Archive - Dec 2010

There is only so long that the Bundesbank can keep ignoring the fact that it has recently started piling on failed auction after failed auction. Today, Germany tried to sell €5 billion in 2 Year 1% Schatz notes. And while the official tally on the auction was a 1.1 Bid To Cover at a 0.92% average yield, just above our own 3 Year auction yesterday, (and a drop from the 1.4 previously) this was yet another failed auction, as the bank managed to get only €4.33 billion in competitive and non-competitive bids. The kicker: the Bundesbank retained €995 million of the issue, a whopping 20% of the proposed issue size - this is the amount it could not find any buyers for, and the deficit to what have been a non-failed auction. In other words, after the entire world was rushing to buy German paper, suddenly there is nobody willing to get in.

• Asian stock markets mostly lower after muted performance on Wall Street, oil slides.
• China purchases $3.1B of Japanese bonds as Yen beats Dollar, Euro.
• Euro slips to $1.3209 amid ongoing worries about eurozone finances.
• Consumer credit in US unexpectedly increased in October for second month.
• German exports down 1.1 percent in October following previous month's strong rise.
• Japan’s October machinery orders fell 1.4% from month before. Cons est. 0.1% decline.
• Job openings in US increased in October by 351,000 - the most since Aug 2008.
• Most Asian stocks rise; Won drops on North Korea shelling, Treasuries fall.

• Germany Trade Balance 14.2B - lower than expected
• Bachus picked to chair financial panel (Reuters)
• China’s CPI expected to hit 3.2% in 2010 (China Daily)
• Bond Vigilantes May Thwart Tax Deal (Barrons)
• U.S. sends more subpoenas in insider trading probe (Reuters)
• Banks face dark pool battle with Europe's bourses (Reuters)
• Obamanomics Takes a Holiday (WSJ)
• Every Income Group Hit as Budget Increases Taxes and Cuts Benefits (Irish Times)
• Asia's Inflation Worries Damp Holiday Shopping Cheer (WSJ)

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 08/12/10

Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this offers very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs.

The most troubling development was the lack of extension in Build America Bonds offered in the Bush tax compromise, and with just over three weeks remaining before they expire, the risk of them maturing without extension is high and the implications of this in muni space are very pervasive.

This could get messy. Fast.

Thought we'd make an evergreen on zero hedge out of this discussion about the future of content with my composer brother Michael Whalen that we published today in The IRA. Happy, safe and prosperous New Year to all. Oh, and to my friends in Japan: "Tora! Tora!,Tora!"

From Reuters: FLASH - North Korea believed to have fired one artillery round in its west coast waters - South Korea's YTN reports. South Korea stocks turn negative, won extends fall on artillery fire report. And from BNO: N. Korea fires military round in west coast waters apparently as part of a drill - Yonhap via Reuters

Despite the recent stability, the funding shortfall faced by the 200 largest UK schemes has soared by 50% during the past four years, rising from an average of £55 billion during 2006 to one of £87 billion this year. But the government has a trick up its sleeve to wipe out a big chunk of these pension deficits...

On November 14, we took full liberty of mocking ourselves and our call for a flattening of the long end (10s30s) over and above the din of virtually every sell-side analyst and so-called pundit out there, who, with the exception of Morgan Stanley, all were screaming that the 10s30s was about to embark to levels of unseen steepness. To wit: "After recently the market took all calls of a flattening in the 10s30s
to task, one would think that those anticipating a curve flattening
(Zero Hedge included) would finally have learned their lesson." Luckily we persisted in our obstinacy. And as the chart below shows it appears that was a very good decision: since that day, the 10s30s has collapsed by almost a quarter from a high of 160 bps to 124 bps. That said, in our opinion, the curve has much more flattening to undergo still: after all virtually the entire world was long the 10 Year, and short the 30 Year, expecting that Brian Sack would be able to maintain at least the belly, if not the long-end. To everyone chagrin, groupthink has once again proven to be a disastrous trade. Furthermore, keep in mind that the 10s30s was trading sub 100 bps as recently as this summer, which implies that technicals are favorable. And lastly, the drubbing in the curve means that that mythical bank profitability (thank you Dick Bove) is once again delayed, which also means that the broader economic prospects are deteriorating, making QE3 for Long End Treasurys (those securities that are not going to be monetized municipal bonds) very likely to be purchased next as the Fed realizes that it will have no option but to buy much more of the 30Y as it will already be full to the gills with all other sections of the curve. Bottom line: we expect the flattening to persist and in fact accelerate once the always late CNBC pundit crowd realizes that a 23% flattening in the curve (not to mention record low market volume) means that bank Q4 EPS are once again going to suck.

In August 2009 the "Deadbeats" paid the loan IN FULL. But... BAC claimed to have received rights in the loan from Taylor Bean & Whitaker as of Sept 1, 2009. Notwithstanding that the loan was FULLY PAID, BAC attempted repeatedly to collect on the PAID OFF loan.

Was this the latest case of buy the rumor and sell the news after QE 2.0 proved to be pretty much the lows in yields (for now at least)? The market started the day bright eyed and bushy tailed after last night's announcement by Washington that a tax deal is close: Republicans win, Democrats win, America loses! The conversation probably went something like this: Republicans: "If you don't extend the tax breaks we will roll back your health-care plan"; Obama: "But this is my place in history at stake here! Ok you get the tax breaks, but I am going to add my own twist with social security tax cut (it's so far under water it doesn't matter anymore) and extension of unemployment insurance, this way the folks hurting out there know I am looking out for them and I don't look like I just got owned"; Vigilante: "That's 900Bn over 2 years, who's going to pay for this?"; Republicans and Democrats: "Ha ha ha."
Now however, there are a slew of VERY nasty charts that I would like to highlight following on the heads up I gave last night. - Nic Lenoir

It always seemed to us that the whole Lehman Repo 105 fiasco seemed to be too much of a slam dunk for nobody to get sued over it. Yet here we were, almost a year after the Valukas report, and nobody was even pretend to be fighting off justice, or even a bunch of brain impaired porn addicts. Not so any longer. Bloomberg reports that per an unsealed filing in the Lehman bankruptcy docket, the Lehman 401(k) retirement plan, which had just under $230 million invested in Lehman stock, has sued Dick Fuld "and other former executives of the defunct firm for failing to disclose Repo 105, a financing method allegedly used to conceal billions of dollars of debt." And all this is occurring as the SEC is scrambling to find new and improved ways to pay off its multi-million midget porn bill, up to an including firing every staffer with an IQ over 50...All 4 of them.

Today's tax compromise in the US extended all expiring Bush tax cuts by two years.  The story though does not end here.  The most important thing missing from the tax extension was the expected extension of the Build America Bond program.  The Build America Bond program has been the municipal market's saviour over the past 18 months.  Since their introduction in April 2009 more than 174 Bio USD of taxable securities have been sold by municipalities backed by the program, one where the US pays 35% of the interest due on the debt.On a day when the market focussed on the Budget vote in Ireland, a country that makes up about 1.8% of Europe's GDP, we are concerned that no one is looking at the growing problems in New York, California and Illinois, three states that comprise 25% of the US GDP. The expiration of the Build America Bond program could prove to be a terrible price for the US to pay and we expect squabbles in the US Congress regarding the bailing out of States in 2011 that could easily rival that which we have witnessed from the European Union over Ireland and Greece....We continue to expect that QE3 will include the purchase of Municipal debt, a true can of worms.