Ah, curve pancaking - better known in bond parlance as the death rattle. The Greek 4 Year GGB just traded wider of the 15 Year at a spread of -4bps (yup, negative). This, to continue the parlance lesson, means the bond vigilantes are now pretty sure how the Greek situation will play out. Oh, and Greece, all the best with that €5 billion10 year bond issuance. The 1 Year spot his exploded from just over 200 bps on January 1, to just under 5%, a rout for all short-term GGB holders. We are anxiously awaiting RBS' rebuttal.
Greeks just can't catch a break. Market News reports that a "joint report drafted by the European Commission, the International Monetary Fund and the European Central Bank finds that the calculations contained in Greece's budget plan falls €4.8 billion short of what is needed to meet its deficit cutting objective this year" according to senior Greek government officials. Well, our RBS spin-unadjusted take on this data is bearish to quite bearish for the country's Moody's downgrade prospects, which is the gating factor to utter and total chaos once the GGB are no longer accepted as collateral by the ECB. Not to mention Greece's bond issuance propensity (but anonymous government sources have said about 50 times this week the.bond.is.getting.done), and its Bund spread, which at last check was set to probe recent record wides. In the meantime there is no bank run, repeat NO BANK RUN in Greece.
Many have speculated, but so far there have been no real facts. Until now - Pravda quotes Russia FinMarkets news agency, which has said that Chinese officials have confirmed an interest in purchasing the 191 tons of IMF gold currently on the block. The IMF, which will likely see a significant funding need shortly as it commences to bail out PIIGS by peripheral PIIGS, is likely running out of time with gold sale posturing and will need to find a purchaser who can take the entire amount asap. Even as the agency has already started to expand its domestic funding capacity via bank lines, the total amount could easily be greater than capital that the IMF has access to which could force the IMF's hand to transact swiftly. And China fits just the profile for a distressed buyer of such a sizable amount. Should the FinMarkets information be credible, look for the price of gold to spike following confirmation of Chinese purchasing interests.
Today's ugly initial claims number has already found its scapegoat: excess February snowfall. As the NCDC charts below demonstrate, February 7-13 drought/snow debt levels were certainly material. This has caused reputable firms such as Stone & McCarthy to speculate that weather sensitive jobs, such as construction, have "probably suffered." Yet with ongoing inclement weather, with today's Nor'Easter being no exception, this "non-recurring" component will be a prevalent one for at least 2 more weeks, allowing pundits to provide whatever explanation they wish to recent not so good Insurance Claims patterns.
Bernanke's prepared testimony is the same as yesterday. Full commercial free webcast accessible here.
"Yes, Senator, I just want to say first of all we are looking into a number of questions relating to Goldman Sachs and other companies and their derivatives arrangements with Greece and this issue as well. As you know credit default swaps are properly used as hedging instruments. The SEC, of course, has been interested in this issue. Obviously using these instruments in a way that potentially destabilizes a company or a country is counterproductive. The SEC will be looking into that. We'll certainly be evaluating what we learn from the activities of the holding companies that we supervise here in the U.S." - Ben Bernanke
- Yet another example of the ongoing FASB crookery via Jonathan Weil (Bloomberg)
- Markopolos on Schapiro and the SEC: "she has the wrong staff. They're a bunch of idiots there." (HuffPo)
- Semi-nationalized RBS loss shrinks to just $1.2 billion, has approval for $1.3 billion in bonuses: one wonders just how the FASB is involved in this one (MarketWatch)
- British Pound could fall as low as $1.05 (Telegraph)
- +22K in Jobless Claims to 496K, 460K expected,: 6 our of 8 weeks in 2010 have seen growing jobless claims (Bloomberg, DOL) snow blamed for firings, and worst initial claims number since November 14
- Palm slashes guidance (Palm), keeps retarded white font on blue background website color scheme
- The 21st century economic breakdown (Minyanville)
- Asian stocks were mostly higher Thursday, lifted by Bernanke's reassurance that interest rates will stay low for some time.
- Euro plunges to lowest level in year against Yen on risks to Greece rating.
- German unemployment rate edges up to 8.7 percent in February.
- India forecasts 8.2% growth next year, giving room for exit from stimulus.
- Japan stocks fall for 3rd day on strong yen; Toyota down despite president's US testimony.
- New home sales plummet 11 percent in January, the 3rd monthly decline in a row.
RANsquawk 25th February Morning Briefing - Stocks, Bonds, FX etc.
The Fed move to raise the discount rate on Feb. 18 has initiated a discussion of the timing of the removal of accommodation. Unfortunately, framing the subject as being relevant to accommodation is a mistake. The implementation of a near zero interest rate policy is just another component of emergency measures used to cure a systemic bank run. The emergency measures need to be viewed completely separate from the setting of a policy rate for economic management purposes. The potential raising of the Fed target rate from near zero to near 1% should not be called a tightening of monetary policy. There exist many harmful side effects of an emergency rate policy.
California One Step Closer To Insolvency After State Cancels $2 Billion General Obligation Bond SaleSubmitted by Tyler Durden on 02/24/2010 - 20:59
Five days ago a great white hope appeared for the great bankrupt Golden State (Baa1/A-), in the form of $2 billion in GO bonds, which were supposed to be promptly syndicated via underwriters JPMorgan and Morgan Stanley. This would have been the first bond sale for California since November: a critical milestone as the state creeps ever closer to a full-on default. Unfortunately, the creeping just turned into a casual jog after Jane Wells just tweeted that California has cancelled its bond sale "after legislature fails to approve cash management flexibility bill [the] Treasurer said he needed to attract investors." And seriously, did California think it would succeed where so many other high yield issuers have recently failed?
So as Lockyer contemplates how to best approach DC about a bailout, here are recent California CDS levels. Pick your entry point.
Update: Goldman is advising Brookstonefield. Explains it all.
Innocuous... Or something strategic, and Goldman-conflicting, coming down the pipeline? The excuse: "We have suspended our investment rating and price target on Simon Property Group (SPG) because there is not currently a sufficient basis for determining an investment rating or price target for this company. Our previous investment rating and price target are no longer in effect and should not be relied upon." Well that's an odd excuse.
We have previously discussed the maturity cliff in Treasuries, Commercial Real Estate, Financials and High Yield. Focusing on the latter, a recent report from Moody's, indicated that there is roughly $800 billion in high yield bonds maturing by 2014. Today, Bank of America jumped on the HY maturity warning bandwagon, discussing the "maturity wall" which while alarming, is estimated by BofA to be $600 billion, or materially less than Moody's estimates. So while not in any way novel, Bank of America does provide a rather convincing view of therelative maturity schedule in HY currently versus the historical average in both loans and bonds. The results should be troubling to all CFOs and PE-owners of highly indebted organizations: absent raising equity rapidly, the ability to roll these loans in a rising interest rate environment will be next to impossible. Because with 89% of loans maturing in under 5 years (compared to 36% on average), and 50% of bonds (37% average), the maturity cliff,whether defined by Moody's or by Bank of America, is fast approaching.
Over the past 6 months, much attention has been focused on broker/dealer trading in ETFs, and more specifically, on the SPDR S&P 500 ETF, better known as SPY, which in the absence of material cash volume in intrinsic names, has become the de facto primary way to express a bullish and, to a much smaller degree, bearish bias on stocks. Previous observations by Zero Hedge and elsewhere have demonstrated odd accumulation behavior by major broker-dealers which have been speculated to use precisely this ETF, in order to "push" the market in one direction or another. Having done some micro-level research previously, we decided to analyse SPY patterns from a macro stand point. After compiling SPY holder data for the just completed Q4 2009 quarter, we have observed some very curious trends in SPY accumulation. To wit: in Q4, the 5 major market players saw a dramatic increase in their SPY $ notional holdings: specifically JP Morgan (combining both Asset Management and Private Wealth) jumped by 222%, Goldman Sachs saw a 45% increase, Merrill Lynch SPY holdings increased by 207%, and those of Deutsche Bank: by 256%. During this time Morgan Stanley was relatively flat, while probably the biggest surprise was Credit Suisse, whose holdings dropped by 48%, or nearly 24 million SPY shares, to 26 million in Q4. Keep in mind Credit Suisse had a record 2009 holding of 109 million SPY shares on June 30, 2009: it appears Credit Suisse ETF desk has decided to aggressively offload as many SPY shares as it possible can beginning in Q3, 2009. Altogether, we observe a decidedlypositive correlation between B/D SPY holdings and the performance of the broader market.
I am growing more and more tired of seeing what appears to be a very "helpful" algorithm running in the SPY. I am using the term "helpful" very lightly. I relate this algorithm to a jumper cable, your car will run once you get the jump if your battery is running low right?
Now lets say volume in our market is equivalent to a discharged but not quiet a dead battery yet. Symptoms of the market being a "dead battery" are sluggish movement through key pivot levels on a daily 1 min chart, along with violent price spikes within the 1 min candle.
So how do we fix a market which does not have the Umph it needs to stay liquid and trade while not remaining flat all day after the initial 30 min opening volatility? A quant algo of course!