Archive - Jul 14, 2011

It's a subprime world after all...

Today's 30 Year auction of $13 billion was a carbon copy of the previous 3 Year and 10 Years both pricing in the last two days. What was so carbony about them? Well, all three came inside the When Issued, with the 30 Year $13 billion reopening pricing at 4.198% 2 bps inside the 4.22% WI, and all three have seen a surge in Direct Bidding take down. Is the Direct Bidder, a category that was redefined back in June 2009 for reasons not exactly known, the "buying force" that is supposed to take over for dropping Indirect Interest? And yes, for a strong auction the 30 Year today saw a decline in foreign bidder participation to just 37.8%, better only than May's 33%, and the second worst in all of 2011. But yes, thanks to the "Directs" coming out of left field and bidding up a whopping 21.9%, compared to 9.3% in the June auction, the Bid To Cover surged to 2.80 from 2.63. One look at the chart below shows that there is a very distinct correlation between the take down of Direct Bidders and QE: between February and August, or the period between QE1 and QE2, the average Direct Bid was 22.3%, while during QE periods this number gets cut in half. We doubt Directs are merely indirect proxies for China, but like everything else having to do with the riskless basis of Treasury auctions, the actual source remains shrouded in secrecy, and only after the collapse of the Treserve ponzi do we hope to discover just who and how makes up this category. One thing is certain: we are 100% confident Direct Bidders will make up a major portion of all auction across the curve until the onset of QE3.

By now it is no secret that Q2 GDP is a complete scratch, likely coming at under 2%, meaning that the economy contracted in real terms (even though back in January every Wall Street economist expected a 4% growth rate at this point). Needless to say, those who have been reading Zero Hedge know that Q3 and Q4 will suffer the same fate. Everyone else who has been holding out in hope that some mythical and mysterious car buying force will appear out of somewhere and can now relax. It isn't. Here is the first official Q3 GDP downgrade, courtesy of JPM's Michael Feroli. We fully expect every other clueless Wall Street lemming to follow suit in minutes.

Stocks dumping, dollar at all time lows against a plethora of FX pairs, while gold (and silver) is sticky as superglue and remains just a few dollars away from its all time nominal highs, and just short of $1,600, which we expect will be taken out as soon as the world realizes that the Greek 2 Year spread to Bunds is now over 30% and that Europe is not fixed. Perhaps Bernanke would like to take another stab at that whole "is gold money" question...

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

Market Recaps to help improve your Trading and Global knowledge

In the most dramatic example of someone give the teleprompter the finger on the debt target (f/k/a debt ceiling, in the pre Federal Reserve days), after earlier it was announced that Obama, so willing to continue the charade, was pushing for a Camp David meeting where the debt ceiling issue would be resolved, bunch-of-fat-old-men-locked-up-in-a-room-nobody-leaving-until-solution-is-reached style, Reuters reports that Boehner has politely refused this latest farcical denouement, and told the White House "that he sees no need to move the negotiations on debt and deficits to Camp David." In other news, it is now 7 days and counting until July 22.

Just in case there is still any doubt why banks are now laying off entire trading desks, and why retail will never again come back to the stock market, here is today's flash crash: ASIA (not the continent, the Nasdaq stock), hot on the heel's of yesterday's and the one from the day before, and so on. The market is as broken as it ever was, and the porn addicts continue to do nothing about it. Oh, and for those claim this was an accidental fat finger, the total amount of shares that traded during the flashy crashy period: 219,488.

Somehow, with Amazon trading at all time highs, June retail sales, once again, came in "disappointing"... not our word. Goldman's. And that's even with nobody paying their i) mortgage, ii) property/school taxes, iii) lawn care, iv) federal income tax, v) food (thank you record food stamp usage), and, of course, vi) healthcare. Another battle lost by the permabulls (ot is that permacow in Joseph Cohen's case?). But no, the GDP hockeystick is coming. Just you wait! No really, you will have to wait...a long, long time.

When in doubt, baffle them with male cow manure: Bernanke Says Fed Not Prepared to Take Action at This Point, but, Bernanke Says Recovery 'Still Rather Fragile'. Is Bernanke finally channelling his inner Greenspan. Oh, and just in case the Moody's threat was missed, Bernanke adds that a US default would trigger a crisis and would lead to "chaos." Will someone just give the president a three-page termsheet already.

The man who yesterday got into a heated argument with the chairsatan on whether gold is or isn't money (a Bernanke response already mocked to death so we will leave it alone), shares his take on the most recent bout of scaremongering by Moody's (with S&P doing in private today what Moody's did in public yesterday) with Bloomberg TV's Erik Schatzker. When asked if the American AAA rating is worth saving, his reply: "probably not. I think if you had a market evaluation on this issue, it should have marked down a long time ago." The reason the downgrade will come regardless is that "ultimately that is going to happen anyway because we are insolvent." The big picture: "I think it is part of the game to make sure everyone is fearful so we
continue this process. Long term, I think raising the debt limit is a
negative because it delays the inevitable. It will give us much bigger
problems down the road. Today and tomorrow, if Moody's does not lower
the bond rating, it will be helpful in the short run. In the long run,
it will be more devastating because Congress will go back to their old
habits again." Said otherwise: Moody's is concerned about US debt now, but is not concerned if US were more tomorrow - sheer idiocy.

Bernanke's prepared remarks to Senate in the second day of the bi-annual presentation monetary policy presentation will be identical to those from yesterday. The only difference will come in teh Q&A, which is not so much Q&A as political grandstanding by a bunch of muppets. For those who wish to listen as QE3 is priced in for the third time in as many days, and express other masochistic tendencies, tune in to the C-SPAN webcast below.

A dramatic video that shows precisely what happens in the fragmented market place each time an order to buy or sell stock is placed.

For all those asking, there is just one little footnote that explains all you need to know why "JP Morgan is not Bank of America"

Every Precious Metals investor knows about the typical summer doldrums that usually afflicts the Gold & Silver sector as summers are typically poor performance months. However, this summer we were hit with a steep downfall earlier than in most years in April and early May, so there is a distinct possibility that despite gold and silver mining stocks normally waiting until late August to put in a bottom, that the bottom may already be in.

The bond vigilantes did their job with respect to Italy. While Greece, Portugal and Ireland are, in my opinion, insolvent nations that need debt relief or restructuring, it seems clear to me that the market does not want to attack Italy out of any speculative spite. As long as the sensible fiscal policies of the last decade are further built upon, I am confident Italy can exit the eurozone debt crisis in acceptable health...Although I think the current risk-off phase could last a little longer in the very short term, for the latter half of July and heading into August I am bullish and favour another risk-on phase. In this coming risk-on phase I expect to see over late July and August my S&P targets are 1350/1370, with a possibility of a bigger move to 1440. And 1250/1220 S&P remain my bear alert levels. Over a Multi-Week/Multi-Quarter horizon, I remain bearish and risk-off, as outlined in my previous note. I have high conviction on this call.