Archive - Jan 31, 2011

Just in case you were expecting a full recovery on those Greek bonds stashed away under the mattress (ahem ASSGEN) here comes Euro Intelligence to spoil your day (and maybe, just maybe, wreak some havoc with your CDS). In a nuthsell: we are about to see a Brady plan with 35% haircuts. If true, we may be seeing some pretty interesting unintended consequences in the near to very near-term future.

Crude oil spiked on the news of the uprising in Eqygp with the North Sea Brent at almost $12 premium to the U.S. WTI. Read about why and outlook here.

As Zero Hedge accurately predicted, on Thursday there will be no $25 billion 56 Day Cash Management Bill auction, as part of the just announced roll down of the Fed's SFP (or SFB as it is known elsewhere) program, which will bring down holdings of associated debt at the Treasury from $250 billion to just $5 billion in 8 weeks. Previously we predicted that the impact of this activity will be nothing short of a doubling of POMO but did not discuss the impact on bank excess reserves. Over the weekend, Barclay's Joseph Abate analyzed the impact of the termination of SFP as well as the ongoing QE2, and came to the conclusion that excess reserves, which at last check had been just about $1 trillion (well below where they should be based on recent asset purchases, another topic we have discussed) are about to surge by a massive $700 billion over the next 5 months! What this means is the market will simply factor in even a greater impossibility for the Fed to tighten liquidity when the moment comes (which we believe will be pretty much never) forcing those evil speculators to push all commodities to even greater record highs (yes, rice included), forcing us to get even more bullish on the continuation of the recent round of global food-price hike driven revolutions.

So, why do we make bullish bets when it looks like the New World Order is hanging by a thread?

A week ago we speculated how the well documented flash smash in IBM caused a market wide ramp, resulting in another attempt at closing above 1,300. It failed. But the mechanics behind the trade still were unexplained. Below, we present a summary by Dennis Dick which highlights the latest weakness in market structure which the mini melt up in IBM (and, subsequently, in ES) has exposed. The only question: was this trade a glitch, or was someone trading fully aware of the limitations of SEC rule 611. (which, incidentally, has some very interesting exemptions, such as "qualified contingent trades" a topic touched by us tangentially previously).

What could the ruler of Egypt’s turmoils possible have to do with the
need to takeover even more banks in western Europe and the potential
default of several members of the PIIGS group? Read on, my dear friend…

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 31/01/11

It’s not so much that we should ignore what President Obama or congressional leaders have to say, as much as what they say and do shouldn’t concern us that much. Limited by a very clear document, their actions shouldn’t impact how we live to a very high degree.

The March Brent Crude contract has just surpassed $100 for the first time since October 2008. Surely nobody is worried about monetary policy and Middle East contagion. After all, this is just throwing darts at the next disinflationary target.

In today's episode of "Flip That Bond", the Primary Dealers succeeded in flipping a whopping 26% of the just auctioned off 1% of 1/25/2014 (912828PQ7) back to the Fed. Today's POMO has closed with $7.720 billion in bonds maturing between 2013 and 2014 monetized by Sack Frost, of which, and this should come as no surprise to anyone, the bond most put back to the FRBNY, to the tune of $3.7 billion or 48% of all, was PQ7. Keep in mind that the PD take down in this bond was $14.2 billion. Just two weeks later the Primary Dealers have reduced their positions in this most recent auction by 26%. In other news, there is no monetization. And Tim Jeethner pays his taxes.

For months now I’ve been warning of a serious correction hitting the markets. Looking at last week’s action it looks as though it’s begun. And it may very well prove to be far greater than just a mere correction. For starters, the Emerging Markets (which have lead US stocks since the 2008 Crash) have collapsed, breaking below the trendline that sustained them from their 2008 lows…

The Dallas Fed prints at 10.9 and misses expectations. Stocks ramp as the miss would have been bigger if it had snowed in Texas, and so you must acquit. In the meantime, GETCO buying not just every single INTC share in Level 2 - 200, but moving on to everything not nailed down. Melt up must proceed as planned. Since this index missed and is thus completely irrelevant, here is the only notable extract from the report: "Prices climbed again in January. The raw materials price index jumped from 43 to 62, reaching its highest level since mid-2008. The share of manufacturers who saw an increase in input costs surged to 64 percent, compared with only 2 percent who saw a decrease. Finished goods prices rose for the third month in a row, although the great majority of respondents continued to note no change. Sixty percent of respondents anticipate further increases in raw materials prices over the next six months, while 40 percent expect higher finished goods prices."

What's wrong with this map?

"As part of ongoing quality assurance, Intel Corporation has discovered a design issue in a recently released support chip, the Intel® 6 Series, code-named Cougar Point, and has implemented a silicon fix. In some cases, the Serial-ATA (SATA) ports within the chipsets may degrade over time, potentially impacting the performance or functionality of SATA-linked devices such as hard disk drives and DVD-drives." As a result: "The effects of the chipset issue and these transactions are incorporated into the company’s revised outlook. The company now expects first-quarter revenue to be $11.7 billion, plus or minus $400 million, compared to the previous expectation of $11.5 billion, plus or minus $400 million. Gross margin percentage is now expected to be 61 percent, plus or minus a couple percentage points, compared to the previous expectation of 64 percent, plus or minus a couple percentage points. Spending (R&D plus MG&A) is now expected to be approximately $3.6 billion, compared to the previous expectation of approximately $3.4 billion."

Chicago PMI Surges again, hitting 68.8 on expectations of 64.5, compared to the lower revised 66.8. And as recently has become trading, the only indicator everyone is looking at is the Price Paid (i.e., the margin collapse metric) which came at 81.7 compared to 78 previously. The key comment from the survey panel: "Steel prices are going crazy." Nuff said.