Archive - Oct 18, 2010

Just when everyone thought we may see some moderation in the wholesale dumping of equities by those who actually know what their companies are worth better than moronic stock pumpers on stations that are rapidly losing their viewership, here come the same insiders and pull the rug right from underneath the latest batch of hot potato recipients (that would be various collocated computers mostly, and involuntary taxpayers course). Two weeks ago, insiders sold "only" 1,169 times more than they bought. Alas, last week selling apparently is the new black again, with selling outpacing buying on the S&P by a factor of 2,018. Insiders in Oracle, GameStop, Google, CSX and General Mills appear to be particularly partial to the new black. Something tells us CNBC will not pick up this particular piece of news.

Ben Batmanke saves the day again. Today's POMO is a whopper: at $6.3 billion it is the largest since the announcement of QE Lite (not the largest ever mind you - next month, for example we will see $15-20 billion daily POMOs). The submitted to accepted ratio was 3.5x as PDs gladly tried to convert $21.8 billion worth of 7-10 Year Bonds into shares of Apple, Amazon, Google and Netflix. Following last week's $4.7 billion POMO, today's action bring the Fed's balance sheet to $831 billion. Japan - watch out. And now the HFTs are stuck in churn mode as the liquidity infusion is done for the day. Next POMO - Wednesday.

Just in case there is someone living in a cave who still doesn't understand that the Fed's one and only mandate (forget that crap about inflation and jobs) is to give everyone one last shove into the all in ponzi before the diarrhea hits the HVAC, here is David Rosenberg explaining, for the cheap seats, what the Fed's terminal intent is.

Another day, another chance for Brian Sack to give $3-5 billion in free, free linen to the Primary Dealers to buy themselves some Apple. Today's POMO has started, and the bonds to be monetized include a variety of 2016-2020 vintages. Once again, these are the bonds which will likely be purchased the most in the upcoming $1-$1.5 trillion QE2, so PDs may hold off selling them back to Brian until they get much better prices. Although who the hell knows or cares anymore. After all, if things get ugly the UK will simply come in and buy a quadrillion worth of Bonds using some more of that Fed free, free linen.

Over the weekend, JPM's Ed Reardon shared the bank's first official takeaway on fraudclosure (yes, it refuses to go away). According to the bank "In our view, many of the mortgage foreclosure problems highlighted in the past few weeks are process oriented and can be fixed in the near term." One wonders when the biggest bank in the world actually has come out with a less than rosy view on an event that could be a game changer: we are too lazy to go back in the archives to read JPM's take on subprime in early 2007 but we are confident it would have been summarizied in one word: "manageable." Yet even JPM is forced to acknowledge that putbacks are the biggest risk, as we highlighted yesterday via a confidential memorandum from Wells Fargo. To wit, from JPM: "We estimate putback risk to be approximately $23-$35bn for agency mortgages, $40-80bn in non-agency and roughly $20-30bn for second liens and HELOCs. However, there are a number of reasons why these estimates are on the high end, including losses already taken and loss reserves established. Specifically, putback losses could reach $55bn in our base case scenario, but, importantly, will be spread out over years owing to the complexity and cost of implementing putbacks, especially in non-agency securitizations. Consequently, the annual putback cost to the industry is likely to be in the range of $10-25 billion. There are several reasons for our lower putback success rate assumptions in the private-label market relative to the agencies, including creating a process to put loans back, and demonstrating not only that the loan breached a representation or warranty, but also that the breach  affected the value of the loan." This is basically JPM's way of saying that QE2, instead of being a UST purchasing program, will actually be one where the Fed will buy a new batch of completely fraudulent MBS. This also jives with what Pimco is expecting, based on the firm's recent surge in MBS purchases on margin.

August saw the second largest purchase of US Treasurys by foreigners in history, which at $117.1 billion was just slightly smaller to November 2009's $117.9 billion. However, unlike then, in August there was an inflow into every single category of US security, with inflows of $4.6 billion in Agencies, $10 billion in Corporate Bonds, and $4.8 billion in Corporate Stocks. The generic data is there: Chinese and Japanese holdings both increased, the former by $21.7 billion to $868.4, the latter by $15.6 billion to $836.6 billion. Which means that the Fed has once again relinquished second place in total UST holdings to Japan...but only so for a few days. At about $825 billion, and with 8 POMO coming up in the next 3 weeks, Japan will be left in the dust shortly. Unfortunately, the historic event of overtaking China as the world's largest holder of Treasuries by the Fed will have to be delayed until late November. Yet there was something very troubling about August's TIC data: the primary driver for the explosion in total foreign holdings from $4.066 trillion to $4.213 trillion, an increase of $147 billion, was the literal explosion in "UK" holdings of $74 billion from $374BN to $448BN. (we put it in parentheses because the purchasing is certainly not being done by the UK government which itself is planning on starting it next round of QE, or monetizing its own debt, imminently). What the true source of this purchasing power and interest is, only the Federal Reserve truly knows.

Today's most important piece of news for holders of precious metals comes from the far East, where Kim Choong-soo, governor of South Korea’s central bank, told a parliamentary committee on Monday, that the country: "needs to give careful consideration to the matter of increasing gold volumes in the foreign reserves.” In other words, as the FT summarizes, "South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering expanding its small holdings of gold to diversify its dollar-heavy portfolio." Last week, a mere unsubstantiated whisper that China was doing the same sent gold $10 higher. So with the regional game theory framework changing, as more countries rush into the yellow metal, will China finally be forced to come out of its shell of gold shyness and officially start accumulating, sending gold soaring?

• Federal Reserve urged to act on economy (FT)
• Weil: Foreclosure Fiasco’s Trail Leads to Washington (Bloomberg)
• Few Ready For Currency War (JAD)
• ECB's Trichet Rejects Weber's Call to End Bond Purchase Program (Bloomberg)
• Banks Face Mortgage Scrutiny as $49 Billion in Value Vanishes (Bloomberg)
• Homeowners in Limbo - Mortgage Mess Means Delays for Those Facing Foreclosure (WSJ)
• BOE Will Expand Stimulus by 100 Billion Pounds, CEBR Predicts (Bloomberg)
• The Recklessness of Quantitative Easing (Hussman)
• Why a Foreclosure Moratorium Is a Bad Idea (WSJ)
• Fast Yuan Rise Will Be Short-Lived (Reuters)
• Investors Bet Fed Action Will Bring Inflation (FT)
• Hedge Funds Succumbing to Mutual Funds’ Mediocrity (Bloomberg)
• Germany Bows to Call for Political Sway Over Euro Sanctions (Bloomberg)
• Income Inequality: Too Big to Ignore (NYT)
• U.K. Readies Cuts in Defense Outlays (WSJ)

• Asian stocks slip, Dollar gains on Fed stimulus speculation; Oil declines.
• Euro down to $1.3889 due to effects of Bernanke comments on Fed action.
• Oil falls below $81 in Asia as US dollar recovers.
• Key Chinese data due this week. G-20 meet, Australian central bank minutes also on tap.
• US structured-note sales surge to $38.4B to break record of 2008.
• Allergan: Botox approved by US FDA for treatment of chronic migraines.
• Aluminium Bahrain seeks to raise $541M from initial share offering.
• BHP Billiton and Rio Tinto cancel plans for a $120B joint venture in Australia.

Industrial production, homebuilder sentiment, the TICS data, and a Fed speech…

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 18/10/10

SmartKnowledgeU Managing Director JS Kim's third appearance On the Edge with Max Keiser this year. This time around JS and Max discuss the fraudulent nature of the global monetary system and the failure of the rest of the world to connect the fraudulent monetary system with many of the world's other significant problems.

Once again, art imitates life...(any resemblance to actual jackasses and economic events is not a coincidence)...

This daily report is designed to help traders find opportunities to trade against this group. The premise is very simple we are looking for 66% of retail traders to be trading either long or short a currency pair, we then look for opportunities to fade (trade against) this group. For example if 72.99% of traders are long the USD/CHF we look for opportunities to short that pair.