Archive - Aug 26, 2009

"We really fail to see how it could possibly be that the same central bank official, who, over a span of a decade, presided over two massive bubbles and their busts, can be viewed as being a positive force for the markets. Perhaps there is some solace in knowing that the same person who created this awesome and complex $2 trillion Fed balance sheet will be around to dismantle the largesse since he’s probably the only one that knows how." - David Rosenberg

The Fed's fix for a few billions bonds was satisfied once again, after taking a brief respite yesterday. In today's POMO, $2.3 billion bonds was repurchased, with well over $1 billion around the year 30 maturity. CUSIP QB7 was a May 7, 2009 issue: primary dealers can breathe a sigh of relief that they have to hold $353 million less of this, courtesy of the US taxpayer/$ printing press.

So now you know how "best of breed" 175/75 funds have been performing in this irrationality-driven market.

An article in yesterday's Advanced Trading magazine, written by Pipeline executives Fred Federspiel and Alfred Berkeley, which was supposed to extol the virtues of HFT (or of the Pipeline product offering specifically, we were a little confused on that issue), ended up doing anything but, and in fact confirmed many of the concerns voiced with regard to high frequency trading in the blogosphere and in other venues.

With all eyes glued to the Michigan numbers yesterday which were supposed to start another recursive market spike, most pundits failed to notice the much less cheerful ABC consumer comfort index which was virtually unchanged, and in fact the buying climate assessment indicated a deterioration.

As the market continues on its steady path to the stratosphere, first it became apparent that pension funds did not participate in the run up due to their significant reduction in equity exposure around the March max pain. What might come as more of a surprise is that according to the HFRX GlobalHedge Fund Index (HFRXGL), even hedge funds are broadly underperforming the rally. Which is why aside from various Reuters articles claiming the contrary, hedge funds are mostly on their toes regarding their staffing decisions, as many funds are dealing with disgruntled investors who are confused why they are paying 2 and 20 for levered positions in equities when they could have generated better returns outright.

• July durable goods ex-cash for clunkers up 0.8%, a decline from June. Also, the inventory pick up mirage continues being just that: inventories declined $2.7 billion or 0.8 percent to $314.1 billion. (US Census Bureau)
• Senator Edward Kennedy dies after battle with cancer (WSJ)
• Swiss response begins: Swiss private bank Wegelin announced it will stop doing business in the United States (Swissinfo, h/t William)
• AFP interviews the one-man regulator Harry Markopolos (AFP, h/t Eric)
• China to impose curbs on overcapacity in steel, cement (Bloomberg)

• Asian stocks gain on strong Chinese earnings, US Consumer report.
• Euro approaches 11-week high on signs global recession abating.
• Homebuilders buy land after 3 years of selling as US demand returns.
• Oil advances before report forecast to show that U.S. inventories declined
• South Korea Consumer confidence rises to 7-year high on state spending.
• US consumer confidence, Home prices exceed f'casts in sign of recovery.
• US deficit revised to a record of nearly $1.6 trillion for fiscal year ending Sept. 30.
• US Postal Srvcs offers buyouts to thousands of employees as it faces financial losses.

Long term Treasury yields have not discounted the economic recovery, and in fact, yields on the 10 year Treasury have a high likelihood of heading lower. Equities have discounted a strong economic recovery. This divergence won't persist for long.