Archive - Dec 2010

With today's release of the Fed's Z1 statement, we once again see why Ben Bernanke's only "wealth effect" focus is on the stock market. In Q3 of 2010, household net worth jumped by $1.2 trillion from $53.7 to $54.9 trillion, the vast majority of which was due exclusively to a change in the value of "corporate equities" held by the public, which rose from $6.9 trillion to $7.8 trillion. Still, this level is only back to the $7.7 trillion as of Q1 2010, and is roughly 30% off the all time high of $10.3 trillion seen in Q2 and Q3 of 2007, aka the peak of the bubble. What is also notable is that consumer deleveraging, as everyone knows, is continuing: total household debt declined for the tenth consecutive quarter, and was down by $58 billion to $13,429.4 billion. The peak was $13,923 billion in Q1 2008, so just about half a trillion higher. Elsewhere, some may be surprised to learn that business debt increased to an all time record high of $7,351 billion, an $82 billion increase in the quarter. So even as all those continue to note the $1.2 trillion in non-financial cash built up by banks, of which at least half is offshore, at the very same time Corporations have grown their total debt by the same amount since Q1 2007. So net, it is not only a wash, but is domestically leveraging as companies don't have free access to the foreign cash even as all their debt is domestic. Hopefully that will finally end the "cash on the sidelines" farce. Yet the one chart which needs no introduction, or explanation is that of the Federal and State and Local Government debt. That grew by $350 billion in the last quarter as the government continues to attempt to offset the drop in household leverage.

Throw this (most likely quite accurate) statement in the middle of the next geeky fanboi argument you come across and watch the sparks fly!

Today's 30 Year auction came very strong, pretty much as we have been expecting, courtesy of the ongoing flattening in the 10s30s as those who had been short the long-end continue to be squeezed out. The auction priced at a 4.41% high yield, 5 bps inside the when issued, and 9 bps higher than the November auction, a much smaller jump compared to recent shorter-dated auctions, and especially the 3 Year from a very days back which jumped by 50% in its yield. The Bid To Cover of 2.74 was the strongest since August, but the biggest surprise was the Indirect Participation which at 49.5% was the highest since July 2009: almost as if foreign bidders received marching orders to buy the long end today.

When you are running the World's largest fiat currency system, trust is pretty much all you do have going for you - unless you plan to resort to force, of course.

Update: The tuition hike passes by margin of 21 votes.

The English parliament is supposed to vote any minute on whether to pass the tuition vote hike. The results may be unpleasant as the riots will surely escalate should an affirmative vote pass. Watch the results live here.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 09/12/10

Somehow we think the distinguished Irish gentleman will not make it on CNBC.

Keiser’s campaign has been accepting videos from members of its audience that support the campaign and he has then been posting the best one’s on the website. This takes the focus away from any one particular individual and puts it in the hands of the people that are participating. This is extremely empowering just as youtube and the internet in general are extraordinarily empowering. Someone that has never reached more than ten or twenty people in their lives with their views are now reaching thousands through the internet. The establishment “filter” on news and ideas is gone. The internet is the Guttenberg printing press on steroids. Let’s not forget that the Guttenberg press was key in sparking the Renaissance. This is why I am completely convinced that the current system will collapse. It has run its course and is no longer helpful to humanity’s progress in the 21st century. The people do not want things to stay the way they are and in fact the means of ending it are very simple. Much more simple than voting at the polls for politicians that know nothing and can be bought off within a week. Vote with your money. Buy silver.

Per Ben Smith of Politico, the House Democratic caucus has just voted to reject the tax deal. Posturing or the real deal? Since the passage of this vote was re-priced into the market in the past three weeks pretty much every day, we expect the failure of the vote will now be priced in even more, sending the Dow (as usual the government has still to discover the S&P) to fresh 2010 highs, now that the market flips the "bad news is good news" switch.

Wonder why various PIMCO funds are getting hammered over the past week? Simple: the fund's recent push into mortgages, especially on margin, has backfired, and courtesy of the surge in mortgage rates which we highlighted yesterday, has left the world's biggest bond fund, second only the Federal Reserve, hoping for a last minute Hail Mary (Pimco can't print money unlike the former). As a reminder, while Pimco's TRF is positioned well to benefit from the steepening in the 2s10s courtesy of its 4.86 effective duration, we are unsure how the massive flattening of the 10s30s is impacting the firm. What we are absolutely sure of, is that the plunge in MBS prices in the recent week has left the fund gasping for air. Recall that the TRF has increased its MBS holdings by $50 billion in the prior two months (and likely continued in November), which is why the entire rates complex must prevent the ongoing rout in 10s and 30s as otherwise the negative convexity threatens to force an avalanche of selling first by the PIMCOs of the world, then everyone else. We present some very relevant commentary out of CRT on the MBS crunch conundrum.

If anyone was concerned that someone may be stupid enough to believe the vomitorium of lies and deceit coming out of Europe on a millisecondly basis, we are hereby happy to assuage your fears. Courtesy of a very spot on trading desk comment, we can confirm that nobody but the ECB is buying Greek, Portuguese, and Irish bonds.

Remember Europe and that insolvent country which Ron Insana conclusively determined does not matter? It's back on the scene after Reuters reports that the main Irish opposition Labor party has just announced it will vote against the IMF/EU bailout package. Just what spin Olli Rehn will have to use to calm markets after his latest vassal nation continually refuses to go quietly into that good night, remains to be seen.

Anyone who thought Max Keiser would tire of his plan to destroy JPMorgan using a physical crunch may be disappointed. In fact, just the opposite. The outspoken critic of every fraud financial has, with the assistance of Bid Bullion, just launched a limited edition silver bullion named Silver Keiser. The total amount of new silver to be created will be 171,250 ounces. Furthermore, beside sharing his visage with one face of the currency of the JPM resistance, "Max Keiser has nothing to do with Bid Bullion and will not benefit in any way from the sales of the Silver Keisers. Max Keiser was quoted saying - "Bid Bullion has free use of my name and image for this. I have no personal stake, or any business relationship at all with Bid Bullion in the creation and distribution of these coins." Obviously, with numerous silver retailers out of inventory, this issue will likely sell out very quickly. In tangential thoughts we wonder what comes next: the US mint issues Gold-Plated Tungsten Assanges?

The reason that the inflation vs. deflation debate has been so noisy, yet simultaneously so murky, is that all of these intersecting variables impact the final equation. It is like the difference between trying to balance a single broomstick on your outstretched hand vs. trying to balance a broomstick with three well-greased hinges at points along its length. The former is tricky enough to balance; the latter would be impossible for nearly everyone.

Some try to reduce the inflation/deflation debate to a single broomstick (“…all we need to do is look at declining credit and see that we are in deflation!”), but in my opinion, that is far too simplistic a view. We still need to consider base money creation, velocity, and the relative level of faith in current and future monetary policy among the majority of market participants.

Because we cannot really know all the variables and how they are feeding back and forth between each other, we must simply look at the final impact to gauge where we are. Fortunately, we can do this with relative ease.

The MOVE index measuring bond volatility has hit 112, a 2010 peak second only to the turbulent days following the flash crash and the first European bankruptcy. And speaking of European bankruptcy, CDS on Italy is back on the upward sliding track, last seen at over 200 bps, over 10 bps move on the day. And since there is no volatility left in a levitating market, the only market that vol hunters are now pursuing is the sovereign bond and FX markets. If and when intraday gyrations in the 10 year approach the equivalent of a stock VIX of 20+, then Bernanke will have finally achieved his goal of complete subjugation of the Banana States of America.