Archive - Mar 13, 2012

As gold loses its 200DMA once again (along with Silver weakness) as the USD rallied post FOMC and stocks were starting to limp lower, Jamie saved the day and the stock market had that most embarrassing of affliction - premature exuberation. While it seemed to have come as a shock to some that banks passed the stress test, the market's reaction (given only recently markets were worrying over NIMs, trading revenues, and real estate) was incredulous. The US majors were all up 6-7% (apart from Morgan Stanley which managed a measly 3.8% on the day!). With XLF now up more than 37% from its Oct11 lows, financials remain the major outperformers in this rally and we note that credit markets are missing the fun - the last time JPM stock was here, its CDS was trading 25bps tighter. Credit and equity moved in sync and tore higher on the JPM news. Gold (and Silver) which had been falling managed a decent bounce into the close while the USD closed at its highs post FOMC as did Treasury yields as for the first time since the 2011 bubble popped, the NASDAQ closed above 3000 (thanks in large part to AAPL's 3% rally over $568).

As noted earlier when we said that Jamie Dimon (who just happens to be one of two Class A directors at the NY Fed) just showed the Fed who is boss, the Fed has now been "forced" to release the Stress Test results today at 4:30 pm instead of as previously scheduled on March 15. Jamie Dimon is now officially defining the Fed's timetable. This is all in jest of course: Dimon would never do anything without preauthorization from Bill Dudley, which means that even as the FOMC statement was a big yawn, the JPM release less than an hour later was planned purely to ramp stocks into the close on the lack of a definitive promise by the Fed to keep printing. Well played gents.

What a difference a month makes: back on February 7, the CBO released its first forecast for the 2012 budget deficit. The number then? $1.08 trillion. Just over a month later, the CBO has released its amended budget deficit. The bottom line this time around: an increase of just under $100 billion, or $1.171 trillion. Since this number is still about $150 billion less than the President's own scoring, or $1.33 trillion, expect even more revisions. And why not: this is simply debt that nobody will ever repay, and in exchange the money, which is finally flowing through the bottom line at least to the banks (JPM shareholders thank the US Treasury) will proceed to pad if not the middle class, then certainly banker bonuses.But not all is bad news: by 2022, the CBO, which has a pristine track record of predicting one decade into the future, sees a $186 billion reduction in total deficits compared to January. Let's not forget that b then Greece will have negative debt/GDP ratio.

Is social media the new Chinese reverse merger? Only three months after its IPO, ZNGA (trading over 21% above its post-IPO open price) will be doing a secondary offering. Yes, you lucky punters who can't get enough of FBOOK's IPO can step in and fill another money void with this follow-on (supposedly to avoid a lock-up sell-off!!). The stock is trading down only 2% on this 'great' news. When will ZNGA announce their dividend hike?

Update: And so they come storming in, as the WSJ reports that Bank of America is the next to frontrun the Fed's public announcement, and announce it passed the stress test. However, unlike JPM it says it has not asked for new buybacks, or dividend increases. No surprise there.

There was a time when banks would at least pretend to pay lip service to the Fed. Those days are gone. Two days before the Fed is scheduled to release stress test results, JP Morgan's Jamie Dimon has decided to show the folks at Liberty 33, but more importantly the world, that it is "good enough" and has proceeded with announcing a $0.05 dividend hike as well as a $15 billion stock buyback (in effect increasing its leverage further by reducing its statutory equity). Since we are now obviously replaying the entire credit crisis, from beginning to end, must as well go all in. Now - who's next? And perhaps just as importantly, who isn't.

Goldman, whose Bill Dudley runs the New York Fed, and the Fed in general, gives the official party line on how to interpret the Fed's statement. Summary: all is well.

It's nothing if not choppy. Treasuries are selling off now (having initially oscillated) and the initial 'upgrade' of the economy juiced stocks but that has been faded. The DXY is surging higher as AUD, JPY, and EUR are losing the most ground against the USD. Commodities are feeling the lack-of-QE pain with Silver and Gold down quite hard. It seems equities remain the most confused - do we follow Treasuries (inflation/QE-off) and rally or do we follow USD/Commodity (QE-off) and drop? Based on pre-FOMC correlations, risk should be coming off and we note VIX gapped down under 15% and then back up to almost 16% now.

Expectations going in were apparently of no material change likely with some increase in dissents. It seems the market is initially disappointed by the Fed's lack of "we'll print 'til we die" comments as Bloomberg notes:

• *FED SAYS STRAINS IN GLOBAL MARKETS `HAVE EASED'  BUT POSE RISKS
• *FED SAYS OIL, GAS `WILL PUSH UP INFLATION TEMPORARILY'
• *FED SAYS UNEMPLOYMENT `DECLINED NOTABLY,' REMAINS ELEVATED

Notably, economic "growth" has moved from modest to moderate, and inflation word count: 6.

Does Eating Red Meat Kill You ... Or Is The Problem That We're Eating FAKE Meat?

Once again, credit markets have roared back to converge with equity's exuberance to close the day in line. Very soon after our earlier post on the divergence, the two bipolar markets began to converge rapidly. Will tomorrow's 4th time be the charm, we wonder?

King of media kings...

Back to basics with some definitions:

DEFAULT, n. Semi-mythical celestial occurrence that passes by Earth every 76 years. 
I was worried for a second about that Greek default, but I realise there's nothing to see now and all is well.

FEDERAL RESERVE, n. A wholly owned subsidiary of Goldman Sachs.
The Federal Reserve voted to give a few more billion dollars to Wall Street.

US GOVERNMENT, n. Another wholly owned subsidiary of Goldman Sachs.
We seem to be running out of Goldman Sachs alumni here in the Treasury. No, wait, we've still got hundreds of 'em. 

In February, the US spent a third of a trillion to fund various government programs. Since only a fraction of this money was funded with tax revenues, the balance has to come from somewhere else. Like today's 10 year $21 billion Bond auction. In the aftermath of yesterday's weak 3 year, today's bond also priced at the highest yield since October, printing at 2.076%, just inside of the When Issued 2.08%, and a far cry from January's 1.90% as the Fed is expected to use the word inflation in just under 60 minutes. The Bid To Cover was 3.24, compared to the 3.12 TTM average. The breakdown of buyers was virtually unchanged from February's auction, and saw 42% taken down by Dealers, 38.6% go to Indirect Bidders, and Directs taking down 19.4%, or the highest since August. Once this week's auctions are concluded, total US debt will be $15.6 trillion as the ramp into October's (at the latest) debt ceiling fight, which promises to be the highlight of this election season, begins in earnest. Any minute now, the CBO will also release its revised grading of the President's budget, which will see the 2012 deficit forecast increase from $1.08 trillion to $1.2 trillion.

Mark Fisher is a staple contributor on CNBC. Or at least was. According to various headlines flashing across both Bloomberg and Reuters, it seems that his MBF Clearing Corp is the first victim of the CFTC expanding its MF Global inquiry, and Fisher's MBF Clearing Corp of performing just the same "vaporization" activity that MF Global engaged in and that boggle regulators' minds.

MBF CLEARING CORP SUED BY CFTC FOR FAILIING TO SEGREGATE FUNDS
CFTC ACCUSES MBF OF DEPOSITING CUSTOMER FUNDS INTO A NON-SEGREGATED ACCOUNT THAT ROUTINELY HELD BETWEEN $30-90 MLN
CFTC ALLEGES CUSTOMER ACCOUNTS WEREN'T PROPERLY SEGREGATED

Oops. In other news, JPM and Jon Corzine are both completely innocent of anything. But at least the CFTC can say it has done its duty of punishing transgressors and all is now well.