Archive - Jun 2010

"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.

Goldmans' Dominic Wilson,director of global macro & markets research, is out with a note which indicates a material shift in the firm's sentiment on risk. In a nutshell, the firm, unwilling to fight the macro double dip headwinds is prepared to concede that the American stimulus/reflation experiment has failed, and that investors should instead focus on underperforming markets (O'Neill's N-11 comes to mind): "Our own forecasts point to one other emerging theme. We see more risks of slowing in the economy where people have seemed most comfortable (US) and expect less slowing in places where people are more worried (Europe, China). If our forecasts are right, US domestic outperformance could ultimately reverse more." Also amusing is the attempt to reconcile a slightly bullish residual view on risk assets with the firm's 1.15 target on the EURUSD which would imply an S&P in the triple digit range. In summary - get out of America if you are a Goldman client, or, using the whole re-reverse psychology trick, now is the time to short the BRICs and Europe (even more), and buy the US. As usual with a Goldman report, more questions than answers, none more so than the original one - has recent market performance been a product of an actual rally, or nothing but massive squeeze?

New home join the existing home sales double dip brigade, and plunge by an unprecedented 32.7%, nearly double the expected -18.7, compared to a previous reading of 14.7%. The government succeeded in making a mockery of this data series with all its ridiculous stimuli, and now we are officially in a housing double dip absent another massive stimulus bill. The median sales price of new houses sold in May 2010 was $200,900, lowest since December 2003, and a 9.6% drop YoY.

An update on the GoM headed Invest93L from Jeff Masters' blog at wunderground.com: "NHC is giving 93L a 40% chance of developing into a tropical depression by Thursday morning, which is a reasonable forecast. Given the storm's current lack of spin and relatively modest amount of heavy thunderstorms, the earliest I'd expect 93L to become a tropical depression would be Wednesday afternoon, with Thursday more likely. Wind shear is expected to be low, less than 10 knots, over the central and western Caribbean this week. Water temperatures will be warm, dry air absent, and the MJO favorable. I don't see any major impediments to the storm becoming a tropical depression by Thursday, and it is a bit of a surprise to me that the computer models have been reluctant to develop 93L. The GFS, NOGAPS, and UKMET models do not develop 93L, and the ECMWF model doesn't develop 93L until after it crosses the Yucatan Peninsula and enters the Gulf of Mexico in a about a week. The current (2am EDT) run of the GFDL model predicts 93L will be a weak tropical storm in the Gulf of Mexico in five days; its previous run had 93L as a major hurricane in the Gulf. Given all this model reluctance and the current disorganization of 93L, I give the storm a low (less than 20% chance) of becoming a hurricane in the Caribbean."

From Barclays: "Financial market conditions have deteriorated notably since 1Q10, evidenced by sharply wider credit spreads, cash-derivative basis, declines in structured finance indices, sharply higher volatility and a "flight-to-safety" trade in less risky assets. We believe this market dislocation, while certainly smaller than the dislocations seen in 2008 and early 2009, has impacted broker-dealer revenue generation in terms of client activity levels, trading revenue and investment banking results. Additionally, we believe that 2Q results will be more divergent across the Street, driven more by relative positioning for the moves this quarter." The key reasons for the Barclays cut: "The largest downward revisions are in lower core FICC (-40% seq to $4.49bn, -$1.18 EPS), lower core equities (-40% seq to $1.4bn, -$0.75 EPS), weaker investment banking (-37% seq to $743mm, -$0.39 EPS) and the inclusion of$650mm of UK bonus tax (-$0.90 EPS)." The Q2 financial earning season just got interesting.

Gold rallied Tuesday, recovering $7 from the washout on Monday. Gold continued its uptrend in Asian and European trading and is up about $3 of the day. Traders are keeping their ears to the ground ahead of options expiries tomorrow. The Federal Open Market Committee will announce any changes in interest rates this afternoon and while there is almost no chance of it moving interest rates the accompanying statements they release could influence market prices.