Archive - Sep 28, 2010

Someone may want to advise the Peru Central Bank that when entering global thermonuclear FX and SPY-manipulation warfare, coming armed with a water pistol against Bernanke's armada of nuclear-armed B2 stealth bombers, may not be the most prudent thing. The Banco Central del Reserva de Peru announced on its website that it has just bought $12 million worth of dollars.... Yeah, $12 million.Which is about half of what Brian Sack pays in brokerage fees every other day when he does the TIPS-for-AMZN swap.

The demand for Tim Geithner paper continues to be insatiable, as today's 5 Year auction prices at an all time low yield of 1.26%, a drop from the previous record of 1.374% from last month. The Bid To Cover continues to demonstrate just how schizophrenic the market has become, where all normal investors buy bonds to front run the Fed, while the Fed-PD complex itself is buying stocks. Make sense yet? Either way, at 2.96, the BTC was the second highest ever, only lower than July's 3.06. And, just like in the previous auction, the Indirects continue to creep ever to the right, taking down the majority of the auction, or 50.1%, leaving 8.7% to the Directs, and a healthy 41.2% to the Primary Dealers, which of course are merely warehousing the paper for a few weeks/months until they flip it back to the Fed for a tidy profit, and use the proceeds for some more 100 P/E stock purchases. Thank you POMO!

A week ago we posted Dave Friedman's insightful piece on "Why We Must Care About Shadow Banking" as shadow banking, whose shadow liabilities comprises the bulk of the unreported M3, represents a critical component of the credit system. Today, we present the second part in this three part series for all who wish to get up to speed with some of the key issues in this most critical topic.

The flash crashes will continue until market confidence returns (this is the second one in Apple today). Who is even trading this insanity anymore? This entire market is about to break hard: any piece of bad news can topple Apple like a house of cards, and that, as we noted earlier, will take the entire market with it. Oh yes, this is supposedly the second most liquid name in the market!

Rumor making rounds now that either of Pimco's top two men could replace the man who destroyed Harvard's endowment. Should either of these two be forced to quit Pimco, it would mean that QE would have to be massive to make sure that the Fed is a backstop of last reserve in case the next head of Pimco is unable to replicate his predecessor's success.

After 831.8K SPY puts were traded yesterday (vs 521K calls), today the trend of aggressive protection buying continues, as almost twice as many puts as calls has traded so far: 496K vs 272K. As the chart below shows, the top five SPY option classes traded today are all Puts, all of which have an October maturity, and strikes of 108, 114, 115, 116, and 112 in terms of popularity. With today's outright criminal market intervention, the surge in popularity of hedging the Fed's market making does not surprise us.

Who the hell knows what is going on with the EURUSD - the only thing that matters now is which central banks will get away with more debasing of its own middle-class. Since Germany still recalls Weimar, the Fed may win this round. Yet, Brown Brothers sees som increasing short-term strength in the EURUSD, then a gradual decline as the increasing weakness in Europe unravels: "After rallying about 6.25% since September 10, the euro may enter a consolidative phase before advancing into the $1.38-$1.40 area in the first half of Q4. However, the euro may then surrender those gains in the second half of the quarter, as QEII is discounted (or not delivered at all), and the loss of economic momentum in Europe, ahead of a 2011 fiscal contraction, keeps debt restructuring fears elevated. The increased possibility that the EFSF has to be drawn upon may also spur speculation that the ECB may not be in a position to remove its emergency liquidity provisions; and indeed may have to actually embark on either more bond purchases or take some additional measures. All this may leave the euro trading around $1.30, if not lower, by year's end."

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 28/09/10

War does not determine who is right, only who is left. - Bertrand Russell

The last stat arb desk has just turned off the lights. Stocks are on their own, as all correlations between bonds and stocks are no longer meaningful, even as the carry trade holds on to some semblance of meaning, but even that is collapsing fast. In this most manipulated market we have ever seen, in which only the Fed is the catalyst for any buying action any more, only those with an investment horizon of 5-10 milliseconds are advised to trade. Everyone else, stay away, or else enjoy waking up to an Apple that is down between 5% and 50% as it (and who knows what else) goes bidless.

Most if not at all traders, be they day, swing or buy and holders have come across technical analysis. You know what I’m talking about! Those squiggly lines all the gurus seem to have on their charts! They consist of patterns like the famous ‘Head and Shoulders’, age old equations seen across nature like ‘Fibonacci’, even historic wave movements measured by ‘Elliott Wave’.

Goldman's Investment Strategy Group has just circulated the most bearish 2011 outlook presentation, detailing why the US economy in 2011 will likely stall and post negative growth. As the chart below demonstrates, the current case, where ongoing QE will likely persist through 2011 and even into 2012, and thus make any discussion of raising rates irrelevant (likely forever, as the Fed will not be able to absorb all the excess slack before it is forcefully removed after 2-3 sequential dollar devaluations) lead Goldman to a GDP expectation of well under half of the Fed's greenshooty outlook of 3%.

Yes, I really exist! I’m not an urban legend! Come to San Francisco for an up to date view on stocks, bonds, currencies commodities, precious metals, and real estate. And to keep you in suspense, I’ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $199.

We hope Brian Sack at least hands out a free Kindle, iPad, and DVD rental to all US taxpayers, after all it was all their money that just got these stocks back to unchanged, and prevented a rout in the Nasdaq, nearly 25% of which is determined by just these three stocks (AAPL, AMZN and NFLX). Your taxpayer money in use. And now the question is who frontruns the other frontrunners in taking profits ahead of the next POMO on Thursday.

Recently, there has been much euphoria to define all those who believe that gold will outperform as goldbugs. We in turn are fairly confident that pretty soon all those who have faith that the central banks will somehow get it right this time, instead of causing all out war again, will be labeled as "paper bugs." What however, surprises us is that all the so called "gold bugs" continue to be invested in the best performing asset class over the past day, 5 days, 1 month, 6 months, 5 years, and 10 years: on a relative basis gold has outperformed stocks in all these time categories, yet it continues to be more hated than even Ben Bernanke, whose stealthy destruction of middle class purchasing power is in fact cheered by the "paper bugs" - we will not bore you with the chart that shows how the dollar has lost almost 100% of its purchasing power since the creation of the Fed. Anyway, here is David Rosenberg, who several months ago joined the gold bandwagon, and presents one of the better defenses to all those who blame gold bugs for not catching the "bungee jump" in the most manipulated stock market in history. "We continue to field criticism that we “missed the call” on the equity market. Well, no doubt we did not see the 1930-style bungee jump last year, but: (i) it’s over, and (ii) there were many other asset classes we liked that did very well: what has done better than gold, which is up more than 30% in the last 12 months." We obviously agree both now, and about 50% back, at the time of the creation of this blog, when we said that the only natural response to Fed insanity is the otherwise useless shiny metal.