Archive - 2011

The Mortgage Banker's Association has released its Weekly Mortgage Applications
Survey for the weeks ending December 24, 2010 and December 31, 2010. On a seasonally adjusted basis for the week ending December 24, 2010, the Market Composite
Index, a measure of mortgage loan application volume, decreased 3.9 percent on a seasonally adjusted basis from the prior
week. For the week ending December 31, 2010, this index increased 2.3%. The kicker is when on looks at the unadjusted numbers which exclude Christmas and New Year's Day adjustments: "on an unadjusted basis, the Index
decreased 23.7 percent the week before Christmas and 10.0 percent
the week after." Hopefully the seasonal adjustment isn't accounting for more than the snowfall across the country. Considering the ongoing spike in mortgage rates, it would not surprise us if this unadjusted data point next week will confirm that any interest in refinancing mortgages at current (still very low) rates has gone the way of the dodo. But at least the Fed thinks that higher interest rates are an indication that lower interest rates are working, or some such tortured FOMC logic.

Yesterday's drop of the BDIY to a one year low, coupled with stocks' (brief) jump to a one year high had quite a few technicians on edge: it isn't every day that we get such a major divergence between the two data series. But does this actually mean anything, and does it predict much in terms of future market performance? For the answer we go to one of the best technical analysts out there, Sentiment Trader, who shares the following piece of advice to those who are curious how stocks have traded in past occurrences of such notable divergences: "Overall, the S&P's median return over the next month or so was certainly below average, and I would consider this to be a minor negative, but not a major or terribly consistent sell signal." That said, there is also the threat that China is merely continuing to add additional supply in terms of Cape and other sized tankers, and we are confident that to some the plunge in shipping rates will be actually seen as a positive as it means less money has to be spent on chartering trans-Pacific transport. Which is good - a difference in opinions is, after all, what makes market.

The Chinese rhetoric on US Treasury holdings is once again heating up. After a year ago former PBOC advisor Yu Yongding called for a reduction in China's holdings of US Treasurys, popular magazine Caijing published another call to arms by the disgruntled ex-central banker. In apparent disagreement with traditional monetary policy and the Yuan peg, Yu said that moving towards a more market-driven exchange rate would mean reduced intervention in the foreign currency markets, giving China the option of winding down its holdings of U.S. debt. "China should strive to reduce instead of further increasing (its holdings of) dollar assets," he said. "Specifically, China should reduce the growth of its foreign exchange reserves as soon as possible. Furthermore, with the Fed now firmly holding far more US debt than China, the world's fastest growing economy is realizing that is negotiating power when it comes to US leverage via bond holdings is getting smaller with every day. Perhaps the country is finally realizing that it would be best to sell to the Fed now when it can, rather than some time in the future, when it has to, and do so on Bernanke's terms.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 05/01/11

Today the PIIGS are back at the ECB subsidy trough with Portugal taking center stage with its E500 million 6-month bill auction. The next country to implode sold E500mln of 6-month Bills, and while the bid to cover was just a slightly better 2.6 compared to the 2.4 before, the yield again surged, hitting an unsustainable 3.686% versus 2.045% previously. The net result of this jump in yields is that peripheral spreads have once again commenced leaking wider, with the Greek spreads to Bunds pushing to a new record wide at 974 bps, a 10 point move. This is hardly the last we have heard of record Greek spreads it, and while it is very feasible we will see a four digit spread in the next few days, who really care anymore. After all it is just the ECB that will end up holding the toxic paper.

A common misconception among less aware segments of the American populace is that the phrase “New World Order” was concocted by attention seeking “conspiracy theorists” in dank basement apartments and sinister mountain shacks across the country. In reality, anti-globalists and Constitutionalists had nothing to do with the term’s creation (and most of us have decent digs, too). The truth is that mumblings of a “New World Order” have been floating around various elitist circles for decades, and every once in a while, those mumblings are publicized in the mainstream media. Globalists created the warped ideal; we just point out that it exists. Lately, we haven’t had to try very hard… As most readers here are probably already privy to, elitist spokesman George Soros (who for some reason reminds me of Baron Harkonnen from the movie ‘Dune’) recently let spill all kinds of NWO gossip in a candid interview with the Financial Times.

Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this offers very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs.

Ruh roh. After yesterday's euphoria around the new year wiping the economic slate clean, investors woke up and...

Where is the theft in pensions really taking place?

Can they please at least keep their lies straight? While two months ago the IMF said that "Oil price rise not threat to global recovery", we now get an FT article with the following title: "Oil price ‘threat to recovery’" based on a quote from the IEA." H.M.M.M.M. we wonder whose opinion is more accurate: an organization run by idiots (who subsequently matriculate into modestly coherent people whose only job is to bash their former employer), whose only purpose is to destroy economies under mountains of debt (or is that the World Bank?) and to bail out insolvent PIIGS... or the International Energy Agency? We'll have to get back to you on that.

Was today's broad and very much coordinated selloff in commodities a result of the just announced news that the CFTC's position limit plan may, contrary to prior expectations, be enforced very soon? It appears that outspoken CFTC commissioner has flipped in his stalling tactic and instead is now endorsing the position limit plan. Per Reuters: "Under the system, if a trader's holdings in a commodity reaches a certain threshold, it triggers a new level of heightened regulatory scrutiny by the CFTC where commissioners could vote to require the trader to reduce their positions." This means that JPM's accumulated holdings in various precious and industrial metals are not only about to likely become public, but that the CFTC will be mandated to very shortly enforce a break up on those positions which are deemed too concentrated. It is unclear how foreign entities, to whom the recent accumulation in various precious metals has been attributed, will be impacted by the proposal which now appears may be shortly enacted.

While we frequently make fun at Maxine Waters, and often for good reason, in this case the Congressional Democrat is spot on: the member of the House Financial Services Committee has denounced the BofA-GSE settlement as nothing more than a "backdoor bailout" funded by taxpayers, precisely as disclosed yesterday in the exhaustive Forbes piece that is a must read.

Given the composition of the Fed's assets, when interest rates start rising, the immediate effect on the Fed's income will be negligible. But the Fed's interest expense will respond immediately, because the interest it is paying is interest on deposits that commercial banks are free to withdraw without notice. That's not a healthy combination. Short-term rates would only need to rise above 6.5% for the cost of keeping the $1 trillion sequestered to exceed all of the Fed's income. The Federal Reserve would be operating at a loss. And the crossover rate, at which the Federal Reserve starts losing money, may be about to come down. The Fed is about to begin round 2 of "quantitative easing," in which it creates still more reserves to buy still more long-term Treasury bonds. Suppose that QE2, regardless of what details are initially announced, adds up to a purchase of another $1 trillion of 30-year T-bonds, at the current yield of 3.9%. That will add $39 billion per year to the Fed's income. But it will double the effect that any rise in short-term rates has on the Fed's interest expense. The net effect would be to lower the crossover fed funds rate, at which the Federal Reserve starts operating at a loss, to 5.3%.

A few minutes ago we ridiculed Bloomberg's use of Vadim Zlotnikov's opinion on gold as the basis for the otherwise reputable firm's chart of the day. Below, we present a statement from the actual research report that indicates that the man does not have the first idea of what gold is all about. To wit, and we quote: "Gold, which is effectively just another fiat currency, has recently benefited from its perceived ability to hedge against a variety of potential economic outcomes that are currently foremost in investor's minds: inflation, sources of economic growth, downward spiral in fiat currencies, etc." While there is no point to even discuss any part of this report further, we ask: are imbeciles the best that the anti-gold crusade can come up with?

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 04/01/11