Archive - May 2013

May 29th

Tyler Durden's picture

Remember Those Apple Bonds?





Presenting a quick and painful, for some, lesson in duration and bond math.

 

Tyler Durden's picture

Oil Leaked, Bond Volatility Peaked, Credit Markets Tweaked





After a disastrous day yesterday a bounce in bonds was at least on-the-cards and they went out at the low yields of the day (-6bps). Equity markets oscillated around their opening level of the US day-session with the S&P futures ending the day down over 8 points (in the middle of the range) glued to VWAP at the day-session close. Credit markets faded rapidly and while stocks are unch from last Thursday's close, high-yield and investment-grade spreads are significantly wider. VIX had another up-day (breaking above 15% intraday) but closing at 14.8% (highest in 5 weeks) but more criticaly MOVE (bond VIX) spiked to its highest in 9 months. Many talked about bond-like stocks getting hammered but it is noteworthy that homebuilders suffered the most today. USD weakness (and JPY strength) were the theme in FX markets as carry continued to be unwound of yesterday's peak and in turn this helped gold and silver push around +0.5% on the week. Oil prices slumped most in a month, testing below $93 at their lows. Equity volume ended above average, average trade size was low, and the S&P closed below its up-channel trend.

 

Tyler Durden's picture

10 Under-Reported Realities In The US Labor Market





Beneath the unemployment rate and headline jobs number is a world of labor market signals that few, if any, ever take the time to look at. ConvergEx's Nick Colas analyzes 10 under-reported signals to look for alternative clues about the direction of the job market and, in his words, the results aren’t pretty.  We’re still 2 years away from full employment at the current pace of job growth, and more people are entering the labor force for the first time since the 1980s, adding to already fierce competition for open positions.  Not to mention over 7% of those not in the labor force actually want a job right now (also intensifying competition), and the rate of job growth isn’t enough to offset the number of unemployed workers with expiring benefits.  On the plus side, the number of re-entrants to the labor force is at a 4-year low.  And for those who do have a job, average wages are higher than ever. However, the majority of the analysis shows the labor market remains stubbornly resistant to improvement - despite talking heads belief in 'taper'ing on improvements.

 

Tyler Durden's picture

Central Banks' Central Bank Warns About Rehypothecation Threats





"While certain types of rehypothecation can be beneficial to market functioning, if collateral collected to protect against the risk of counterparty default has been rehypothecated, then it may not be readily available in the event of a default. This, in turn, may increase system interconnectedness and procyclicality, and could amplify market stresses. Therefore, when collateral is rehypothecated, it is important to understand under what circumstances and the extent to which the rehypothecation has occurred; or in other words, how long the collateral chain is... Financial intermediaries should provide sufficient disclosure to clients when collateral assets posted by them are rehypothecated; rehypothecation should be allowed only for the purpose of financing the long position of clients and not for financing the own-account activities of the intermediary; and only entities subject to adequate regulation of liquidity risk should be allowed to engage in the rehypothecation of client assets."

 

Tyler Durden's picture

Banks Behaving As If 'It' Never Happened





Today's Quarterly FDIC data release was cheered by many on the basis that US banks made the most money ever ($40.6bn) in Q1 which must mean something positive, right? With rates low, spreads low, margin high, and collateral in short supply, where all these profits coming from? The following chart, which may make some nauseous in its simple and direct clarification of just how blind we have become to what is going on, has the answer. Simply put, bank earninsg have soared on the back of nothing less than a total collapse in loan loss provisions (LLPs). In fact, LLPs are now at their lowest levels since the peak of the housing bubble (and as we showed yesterday here and here, a bubble this is) - at a level of reserves that suggest the banks believe 'It' never happened. The delusion continues...

 

Vitaliy Katsenelson's picture

Are We There Yet?





One of the problems with QE is that the Fed is forcing people to buy riskier investments than they otherwise would have. The immorality of their actions aside, they create a significant psychological mismatch between assets and their holders. Stocks are in weak hands, insuring one great stampede for the chairs when the music stops.

 

Tyler Durden's picture

Guest Post: Is Oil Cheap?





The conventional wisdom is that oil should decline in nominal price as global demand weakens along with the global economy. In the hot-money-seeks-a-new-home scenario outlined above, demand could decline on the margins but speculative inflows - demand for oil contracts by speculators - push prices higher, potentially a lot higher in a geopolitical crisis. The central banks that are creating all the "free money" that is available to large speculators fulminate against oil speculators, as if all the free money is only supposed to go to "approved" speculations in equities and bonds. Unfortunately for the central bankers, they only create the money, they don't control what the financiers who get the free money do with it. Gasoline is expensive at the pump, but by one measure oil is cheap and poised to go higher and despite the endless MSM hype about U.S. energy independence and U.S. exporting energy abroad, the U.S. still imports over 3 billion barrels of crude oil every year and when oil becomes expensive: the economy sinks into recession.

 

Tyler Durden's picture

What Do Credit Markets Know That Stocks Don't?





Two weeks ago we warned of the 'shift' we were seeing in the high-yield credit market. Equity market participants remain bereft of the ability to realize that releveraging to fund buybacks (which are the only driver of EPS growth) and dividends (the only reason many are buying stocks) is simply not long-term sustainable. The reason - quite simply - is that high-yield markets (no matter how much liquidity you throw at them) will hit a wall of spread-per-leverage or 'risk' vs reward that simply is non-economic. As we noted here, we appear to be turning the credit cycle corner - a message many ignored just as vehemently in 2007. The last few days have seen credit markets take another leg lower (remember this is spread not yield risk and so is unrelated directly to the Treasury selloff). To clarify, one cannot believe that investors rotate from HY credit to equities - they are simply different parts of the same capital structure; if one hurts, the rest of the business will hurt (perhaps with a lag) and in this case (as is often the case), credit anticipates and equity will confirm.

 

Tyler Durden's picture

Solid 5 Year Auction Follows Poor 2 Year; Dealers Left With Lowest Ever Allocation





What a difference 24 hours makes: if yesterday's 2 Year bond auction was weak from beginning to end, today's 5 Year showed that any fears of a "great vortexing" in the market can be largely forgotten. The 5 Year, which was expected to price 0.1 bps over 1.05%, and whose WI was trading at 1.048% at 1 pm, just priced at a stop through high yield of 1.045% - quite better than many had feared. The Bid to Cover also was hardly disappointing, coming at 2.79, just shy of the TTM average of 2.83. But the most notable component was the Dealer take down: if yesterday Dealers couldn't get their hands on enough bonds in the final allocation, today it was the Directs and Indirects that took down a combined 67.4% of the auction, leaving just 32.6% for Primary Dealers, the lowest in our dataset, and likely ever. Something tells us Dealers are very eager to load up on as many repoable bonds as they could yet failed: earlier today, the OTR 10Y CUSIP was among the Fed's exclusions in today's POMO, which brings the question - is the TSY collateral shortage starting to spread?

 

Tyler Durden's picture

Meanwhile, Big Investors Quietly Slip Out The Back Door On Housing As "Stupid Money" Jumps In





Today, another one of the original "big boys" has called it curtains on the landlord business: "We just don’t see the returns there that are adequate to incentivize us to continue to invest", according to the CEO Bruce Rose of Carrington, one of the first investors to use deep institutional pockets (in this case a $450 million investment from OakTree) and BTFHousingD. Rose's assessment of the market? "There’s a lot of -- bluntly -- stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible.... We’ll sit back in the weeds for a while and wait for a couple of blowups,” he said. “There’ll be a point in time when we’ll be happy to get back into the market at levels that make more sense.”

 

Pivotfarm's picture

Tax Burden in EU





Algirdas Šemeta, the European Commissioner responsible for Taxation and Customs Union, Audit and Anti-Fraud has announced in a speech that there are ten nations in the EU that need to cut the tax burden on labor if they are going to aid the growth of the European Union. They are hindering investment and holding back output of firms across the EU, although he admits that it is not reducing the tax burden alone that will solve the problems of the economic crisis.

 

Tyler Durden's picture

Meet The Casino With A $1.6 Million Minimum Bet





While China's economy is sputtering and its stock market is lagging the exuberance of the rest of the world's largest centrally-planned economies, it seems life is good for the richest of the rich. In Macau, "the VIP market is gaining momentum," with the industry’s April revenue the second-highest in history. About two-thirds of Macau’s casino revenue comes from high rollers who gamble on credit due to restrictions on taking cash out of China but as Bloomberg reports, last year, the big bettors pulled back across the industry amid speculation that China’s new government might restrict junkets and curb cash flowing from the mainland into Macau. With the political transition completed, the VIP business is back to normalcy - as evidenced by Sky 32, an elite oasis of luxury on the 32nd floor of the Galaxy Macau casino, offers commanding views, a waterfall, a bar with vintage single malt whiskeys - and six sumptuous rooms where players must commit to betting at least 10 million yuan ($1.6 million).

 

GoldCore's picture

Shanghai Gold Volumes Surge 55% As Singapore and Indian Brokers Sold Out





 

Gold edged higher today supported by strong physical demand internationally and especially in Asia.

Demand in the physical market continued to hold prices near $1,400/oz as the recent drops in the spot market encourage buyers internationally to accumulate bullion.

 

 

Tyler Durden's picture

FannieCoin BitMae





For all the grief BitCoin (and so often gold and silver) get during times of excess volatility, especially by those Keynesian prophets who urge everyone to adopt the one true FIATH and put all their cash in stocks (and more please: just use margin) we hear precious little about the ridiculous volatility farce that nationalized mortgage lender Fannie Mae has become: from opening above $4, trading up to $5.50, and now plunging to under $3.00, the stock is nothing but concentrated heatmap of every E*trade momentum chasing baby and dart-throwing monkey in the world (ignoring the fact that all "swing traders" merely respond to "price action" whatever that means and are thus all making money, no matter what happens). As for the fact that the swing in the stock price in the past hour wiped out nearly $15 billion in market cap, or nearly half of the total, on absolute no news (which is also substantially larger than the entire BitCoin market) well... we'll just leave it at that.

 
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