Archive - Oct 14, 2010

In Advance Of Bernanke's Speech At The Boston Fed

Readers have already likely had the chance to read the official Fed mouthpiece's bulletin on what to expect out of Bernanke's speech tomorrow at the Boston Fed. Since as we have disclosed previously anything that comes out of the WSJ on the topic of the Fed, gets Calvin Mitchell's stamp of pre- and post, approval we are positive the propaganda spin is in place: after all, can't make the Fed seem "too transparent." So while we are on the topic, here is Goldman's Sven Jari Stehn to confirm just what is best for the bankers:  here it goes "For example, Glenn Rudebusch’s analysis—which assumes that Fed purchases
have larger effects on the economy than we estimate—implies that the
Fed would need to buy around $2tr of additional assets to compensate for
the zero bound."Did Goldman just informally double its QE2 expectations, and implicitly bring the 30 Year rate to zero, now that the Fed will have to buy every single treasury out there within its SOMA limit (oh yeah, that 35% SOMA cap - we give it 6 months).

MoneyMcbags's picture

The market was down today as foreclosure-gate threatens to shut down the foreclosure process for banks quicker than an AIDS ridden penis has shut down the porn industry, though with potentially much more dire consequences (unless that AIDS penis touched the lovely Tori Black, because Money McBags can think of no more dire consequence than a world deprived of her talents).

Central Banking For Dummies

Pretty much answers every question one may have ever had about the secret goings on in mysterious cult in the Marriner Eccles building and on the 9th floor of 33 Liberty.

Federal Reserve Balance Sheet Update: Week Of October 13

This week we have official confirmation of our speculation from last week, that the Fed is now the second largest UST holder institution after China, with $821.2 billion in Treasurys. And courtesy of yesterday's POMO schedule announcement, according to which the Fed will purchase $32 billion in UST through November 8, at which point it was have $853 billion, we now know that Brian Sack will be the biggest holder of US Treasurys in the world (surpassing China's $847 billion). Aside from this there was little notable in the weekly balance sheet update: bank reserves increased by $29 billion in the past week, as Primary Dealers added even more to their purchasing capacity post the end of quarter window dressing (more in an upcoming update).

A Hundred Years Of Fed Solitude, Or An Artificial Lack Of Volatility In A Time Of Fiat Cholera

The following observations by John Lohman are a must read for all mean reversion junkies. By tracking the correlation between credit expansion and assorted metrics of volatility, Lohman concludes that the one primary tradeoff given up by the investor class (voluntarily) and the broader population (unknowingly) in exchange for a 98% decline in the value of the dollar, and thus purchasing power, since the inception of the Jekyll Island monster, is a constant and gradual decline in volatility. What this means, however, is that by entering the period of greatest systemic deleveraging, America is once again inviting volatility. What is more troubling is that unlike before, the ongoing dollar value destruction is not matched with a favorable attribute, namely an offset vol reduction. In other words, society and the investing class has gotten to the point where the marginal utility from having a Federal Reserve bank, has essentially disappeared. Which is simply all the more reason to disband the most destructive central-planning organization in the history of the communist world.

IceCap Asset Management Looks For The Gold At The End Of The Interest Rate Rainbow

Zero Hedge is happy to present the latest members of our little club: IceCap Asset Management, whose market insights we will share with readers on a periodic basis. In the inaugural piece, "Somewhere over the rainbow", Keith Dicker looks for the treasure at the end of fiat rainbow and, as expected, finds gold (to misappropriate the symbolism of a bankrupt country to that of one of the world's strongest economies). The presentation, which is from July, is prophetic to the dot in our rapidly changing (and devaluing) times, and those who may have listened to the presented advice, would have been about 20% richer: "Gold is the ultimate store of value and insurance policy, and has proven to be a terrific asset in times of market uncertainty. After all, isn’t that what you would expect to find at the end of a rainbow?" What is it with Canadians, first Sprott and now IceCap, and their unabashed willingness to express their love for the metal: don't they know it is a barbarous relic which the shamans of Keynesianism, especially those who have found their last refuse in the NYT Op-Ed pages, enjoy ridiculing with every last breath of credibility they have left in their turgid ideological bodies? So for those who wish to leave failed economic dogma behind, here is IceCap.

Meet Danielle And Jim Plus 9 Part 2 - This Time Squatting On The Ratigan Show

Today's media sensation (and future leaders of some symbolic resistance) - the Earls, who after falling behind on their $880,000 loan, inspired by recent events, decided to take matters into their own hands (and the hands of their 9 children) and broke back into their foreclosed house. The police in local Simi Valley, made famous previously by such cult deadbeat classics as the Big Lebowsky, were so stumped by this they had no idea what the hell is going on so they just watched... Which seems to also be the general response of most of America. Today, the Earls appeared on the Ratigan show to present their side of the story. Gotta love the lawyer who cuts to the chase when he says that the banks aren't really owed the $880K noted above, "they are owed zero." Next up: everyone in America who has debt (and that would mean about 300 million people) decides to follow this advice, and "realizes" they don't actually owe any money to the bank. Problem solved.

A Very Different Day Until 3PM

It was very busy today. It started with Singapore deciding to widen the band it allows its currency to fluctuate in (aka they allowed the SGD to reval up) so people in the US had the pleasure of waking in with the USD down big on the day as the move by Singapore also sent EURUSD and AUDUSD to new recent highs (and many other crosses most likely). Yet Gold reversed sharply and looked like a nasty bearish hammer on the high for most of the day. Credit opened wider big time as bank CDSs gapped up with the mortgage-gate starting to sink in the collective minds. In fact as of 3PM we had a key bearish reversal day in S&P future (bearish engulfing day following 3 days up). Fixed Income turned south in the long end with a poor bond auction contrasting with otherwise better than expected auctions of late. And the front end of the Eurodollar and Euribor strips were under pressure all day as 2Y swap spreads bounced off their 16 support and fears of wider Libor on the back of weak bank stocks spread throughout the day. In other words things were very different: volatility was high and VIX traded up, Gold traded weak most of the US session, and stocks were under pressure with credit leading the way down. Refreshing from the QE self reinforcing morally bankrupt logic that has pushed us up in risk the past few weeks.
Unfortunately at 3PM stocks went ballistic and rallied vertically to take out the bearish signals in place. - Nic Lenoir

And Now For The Other Side: Jeff Gundlach Expects The Foreclosure Moratorium To Have Negligible Impact On MBS

By now the apocalypse scenario for MBS has been made all too clear: there is a possibility that quite soon all MBS securities may be found worthless due to technicalities, as assignments of securities without due underwritier diligence (there is a reason why underwriter counsel exists in the first place) could easily render the entire stack worthless (the same goes for CMBS) and puttable to the issuer. Yet one person who believes that the fraudclosure's impact on MBS will be "negligible" is DoubleLine's Jeff Gundlach. While we wish we could share's Jeff enthusiasm, we are concerned that his entire argument is premised on the assumption that if an autopilot has worked so far, it is certain to work for the (un)foreseeable future: "The Great Unknown notwithstanding, the risk du jour should come as no great surprise. Since the advent of the credit crisis, a number of states have made fitful attempts at foreclosure moratoria. Even more  obvious, a growing part of the mortgage sector has entered quasi-moratorium since 2007. For years, remittance data have shown thebuilding of overhang of non-payers relative to the tardy liquidation of delinquent loans. So tell us something new." While from a technical standpoint Gundlach (whose livelihood depends on the ongoing stability in the multi-trillion MBS arena) is spot on, never before has the very core of the judicial process been not only questioned, but found to be replete with fraud. Which is why now, for the first time, there is a political element. And Jeff knows all too well, that politics is what happens (and impacts the ROI) when one is busy putting together DCF's. Should this scandal continue to escalate to the very top, as it seems set on doing, we would be far less sanguine about the optimistic outlook for the MBS space.

Will Taseko Mines' Flash Crash Let The Offending Algo Finally Be Punished?


Anybody who was trading Taseko Mines (TGB) today, experienced a brief heart attack when the Canadian company lost nearly half its value around 2:33 pm Eastern time. In the blink of an eye, the stock price plunged from $7.20 to the mid $4 in what appeared to be another mini flash crash. Subsequently, it recovered, but only modestly, ending the day down about 10% from its open. What is odd is that not only did a circuitbreaker not get activated following the 40%+ drop, but that the exchanges have not canceled any of the trades, meaning that whoever started the selling avalanche is going to be stuck with their $4.58 sales. And as the charts below show, quite a few shares traded at the new baseline. What is oddest, is that there was absolutely no news in the market to cause this move, and to the best of our knowledge there was no rumors circulating either. Mootley Fool reports: "President and CEO Russell Hallbauer issued a statement saying that management "is unaware of any information that would cause the price of the Company's stock to change materially, as occurred on October 14, 2010." The stock had been trading up as much as 11% before the drop, and had hit a 52-week high. The upward movement was largely because of an upgrade from Jennings Capital analyst Peter Campbell. According to The Globe and Mail, Jennings issued a research note that was bullish on copper prices and upped its price target on Taseko by 28% to $10." Could this be the first time when an inexplicable flash crash driven by some jittery algo will not result in the exchanges handing back the HFT's forfeited money right back to them? We hope going forward every since robotic instability is punished appropriately. To all those whose 30-40% OTM limit buys got triggered, congratulations. Once again, we suggest readers establish limit buy positions 40% away from NBBO in stocks and sectors of preference, as the next flash crash is usually just a millisecond away. If lucky, just like in TGB, your trades will stay good.