Archive - 2010

With the Federal Reserve now actively participating in capital markets, it should be noted that just like every other asset manager, the Fed has to be held accountable for its trading efficacy. After all, the Treasury takes every opportunity to remind the US public how courtesy of record amounts of new government debt, it has managed to make "profits" on its assorted investments, which are merely transfers of risk from one entity to another, and the "another" being the US taxpayer, although not directly, but indirectly via the now ludicrous amount of US debt which will never be repaid. Which is why the US taxpayer may want to know that in just the most recent POMO schedule - that from early November to December - the Federal Reserve has lost $2.4 billion in taxpayer capital by its mistimed market operations, primarily due to the recent rise in interest rates. This is $2.4 billion that has not evaporated, but instead has been transferred to Primary Dealers under the "profit on trade" category. This is also money that will be used to determine, and fund, banker bonuses.

From Pimco, which is heavily invested in munis, and has a very vested interested in the extension of the BAB program:

• The initial catalyst for the selloff in the tax-exempt muni market
  was the sharp selloff in the U.S. Treasury market. Also, a significant
  increase in supply weighed heavily upon the muni market.
• It now appears that the BABs program could be in jeopardy, as a
  provision to extend the program has not been included in the current
  Senate tax bill.
• The supply of tax-exempt municipals remains robust at a time when
  many investors do not have the cash flow to add to their muni holdings.

With everybody presenting their ideas and themes for 2011, most of which are replete with crayon drawing of rainbows, koolaid and unicorns, here is David Rosenberg's list of 10 thoughts for what to look for in 2011.

The chairman of the Joint Chiefs blows the whistle on a suggested faux casus belli.

The Treasury has released the November deficit, which at $150.4 billion was about $12 billion worse than expected. Total receipts were $148 billion, of which individual income taxes were $64.3 billion, while the government actually refunded $3.1 billion for corporate taxes in the month. While cumulative receipts since the start of the new fiscal year are better than in the prior year period ($135.7 billion compared to $109.1 billion), it is the expense side that is far more important: in November the government spent $299.4 billion, the bulk of which going to the Department of Health and Human Services ($72 billion), social security ($64 billion), and Defense ($57 billion). The department of education saw a whopping $7.6 billion in funding in November. What is more troubling is that the interest expense is starting to rise: in the two months ended November 30, the US government paid $43.5 billion compared to $40.8 billion last year. Of course, this is to be expected, as total US debt is about $1 trillion higher now than it was last year. And, as always, what is most notable is that in November total debt increased by $192 billion to $13.861 trillion from $13.669 trillion. In other words, we are now at a point that every dollar in receipts is matched by 1.3 dollars in incremental debt.

The New York Fed has announced its 2nd POMO schedule. In the next month, Brian Sach will buy another $105 billion in bonds, which is lower than we expected, and may indicate that Sack is not expecting the MBS prepaying to accelerate. There will be 18 POMOs in the next month. And December 21 will be another day that will have two POMOs held: one at 11am and one at 2pm. With negligible trading volume, we expect the ramp in the market then to be ridiculous.

Senator Bernie Sanders commenced a filibuster speech at 10:25 am this morning objecting to the proposed tax extension. Three hours later, and now joined by Mary Landrieu, the soliloquy (or is that duoloquy) continues. While the backstage dealing will likely not be impacted much if at all by this speech, it does provide for entertaining viewing. Bernie sure is passionate about the topic.

A&P stock (GAP) has just been halted. As reported earlier, this is likely in connection with the company's imminent filing. Hopefully the avalanche of sellers managed to get out in time.

Score one for the farce team. That scourge to market efficiency, fairness and integrity, Sergey Aleynikov, about whom we have written tomes, has been found guilty. The HFT code in question, that can "manipulate markets" is safe and sound, back with its true master, Goldman Sachs, which firm promises its malicious attempt to squeeze CDS traders in 2007 is completely irrelevant, and the sheeple once again don't understand that the firm's intentions were nothing but pristine.

Now that it appears that the Build America Bond program may end up being pulled in just two short weeks, those who are most reliant on the program for their continued existence are starting to not only crawl out of the woodwork, and make their voices heard, but pull the usual trick of threatening with cataclysms unless they get what they want. Sure enough, enter California Treasurer Bill Lockyer. Per Bloomberg" “Allowing the BABs program to die would undermine the economic recovery and harm taxpayers and working families across the country,” Tom Dresslar, spokesman for California Treasurer Bill Lockyer, said yesterday by telephone. And the justification: taxpayer cocaine is the best damn cocaine money can buy: “I know that stimulus has become a dirty word but you’d be hard-pressed to find an economic recovery program that has worked better.” And that is all that is needed to convince the masses of corrupt politicians: after all as Neel Kashkari made it all too clear both 2 years ago, the world will end unless bankers or their administratively placed cronies get anything they need to maintain the ponzi on their behalf. And lastly let's not forget that the biggest beneficiary of the BAB program is none other than PIMCO...which is incidentally where Kashkari gets his paycheck currently.

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

Fears America is "turning Japanese" have been rampant ever since our real estate
bubble burst.

Just as Japan's policymakers were unable to stave off deflation after their
credit bubble burst in 1989, despite their best efforts, conventional wisdom
holds that all of Ben Bernanke's "reflation" policies will ultimately be
overwhelmed by deleveraging and debt destruction.

Speaking of China AND job growth, one industry that's booming in China is: Day Trading! That's right, as many as 10,000 people in China are doing speculative day trading of American stocks, according to the NY Times. They have been hired (ie. outsourced) by our own Banksters to mess with our markets from 9:30 pm to 4 am China time.

And for another confirmation that the Nasdaq is now at the same extreme "irrational exuberance" levels last seen during the dot com crash, we read courtesy of sentimenttrader.com that the Rydex Nasdaq 100 bull/bear ratio is now the highest it has been since just before the dot com crash. "Traders in the Rydex mutual fund family have poured into the Nasdaq 100 long fund at the expense of the inverse fund on the same index. These traders now have 34 times more money invested in the long fund vs. the inverse fund, which is the highest ratio since the bubble days of 2000 and early 2001." And what is scarier, is that unlike during the dot com, investors are using leveraged methods to express their exuberance: "The Bull / Bear Ratio for the leveraged funds isn't quite as extreme...but it's close (on a relative basis)."

Ben may regret this one day, soon..