Archive - 2010

AQR's head quant Cliff Asness, who as usual enjoys taking on what he believes is flawed conventional wisdom, takes on the topic of the Bush tax cut extension, and in typical fashion, presentd the upper class' view on things. What results is a piece that will likely not do much to bring the increasingly more polarized social and class extremes of America closer by even one bit.

A slew of very interesting info in today's piece by David Rosenberg. Probably the most interesting data point has to do with further evidence of what as we have been claiming for about two months now, is shaping up to be the "mother" of all margin squeezes. Rosie, always a bond bull, looks at recent moves in bond prices and is confident we may have gone through the capitulation phase. We, on the other hand, are not so sure the capitulation is done, and believe quite a bit more selling may be in stock, as increasing concerns of how the Fed will unwind its books now that pundits have you believe that the economy is improving. Keep in mind: when QE2 (and 2.1 if Jan Hatzius is correct) is done, the Fed will have well over $3.5 trillion in rate-sensitive instruments on their hands. Add this to the annual issuance of about $1.5-$2 trillion in gross debt issuance, and one can see why the supply-demand picture in bonds, far from being determined by economic fundamentals, will be very entertaining in the future.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/12/10

Many in our society, instead of taking on the responsibility of preserving their freedoms, have instead handed it over to the trappings of government. The fatal error here is obvious; the corporatized and over-centralized political landscape of America’s government today does not hold the same values as the people it is determined to lord over. We have witnessed the parasitic possession of our system, know it to be corrupt, yet still seem to expect this bureaucratic monstrosity to cradle our liberties in good faith! Government is a tool; a mechanical apparatus that can be used to either preserve freedom, or annihilate it. Its use depends upon those men who wield it, and the men who wield our government today certainly do not have the expansion of freedom in mind. In this article, we will examine the many points of contention (balancing points) brewing as our exceedingly globalist leaning political leaders overstep their bounds. Any one of these points, if allowed to falter by Americans, could throw the whole of our heritage into disarray…

Zero Hedge had the pleasure of sharing some perspectives with Chris Martenson, for his latest Straight Talk installment. For some recent views on media, the economy, commodities, and sundry other topics, we invite readers to check out the Q&A at the following link.

After a rare one day respite, Brian Sack has reentered the market and has bought $6.780 billion in bonds maturing between 12/31/2014 and 05/31/2016.Not surprisingly, not one single bond of the most recent issuance (the PJ3 of November 23) was tendered for: the loss on the transaction to the Primary Dealers would have been so big not even multi point, and completely unauditable bid/ask spreads by the Fed, would succeed in making the PDs whole on the purchase. Same goes for the auction just preceding it- the PE4 of October 27 of which a token $1 million was monetized. Which is why the bulk of the repurchasing activity was focused on the bonds NL0 and NP1, both of which were auctioned off this summer at substantially lower prices. Just these two cusips alone accounted for $2.5 billion of total monetization. What is more notable, if completely irrelevant until such time as the Fed has to sell well over $2 trillion in securities in addition to the $2 trillion in bonds that have to be issued by the US Treasury, is that the Fed's holdings now amount to $972 billion in total: to summarize: China added $15 billion in Treasurys in all of October. The Fed purchased almost the same amount this week alone. As we calculated previously, the Fed will surpass $1 trillion in holdings in under a week starting today.

The Little Book of Sideways Markets is officially out.  It was a fun and interesting project.  I took Active Value Investing (my first book), completely rewrote the first half of the book, added three new chapters (“Born Again Value Investor” is my favorite one), updated it to reflect the post-Great Recession economic environment, added new examples, explained some things differently (hopefully better), distilled it, and made it an easier read for a much wider audience.

A very agitated hearing on mortgage services and foreclosure practices is currently in process on CSPAN. Lots of screaming going on.

And won't find in Time Magazine...

It appears as if I wrinkled a few feathers of the birds that are doing God’s work with my missive “Goldman’s $430 Target, Screaming Buy On Apple At Its All Time High Is In Direct Contravention To Reggie Middleton’s Logic – Who’s Right? Well, Who Has Been More Right In The Past?“. This is a good thing! A little creative destruction and anarchy is positive for the complacent masses. I say we take this up a notch, pull down our pants and see who is truly the most intellectually endowed...

Following the earlier news from the DOE of a crude drawdown 4 times greater than expected, WTI has exploded by over $2 in the last two hours, and is once again threatening to take out the important $90 psychological barrier. What is the impact of this on the US economy? Oh just $200 billion in GDP. With a minus sign in front: "every $1 per barrel rise in oil decreases U.S. GDP by $100 billion per year and every 1 cent increase in gasoline decreases U.S. consumer disposable income by about $600 million per year." And so, a substantial portion of the "benefit" from middle class tax cut extension has been eliminated almost entirely in just under 2 hours.

Following increasing concerns that China may finally realize that its repeated RRR hikes are insufficient and the PBoC will finally be forced to do the right thing and hike the general interest rate (or depeg the Yuan, but that ain't gonna happen), or otherwise withdraw liquidity, the 7 day Repo Rate has jumped to 3.58, the highest since October 2008, when there was no liquidity in the markets anywhere following the Lehman collapse. This merely indicates that obtaining liquidity in China, either directly or indirectly, is becoming increasingly more costly and problematic. But surely this news, together with the escalating riots in Athens, as well as the fact that gasoline prices this holiday season will be the highest on record, are not only priced in but in fact positive for the US stock market, which now responds to no negative news whatsoever, and jumps on the smallest hint that the latest fiscal and monetary stimulus is trickling through in the economy.

Presumably this means the country agrees to be bailed out by its pension fund, to rescue Europe's bankers, and to become Olli Rehn's latest vassal state. Congratulations. The vote was 81 to 75.

Robots everywhere are panicking as the NYSE has just announced it is experiencing "slowness" in disseminating trades and quotes. In a casino market now built exclusively for frontrunning the slower order flow, this means that millions of computers are suddenly clueless as to who should be scalped. And if they all move to the rickety BATS exchange en masse, a flash crash may be all but inevitable.

The October TIC Data is out (although courtesy of the total and ridiculous redesign of the Treasury's website, is a complete nightmare to navigate). Net foreign purchases of US securities amounted to $54.7 billion, down from a revised $90 billion in September, and even more from $136.3 billion in August. Net foreign purchases, net of adjustments and US purchases of foreign securities, amounted to $7.2 billion, substantially lower than expectations of $51 billion. Digging through the data reveals some interesting trends, namely the purchases of LT Treasurys, while still positive, plummeted from purchases of $78.3 billion and $117 billion in the prior two months. The savings grace is that foreign purchases of Corporate Stocks remained relatively strong, at $16 billion. Looking at China we observe that the country actually sold off Long Term UST (while buying Short Term Bills): this means that the Fed, with its $966 billion in US paper is now untouchable at the top of all holders of US Treasurys.