Archive - Sep 25, 2009

The dollar pain continues as the dollar drops below the 90 Yen support level. Surprisingly despite the dollar weakness, there is no capital flow into domestic risky assets (10 Years are well bid). In fact, the bid in HY, the latest risk casualty of bubble psychology, is weakening. Is the carry trade now financing safer/foreign assets? If so, is yield chasing finally over?

"If we want to have a chance to remain the masters of gold an international agreement on the rules of the game as outlined above seems to be a matter of urgency. We would fool ourselves in thinking that we have time enough to wait and see how the S.D.R.'s will develop. In fact, the challenge really seems to be to achieve by international agreement within a very short period of time what otherwise could only have been the outcome of a gradual development of many years."

- U.S. Department of State, March 1968

Other technical observations show the MACD has turned momentum but we are not in negative territory just yet, quite a way from it. Certainly expect the market to attempt a run higher into the close to turns things around and not close the week in trouble.

More troubling to TPTB should be the immediate reversal following yet another "stunner" out of UMich, Consumer Confidence or "The Market Is Up Because The Market Is Up Because The Market Is Up, etc." index.

Yesterday's mini sell off has brought out the dip buyers.

In his interview yesterday Julian Robertson expressed substantial concerns about the ongoing US debt funding threat, using words such as "Armageddon" to describe what will happen when and if China and Japan stop buying US debt. More disturbingly, as was pointed out on Zero Hedge first, and was subsequently picked up by the WSJ, the Fed has accounted for half of all Treasury purchases in Q2 ($164 billion of total of $339 billion). Below we present data for what could be construed as a Treasury funding crisis borne out of lack of demand for longer maturities, once the QE portion of UST purchases expires. This crisis could hit as soon as October.

• Former PPT member Kevin Warsh voices in: The Fed's job is only half over (WSJ)
• Still waiting for the inventory bounce: durable good orders drop 2.4% in August, worst since January (Bloomberg)
• Mattress-maker Simmons finally throws in the towel, to file Chapter 11 (AP)
• Investors don't feel like taking chances with stocks, spending (USA Today)
• Battle brews over unused TARP cash (WSJ)

There probably is a lot of back slapping going around at the Fed and Treasury Department these days as the markets have risen on a flood of liquidity.

• Asian stocks decline on Nomura’s share sale, US housing data.
• China’s stocks fell, with Shanghai Composite set for its biggest weekly loss in 6 weeks.
• Dollar, Yen rise on speculation G-20 will act to curb riskier investments.
• Fed regulators say banks, other institutions face $53B in losses on loans.
• Freddie Mac announces $1B reopening of 2.125% three-year Reference Notes security.
• G-20 poised to crack down on bankers' pay, increase policy coordination.