Archive - Jun 23, 2010

Earlier, we pointed out the abysmal results of the most recent 5 Year Portuguese auction, which came in at a whopping 4.657%, nearly 1% higher than the last such auction from just a month ago, which then closed at 3.7%. Alas, the deteriorating funding environment in Portugal is not a fluke - according to the Bank of Portugal, bank borrowings from the ECB surged in the past month, and doubled from €17.7 billion to €35.8 billion in May. As Steven Major from HSBC said, quoted by the FT: "These yields are approaching that magic number of 5 per cent that is likely to be charged by the European stability fund. If the yields keep going up at this rate, then they will be paying much more than 5 per cent next month, which is arguably unsustainable." And confirming the non rose-colored glasses reality was another banker who said: "These yields are not sustainable. Portugal will have to access the emergency stability fund if they continue to rise at this rate." Elsewhere, Greece continue to be bankrupt.

Hmmm...

The kneejerk reaction to the completely unsurprising FOMC statement was down... Which is why the corresponding 12 handle move up in the ES is perfectly understandable... as long as one understands that our market is totally broken. 12 handles in 1 minute as the market went offerless! Have fun with that. As we noted earlier, ignore the record new home sales number: the algos will not let this market go until they melt it up to some gargantuan level. Good work computers - once again you have thrown out any marginal homo sapiens investors as anyone who doesn't think in binary has now lost all faith in stocks for good.

Just out from Reuters: Barney Frank has introduced the Frank Bank Levy Proposal, which would tax banks with more than $50 billion in assets, and hedge funds with more than $10 billion, and use the money to fund $4 billion for neighborhood assistance and foreclosure help for the jobless with good credit. In other words, big banks and hedge funds will be funding Obama's next stimulus for his core constituency.

Another completely irrelevant announcement from the "ZIRP4EVA" Fed. The only sane human being, Tom Hoenig, continues to have no friends. Only notable part of the statement: "Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad." On Hoenig's dissent: "Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly." Precisely what he said two months ago: no change in Hoenig's dissent. No change.

"What is becoming clearer, especially after the latest reports on housing starts, permits, resales and builder sentiment surveys, is that housing is already double dipping in the U.S. The MBA statistics just came out for the week of June 18 and the new purchase index fell 1.2% – down 36.5% from year-ago levels and that year-ago level itself was down 22% from its year-ago level. Capish, paisan? So far, June is averaging 14.5% below May’s level and May was crushed 18% sequentially, so do not expect what is likely to be an ugly new home sales report for May today to be just a one-month wonder. Meanwhile, the widespread view out of the economics community is that we will see at least 3% growth in the second half of the year: fat chance of that." - David Rosenberg

At least according to NBC News, quoting US Sources. According to AP, he will be replaced by Petraeus. The teleprompter's appearance in 5 minutes should confirm or deny.

Today's 5 Year $38 billion auction came in at a 1.995% high yield: not a record, unlike yesterday's 2 Year Auction, but still the lowest since April of 2009, when it was 1.93. The high yield came in 3.4 bps weak of the When Issued. The Bid To Cover came in at 2.58, compared to last auction's 2.71, and right on the one year average of 2.58. Direct bidders came in at 10.4%, indirects, at 34.6% were the lowest since July 2009, while primary Dealers took down the highest amount, or 55%, since July 2009 as well. Median yield was 1.925 and the low yield was 1.80%, with 18.36% allotted at the high yield of 1.995%.

This is bad to very bad. Coast guard reports two deaths have occurred in the containment effort. Not all is lost - in what probably shouldn't pass for an attempt at humor yet achieves precisely that, the US coast guard said the oil flow is not completely unrestrcited, and some oil was being burned off on the surface. Nothing like a little oil rain for the already happy happy gulf region.

With everyone anticipating the SNB to intervene and keep the CHF lower, the orderbook got for too onesided once again. So after days of the currency increasing without any intervention, and way too many EURCHR longs getting pummeled by margin calls, we just saw an unprecedented move higher in the CHF: precisely what the SNB hates to see. This is an isolated move, not seen in any other asset class, likely indicating some major FX fund just got wiped out on its EURCHF losses. Note the magnitude and sharpness of the move. And a much scarier question: is the SNB now buying CHF in an attempt to undo all its prior interventions, knowing full well we are approaching game over time, now that suddenly everyone is practicing bizarro economics and trying to strengthen their currencies?

The best we can expect is an anemic H2 GDP growth rate of only 1.5%. The private sector has flipped from spending 4% of GDP to saving 7%, a massive deflationary swing. I’m sure Ben Bernanke is listening.

Reuters headlines for now, but just goes to show what happens if you think you can take on Obamanataion head on. In the meantime, for those interested, below is the full ruling of Judge Feldman granting a preliminary injunction and overturning Salazar's deepwater drilling ban.

Investors surveys have moved from the complacency witnessed in April to more constructive levels. Option activity has improved and some indicators are in outright bullish configuration. Insiders activity has moved away from heavy selling. Our preferred “market timers” continue to have different opinions. J.Hussman is bearish while S. Leuthold thinks that the
correction should be bought. The best value managers have continued to reduce their exposure to the market indicating that
the markets will have to fall more before we see fundamentalists buying from the technical traders. Speculators remains long the Nasdaq 100 future while NYSE Specialists have increased their relative short selling activity in the past days. So sentiment is oversold but it has to be put in the context of the recent decline and market trend. - Damien Cleusix

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 23/06/10

Here comes to dumbest news of the day - the New York State Comptroller, having forgotten that risk follows return courtesy of Bernanke and Obama's Global Put, has announced that the New York State Pension Fund will sue BP for the loss in BP shares. This is almost certain to lead to a massive surge in the troubled company's shares. According to recent 13F reports, the New York State Common Fund held 11 million shares of BP, at a end of Q1 value of $192 million. It is fair to say this value has been cut in half by now. If the NY fund is willing to sue a firm after it has lost about $100 million on a soured investment, things at the pension fund must be beyond bad.