Archive - Sep 21, 2010

Today the Fed may or may not announce a new outright dollar debasing venture, or may merely hint one is coming. And while the impact on stocks is pretty binary (post embargo, break stocks will either surge or slump) as very few are left trading equities, the real question is what will happen to rate and rate derivative products. Conveniently, Morgan Stanley's Igor Cashyn has compiled a historical analysis of how prior episodes of QE have impacted Treasury-based products. Igor looks at front and back-end rates, at curves, butterflies, swap spreads and agencies. Here are the results.

August Housing Starts come at 598K, on expectations of 550K, as the bounce along the bottom is now nothing but noise. None of this is relevant as the most recent (July) existing home inventory number hit 12.5 months from 8.9 months prior, and even with that in mind, the starts number is the largest since April 2010. Which merely means that even more spare capacity will be added. Of course, with the GMAC Mortgage scandal front and center, this whole statistic may soon be quite irrelevant should foreclosures grind to a halt. Oh, and this being a US Census number, the prior number was obviously revised lower, from 546K to 541K. No surprise there.

• Vacations now over, Greek labor union schedules next all day strike for October 7 - set your $0.01 stub quotes accordingly
• ECB Steps Up Its Bond Buys Amid Worries (WSJ)
• ECB Sterilizes €61.5 Billion in sovereign bond purchases, purchases €323 million of bonds last week (Market News)
• Which of course leads to... Ireland Sells 1.5 Billion Euros in Debt as Borrowing Costs Rise (Bloomberg)
• And to...Greek Sovereign Default Would Be a `Tragedy,' Papandreou Says (Bloomberg)
• Former Officials Oppose US Renminbi Bill (FT)
• Putting your money to work just 2 days a month: To make a lot of money in the stock market this year, all you had to do was invest on just the first two days of every month. And get the hell out of the market every other day (NY Post)
• Obama Says China's Growth is 'Good for US' (China Daily)
• Chris Whalen: Double dip or global deflation? (Reuters)
• From former Bernanke collaborator Vince Reinhardt: Getting Lehman Profoundly Wrong, The bankruptcy of Lehman Brothers is widely misunderstood: We have inverted a morality tale about individual recklessness to become one about collective culpability through inaction. (The American)

• Asian stocks gain as US economic concerns ease.
• Australia increases commodity export sales forecast to record $203B.
• ECB steps up its bond buys amid worries of default by Greece, Portugal, Ireland.
• Escaping double dip to growth recession means no unemployment relief seen.
• Greece sells 13-week T-bills, yield drops to 3.98%
• Gulf states in $123B US arms spree; Arab nations seek to counter power of Iran.
• Oil falls after US Homebuilder Confidence reading prompts demand concern.
• Treasuries hold gain as Fed may say it is open to boosting debt purchases.
• US recession ended in June 2009, NBER says amid threat of renewed slump.

Austrian banks may be sitting on a €2.6 Trillion off balance sheet derivatives time bomb and the central bank does not know how much risk is involved in these trades.

Today's market ripping false strawman (as if the ECB would let the Irish bond auction fail) was the issuance of €1.5 billion in 3.5 and 8 year bonds out of Dublin. And with yields a full percentage point higher than before, ECB backstopped banks using the newly purchased Irish bonds as collateral with the ECB, and/or the ECB picking up who knows how much itself, today's auction was a smashing success, if one can calls paying 6% for 8 year bonds success. But the market apparently loves ECB interventions so much it has tightened Irish CDS by 15 points on the day. Full results are as follows.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 21/09/10

Are "pension-protection bonds" the solution to the ongoing pension crisis? I don't think so...

On Monday the NBER reported officially that our Recession began in December, 2007 and ended in June, 2009. While that is nice to hear, in my opinion, when you get down on the ground where most of us are, it doesn't feel as if it has ended.