Archive - Sep 10, 2013

At 1615ET, DoubleLine's Jeff Gundlach will begin his firm's latest presentation of his market views. We already know his views on the potential for higher rates and the inevitability of the taper, "the 10Y Yield may go up to as highs as 3.1% by year-end," because "investors have switched from "I don't care about volatility, I want income" to "I don't care about income, I dont want volatility." While he previously noted he "sees no sign of that changing...", we wonder if the title of his always full of charts presentation sets up for some change - "what if?" Full presentation to follow...

"It's getting concerning," notes one fixed-income banker, Puerto Rico muni bond yields "never got near 10% [yields] even in the crisis." Some of the 27-year maturity Puerto Rico bonds just traded at a dismal 67 cents on the dollar (10.082% yield) and the most recently issued 2036 Electric Power bonds have collapsed from par a month ago to just above 82 cents on the dollar today. As the WSJ reports, the fall in prices also is a sign of investor risk aversion in the wake of Detroit's record municipal-bankruptcy filing in July; but it seems the anxiety and outflows from ETFs is having just as big an impact as Puerto Rico bonds now trade cheaper than Detroit's. "It's out of whack," one analysts warns, though the island's double-digit unemployment and recent weakness in economic indicators somewhat support the concerns - and while the "yields are attractive" it is possible that the island's borrowing costs could go higher as supply is extremely heavy in coming months. With 77% of managers holding Puerto Rico bonds, this is a problem...

In the aftermath of the Cyprus bail in (and to a lesser extent the Polish pension fund debacle), it is understandable if depositors are a little sensitive about the insurance, and thus confiscability (sic), of their deposits. Starting today, following a 5-0 vote by the FDIC, depositors in foreign US bank branches will officially no longer have recourse to a $250,000 in deposit insurance. The notional amount of deposits at risk: $1 trillion. This is not a new development: the FDIC rule to curb insurance on this category of deposits was proposed earlier this year, and today was the formalization. However, questions do arise: if a major US depository institution does fail domestically, the financial state of their depositors abroad will hardly be the biggest issue.

In a not-so-shocking turn of events, the Syrian 'opposition' is disappointed by the apparent shift in the US administration's warmongery. As Bloomberg reports, Najib Ghadbian, special representative of the Syrian opposition coalition, explained that they "definitely want this strike; we're using the words and decisive and strategic," adding that the strike "is a necessary step" to make the Assad regime agree to a political solution. In a separate discussion, Farah Al-Atassi - a Syran coalition member - said Russia's proposal to isolate and destroy Syria's chemical weapons was not sincere. Oh, but of course, they concluded that, "we definitely want it to lead to a democratic solution." In the meantime, Syrian people's resentment grows, "Why is there silence?" Abu Abdu asks. "Is it because we're Muslims? Is our blood cheaper than yours?"

Five years after the financial crisis former Treasury Secretary Henry Paulson says "the world shouold prepare for a new financial crisis" in tomorrow's Handelsblatt newspaper. His view, based on the "unacceptable" nature of too-big-to-fail banks and the lack of reform of the GSEs and the shadow-banking industry, stands in direct opposition to the leader of one of those TBTF banks. James 'not Jim' Gorman, CEO of Morgan Stanley, told Charlie Rose last week that "the probability of [it] happening again in our lifetime is as close to zero as I could imagine." Who would you trust?

Why does the old style system still persist even though it is already demonstrably inferior? In addition to the financial disincentives, there is another reason: the current system retains a monopoly on assessing student learning and granting credit for demonstrated accomplishment. The schools are able to do this because they have arranged a monopoly on accreditation. This is ultimately a grant of state power. As a result, modern colleges and universities have collectively become a rent-seeking cartel, an alliance of nominally competitive institutions that maintains a highly profitable monopoly of accreditation.

The circus just won't stop. John Kerry takes to social media in this Google+ Hangout with New York Times columnist Nicholas Kristof and Lara Setrakian, founder of the digital news site Syria Deeply. This roundtable discussion will weigh the United States' response to the use of chemical weapons in Syria. We just can't wait to hear his reaction to the pending UN Security Council meeting and Russia's need for the US to denounced 'Use of Force'.

It is somewhat ironic that none other than CNBC is reporting the news (which was suggested here months ago in "Will JPMorgan's "Enron" Be The End Of Blythe Masters?") that as part of its divestment of its physical commodities unit announced previously, JPMorgan may also seek to cover up any trace of market manipulation in the division recently embroiled in the aluminum cartel scandal (which we reported on in June 2011 and which story recently rose to prominence as a result of follow up reporting by the NYT) by getting rid of none other than Blythe Masters.

Mere hours before President Obama is due to give his war-mongery-cum-diplomacy-Syria-needs-to-be-spanked speech to the nation, the UN Security Council is due for a closed-door meeting (no one will have a clue what is being said) to discuss Russia's plan to place Syrian chemical weapons (but not North Korea or Iran's) under international control. However, as Reuters reports:

• RUSSIA'S PUTIN SAYS SYRIAN CHEMICAL WEAPONS HANDOVER PLAN WILL ONLY WORK IF UNITED STATES REJECTS USE OF FORCE

...which one again puts the onus on Obama to back down as Putin hopes this handover plan will be a "good step towards a peaceful solution."

From the open of yesterday's US day session, Treasuries had been selling off as risk-on flows encouraged by Syrian 'compromise' and apparent good data from Asia (China crude imports lowest in 11 months and Japanese GDP miss). It seems that hope-fueled trend continues its momentum run this morning in stocks but once the JOLTS data hit and showed the 'recovery' for what it really is, it appears Treasuries are well bid on slow-growth (and not un-Taper) flows...

We just can't wait to hear about the different colors, the camera, the screen size, the cheapness, and everything else that has been rumored to make this Apple announcement as un-evolutionary as many of the previous ones. Of course, there could be 'just one more thing', but we suspect not... (and it seems the market agrees with 'sell the news' for now).

Spot the outlier...

"Traditional risk controls and safeguards - that relied on human judgment and speeds - must be reevaluated in light of new markrt structures," are the initial findings from the CFTC regarding the prevalance of high-frequency trading in futures markets. As USA Today reports, efforts to reduce trading order-processing times could "lead to a competitive race to the bottom" where positions outpace risk systems and potentially lead to systemic threats. All the signals are that the top US financial regulator may impose new restrictions to halt breakdowns and to avoid high-speed trading which "could provide opportunities for information advantage." Of course, we've heard this before and with trading volumes at 15-year lows, we suspect the 'industry' will be lobbying hard; but this is a positive step (only 3 years after the CFTC started to look at HFT).

Incredibly, the question being asked this past weekend throughout the US media had been: will Americans’ representatives in Congress vote to support the president’s wish to punish Bashar al-Assad (Syria, really!), or will their votes follow their constituents’ wishes at home against armed intervention?  Asking this question seems embarrassingly obscene, to both morality and democracy, and most of us cringe at the thought of these pusillanimous representatives and senators we have in Congress making such a decision. Now a diplomatic solution is floating in the air which may be Russia’s greatest gift to both Obama – one of saving face – and the United States – an unquestionable saving of blood and treasure.  Yes, let’s get Syria’s chemical weapons under international control... to hell with McCain and the demonic hawkish streak of politicians we harbor in the United States of America.  Thank you, Russia… we love you back!

1453ET: EMERGENCY U.N. SECURITY COUNCIL MEETING ON SYRIA CANCELED AFTER RUSSIA WITHDRAWS REQUEST - COUNCIL PRESIDENT

1440ET: Kerry says any Syria weapons deal must be struck in bind UN Security Council resolution (Which Russia now opposes)

From the need to teach Syria (and all global chemical weapons using despots) a lesson they won't forget to losing 'allies' to bluffing Russia to deal-or-no-deal, strike request or no strike request, the bluster from the US administration has now devolved into total chaos. As the following headlines from the last week attest to - it seems no one knows what is really occurring. So do we want the ability to strike but but not use it? We have to strike to teach them a lesson but a political solution is preferable? We would like congressional approval but don't need it. Everything has changed and yet nothing has changed?