Archive - Sep 15, 2010

The Fed is now getting desperate: today, Brian Sack gobbled up nearly $4 billion in bonds maturing between 2014 and 2016, the highest single day tally in this latest iteration of QE, and resulting in the lowest Submitted/Accepted ratio of QE Lite of 4.3x, indicating that the FRBNY markets team was in a rush to push as much liquidity as it could to the PDs so they latter could go out and push the beta wave a couple of inches higher. As for the bonds, the bulk of the purchases was in the 2014-early 2015 range. We have yet to do the Cusip analysis, but we wouldn't be surprised if this contains a bunch of 5 Year bonds that were auction as recently as a month or so earlier, further validation that Geithner's promises a year ago that the Fed would never monetize bonds was nothing but lies. And even so, the market can barely stay green. Today will likely be an interesting day, testing the ever-declining half life of bank intervention, in both FX and bond markets (but, don't worry, central banks and especially the Fed, never, NEVER, get involved in stock manipulation).

Central banks (and specifically their credibility) just can't get any love these days. Why should they: the Swiss National Bank spent a boatload, blew up its balance sheet, pissed off trade unions, and achieved nothing at all. And if Japan itself is any indication, the BOJ spent $300 billion a few years ago, and the JPY still hit all time highs yesterday. So unless someone believes that the BOJ can afford to spend about double that number to actually achieve results (and they can't) every uptick in the JPY should be shorted (and that ignores that stench that Schumer is about to raise any minute calling for a boycott of every Prius and Sony TV in the US for ever and ever as long as the BOJ continues to manipulate). Even Goldman's Thomas Stolper, who tends to be somewhat more polite than Zero Hedge, has come out with a 6 month target in the USDJPY below 79 due to the "impact of US QE, persistent trade surpluses and the attraction of testing the authorities’ resolve to intervene again." We would certainly agree on this one.

A boatload of bad economic news - check, full blown admission by all central bankers that the only way to preserve a broken system is by global market intervention - check, and stocks are... up? Instead of bashing your head in with a sledgehammer trying to explain this, here is your answer: POMO. The Fed just opened up to submitting bids for about $2.5-$3.5 billion in bonds dated 2014-2016, meaning there will be about $70-$100 billion in leveraged capital released by the Fed to the Primary Dealers to bid up all companies with a beta of 4.0+, as the Fed's number one task for the month of September is to get hedge funds, all of whom are now all in on the beta wave, if not above their high water mark, then at least to October 1 and prevent a tsunami of redemption requests.

One would have thought AngloGold would have learned from Newmont's hedging mistakes. Alas, who is to say that corporate officers are any better at predicting the future than the cadre of CNBC and Wall Street "analysts" who persist in seeing gold crash and burn "eventually" only to be proven wrong again and again. Today, AngloGold has announced that it is issuing just under $1.4 billion to stem the damage arising from its massively underwater hedge book which is estimated to be at around $2.4 billion. So as a result of management's bullheadedness, it is the shareholders who have to suffer: WSJ reports that AngloGold "expects to raise gross proceeds of about $686 million by issuing 15.7
million new ordinary shares and expects to raise about $686 million by
issuing a three-year mandatory convertible subordinated bond with a 6%
annual coupon. The bond will be listed on the New York Stock Exchange
and will convert to a similar number of shares." End result: dilution and shareholder value loss (stock down 5%+) when the firm should be benefiting from gold's all time record price.

Life at UBS continues to suck, as rumors of defections eventually ceasing are greatly exaggerated. Today we have learned that the entire American UBS energy and MLP investment banking team has defected to Citi. This follows such high profile departures as the firm's healthcare and stock churning teams leaving for Jefferies some time ago, and who knows how many other people. Those who are seeking to get a confirmation from UBS' Stephen Trauber may have to look for him at his new position somewhere in the bowels of 399 Park.

Well, hopefully those who were long USDJPY did not close after the results of the election in Japan yesterday. After staying away from currency intervention and being campaigned against on that very basis, Kan did not wait 24 hours to turn around and start selling USDJPY! Other than the obvious irony of the turn of events, this move has HUGE consequences. Where do we go from now? Well the intellectual midget fight is on. The BOJ asked the US and Europe for support in case of intervention and both basically looked away like the prom queen when the class geek asks her for a dance. At the end of the day though, a ninja's got to do what a ninja's got to do and the BOJ moved ahead with currency intervention. The next logical step will be trade wars. - Nic Lenoir

August Industrial Production came in at 0.2%, in line with expectations, while the prior print of 1.0% was revised lower to 0.6%. Capacity Utilization missed consensus sllightly, coming in at 74.7% on consensus of 75%, with the previous reading also revised lower from 74.8% to 74.6%. Overall, no pick up in the economy can be traced across these two metrics, meaning the double dip continues.

Even as gold continues ever higher, George Soros was quoted to be saying that gold is the "ultimate bubble" further saying it is not safe and will not last forever. We wonder if Mr. Soros is not talking the other side of his book here just a little. In the meantime, for those who are not quite convinced in Mr. Soros, shall we say, "genuineness" FMX Connect suggests some long gamma plays inside.

• Japan Intervenes to Weaken Yen (FT, Bloomberg)
• Japan MOF official: FX intervention not finished (Reuters)
• China Said to Consider 15% Capital Ratio for Biggest Lenders (Bloomberg)
• EU Unveils Crackdown on Derivatives (FT)
• Germany Asks US to Give Up Its IMF Veto (FT, Bloomberg)
• Pimco Makes $8.1 Billion Bet Against `Lost Decade' of Deflation (Bloomberg)
• Fiscal Rules Face Obstacles, Warns Lagarde (FT)
• Congress Seeks Fannie, Freddie Exit as Banks Eat Soured Loans (Bloomberg)

Futures gap down as the Empire manufacturing index creeps ever closer to 0, coming in at 4.1, from 7.1 prior: this was the lowest since July 2009. Expectations of 8.0 were missed for the second time in a row. Optimism continues to deteriorate. From the report: The Empire State Manufacturing Survey indicates that conditions held relatively steady in New York’s manufacturing sector in September. The general business conditions index remained positive, although it slipped 3 points to 4.1. The new orders and shipments indexes were both up moderately for the month, at levels signaling stable activity. The prices paid index was positive and little changed from last month, while the prices received index edged up to just above zero. Employment indexes were positive, suggesting that employment levels and the average workweek continued to expand over the month. The degree of optimism about the six-month outlook continued to deteriorate, with the future general business conditions index hitting its lowest level since early 2009.

• Yen tumbles as Japan FM Noda confirms currency intervention- first time since 2004.
• Singapore authority to intervene second time in a month to bring down the S'pore dollar.
• Yuan climbs to record as gains quicken ahead of US Committee meetings.
• API sees 3.3-million-barrel increase in oil inventory.
• China's steel output cut to continue through 2010: Industry Ministry.
• Fed differ on question of how weak the economic outlook should get before they move to take major steps to boost growth.
• Japanese shares rise as currency intervention drives down Yen; Gold climbs.
• OPEC sees no change to production quota at meeting in October.
• Retail Sales in US increase more than estimated in second monthly rise.

Two BOJ interventions for about 400 billion down so far, and if history is any precedent there are about 36 trillion and 128 days to go. Goldman's take on the decision to manipulate the FX market makes sense, as Kan's victory would have likely pushed the USDJPY well below 80: "With the re-election of Kan as DPJ leader yesterday, the timing is potentially a surprise given that intervention was perceived as more likely if Ozawa had taken the reigns. But this perception may have been precisely why the authorities felt they needed to intervene, to stem the risk of speculative positioning becoming increasingly on-sided following the election outcome. The FX volatility around the outcome of the DPJ leadership election yesterday already had this flavour." So around 400 billion of Yen down...

This rock is starting to roll. Once it gets moving it will be hard to stop. Something is likely to get crushed as this unfolds.

We focus on industrial indicators following this morning’s report on mortgage applications, with import prices thrown in for good measure….

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 15/09/10