Archive - Apr 27, 2011

Regardless or Bernanke’s personal qualities, the fact is that it doesn’t matter what he does next. Whether or not he issues QE 3, raises interest rates, references inflation differently, or what have you is irrelevant. We will see some kind of Crisis in the near future because of his policies. If he raises interest rates, the debt market and derivative implodes. If he launches QE 3, the Dollar collapses and trade wars erupt. If he doesn’t launch QE 3, the stock market collapses.

Ben lies: we're sheep; No more; and by being sheep we suffer the heart-ache and the thousand pricing shocks unmeasured by the CPI, 'tis a consumer tax, despite what you had wish'd. Ben lies; we're sheep: living a dying dream: Aye, there's the rub; when fleecing sheep what jobs may come when we have scuttled all their buying power?

GOLD FUTURES RISE TO RECORD $1,522.80 AN OUNCE

The below Bloomberg TV interview with Paul O'Neill pretty much jumps the shark in Mutual Assured Destruction. Whenever someone says "people who are threatening not to pass the debt ceiling are our version of Al-Qaeda terrorists. Really. They're really putting our whole society at risk" it is obvious that the issue is beyond rational and has crept up into the demented extreme of demagogy. This one statement may have just doomed the whole debt hiking debate as nobody will cede to being perceived as not only a terrorist but, what is far worse, a weak terrorist by the general population.

It's getting weirder in Pirate land. One man's thought on Greece.

On the face of it, American households were not that affected by the bursting of the housing bubble. If we look at the Fed Flow of Funds report, the Balance Sheet of Households and Nonprofit Organizations, we find that net worth only declined by about 11% ($7.3 trillion) from 2007 to 2010: a $2.9 trillion decline in financial assets and a $4.9 trillion decline in tangible assets, i.e. real estate and consumer durable goods...Before the housing bubble, households owed about $5 trillion in mortgages. The housing bubble came along, introducing the fantasy of home-as-ATM-cash-withdrawal-machine, and mortgages ballooned to over $10 trillion. Back at the top of the bubble, the middle class had $6 trillion more assets on the books. Considering the Mortgaged Middle Class now owns about $6 trillion in net assets, then the bursting of the housing bubble caused their net worth to drop by 50%.

Remeber when, oh yesterday, gold was plummeting and everyone knew, just knew, the rally was over? Well, you may want to save some one ply dollar paper yet. The market took a sniff at the FOMC statement, and the robotic consensus is: more QEasing.

A perfect reminder of what will happen when SkyNet finally faces carbon based competition.

A redline comparison of the March and April FOMC Statements.

Just as the top calling momo crowd confirmed amongst each other that this time was the absolutely, positively high in WTI after the black gold dipped by $2 earlier, we got DOE reports confirming that far more oil was being used than expected, and also a totally unforeseeable announcement out of Yemen (where the president is leaving amicably remember, who can doubt that), that
five Yemeni anti-government protesters shot dead by plain-clothes gunmen, while dozens wounded in Sanaa, per Reuters. Surely this is merely a way for Saleh to celebrate the fact that he has only 28 days left in power. Oddly enough that is not how WTI took it, which shot up from $110 to $113 in seconds. And this is nothing compared to what is about to happen between 2:15 pm and 3:00 pm when various robots will know what Bernanke said, and more importantly meant, before he even said it.

In a market in which carbon-based trading is now a remnant of a bygone era, and in which robots make trading decision based on statistical regression patterns and keyword scans from press releases, the upcoming Fed conference will be particularly painful to trade for one key type of trader: robots. Reuters explains: "Ben Bernanke's first news conference on Wednesday is a plunge into unknown territory for the Federal Reserve chairman and for computerized trading as well. Computer trading programs face two dilemmas. There is no history of how security prices have reacted during a press conference with the U.S. central bank chief, and dialogue from the briefing will be spoken, rather than transmitted as text." So unless Johnny 5 has perfect the art of real time intonation and context analysis, expect volatility to go nuts in the period between 2:15 pm and 3:00 pm, when momentum traders will accentuate any buying or selling wave even if based on a completely flawed premise, at which point we will see violent reverses, rinse, and repeat. "Computer-driven trading programs are designed to recognize text, so the nuances of Bernanke's answers to reporters will be lost, or at least delayed, as humans intervene. That will make this inaugural conference a learning lesson for future Bernanke press briefings. "It would be quite hard to get a huge amount of accuracy from a one-off, unstructured press conference," said Rochester Cahan, a strategist at Deutsche Bank in New York who leads one of the major sell-side quantitative research teams. "To trade that, algorithmically, would be quite hard," said Cahan, referring to the software code that instructs computers what to buy and sell." Then again, it could be far, far, worse. It could be Greenspan: imagine Liftathonic 3000 trying to make sense of the Masetro in real time, when not one human had any idea what he said.

A rather boring 5 year auction just closed at the earlier time of 11:30 due to the Bernanke tragicomedy. The $35 billion in bonds (nothing arcane about the CUSIP today: QF0, although do look for this CUSIP to be aggressively monetized in the next few POMOs) were sold at a 2.124% yield, in line with expectations, and at a 2.77 Bid To Cover, modestly better than the last auction which priced at 2.74 (and in line with the LTM average of 2.79). Indirects took down 40.0%, with Directs accounting for 11.2% and the balance or just under 50% going to Primary Dealers. And like yesterday, the Primary Dealer interest declined broadly, coming at a surprisingly high 25.7% hit rate. The Fed's SOMA retained $2.2 billion. With this auction, the debt ceiling is about $23 billion away, even though we have another $24 billion auction tomorrow. Oh well, we'll cross that bridge when we come to it.

Two Members Of The Joint Chiefs Of Staff 'Dis America's Hyper-Aggressive Imperialism ... Newly-Leaked Documents Show that Innocent People Were Thrown Into Gitmo Because They Wore Casio Watches Or Were Al Jazeera Reporters … Al Qaeda Assassin Worked for MI6 … And – Yes – the Iraq War Was for Oil

So here we are, finally at the big day. We get the first press conference from the most important man in America. Before you gag on the claim that he is the most important person, can you name one other person who has so much power coupled with the ability to act virtually unilaterally? It's not so much what he can do, print money, change rates, print money, change reserve requirements, print money, that makes him so powerful, it's that basically anything that he wants to do becomes policy. Ahead of the Fed there are two interesting moves in the market that bear watching. Treasuries rallied strongly into the close yesterday, but have given back a lot of the late day gains already. The other more interesting phenomena is what is happening to Greek, Irish, and Portuguese spreads. The bonds are blowing out, as much as 80 bps for Greek 10 year debt, but the CDS is actually tighter. This divergence may be a result of the bonds starting to trade at recovery levels, so investors don't want the hedges, or an indication of yet another expected bailout, but it is worth watching as the divergence is quite large. So, now to the Fed.