Archive - Dec 2010

Have you ever heard of Section 747? No, it’s not where the government is hiding the aliens. And it’s not the secret area where The Bernank prints all the money. Section 747 is a small paragraph buried deep in the 3000 page monstrosity known as the Dodd-Frank Act. And Section 747 is causing a lot of folks in the HFT world to be very concerned.

It was only two days ago that Goldman upgraded its own bonus pool by saying the economy is now going nowhere but up, up, up. That lasted for 72 hours. Below is Hatzius' (first of many) mea culpa for finaly selling out: "A clearly disappointing report all around, with payrolls up much less than expected and the unemployment rate up. Although hours worked rose only 0.1% in November, this rough proxy for real GDP less productivity changes is tracking at roughly a 2½% annual rate. Flat wages coupled with the small increase in payrolls suggests very little wage and salary growth in November." We give the Goldman "strategist" 3 months before he starts beating the QE 3-666 drums again.

When we last ran this number, the economy needed to create 232,400 jobs per month to get to the same unemployment rate as last seen in December 2007, just before the depression started, courtesy of today's massive disappointment we can now increase the creation requirement to 235,120. As a reminder this is the number of jobs per month that need to be created between December 2010 and November 2016, or the end of Obama's now improbable second term, for jobs to recover their losses when taking into account the natural growth of the labor force of 90,000 people per month. Also, when ignoring the demographic shift, or just accounting for the absolute number in jobs without accounting for the labor force growth which is so wrong only the BLS looks at that number, the breakeven has been pushed back from June 2013 to July 2013. Economic collapse you can finally believe in. And now, with the BLS' good graces, the government can promptly pass the jobless benefits extension, which is what this whole doctored data charade is all about.

...Gold. The backtested model of shorting gold ahead of NFP has just broken. Margins calls coming in. JPM/Blythe Masters scrambles to prevent an all out rout as the $1,400+ stops are triggered.

Private payrolls +50K on expectations of +160K! Manufacturing payrolls plunge 13K on expectations of +5K. Previous revised down to -7K. As Zero Hedge expected the ADP was totally and completely off. And so the myth of the recovery can suck it.

The Guardian, which earlier was conducting a live chat with Julian Assange from an undisclosed location, has generated such massive traffic that the entire Guardian website was down at last check. We expect the Guardian will find some (Swedish) replacement servers, at which point we suggest readers join in the chat which can be accessed at the following link. This is likely the last live interview with Assange before he is arrested any minute now.

Jean Claude Trichet has finally learned the Bernank's lesson #1 on Central Bankering: when all else fails, buy it all. The FT reports that according to traders the ECB was on Thursday buying Portuguese and Irish bonds in €100m tranches – four times bigger than previously, which in turn sharply brought down the cost of borrowing for Lisbon and Dublin and sparked a euro rally. Just like in the US, this means that virtually no assets reflect their true value, as the ECB is now monetizing debt, without even having formally announced it is doing so, either in a sterilized or unsterilized fashion. This means that next week's update of the ECB SNP programme will demonstrate a surge in bond buying. This is especially the case when factoring in that Trichet is currently out in the market waving every Portuguese Bond in. It is a sad day that the only way the ECB, just like the Fed, can create an upward move in an asset class only by forcing a short squeeze.

Payroll day…and also nonmanfucturing ISM and factory orders. Today's 6th of the week POMO will buy $6-8 billion of bonds due 2013-2014. Lastly, and unrelated, Julian Assange is likely to be arrested any minute.

• China calls for tighter monetary policy in 2011 as Beijing fights inflation.
• Euro steady at $1.3209 in morning European trading.
• Oil floats near $88 a barrel in Asia as economic indicators encourage hopes for stronger demand.
• Retail sales in eurozone rose 0.5% in October.
• Spain to approve measures to calm markets over bailout; may raise tobacco tax.
• Trichet pressures governments to fix the debt crisis as he buys them time to ax budget deficits.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 03/12/10

Better call InAction Jackson...

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 ECB voted to keep rates at 100bps today, as expected, but did little beyond that as it became clear that Frankfurt is still backtracking from its “exit strategy” rhetoric from a couple months ago, rather than transitioning from planned exit to future expansion in one fell swoop.

As if it wasn't enough that America's ruling oligarchs were sufficiently happy with abdicating their governing duties to the Federal Reserve, they have now decided to imitate China in every possible way, and in addition to making up economic data as they go (for actual numbers just look around you, for all the other imaginary bullshit there's the BLS), they have now proceeded to wipe their ass with the first amendment, on their way to converting the US to a complete banana republic. After Joe Lieberman made a mockery of Internet freedom of speech (and of Amazon's independence) he has now decided to step up his campaign against un-coopted journalists everywhere, precisely as we suspected would happen next in the USSA. Per MSNBC, the Independent Connecticut senator has told Tableau, a Seattle company that allows Web users to post charts, to remove several charts describing the release of WikiLeaks material. The company removed the charts on Thursday, following the lead of Amazon, which had taken down the WikiLeaks documents themselves. The punchline: none of the charts contained any classified data: "The charts were not produced by WikiLeaks, but by a freelance journalist. And they contained no classified or secret material. The charts merely depicted how many times each country, or topic, was discussed in the cables." In other words, as Bill Dedman concludes: "these charts were journalism."

When the Fed announced that MBS/agency purchases would be a part of QE1 way back in 2008, few were surprised. After all that was the easiest way to lower interest rates on mortgages: a topic that back then seemed critical as there was still hope that the Fed had some control over housing (a premise since proven false now that housing is well into its double dip round). Yet the Fed's purchases of Treasurys seemed somewhat arbitrary: after all, why buy the most liquid rate security, and more importantly, which derivative asset class was the Fed targeting through UST purchases? And just before QE Lite and QE2 was announced there were additional rumors that the Fed would go after MBS again to assist housing (recall all those Pimco purchases of MBS on margin - of course, only later was it discovered that Gross hopes to get them all put back to Bank of America). To the surprise of many, the Fed picked Treasurys as the preferred security of choice once again. The debate was open: if the Fed is targeting the housing market it should be buying MBS again. No such luck. So now that two years of QE (in their 1, Lite and 2 iterations) are in the history, we finally can run some correlation analyses to see just what asset class the Fed had been targeting all along. The attached chart presents the very simple result.