitment to being irresponsible on the part of the Fed, and global economic recovery on the other hand. It's a long position on rational economic policy, right?