Archive - Jun 22, 2011

As noted in the title, for all those who wish to reread how Bernanke justifies the fact that he has no idea why the economy will improve, but it just will, damn it, here it is, complete with the full Q&A.

While hypnotized lemmings are watching the green, red and blue squiggly lines, and Bernanke's lies enter one ear and exit from the other, those who put on the risk-ES spread convergence trade on earlier just paid for drinks. Spread has closed and we eagerly await the next free money opportunity from B to the Sack.

It will be a fun experiment to see if we can truly strip a government down to the singular function of taxing the citizens to give money to banks - consider it a practice run for their vision of the US.

The Fed has just taken one small step to acknowledging reality... and Zero Hedge's keyword of 2011: stagflation. The FOMC  released its revised 2011-2013 economic forecast, which saw GDP getting slashed, while hiking its inflation and unemployment projections. Specifically, 2011 GDP was lowered from 3.2% to 2.8% even as it raised its average unemployment forecast from 8.6% to 8.8%.

Just as expected, the New York Fed disclosed that even as QE2 is being halted (briefly), QE Lite purchases of maturing securities will continue, across the Fed's 7 maturity segments: "At this time, the Desk anticipates conducting one operation per month in each maturity sector." As we have calculated before the total amount of monthly "flow" purchases will be about $32 billion, and likely declining, as less and less MBS are prepaid to the Fed. In other words, the bulk of purchases will once again be at the belly, with the least amount dedicated to the long-end, followed only by the 1.5-2.5 year segment, which however, if Bill Gross is right, will see a surge in activity as soon as Operation Twist 2 is announced at this year's Jackson Hole meeting.

At 2:15 pm the general public will watch with fascination as Ben Bernanke descends into his throne, in his dollar green Vera Wang wearing a stunning Control Print and Arpels tungsten necklace, following with trepidation each and every shake and quiver of his chin in those ultra rare instances when he speaks the truth. He will be surrounded by a cohort of FOMC preapproved sycophants who, as can be seen on the clip below, are now on page 2 of Monetary Policy for Dummies, which they started reading back on April 27 during the first ever FOMC press conference. As usual, nothing of significance will be asked, and most certainly, answered, but do expect the dollar (and, inversely, ES) to go up, then down, then up, and so forth as random vacuum tubes blow in NYSE's ultramodern Mahwah collocation facility.

With mainstream acceptance of my presumptions of the potential of serial sovereign debt defaults, its time to take a more realistic look at how it may happen & the potential consequences.

Once again, the non-Greek speaking population has the opportunity to poke fun at G-Pap's vote of confidence reception speech courtesy of Google Translate.

Nothing surprising in the statement.

One notable observation is that for the first time since the Japanese events, the Fed is finally recognized the impact of the Japan-induced contraction. Odd that all the morons who said Japan would be a boost to GDP growth now applaud the Fed's appreciation of reality.

The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan. 

With under 10 minutes to go to the FOMC decision, traders are scrambling for hints as to what may be coming. One place they are looking is BAC option activity, as this is a company which is in dire need of some monetary love (and at least steepening, hello OT2) from the Chairman. A quick look at the most actives shows that bullish bets far outstrip bearish ones, with almost 75k January 2012 and 2013 $12.5 calls having traded hands (granted it is unclear from this chart if the bulk of the activity was on the bid or offer side). Anyway, so much for guessing: everything will be revealed in just a few minutes...

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

We read about and hear it every day in the media, and accept it intuitively, but is there really a significant relationship between gas prices and consumer spending, or is it just another convenient excuse for when financial/economic data comes in below expectations?

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

Must be the season of the QE bitch...

I am back to being bearish the high yield market. I am not yet short it, but would certainly recommend being underweight right now. A couple of things have pushed me back to being bearish. The main one is weakness in other credit markets. Once again CMBX is heading lower and back at or near its recent lows. It has not been able to sustain a big rally which is particularly surprising because it is relatively illiquid and is a 'hedge' trade so is usually very exposed to a violent short squeeze. Irish and Portuguese 10 year bond hit new record yields according to Bloomberg - 11.47% and 10.99% respectively at the time of the writing, though Portugal broke 11% earlier in the day...The combination of weakness in other credit markets, coupled by the HYG NAV confirming that liquidity is at an extreme low in the high yield bond market I think it is prudent to cut high yield risk. With European credit closing quite weakly, I may shift to an outright short.