Archive - Sep 2013

It would have been the worst streak since May 2012 but thanks to a damp squib of a day, the S&P (and other US equity indices) managed to hold on to gains in another 'spikey' day's trading in stocks. USD strength (on EUR and JPY weakness) spooked gold and silver modestly (with gold underperforming) as copper rallied to recouple with them on the week. WTI lifted very quietly to $103. Treasury yields lifted very gently higher all day ending +1 to 2bps only. Once again, the S&P found resistance at the pre-Un-Taper levels from last week and was sold quickly on recovering that level and the Dow remains below pre-Summers-Out levels. All-in-all a very quiet day as individual names from JNY to JCP and from MBI to HTZ caught all the attention.

Today at 4:15 pm Eastern, Doubleline's Jeff Gundlach will be sharing his latest outlook on the markets via an audio-only webcast, and as usual addressing what he believes are the best investment strategies. The audio for this webcast can be accessed at the link below (link to register here). Phone lines are be available for dial-in at (877) 407-1869 or for international calls (201) 689-8044.

Cheat Sheet on Inequality

US Treasury Secretary Jack Lew has warned Congress today that the US will be signing its own version of Auld Lang Syne on October 17th 2013

Almost 4 years ago, The FT's Mike Mackenzie penned a very prophetic article explaining exactly the dilemma the Fed is now facing: "No matter how bulled up the equity market becomes, should data improve, the Fed is likely to remain very cautious, mindful that it needs to keep the bond market happy. Becoming the buyer of last resort in the past year resulted in the Fed crossing an important line in the bond market." The full piece is well worth a read as a reminder that plenty of people saw this coming, Mackenzie concludes: "the eventual end of QE will be a messier affair than perhaps many investors care to think. And one that bodes ill for the dollar and US fiscal policy down the road."

Now that "bail-ins" have become accepted practice all over the planet, no bank account and no pension fund will ever be 100% safe again. In fact, Cyprus-style wealth confiscation is already starting to happen all around the world. As we warned two years ago, "the muddle through has failed... and there may only be painful ways out of this."

The last 4 days have seen the price of protection against a default on US Treasuries spike by the most in 4 years. While USA CDS trade on both a default and devaluation basis (as well as technical issues related to which Treasury is cheapest to deliver) this spike to 5-month highs (from what was extremely high levels of complacency) is very notable in light of today's Kocherlakota "whatever it takes" speech. While still well off 2011's debt ceiling debacle panic highs, this move does suggest more than just the politicians are worried about a technical default occurring on US debt. By way of comparison, Germany trades at 23bps and Japan at 61bps against USA's 32bps. But there is a way to trade the debt-ceiling debacle that doesn't invlove leveraged speculation in credit derivatives...

Taper or no Taper. Tapering is not tightening but flow is more important than stock. Doves being hawkish and hawks fearfully dovish... We have seen it all in the last few weeks. In order to keep it all in perspective, Credit Suisse have created this simple cheat-sheet of their informal determination of the Fed official's policy biases based on each official’s voting history and public comments.

Another signal for investors around the world to buckle their seatbelts.

Let us not forget where and when this vast unending clusterfuck reached terminal velocity...

Rising income disparity in the U.S. troubles many of us, for a number of reasons. If more of the national income is flowing to the top 1/2 of 1% and less to those earning income from their labor, the foundations of both a vibrant economy and stable democracy are undermined. Many observers identify education as one solution for rising income disparity, as those with higher education (college) have more skills and knowledge and tend to earn more. Statistically, the connection between getting a college degree and higher incomes is weakening as those with college degrees are now in surplus. "More education" of the current sort is not a panacea to wealth inequality, as the widening gaps in education, employment and income are all reflections of a much larger set of forces at work.

While everyone knows that there is a profound ideological schism when it comes to those for and against the Affordable Care Act, aka Obamacare, what may not be appreciated is that Obamacare was, and still is, the most contentious and polarizing legislation in the history of Congress. At least, it is according to JPMorgan. In the chart below, JPM's Michael Cembalest shows that the "disagreement gap" between Republicans and Democrats in the House and Senate, over 100 years of impactful legislation, has never been greater than with Obamacare.

As expected...

No deal. WH rejects latest GOP proposals for raising Debt Limit.

— Mark Knoller (@markknoller) September 26, 2013

If yesterday's 5 Year auction was largely unremarkable, today's issuance of $29 billion in 7 Year paper was downright weak. Of note: the high yield of 2.058% tailing well above, or nearly 1 basis point wider, compared to the When Issued which was trading at 2.049%. This was the largest tail since June 2012 according to SMRA calculation. Additionally while the 2.46 Bid To Cover was not a new four year low, it was the second lowest since May 2009, and only better compared to last month's 2.43 BTC in the August revulsion of an auction. The internals were less exciting with Directs taking down 17.8%, Indirects 42%, and the balance, or 40.21% going to Dealers. Over all, a very weak auction and the Bid to Cover rate is most certainly continuing its downward trajectory now that the future of Fed TSY backstops in perpetuity is in question.

As we warned two weeks ago in "Bernanke's Helicopter is Warming Up", it seems (from the Fed's once uberhawk and now superduperdove Kocherlakota's speech this morning) that the Fed is catching on as to what it needs to do. And what it has no choice but to do. Borrowing from the Europeans, Kocherlakota uttered those three special words: KOCHERLAKOTA SAYS FED MUST DO "WHATEVER IT TAKES" TO AID GROWTH.