Archive - Jun 2010

Full blown capitulation from the Goldman FX (strategic not tactical) team: the firm goes from a $1.35 target on EURUSD to $1.15. Score one more golden star for Goldman-Client relations. On the other hand, Thomas Stolper is officially advising clients to sell their euros to Goldman. There is no clearer signal to buy the beaten down currency.

I think he is selling hot air.

Slightly delayed, here are the results of today's 10 Year $21 billion auction. High yield of 3.24%, Bid To Cover of 3.24... Oh yes, we noticed it too. Blown fuse at the PDs aside, the BTC was better than the last auction, which saw a 2.98 BTC, even with a higher yield of 3.55%. Still, the average BTC over the last year is 3.58 so it could be better. Yet unlike last month's 10 Year, where the Direct Bidders gobbled up a record 25%, this time the Primary Dealers had to step up, increasing their take down from 33.2% to 46.4%, account for the entire drop in Directs to 13.5%. Strange how the PDs and the Directs just pass the primary issuance hot potato to each other auction after auction. The auction was allotted 87.15% at the high yield. The Primary Dealer hit ratio came in at a solid 21.7%. Keep in mind this 10 Year was a $3 billion reduction in total notional from last month's $24 billion.

Its that time of the day. Again. Futures charts + open thread + musical and literary recreation

Today's early market exuberance (which did nothing but provide various FX arb opportunities during the day), was largely attributed to the news that China's export economy is surging. Alas, even a brief read between the lines indicates that this should have been fully priced in. The reason is very simple, as our friend Thermidor explains.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 09/06/10

We posted the largest holders of BP stock previously, but, heck, we'll do it again, just for shits and giggles. We dare our readers to spoof Goldman/State Street/BoNY's repo desk phone number and call any of these deep value investors. Over under on straight to voicemail is at 100%.

10 points in 30 minutes is what annualized? Ask Atari's Instant Profit HFT Platform, and don't forget to carry the 11011011101011.

A casual glance at the BP annual report reveals the following suddenly relevant tidbit:"OTC contracts: These contracts are typically in the form of forwards, swaps and options. Some of these contracts are traded bilaterally between counterparties; others may be cleared by a central clearing counterparty. These contracts can be used for both trading and risk management activities. Realized and unrealized gains and losses on OTC contracts are included in sales and other operating revenues for accounting purposes. Highly developed markets exist in North America and the UK where gas and power can be bought and sold for delivery in future periods." While we are positive that BP's risk management department has done a terrific job at evaluating the viability and credit risk of its own counterparties (thank you Federal Reserve), the question now becomes, is the inverse also true (ahem, collateral calls on increasing rating agency, ahem)? As the firm likely has tens of billions in open OTC positions in various commodity and currency markets, is it time that speculators shifted their attention from BP to the Morgan Stanleys (wink wink), Deutsche Banks, and Goldmans of the world?

The trade that just keeps on giving, the EURJPY-ES decoupling is once again making its daily appearance. For the one trade that consistently closes its intraday "decoupling" day after day, here is your daily chance to rake in some easy money courtesy of the ongoing margin calls at corr desks who are too busy unwinding BP to care about this guaranteed (yes, yes) arb. And, yes, 10 pts is obviously relative: for those anal enough to index this trade, feel free to do so, you will get the same result. All joking aside, this divergence has been happening way too often in the past week, which we really can only attribute to the massive pain happening behind the scenes in BP and the drillers (RIG down 36% in last 20 days now). Buy EURJPY, Sell ES (September vintage), pick several easy bps, sit back and enjoy 4 out of 4.

The Fed's Rose (no longer beige) Book is out. For those zombified enough to still believe any lie coming from the government, here is the summary: "Economic activity continued to improve since the last report across all twelve Federal Reserve Districts, although many Districts described the pace of growth as “modest." We refuse to spend any time reading  this drivel. Link for the masochists.

During his testimony before the House Budget Committee, when asked about the recent move in the price of gold to a fresh all time high, the Princetonian, who usually has an answer for everything, was stumped: "the signal that gold is sending is in some ways very different from what other asset prices are sending" he said, adding that "the spread between nominal and inflation-indexed bonds, the break even, remains quite low, suggesting that markets expect about 2 percent inflation over the next 10 years." The fact that TIPS are linked to the most manipulated indicator in the government's arsenal the CPI, was not mentioned. But back to gold, Ben Shalom concluded "gold is out there doing something different from the rest of the commodity group." Yes, Ben - it is indicating that your policy of endless fiat dilution is about to come to a forced end. But don't take our word for us. Here is a report from Credit Suisse which explains not only why the firm sees gold rising promptly to $1,360 but possibly going much higher - and this is from a bank whose very existence is contingent on gold prices staying sufficiently low for some marginal credibility in fiat to still remain.

Headlines for now. Not too surprising based on the recent lawsuit between the two firms, which we have presented previously in depth.

BP stock getting hit with a variety of rumors as to the cause - one is that the culprit is a Fortune article, which quotes Matt Simmons (whom we have quoted before as being supportive of nuking the leak) that BP "has about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they'll panic and go into Chapter 11." The other rumor which is gaining traction, is that BP has hired a bankruptcy lawyer. Then again, seeing how today was the 1,293,498th time the Radioshack LBO rumor pushed the stock higher, all this media rumormongering should certainly be taken with a blob of oil.

One of the events that received absolutely no mention last week was the sneakily announced Treasury annual report on public debt this past Friday, alongside the horrendous NFP report. Luckily, courtesy of Congressman Dave Kamp, we have managed to obtain this report which shows the unprecedented level of delusion that exists at all levels of our administration. In a nutshell, the attached report pretends to forecast US debt and GDP levels. What it doesn't pretend to do, is to be the work product of a variety of pathological liars. Even as Geithner anticipates US total debt to hit $19.6 trillion by the end of 2015, somehow, in some parallel universe, he also anticipates US GDP will rise at a 5% CAGR for the next five years! Total US GDP, which was at $14.2 trillion for 2009, is expected to ramp up by 2.7% in 2010, and then really put on the afterburners in 2011 through 2015, averaging almost 6% each year, and hitting a stunning $19.2 trillion in 2015. The ridiculousness of this assumption is beyond comprehension. And even so, total debt/GDP will still be over 100% per the government's baseline assumptions. Alternatively, if one assumes, as PIMCO does, a GDP growth rate of 1.5% for the next 4-5 years courtesy of the 10% unemployment "new normal", total debt-GDP will hit 126% in 5 years. And this obviously excludes GSE, SSN and Medicare off balance sheet debt. Lastly, the Treasury assumes that even with 100% Debt to GDP, the funding cost on US market debt in 2015 will be only 4.7%, compared to the 1990-2009 average of 5.9%.