Archive - Jan 27, 2011

At 10:00 am Eastern, the FCIC will release the final version of its 500+ page Inquiry report, which will disclose that all of Wall Street is one big fat fraud, populated by criminals, who never go to jail, and whose settlement arrangements with the SEC is at most 1/50th of the illegally obtained profits. We will present the full report as soon as it is released: it will provide countless hours of reading entertainment. In the meantime, below is the live release of the report to a live monkey audience.

Readers know our fascination with pointing out the relentless "flip that bond" game that the FRBNY's team of Sack Frost and the 18 Primary Dealers enjoy playing with each other, which just happens to be funded to the tune of millions of dollars each day when there is a POMO (which would be everyday). Two days ago we pointed out the most blatant case of documented taxpayer rape to date, when Brian Sack monetized 71% the just issued 2.125% of 12/15, even though it was not anywhere among the 10 cheapest bonds. We had nothing to add to that - at this point only Congress, and perhaps Rand Paul, can do something about this shovelling of taxpayer money into the banker hole on a recurring daily basis. All we can do is continue to monitor. Which is why we present today's cheapest bonds that the Fed should be buying. These are the bonds that the Fed should be buying as they represent the best IRR to taxpayers. This is at least the theory. What will happen, is Sack Frost will instead most likely end up buying either the PW4s issued in December: the 0.625% of 12/31, or and this would be just stunningly daring, the PR5: the 0.5% of 1/13, auctioned off two days ago, which has not even settled yet.

Badges? We don't need no stinkin' badges!

Earlier this week we predicted that the US Treasury would wind down its SFP program, unleashing $200 billion in 56-day non-rollable "Fed bonds" on the market. We predicted this would occur by mid-February. As of a few minutes ago, the Treasury has just confirmed that starting February 3, this will be precisely the case. Per the Treasury, supplementary financing account to fall to USD 5bln, with the reason being the traditional explanation: decreasing funds in account as country nears debt ceiling. As the revised table below shows, each Thursday beginning February 3 we will now see an incremental $25 billion in extra liquidity as the maturing 56-Day CMB is not rolled.

Shipping is the backbone of the global economy. The industry is not looking so good.

After the December economic collapse (in the US, UK and China) was blamed entirely on this stunning for the winter phenomenon called snow, it is time to dump the market's problem on it too. The NYSE has just invoked Rule 48. Please, like we are supposed to believe there are still humans trading Bernanke's monopoly board.

Expectation of 405,000... Print: 454,000! Worst print in forever (well, October). The BLS calls it a "weather related backlog." Read - snow. Call it what it is - Stagflation, baby.

Non-seasonally adjusted number came at 482,399, as 161,913 people fell off extended benefits.

Continuing claims: 3,991K on expectations of 3,873K.

And just to complete the stagflationary picture, durable goods decreased by 2.5% on expectations of plus 1.5%. "This decrease, down four of the last five months, followed a 0.1 percent November decrease. Excluding transportation, new orders increased 0.5 percent. Excluding defense, new orders decreased 2.5 percent."

The freefall in the BDIY is just ridiculous: following a steep plunge it has now gone in freefall, and is down 3.9% overnight to 1,186. And to all who are claiming that the index is merely indicating a supply glut from the onslaught of new ship arrivals, well the entire orderbook (in progress) has been public and transparent - to claim it is a surprise is about as "naive" as stating that 5 computers and a bunch of NYU kids control the US stock market. As for how much longer it will keep dropping? Well: he post Lehman low was 663. There is still a lot of pain. Especially if one is a non-chartered dry bulk shipper... With leverage.

A smattering of today's headlines across Egypt's state and private press... And a quick glance at Albania, where three people have already been killed in recent anti-government riots: is this the fuse that lights up Europe?

Futures mixed in the early going as yesterday's Fed left little doubt that QE2 will remain firmly in place. With no dissenters to the policy and the only nod to inflation a note that "commodity prices have risen" the Fed seems entrenched in their game of chicken between commodity price inflation and labor market inflation.

Ever wanted to see what a market plunge looks like into a revolution-inspired bidless open? Look no further than Egypt: after being halted briefly earlier, the market is now in freefall, dropping 11% in the span of minutes. This brings the two day drop to over 16%, and brings the EGX30 to the lowest level since 2009. Egyptian CDS have surged over 10% to 385 mid, a jump of 40 bps on the day. Anyone who purchased protection on the riot-torn country after we first suggested it is about to roll this weekend, congratulations. And while the important part of the world may ignore what is happening in Egypt, after all it is not US banker money thay is being lost, they may want to consider this: according to reports, there has been live fire in Suez, where the police headquarters have been taken over. More importantly, according to the Guardian, we may see the first army insubordination in this city: "a lawyer and executive director for the Arabic Network for Human Rights Information, has tweeted that some army units in Suez are refusing to support the crackdown against the people." Which means the government may be about to lose control over Suez... And the Suez Canal.

Durable goods, pending home sales, and the usual weekly diet of claims and Fed data….Expect the Fed to monetize $4 – $6 billion of recently auctioned off 2 Year bonds in today's POMO

From S&P: "The downgrade reflects our appraisal that Japan's government debt ratios--already among the highest for rated sovereigns--will continue to rise further than we envisaged before the global economic recession hit the country and will peak only in the mid-2020s. Specifically, we expect general government fiscal deficits to fall only modestly from an estimated 9.1% of GDP in fiscal 2010 (ending March 31, 2011) to 8.0% in fiscal 2013. In the medium term, we do not forecast the government achieving a primary balance before 2020 unless a significant fiscal consolidation program is implemented beforehand."

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 27/01/11