Archive - Aug 16, 2013

But this time it’s different

There is one problem with the Fed's plan that bond yields will progress ever higher in calm, cool and collected fashion from here to 3%, 4%, 5% and onward: it assumes that those who don't sell today, will patiently await turn to sell (with much bigger) losses tomorrow. Of course, what happens instead is that everyone will try to sell today, to avoid any losses tomorrow. What results, are spikes such as the one seen on the chart below, which just took the 10 Year yield to a fresh 2 year high of 2.8269% and rising. But perhaps most important, there are now just under 70 bps until the 3.50% "disorderly rotation" threshold beyond which bad things start happening.

The television industry is exploring new business models with the Internet as Internet companies prepare to eat their lunch, just like the classified ad industry. When did you last use paper classifieds?

The chart below explains, in the simplest possible terms, why there are many more "Detroits" on deck. It shows the underfunded status of public vs private retiree healthcare plans. It needs no commentary, although it may deserve one question: what happens when all those public servants who have been promised over a trillion in healthcare benefits upon retirement, realize it was all a lie? And then come... the pensions.

Somehow it is not very surprising that the person who should be most concerned should the Egyptian (non) coup spread, namely the head of the House of Saud, is the one to condemn the previous US-supported regime, and to voice his praises for the current US-supported regime.

While it is rumored the below fire on the Queensboro bridge was caused by an explosion, we will reserve judgement for now, although it is quite clear that something did in fact happen on the bridge connecting the Upper East Side and Queens. By all accounts it is likely a car on fire. Whether this was with malicious intent or simply a function of low CapEx, remains to be seen.

As everyone knows (since the data is public), in the most recent week the Fed's balance sheet rose to a record $3.646 trillion, an increase of $61 billion in the past week, and a record increase of $813 billion over the past year, a whopping 30% rise in the balance sheet in 12 short months. What may not be known is the exact distribution of Fed Treasury holdings by maturity. So without further ado, here it is. Of note, observe that what once was a predominantly 'short-end' balance sheet (consisting mostly of no-coupon, money equivalent Bills), has become almost entirely a "5 and over" current coupon carry affair. Which also is why the Fed now takes over the entire bond market at a rate of 0.25% per week.

Gold analysts are the most bullish in five months according to Bloomberg. Thirteen analysts surveyed by Bloomberg expect prices to rise next week, four were bearish and five neutral, the highest proportion of bulls since March 8. 

Words from the master...

As JPM's Michael Feroli notes, the September FOMC Taper announcement (which certainly isn't assured, although if the Fed does not taper, it will end up monetizing 0.4%-0.5% of the total private TSY stock per week before year end) may just be a sideshow to a previously undiscussed main event: the Fed's first forecast of 2016 interest rates.

For the first time in 2013, UMich consumer confidence missed expectations dropping from a cyclical high 85.2 to a 'mere' 80.0. However, the miss from an expectation of 85.0 is the big news - this is the biggest miss since records began in 1999. The US Consumer (so in the news this week on the back of the retail earnings) appears have finally woken up to soaring mortgage rates, rising gas prices, and only part-time job growth. We warned this might happen - just as it has happened in the previous two cycles... Both the current and future conditions indices collapsed to their lowest in 4 months.

What was a generally calm last few hours has begun to accelerate into the US equity cash open. Gold and Silver are surging as the USD gets hit (mainly on EUR and JPY strength). S&P futures are pushing back to overnight lows and Treasuries rallying back to unchanged from modest overnight weakness (capped at 2.80%). Where's the money going? Spanish bond spreads...-32bps this week (best since Nov 2011)

As thousands of armed supporters of ousted President Mohamed Mursi take to the streets only to be met by a matching number of just as armed (with US weapons) and very triggerhappy police and army, watch all the latest action from this live feed which keeps an eye on various locations in Egypt.

With the ongoing musical chairs at the COMEX (focused on JPMorgan's volatile holdings), the bank's precious metals team now sees a number of reasons to be long gold. Noting the market's shrugging off of Paulson's unwind ("delivering an exclamation mark to define the end of the fall in gold stocks"), JPMorgan (ironically) suggests the questionable price action in the paper markets in light of unprecedented physical demand combined with the seasonal positives (and physical supply restrictions) all points to "getting long the gold space," with gold and silver miners offering value. The question remains, given that none of these are 'new' facts, why the change of heart now (especially as JPM is also buying)?