Archive - Jan 2010

To further illustrate the point presented in the previous article discussing the variance between the increase in Chinese FX Reserves and UST Holdings, we demonstrate the cumulative differential between October 2008 and September 2009 in these two series. During the time, China's FX reserves have grown by $392 billion, while its UTS holdings have increased by $115 billion: a $278 billion differential. Furthermore, estimates call for the December 31 FX number to grow to $2.4 trillion, which would be a $520 billion increase, while according to TIC we know that October Chinese bond holdings were the same as September. Whether these surged in November and December should be sufficient to determine if there is any validity to the Direct Bidder hypothesis presented earlier.

One topic that has caught the mainstream media's attention is the recent surge in Direct Bid take down participation in Treasury auctions, which as we pointed out previously (3 Year auction, 10 Year auction), has jumped from sub 10% average well into the double digit arena. Today the Financial Times dedicates an entire article to questioning just who may be going all out in their purchases of Treasuries as a direct bidder. We suggest that this "bid" is none other than China funding Direct covert purchases of Treasuries as an extension of the Fed's Quantitative Easing policy.

The mysterious "direct bidder" (more on that in a second) is absent in the 30 year. It appears the sweet spot of the new buyer is in the 3-10 year range.

• Yields 4.640% vs. Exp. 4.689%
• Bid To Cover 2.68 vs. Avg. 2.56 (Prev. 2.45)
• Indirects 40.7% vs. Avg. 43.98% (Prev. 40.0%)
• Indirect Bid To Cover of 1.62
• Alloted at high 27.21%
• Direct Bidder take down only 4.9%

The United States Commodity Futures Trading Commission (CFTC) will hold a public meeting at 1:00 pm EST on Thursday, January 14, 2010, to consider issuance of a proposed rule on energy position limits and hedge exemptions on regulated futures exchanges, derivatives transaction execution facilities and electronic trading facilities. Watch a live broadcast of the meeting via webcast on www.cftc.gov.

First Meredith Whitney, then JPM, then everyone else, and now Barclays. The firm that stole Lehman whacked its estimates of GS and MS, on expectations of a 7% decline (after a 6% increase) in equity volumes, due to a "lower ETF volume expectation as well as lower NYSE-listed volumes that benefited handsomely in 2009 from exacerbated trading volumes in highly volatile, low priced financial stocks that we expect to subside in 2010." This new assumption is making Barclays reduce EPS estimates across the board: "In short, estimates are coming down modestly driven by lower return expectations in both equities and fixed income, lower inflow expectations across both asset classes, and lower equities and futures trading volumes as well as debt and equity underwriting volumes. The downward adjustments are not large, but they do reflect the challenging comparisons that most of the companies in our coverage universe are up against in 2010following what, by all accounts, turned out to be a very strong year for capital markets companies in 2009."

"[The Fed] is making the situation much, much worse and they actually caused the problem to begin with. They have the foolish belief that they can pick the right interest rate. The interest rate should be a function of the supply of savings versus the demand for money. If you have one person or twelve people on the FOMC deciding that interest rates should be 1% or 0% they distort the cost of money and they cause the demand for money to rise, they cause the amount of money in circulation to skyrocket, and then you get this rolling bubble economy. That has to stop, that's where we have to start...We have now inculcated firmly this bailout mentality in the country, and that also has to stop." - Michael Pento

Don't forget, the FCIC panel continues today with Sheila Bair, Lanny Breuer, Eric Holder and, somehow, Mary Schapiro talking. How the last person on this list is considered an expert in any topic is the only issue that should be debated. At least being away from her 80286-based "enforcement-special" mainframe, justifies the lack of an SEC response on the ESH0 incident. Granted, nobody expects the SEC to opine on blatant market manipulation when the profits made are more than a few thousand dollars.

Live hearing can be found here.

New $100MM Loan BWIC lurking. $100 million of various Term Loan Bs (and other) about to be gobbled up by credit investors. The name of the liquidating fund is, as always, unknown. The largest names in the BWIC include Del Taco TL B at $6.5MM, Neiman Marcus TL at $6MM, Polymer Group Tranche 2 TL at $5.4MM, Burger King Tranche B-1 at $5.3MM and Chrysler 1st Lien at $3.8 MM. Rush to get your bids in - you have 3 minutes.

RANsquawk 14th January US Morning Briefing - Stocks, Bonds, FX etc.

Situation: You are responsible, either as an agency broker or as a buyside trader, to execute a buy order, monster block of 2,500 shares, in APU, Amerigas Partners. The date is January 14th, 2010. What can you expect to happen should you send 2,500 shares to buy at the market pre-open? It closed at $40.77 on January 13th, and there is no news on the stock.

Multiple choice questions and answers provided inside

Greek CDS hits another all time record at 342.50 bps. Greece is now trading nearly 5 times as risky as the entire universe of investment grade US corporates. In other news, Greek Prime Minister Papanderou repeats for the third time (and fourth, and fifth) that the country will not, repeat not, repeat not, repeat not, repeat not, need a bail out from the EU, and will not (etc) drop the euro or leave the eurozone. If only anyone believed the man. Anyway, where is that damn ESH0 ramp job when you need one? The best way to send a signal that all is good in the world is for Liberty 33 to trade a quadrillion e-mini's with itself.

The notable fudge factor in today's initial claims report had nothing to do with EUCs or continuing claims (people are now rolling off both faster than ever), but the spread between the Seasonally and Non-Seasonally adjusted insured unemployment rate. As the DOL indicates, the Seasonally Adjusted Ins. Unemployment rate was 4.6%, while the Non-Seasonally Adjusted equivalent came in at 3.5%: a 110 bps spread. The last time the delta was so wide was back in January 1992!

Yesterday's (1.13.10) extraordinarily out-sized one minute volume spike on the ESH10 (S&P 500 Futures / E-mini, current basis March) has raised many questions from who and how to where and what the hell ... but virtually no one has explained, welp, the only thing that actually matters: the technical posture of key market internal readings.

The five charts below highlight the technical postures of: the ES (S&P 500 Futures Continuous Contract, current basis March) on the 1-minute; the TICK (NYSE Cumulative TICK) on the 1-minute; the VOLD (NYSE Up / Down Volume Difference) on the 1-minute; the VIX (CBOE Volatility Index) on the 1-minute; the ADD (NYSE Advance / Decline Issues Differential) on the 1-minute.

I know there is still a great debate on whether the Chinese economy is in a great bubble state. For my thinking, any time private credit is created at such as rapid rate as it was in China in 2009 something has got to give somewhere. I will leave the finer points of the debate to the China watchers, but it is clear where my thinking on this one lies.

Taking a playbook straight from Wall Street, consumers maxed out their store-branded retail cards and decided simply to not pay them in November-December. And even that could not prevent December retail sales from coming it at below expectations: one wonders just what it is that will drive the retail dynamo that ever more clueless pundits on CNBC claim will boost 2010. Here are the facts: "Fitch notes that in December more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis." Well, at least the government got something out of this (if not private retailers) and managed to revise November sales slightly higher. Good luck repeating this.