Archive - Feb 10, 2011

The Treasury has released its monthly deficit numbers, and while revenues this January came at a robust $226.6 billion (compared to $205.2 billion a year earlier), the outlays exploded to $276.3 billion compared to just $247.9 billion a year ago. The net result was a deficit of $49.8 billion in January, $7.2 billion more than a year earlier. And the number that all are watching (increasingly more irrelevantly by the way, as the Fed now owns almost 15% of marketable debt) - interest on debt securities, was $21.1 billion, or 7.6% of all outlays. Since the Fed's holdings will never be reduced, and in fact will continue growing with QE3, 4, and so forth, soon all the interest on marketable debt will be paid to Ben Bernanke, who will promptly remit it back to the Treasury in the epitome of the biggest ponzi scheme ever conceived by man.

The REAL lessons of the Egyptian revolution ...

The New York Fed has just released its latest POMO schedule for the upcoming month, and it may make some market members unhappy. Unlike the previous several monthly monetization dockets, this one will only see the Fed pump $97 billion in the market consisting of $80 billion in USTs from the QE2 mandate, and $17 billion in Treasurys due to MBS putback issues per QE Lite. This is $15 billion less than the last POMO schedule which saw $112 billion scheduled to be monetized. The schedule runs through March 9, and the next schedule will be presented on March 10 and 2 pm. There are no double POMO days in the current schedule. Of course, with $195 billion in incremental liquidity from the SFP program winddown, the Fed likely does not need to drown everything in its relentless liquidity.

From Stratfor, citing BBC Arabic: "Egyptian President Hosni Mubarak has reportedly already left the country, and his speech scheduled for the night of Feb. 10 has been pre-recorded, BBC Arabic reported. Some reports indicate Mubarak will speak within two hours, while other unconfirmed reports say he left the country as early as yesterday."

Add one more pill to the daily Oxycodone consumption by the Chair Central Planner. In what is about to become the latest headache for Bernanke, popular Chinese economist Lu Zhengwei, a senior economist at China's Industrial Bank Co., has advised that China should promptly sell its GSE holdings on concerns that continued "blank check" writing by Congress to the GSEs will be "almost impossible" as well as fears that as soon as QE2 ends, the entire US bond complex will see a major sell off. In other words welcome to the world of game theory defection: he who sells first, loses the least.

Unlike yesterday's earthshattering and very perplexing 10 Year auction, today's 30 year auction of $16 billion in bonds was a dud. The bond priced at a high yield of 4.75%, 2 bps wide of the when issued, and just 2 basis points of the highest rates seen in the past several years, specifically the 4.77% seen in the April 2010 auction (not surprisingly, today the 30 Year Fixed Cash Mortgage printed at the highest rate since April of 2010 as well when the market topped last, as we pointed out previously). The Bid To Cover was a subpar 2.51 compared to the 12 month average of 2.67. Direct Bidders, who completely disappeared yesterday were here, taking down 8%, Indirects accounted for 43.1% and the Primary Dealing flippers bought 48.9% (a 73% hit rate). In other news, the interest in the long end is leaking, and the bulk of the fireworks continue to be in the belly, with major interest dropping in the 3-5 Year side, and a major pick up in Indirect interest in the 10 Year. Look for this trend to persist.

Ron Paul has just stepped up his war of rhetoric with his nemesis the Archchairsatan Rudolf Vissarionovich von Bernankestein (because never before have we had a genocidal central planner hell bent on printing the world's fate out of a deflationary collapse), and in an interview with Larry Kudlow said what everyone who is watching the day after day melt up (and wondering what comes next) openly thinks: that when all is said and done, and there is no incremental vapor and no incremental HFT levitation effect, that the US collapse will be comparable only to that of the Soviet Union. Needless to say, we are confident he is optimistic. Some economic observations from Paul: "We have so much unemployment, it is so undercounted. The free market economists report that there is probably 22% of unemployment. They pumped in $4 trillion, they should have added a lot of jobs, but how much did it cost us, and that of course is the price inflation that will come. We are moving into another 30 year period where we are going to see a reversal of interest rates, and we are going to see a crashing of the bonds like we saw 30 years ago and it's going to last a long, long time. The Fed deserves the blame for the inflation, and for the unemployment." On the amount of damage done by the Fed: "I think it's unimaginable, it could be so devastating, and could bring a strong, worldwide run on the dollar. We are in uncharted territories. I think we will see changes in our economy and our country almost equivalent to the change that occurred in the Soviet system. I think it will bring down our empire, we won't be able to afford our welfare state, and we won't be able to afford taking care of the world." And as Zero Hedge suggested previously, Ron Paul believes that the Fed's policies will actually lead to a spike in unemployment when all is said and done. Lastly, on Ron Paul view of Bernanke's central planning:"One time when Greenspan was before the committee, I told him if you can make this fiat system work as if it is the market system working, you have repealed economic law. It is positively baffling that we as a country have accepted that one individual can control the economy."

The revolution IS being televised ...

While the confusion rages over whether Mubarak [will|will not] step down, after Reuters just reported that according to Egypt's information minister Mubarak is not stepping down, suddenly concern about the Suez Canal has flared up again. Luckily, the Egypt armed forces have now secured it, so all is well.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 10/02/11

Perhaps the most stunning example of what may be in store for asset managers and pension funds (and possibly retail holders) who dare to challenge central bank monetary authority comes from the Netherlands, where we have just witnessed the 21st century equivalent of Executive Order 6102. The story in a nutshell (and as translated loosely from the primary source presented below): the glassworkers pension fund (SPVG) was ordered by De Nederlandsche Bank (DNB, or the equivalent of the Dutch central bank), that it has to sell the bulk of its gold assets. After the SPVG refused to comply with the order, the DNB went to court and the decision has come out, siding with the central bank, ordering the SPVG to sell the required gold within two months. The pension fund, which invests for 1142 employees, in late 2009 had gold bars worth 34.6 million euros, or about 1400 kilograms. The total fund assets amounted to 288 million euros at that time. The DNB argued gold is a commodity and holding 13 percent was overweight in comparison to the 2.7% average that pension funds are invested in commodities. DNB has found that such a large proportion of gold is inconsistent with the interests of the participants. SPVG sees gold as a medium of exchange, such as euros, but DNB believes that the price of gold fluctuates too much for it to be classified as an investment. Translation of the translation: the central bank has now directly ordered a fund how to allocate its gold assets, because it explicitly disagreed with the fund's statement that gold is money, claiming instead that it is nothing but a very volatile commodity. Very soon no pension funds in the Netherlands will be allowed to hold any amount of gold more than the merely nominal. This latest gold confiscation equivalent event is most certainly coming to a banana republic near you.

Kevin Warsh, the last real hawk at the Fed, excluding the primadonnas who keep bitching and moaning against QE2 yet continue to vote with the Chairsatan, has announced he will leave the Fed.

"In terms of atmospherics, Hacham said the Israeli delegation was "shocked" by Mubarak's aged appearance and slurred speech. Hacham was full of praise for Soliman, however, and noted that a "hot line" set up between the MOD and Egyptian General Intelligence Service is now in daily use. Hacham said he sometimes speaks to Soliman's deputy Mohammed Ibrahim several times a day. Hacham noted that the Israelis believe Soliman is likely to serve as at least an interim President if Mubarak dies or is incapacitated. (Note: We defer to Embassy Cairo for analysis of Egyptian succession scenarios, but there is no question that Israel is most comfortable with the prospect of Omar Soliman.)"

To those who look for confirmation of the wealth effect in every nook and cranny, better keep looking away from housing. The 30 Year Fixed Rate mortgage, that indicator of just how much "piggy bank" value US housing has, just jumped by a whopping 24 basis points in the last week to 5.05%, the highest since April 2010. And as the observant ones will point out, it was in April of last year, when the market topped out after hopes and dreams of a self-sustaining economic recovery collapsed (with Europe lending a helping hand in the process), leading to QE Lite and QE 2 several months later. In other words, in the last 2 months, housing, at least that part that has a mortgage associated with it, has lost roughly 10% of its value as incremental purchasing power has just declined by the same amount courtesy of the spike in rates. In spiking the market, Ben has once again planted the seeds of his own monetary policy destruction.

It appears Mubarak is history and may resign as soon as tonight. And since Mubarak will pass power to the CIA's main man in the region, Vice President Omar Suleiman, we doubt this will result to much social contentment. Follow the developments on Egyptian State TV, where the Supreme Council confirmed that Mubarak is currently fueling his G-6.