Archive - Dec 2010

I feel quite a bit of empathy and maybe even a little remorse for those who blindly believed the mainstream nonsense of the past few years. I can’t imagine being so lost and so utterly disappointed on such a regular basis. The only good to come out of this dashing of false hopes is that it has caused many to begin questioning what the hell is really happening. Why have things only become worse? What about all the government legislation and stimulus? When is it finally going to produce the effects that were once guaranteed? In fact, what are the benefits of ANY action the government or the private Federal Reserve has taken so far? Let’s look at financial conditions across the globe and here at home, and perhaps we can gain a true understanding of the situation before us, and find answers for some of these questions…

Today's $32 billion 3 Year auction closed and confirmed that the deterioration in sentiment toward bonds is picking up. The auction priced at a high yield of 0.862%, an exactly 50% jump compared to last auction's 0.575%. More concerning, the Bid To Cover came at 2.906, the lowest BTC since February's 2.83, and compared to the LTM average of 3.115%. The indirect take down was weak, at just 36.7, although better than the 29% from two months ago. What was surprising is that Direct Bidders took down a whopping 18%, or $5.7 billion of the auction, relative to $13.7 billion submitted. Altogether a weak auction, and one that confirms that while the belly is very weak today (the 10 Year was trading north of 3.1% last), the wings are also taking on water. The only question is whether the steepness of the 7s30s and 10s30s can be preserved. For the time being the belly is widening more than the 30 Year, making life for the banks unpleasant.

This albatross is going to weigh on us in 2011.

But being the spineless paragon of worthlessness, Moody's adds that it "doesn't see any change in US ratings in next 18 months to 2 years." That the market jumps on this news is merely yet more confirmation that this toxic piece of garbage company has to be put out to pasture already (not even its former master and current hypocrite extraordinaire Warren Buffet is a fan anymore) - the only rating agency that matters is Dagong, which is expected to downgrade the US to junk in the next 3 months.

With everyone focused on whether or not the Build America Bond program will be extended (it appears it won't, and is the main reason for the market weakness today), after rumors earlier that the program may not be part of the negotiated extension (and why not? It's not like republicans are suddenly pretending to be fiscally prudent, after pushing the latest addition to the welfare state that will cost $5 trillion in future debt) we now learn that pathological nest of infinite criminality better known as Bank of America has again settled a new SEC fraud charge, this time relating to its municipal securities program. According to Reuters headlines, the SEC has sued Bank of America Securities with fraud in connection with allegations of improper bidding practices involving municipal securities. But heaven forbid the SEC would settle on anything more than a, well, settlement: just as the charge was announced, so was the settlement, and we learn that BofA has agreed to pay more than $36MM in disgorgement, and that is and affiliates to pay another $101MM to Federal and state authorities. SEC wristslap... and the bank can go bank to stealing.

Following last night's sale of Citi Treasury shares, we have learned that S&P will increase the float factor of Citigroup in the S&P after the close from 88% to 100%. As a trading desk reports: "We estimate S&P index funds have up to 374 mln shares to buy today (~89% of ADV), assuming no offer participation. S&P 500 indexers have a large funding trade to fund the C buy ($1.7 bln SPX for sale)." In other words, expect some substantial fireworks, especially if State Street joins in the fray once again and make the stock HTB at tactical times during the day.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 07/12/10

Perhaps for the best demonstration of what cutting education budgets in the US means for our nation's current and future mathematical capabilities, look no further than the White House's Propaganda, pardon Fact Sheet on the tax extensions. The only notable item is the following (which is stunningly added as an accomplishment): "The plan has three key accomplishments: Does not worsen the medium- and long-term deficit.
These are responsible, temporary measures to support our economy that
will not add costs by the middle of the decade. The President does not
believe it is affordable to make the high-income tax cuts permanent and
will continue to have that debate in the years ahead." Alas, that is a flat out lie. According to the Congressional Research Service, the cost of keeping the tax cuts will be just over $5 trillion over the next 10 years. And it will be at least 10 years: after Obama loses the 2012 presidential election, Republicans will have a carte blanche to make the Bush tax cuts permanent, and will likely do so. And, furthermore, this figure does not include the cost of the Unemployment Insurance extension.

The problem with the deficit commission's recommendations is that it's assumed deficits exist due to a lack of revenues, rather than a government that does to much. But the tax simplification achieved through the abolishment of deductions is pro-growth, and will wake the half of the country up that doesn't pay for the cost of government

Following the below link to watch a live webcast of the Irish budget discussion, whose passage at this point seems a fait accompli after the votes of two critical Independent PMs were captured yesterday as Zero Hedge reported.

Piratebay.org, the site that is a global hub for hackers and "free film" aficionados everywhere has officially joined the Eric Cantona plea for a bank run, which Zero Hedge first broke over three weeks ago, however compounding the initial premise with that of PayPal lock out. The reason: suddenly Assange has become the martyr saint of the global hacking community, which in the past 24 hours has manage such exploits as crashing the web site of the Swiss bank that supposedly froze Assange's account. And if there is one thing worse than a (now arrested) Australian with a lot of deep throat sources, it is the global hacker community which has just made the international banking system its number one enemy. Expect to see many DDOS attacks on your "favorite" bank portals, coupled with substantial downtime in your neighborhood ATM.

It was just this Sunday that Jan Hatzius was apologizing for this hike in 2011 GDP to 2.7%. It appears that once respected economist has now joined the legions of momentum chasers and will "revise" his forecast going forward every time there is an event. To wit: following last night's complete abdication of fiscal prudence by both democrats and republicans, Goldman now says it's 2011 GDP will likely be boosted from 2.7% to 3.7%. In the all out defense of the ponzi, old-school concepts such as even remote credibility are getting thrown out with the bathwater. Wall Street needs one more year of record bonuses or else the MAD card will be played. And of course, who cares about the costs... Perhaps one should play a simple thought experiment at this point: why not just issue one quadrillion in debt and fix the economy once and for all. After all why worry: rates will be forever at zero, Bernanke will buy all deficit funding bonds ever, and nobody will ever sell their rates holdings.

The JOLTS survey, which looks back two months, and is thus completely useless when trying to game the NFP/Initial Claims number came at 3.362 million job openings for October, an increase of over 350k from September's revised 3,011. Then again with November NFP data being a massive disappointment, one can see why this data tends to have about as much market impact as the iconoclastic ABC Consumer Confidence index, which continues to print at near all time lows. Furthermore, as has been disclosed previously, employers continue to fill all open positions predominantly with temporary positions, which, paying $20k per month, do miracles for the recovery.

Anyone doubting that the powers that be are getting desperate to maintain stock prices should consider that announcements of Bailout Ben Bernkanke’s appearance on 60 Minutes and his proposed claim that he may increase QE 2 was enough to kick off a 3+% ramp job in stocks last week.

Regardless of this mindlessness, Bernanke’s appearance did offer us a glimpse into his thinking or lack thereof. Many commentators have been stunned by his assertion that he is “100% certain” he can control inflation. I wasn’t. After all, Bernanke’s been nothing if not 100% certain of himself while being 100% wrong for the last five years.

For those who don't specialize in sovereign state financial models, I have broken down the anatomy of the inevitable Portugal default into a few simple graphs with direct comparisons to the Argentina default and restructuring. As the equity markets drink the liquidity elixirs, the debt markets are about to enter the greatest string of sovereign defaults in recent history. Many of my next few posts will provide a clear road map of the event. Move over Dancing with the Stars!