Archive - Jun 15, 2011

Why is there no fear? I think it all comes down to 3 letter words. Mom, Dad, Fed, IMF, and ECB. Children know that their parents are there for them, to take care of them, and to make them safe. At the first sound of thunder, a child will look for their parent and take comfort in their arms. Little children don?t necessarily know why, they just know that mom and dad will be there for them and will make them feel better. The market must have that same faith in the Fed, IMF, and ECB. Whenever the data gets bad, the market ?knows? that one of these entities will be there for them. Maybe it is QE3 instead of warm milk, but these entities will be there to support them. I don?t know how long these entities can support every blip in the stock market. The real economy is different than the stock market, and all the cures and comforts of these entities have done a great deal for the stock market in the short term, but relatively little for the economy, and the long term consequences of their actions are yet to be felt. I certainly don?t want a 30 year old kid living in my basement because I made it so easy for him that he was never able to go out and do it on his own. At some point the Fed is going to have to kick some birds out of the nest and see if they can fly on their own. In the meantime, the market clinging to hopes that its parents can take care of them runs the risk that the problems are just too big to be dealt with easily and quickly. Then we might get some real fear in this market.

We trust you know who to send it to...

Perhaps it is time to look at some basic defintions for a term that will soon be quite prevalent...

Presented without commentary:

• FED'S PARKINSON SAYS FED'S JOB IS TO COUNTER OVER-OPTIMISM' BY BANKS
• FED'S PARKINSON CITES `SHORTSIGHTEDNESS' BY BANKS PRE-CRISIS
• FED'S PARKINSON URGES HIGH-QUALITY CAPITAL ON SIFI SURCHARGE
• PARKINSON: FED TO PAY CAREFUL ATTENTION TO DIVIDENDS, BUYBACKS

Actually one word, or abbreviation, of commentary: WTF

European liquidity just went into Defcon 1.

The official release of the Pentagon Papers is big news this week. Ellsberg's support for Wikileaks and Bradley Manning is big news. But Ellsberg's other passion is receiving the "don't touch it" treatment ...

Don't fret: the NYSE has it all under control. If the market plunge continues the market will simply close. Better get it in the next 2 hours though. In the meantime...

And it seemed like such a nice day for idiot momo investors everywhere....

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

Market Recaps to help improve your Trading and Global knowledge

Distraction #1

• NOONAN SAYS IRISH SHOULDN'T REDEEM ANGLO SENIOR BONDS AT PAR
  
• NOONAN SAYS IMF OFFICIALS UNDERSTOOD POSITION ON ANGLO IRISH
• NOONAN SAYS ANGLO IRISH NO LONGER A BANK

Well, don't keep us in suspense... WHAT IS IT? Oh, and the IMF may have some decision-making issues, now that it is facing a European banking system collapse not on one, but two fronts.

For that warm, cushy, emphatic, teargas-induced emphysema feeling of being there... but not quite. Courtesy of Covering Delta, here are some video clips from the heart of the action.

Unlike yesterday's POMO, which as only we pointed out first "curiously" saw not a single monetization of the OTR 2 Year bond QZ6, today things were just as predicted, with the just issued QQ6 amounting to the most monetized issue of all (at $1.6 billion), or a third of the entire $4.7 billion operation, just as expected this morning. Why is this not surprising: because today's operation targeted 5-7 year bonds, or, simply said, bonds to the right of where as we noted yesterday, Bill Gross now believes Operation Twist 2 will take place. Furthermore, as Zero Hedge concluded yesterday, when discussing the 2-3 Year point on the curve, " why sell today at 0.44% when you can wait a month and sell them back to Brian Sack at 0.00%." Well, the 2 Year is not 0.00% yet... But is now at the tightest it has been since November, touching on 0.39% as everyone is now rushing to frontrun the Fed's interest rate cap on the 2 Year, which could possibly be as low as 0.20%. Also, that Operation Twist is nothing short of another unsterilized Quantitative Easing program, we expect that stocks and much more importantly, commodities, will soon begin to price reality in. Expect much more clarity when the June 22 FOMC meeting is released. In the meantime, observe the massive outlier that the 2 Year has been over the past two days, or since the release of the Gross tweet.

Does it seem like we’ve been here before? A barrel of Brent Crude (the truest indicator of worldwide oil scarcity) sits at $118, up from $75 per barrel in July 2010 – a 57% increase in eleven months. In the U.S., the average price of gasoline is $3.69 per gallon this week, up 37% in the last year and up 100% in the last 30 months. The pundits and politicians are responding predictably. They blame the Libyan revolution, the dreaded speculators and that old fallback – Big Oil. When the Middle East turmoil began in earnest in January, gas prices had already risen 15% in three months, spurred by increased worldwide demand and by Ben Bernanke’s printing press. Congressmen have reacted in their usual kneejerk politically motivated fashion by demanding that supplies be released from the Strategic Oil Reserve. Congress has a little trouble with the concept of “strategic.” They also have difficulty dealing with a reality that has been staring them in the face for decades. Politicians will always disregard prudent, long-term planning for vote-generating talk and gestures.

Developments in Athens are to say the least fluid. The latest news out of Athens News states that G-Pap is prepared to step down in order to form an all-party consensus government with the main opposition party, New Democracy. "Prime Minister George Papandreou held talks with main opposition New Democracy leader Antonis Samaras on the telephone on Wednesday, after a round of telephone calls with the leaders of the other political parties in Parliament. Their conversation lasted roughly 20 minutes. While an earlier official announcement by ND had refused to disclose the content of their talks before Papandreou had expressed his position, unnamed sources within the party said that the prime minister had described the situation as extremely difficult and that he was prepared to consider either an all-party government or a broader alliance government. The same sources said that Samaras did not reject the proposal but made it clear that this could not work with Papandreou as prime minister. To this, always according to ND sources, Papandreou apparently replied that he was not concerned about whether he was prime minister." And while the political wrangling is irrelevant for the rest of the world, what is relevant, especially for the ECB which would need a bail out by the Fed should Greece default is the following: "Samaras has apparently made it a condition that there is a substantial renegotiation of the terms of the Memorandum for the loans to Greece, in order to agree to an all-party government." Good luck passing that by the Troica. In other words, Greece is now in a power vacuum and the worst case outcome for Europe appears set to be realized.

And another index drops to levels last seen just as QE2 was unwinding. Per the NAHB: "After holding at a low but steady level for the past six months, builder confidence in the market for newly built, single-family homes declined three points in June to a reading of 13 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The last time the index was this low was in September of 2010. "Builders are being squeezed by the continuing weakness in existing-home prices – against which they must compete -- as well as rising material costs," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. "In addition to the ongoing impacts of distressed property sales on home prices, appraisal values and consumer confidence, rising costs for materials such as roofing, copper, wallboard, vinyl siding and other components have made it extremely difficult to construct a new home and sell it at a price that covers the costs....Builder confidence has waned even further as economic growth has stalled, foreclosures have continued to hit the market and the cost of building a home has risen," agreed NAHB Chief Economist David Crowe. "Meanwhile, potential new-home buyers are being constrained by difficulty selling their existing homes, stringent lending requirements, and general uncertainty about the economy. Economic growth must pick up in order for housing to gain the momentum it needs to get back on track." Yet fear not: Wall Street's econometric lemmings say the economy will surge in the second half on more hope and change. It is unclear what besides hope and change will cause this miraculous surge, although Operation Twist 2, which now seems guaranteed, appears to be the best guess.