Archive - Feb 2010

Today's 4 week Bill auction was unique in that the hit ratio for the indirect bid hit a record (and can't really go any higher) at 100%. We have charted the hit ratio over the past 3 months, where aside from the window dressing auction from December 29, the average ratio has been at 68% (69% including that particular 97% hit ratio auction). The implications from this result: the Indirect bidders put the greatest amount of 0.000% or as close to preliminary bids as possible (remember, this means bidding at the highest actual bond price), followed by directs and primary dealers as we approached the 0.055% stop out to fill the $31 billion reverse dutch auction. Yet the hit ratio has never been 100% before (or at least not according to our data). This means that indirects are not price fishing, trying to jigger the auction with low ball bids: they are simply reducing their absolute nominal exposure to the Bill space, further confirming the TIC data which showed China is now happy to let its Bills expire without rolling . We expect an increasing amount of 100% hit ratio Indirect bids in Bill auctions in the future, as the full amount of Bills tendered progressively declines, forcing Primary dealers to take down 80% or more of all future Bill auctions.

I was clearly able to see the Greek bank downgrades coming, but there was one bank that was left out, as I expected it to be. If or when that bank gets downgraded, it is a strong chance that Greece will go down with it.

• 4 week prices at 0.055%
• 27.75% allotted at high; Median rate of 0.04%, low of 0.0%; The median rate was 0.000% recently
• Bid to Cover 3.82, compared to 3.97 last week
• Indirects take down $5.97 billion of competitives, or 19.8%
• And shockingly, the indirect hit ratio was 100%: $5.956 billion tendered by Indirects, $5.956 billion accepted. This is a stunning result as every competitive indirect bid into the Bill auction was covered.

Earlier we thought we were joking when we noted that in America the only digestable news is good news (or at least, that is what it becomes after a few quick spin cycles.) To our surprise it took about 10 minutes to confirm that the joke was really fact. Remember that horrendous consumer confidence number from about an hour ago? The same one that all those who prevsiouly praised, and said the confidence board could do no wrong, is now being derided as completely irrelevant, manipulated, etc, and, if you reallllly think about it, it is just a big, flashing green light to buy, buy, buy. Indeed - here is Collins Stewart to provide the requisite spin. As for the reality, the one that ABC Consumer Comfort has been demonstrating for months now, the truth is that both UMich and Confidence Board are now merely 3rd if not 4th derivatives of the machine controlled, micro-volume equity market. If the market has a down day, consumer confidence goes down, and vice versa. We wonder just how indicative of the broader "consumer" confidence are the daily gyrations in the SPY bid and offer, and how anyone, aside from various ETF desks and a few Atari 2600 consoles, has any reason to be confident based on what ishappening in the market intraday.

Presenting a selection of SPY Indications of Interest from this morning beginning at 4:30AM Pacific, and ending with the market open at about 6:30AM, which should end the debate, once and for all, who the dominant market player in afterhours market gunning,er, trading is. We urge our readers to pick the odd one Federal Reserve Board of New York Proxy out. Comparble analysis for ES. Whether JPM is buying everything in sight for itself or for a client (yes, Lliberty 33 would be considered a client, paying commissions with taxpayer money) is unclear. Although, in a later post, we will attempt to provide an answer.

RANsquawk 23rd February US Morning Briefing - Stocks, Bonds, FX etc.

The BLS has reported Mass Layoff Statistics for January 2010 - the result is plain ugly, and kills any hope for sustained improvement in unemployment data. Not seasonally adjusted Mass Layoff Events (defined as at least 50 persons being laid off from a single employer) surged in January to 2,860, from 2,310 in January, from a 12 month low of 1,371 in September 2009. This is the biggest monthly surge since July when the Mass Layoff Events hit a 12 month high of 3,054. In terms of actual workers, January saw 278,679 initially laid off people. The deterioration was mirrored in the much less credible seasonally adjusted data. Obviously companies were waiting for the end of the year to dump as many people as they could.

The Federal Deposit Insurance Corp. said Tuesday that its deposit-insurance fund fell to $20.9 billion at the end of 2009, a $12.6 billion drop in the final three months of the year, as bank failures continued at a pace not seen since the savings and loan crisis. The fund's reserve ratio was -0.39% at the end of the quarter, the lowest on record for the combined bank and thrift fund...Net charge-offs of troubled loans occurred across all major loan categories, led by a $3.3 billion increase in residential mortgage loans. The FDIC said U.S. banks' coverage ratio--reserves divided by the amount of noncurrent loans--fell to 58.1% in the fourth quarter from 60.1% in the third quarter.

Looks like the ABC Consumer Comfort Index was right all long

US CONF BD: PRESENT SITUATION INDEX LOWEST SINCE FEB'83US
US CONF BD: JOBS, EARNINGS CONCERNS LIKELY TO CURB SPENDING
CONF BRD:PLENTIFUL LESS HARD-TO-GET -44.1% FEB V JAN -42.1%
US CONF BOARD: JOBS HARD-TO-GET 47.7% IN FEB VS JAN 46.5%
US CONF BOARD: JOBS PLENTIFUL 3.6% IN FEB VS JAN 4.4%
US CONF BOARD: CONS EXPECTATIONS INDX 63.8 IN FEB V JAN 77.3
US CONF BOARD: PRESENT SITUATION INDX 19.4 IN FEB V JAN 25.2
US CONF BOARD: JAN INDEX REVISED UP 0.6 (ORIGINALLY 55.9)

And just as Greece was about to launch its 10 year bond offering... Where is Papandreou to claim that Fitch was bought by all the accounts (who may or may not invest in the €5 billion issue) to make the price even better. Because the spread to Bunds just jumped by about 10 bps to 325 following the news. Fitch notes: "The rating actions reflect Fitch's view that the banks' already weakening asset quality and profitability will come under further pressure due to anticipated considerable fiscal adjustments in Greece. In particular, Fitch believes the required fiscal tightening that needs to be made by the Greek government will have a significant effect on the real economy, affecting loan demand and putting additional pressure on asset quality. The latter could result in higher credit costs, ultimately weakening underlying profitability." In the US, where any news is good news, equities jump following the headline.

After a third sequential decline in unadjusted Case-Shiller housing prices, is it ok to come out of a contrarian shell and proclaim the government-subsidized home price appreciation rally dead? Afdter the unadjusted Composite-20 reading peaked at 146.7 in September, the index has slowly declined for 3 months in a row and is now at 145.9. The only good thing one can say is that the rate of decline has not accelerated. However, with just over a month left on MBS QE, we are not very hopeful for a second V-recovery to appear in home prices any time soon.

A delegation consisting of EU, ECB and IMF "experts" came to Greece, saw and said "more cuts." Greece, in turn, is doing all it can to soft circle enough support to come to market with a €3-5 billion 10 year bond issue, and has no option but to oblige. The troubled PIIGS member has so far proposed a 5.5% maximum cut in gross salaries to civil servants via entitlement cuts, while the EU is now suggesting an average 7% cut. How this will be accepted by Greece's already striking unions, whose protesters earlier barricaded and shut down the primary building of the Athens Stock Exchange, is unknown but will hardly inspire enthusiasm for wage cutting programs.

• States reported fifth consecutive drop in tax collections in Q4 (Rockefeller Institute)
• Harvard's Rogoff sees "bunch" of sovereign defaults (Bloomberg)
• German business confidence unexpectedly declines (Bloomberg)
• $1 trillion of debt has to be rolled in Europe in next two years (Telegraph)
• Deathbed of Keynesian economics will be in U.K. (Bloomberg)
• Greece not alone in exploiting EU accounting flaws (Reuters)

• Most Asian stocks rose, reversing earlier decline, amid speculation Dubai World will be able to fix its finances.
• German business confidence unexpectedly drops on coldest winter in 14 years.
• Obama unveiled a last-ditch $950B health-care plan.
• Oil falls for first day in six on forecast of gain in US crude supplies.
• Senate moved forward on a $15B job-creation package as 5 Republicans voted for the Democratic bill.
• US Treasury says consumer watchdog benefits banks.
• ABB taps emerging markets, guards cash to escape "thunderstorm".
• Brookfield Asset Mgmt is readying a bid to take a large ownership stake in General Growth.

RANsquawk 23rd February Morning Briefing - Stocks, Bonds, FX etc.