Archive - Aug 2010

It is time for the weekly refi: the 30 Year Freddie cash mortgage just hit another fresh all time low. And with the 10 Year plunging and soon to drop below 2.5% as the bond bubble is becoming ever more primed, we expect the 30 Year to eventually drop as low as 4% if not further. Will this force more incremental homebuying activity? Absolutely not.

"Although the US signaled the beginning of the coming recession, the Eurozone is still naively expecting its €750 billion rescue plan with austerity thrown in to save the day. Our analysis argues that this plan will start crumbling within the next few weeks, sending the euro sharply lower once again and ushering in the deep recession of 2011." - John Taylor

The title says it all...

Another week, another vote of no confidence in the market. It is getting really bad: we have now had over a quarter of non-stop redemptions by mutual funds, which of course means, by end-retail investors. The problem is that now everyone is starting to notice the stench that the market is not supported by anything except momentum manipulation and primary dealer machinations. Per ICI, the week ended August 4 saw an outflow of ($2,788) MM, bringing the total to over $46 billion in domestic equity redemptions year to date. Retail is now fully boycotting stocks, as the no-volume surge of July was not even sufficient to bring one meager week of inflows, and in fact, July saw almost $16 billion in outflows. If not even a 10% surge in stocks is capable of bringing retail back into stocks, perhaps it is time the administration and the SEC ask themselves, "what will?" We can not wait to see how the market drop of this week impacts fund flows. If history is any indicator, it will not be pretty.

In an interview with the FT, Pimco's Bill Gross flatly warned the government, in advance the housing finance conference that will begin deciding the fate of the GSEs next Tuesday, that unless Fannie and Freddie bonds retain their government guarantees, he would cease purchasing GSE debt. On the other hand, Gross may have overplayed his card: he already took the government for the proverbial ride, loading up the flagship TRS fund with GSE debt in early 2009 and riding the surge higher for the entire year, then selling virtually everything: TRS has just 16% of its $234 billion in AUM in mortgage securities as per the latest Pimco Fund update. Nonetheless, the Newport Beach bond pundit's warning is a clear shot across the bow indicating just who is the primary force in GSE decision-making, right after the Treserve.

Markets in a Flash

· The USD is starting to look stronger today. Against the JPY it is pulling back some of its losses.

· The EUR/JPY appears to be pushing to new monthly lows today. It is trading around the 110.000 level.

· US equity futures are lower today suggesting the selloff will continue when the markets open.

Gold opened Wednesday’s trading at $1202.8 per 100 troy ounces. While it rallied as high as 1208, the metal could not sustain these gains and fell below 1200 again, closing out the day at 1197.5. Today, August gold was up 5.6 to $1202.4 per 100 troy ounces as of 8:21 AM EST, this morning. The September U.S. dollar index was up .806 to 81.730. October platinum was up 2.3 to $1539.3 per 50 troy ounces. Silver was up 5.2 cents to 18.210. Yesterday Goldman Sachs released its latest commodity recommendation. It is calling for Gold to touch $1300 by year end. The report is pretty sparse in comparison to some of the other serious research we have read from Tudor, Barclay’s and other banks. But that does not mean it is wrong. It means that Goldman has its finger on the pulse and think a tipping point may be near, fundamental, structural, cash flow or otherwise. So they are putting out a red herring. Here it is in the nutshell.

Continuing claims improved marginally to 4,452MM from 4,535MM expected (previous revised to 4,570), but much of the volatility in this series is due to transitions into EUC and Extended Claims. The one main indicator, initial claims, continues to deteriorate and will soon pass the 500,000 mark which will be the final confirmation the US never left the depression but merely enjoyed an 18 month sugar high courtesy of tens of trillions in incremental debt. And here come the jobless who had fallen off insurance rolls: EUCs surged to 4,493,351: an increase of over 1.15 million! Add the Extended Claims jump of 180K, and those on total extended rolls jumped by 1.3 million in one week. These are votes that surely would not have gone for administration come November if their subsidies had not been returned.

• Former St. Louis Fed president: Say Goodbye to Fannie and Freddie (NYT)
• China PLA warns U.S. over fresh military drill in region (Reuters)
• Debts Rise, and Go Unpaid, as Bust Erodes Home Equity (NYT)
• Spanish Crisis Threatens Second Front as Catalonia Rates Rise (Bloomberg)
• China Shows Further Signs Of Slowing (FT)
• Foreclosure Crisis Spreads Across U.S. as Idaho Defaults Mount (Bloomberg)
• The great false choice, stimulus or austerity (FT)
• The Rubin Con Goes On (The Nation)
• Thousands Crowd Housing Authority For Section 8 WAITING LIST, Fights Break Out (HuffPost)
• Australian Employment Growth Cools, Pushing Jobless Rate Higher (Bloomberg)

• Bank of England lowers UK's GDP growth outlook. Stirs speculation of more intervention.
• Buyers' Credit helped home prices rise in two-thirds of U.S. metropolitan areas in Q2.
• IEA warns of Gulf spill effect on new oil supplies.
• India looks to shake up its banks; Central bank reviews banking ownership rules.
• US trade gap swells to 21-month high; deficit with China more than half of total.
• Advance Auto beats by $0.13, posts Q2 EPS of $1.16. Revs up 7.2% at $1.42B. Plans $300M share repurchase program.
• AIG to sell 80% of its money-losing consumer-lending business to Fortress Investment.

The most stable correlation in recent months continues to persist with the EUR dropping further earlier today to a fresh 3 week low, on more bad news out of Europe, yet coupled with a decline in interbank rates. The EURUSD printed at 1.2811, mere pips away from the 1.2800 100DMA (at the same time as the EURCHF plunged to below 1.36 after hitting a high over 1.38 yesterday). As expected, this has led to a decline in the Euribor rate, whose fixing came at 0.899% (3 Month), versus 0.903% previously. Both 1 Week and 6 Month Euribor also declined. The ongoing macro weakness in Europe is predicated on two big macro events: the confusion surrounding Slovakia's refusal to participate in a Greek bailout, as well as rumors of another round of ECB purchases in the Irish 6 and 9-month (€0.5 Billion each) T-Bill auctions, which priced at 2.458% (previous 1.367%) and 2.81% (previous 1.800%), respectively. The Bid To Cover was 3.6 and 3.1, versus 2.8 and 3.4 previously. Further underscoring Europe's own relapse into a PIGGSy inferno, was Greece's announcement of May unemployment at 12%, versus 9.5% last year, but more relevantly, the country's GDP declined more than expected, coming in at -3.5% from last year, on expectations of -3.3%, and a 1.5% QoQ (-1.0% exp). They should just wait to see what happens when all the strikes are factored in. All in all, it should prove to be another interesting session.

After having declined for 4 months in a row, July foreclosure activity once again took a leg up, increasing by 4% from the prior month to 325,229 in July according to RealtyTrac. There was deterioration across all three foreclosures categories: default notices, foreclosures auctions and bank repossessions (REO). “July marked the 17th consecutive month with a foreclosure activity total exceeding 300,000,” said James J. Saccacio, chief executive officer of RealtyTrac. “Declines in new default notices, which were down on a year-over-year basis for the sixth straight month in July, have been offset by near-record levels of bank repossessions, which increased on a year-over-year basis for the eighth straight month.” Of note is the ongoing increase in bank repossessions as banks seems increasingly less motivated to put foreclosed properties in auctions lists. Per RealtyTrac: "Lenders foreclosed on 92,858 U.S. properties in July, a 9 percent increase from the previous month and a 6 percent increase from July 2009. July’s bank repossession (REO) total was the second highest monthly total since RealtyTrac began tracking REO activity in April 2005 and was 1 percent below the monthly REO activity peak of 93,777 in May 2010."

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 12/08/10

Until I began to examine the Dodd-Frank financial overhaul bill I had no idea that it would so significantly change the direction of the United States. It's scope is so vast and pervasive that it is difficult to grasp its totality. I wrote this article to try to explain this and why I believe it is so important for us to understand it. Because of its complexity it was not possible to do this briefly, so I wrote this major "white paper" and divided it into four parts to make it easier to digest. Please stick with me for the next four days; your eyes will be opened.

A decade from now, it will not be stock investors complaining about a lost decade, but owners of bonds. Is the final blow off top in the great 30 bull market in bonds at hand? PIMCO’s Mohamed E-Erian says that there is a 25% chance of real deflation hitting the US. The higher bonds go, the more imaginative the explanations become as to why it should continue. (TBT), (TMV)