Archive - Mar 13, 2014

If yesterday's 10 Year auction was stellar, today's 30 Year was anything but. With the When Issued market getting slammed by the flight from equities, and down to 3.61%, the high yield was an unpleasant 2 bps tail at 3.630%, putting to question the recent strength in demand for duration. The internals were also on the flimsy side, with the Bid to Cover of 2.35 higher than last month's 2.27, but below the TTM average of 2.42. Directs took down 12.6% below the 15.5% average, Indirects had 38.8% of the allotment, while Dealers were left with 48.6%, the highest since June 2013, and well above the 44.5%. That said, despite today's weakness, should the market finally crash as it is long overdue to do following months if not years of blindly ignoring the newsflow, the current level on the 30 Year will seem like a bargin in the coming weeks when everyone and the kitchen sink rushes, as they tend to do, into the safety of Treasurys once more.

US equities have erased all the post-Putin gains from last week and are tumbling this morning (with no cessation at the European close). The S&P 500 has rejoined the Dow (down 200 on the day) in the red for 2014 as bond yields are collapsing on the day.

No one in Germany is allowed to get in the way of the sacrosanct exporters.

With Russia's MICEX down another 2% today back at May 2010 lows (and Russian govt bond yields up to 9.41%), it appears investors are anything but confident that the worst is behind us in Ukraine. Russian stocks are -18% in the last 3 weeks. Perhaps the biggest tell is the German stock market which is now the worst-performing European stock market this year and back to lows seen in mid-December. Even the glorious safety of Portuguese stocks is fading in the last few days. Europe's VIX broke 22% - its highest in 5 weeks; and Europe's high-yield credit markets (which are rumored to be heavily biased long) are squeezing wider playing catch-up to stocks. Peripheral sovereigns don't give a crap in their manipulated illiquid way but Bund yields have sluped to 1.54% (lowest since July) - its tightest to US TSYs since 2006!

"Sanctions could lead to retaliatory action, and that would trigger a spiral with unforeseeable consequences," warns China's envoy to Germany adding that "we don't see any point in sanctions." On the heels of Merkel's warning that Russia risked "massive" political and economic damage if it did not change course, Reuters reports ambassador Shi Mingde urged patience saying "the door is still open" for diplomacy (though we suspect it is not) ahead of this weekend's referendum. Russia's Deputy Economy Minister Alexei Likhachev responded by promising "symmetrical" sanctions by Moscow. So now we have China joining the fray more aggressively.

Where banksters atone...

We would suffer too many subdural hematomas if we were to comment on this most recent outbreak of the "idiot meteorologist" syndrome by Bank of America below.

When "Muppets" are told to bite the hand that feeds them, will they listen? Goldman, et. al. better hope and prey that they do!

On the heels of President Obama's approval rating plummeting to 41% - a record low - it is perhaps ironic that the supposedly despotic (amid shrouded in Hitler-comparisons and homosexual hatred) Vladimir Putin has seen his approval rating soar to 71.6% - a 3 year high - as Interfax notes "we now have a complex society that supports the president, primarily because of his stance on Ukraine." Interestingly 64% saw Ukraine as a key current event while 32% said that success at the Olympics was most important.

Last night's volatility in AUD (thanks to its aberration of an employment print) followed by more China data weakness has seen carry-traders shift attention back to EURJPY and USDJPY. This morning saw overnight weakness ramped into the US open to ensure media coverage proclaimed everything fixed but once the day-session opened, the selling began and stocks are down notably - tracking JPY tick for tick once again... Still believe in fundamentals and efficient markets - don't look at the chart below.

"Excessive credit growth eventually leads to a crisis," Marc Faber tells CNBC Asia, warning that "it has always happened and will again." The Gloom, Boom, & Doom editor briefly explains how the facts are that China is growing at no more than 4% per annum (if one looks beneath the government's manufactured data) and in the case of China "we have a gigantic credit bubble." Reflecting on recent price action (and the potential for social unrest), Faber exclaims, to deny the problems is to believe "the market is wrong and the government is right."

The latest foreclosure news out of RealtyTrac is out, and provides the latest proof that if there is a housing recovery somewhere, it sure isn't in the US, where the dislocations in the supply/demand for real estate are so profound that one in five homes in the foreclosure process has been vacated by the distressed homeowner. To wit: "As of the first quarter of 2014, a total of 152,033 U.S. properties in the foreclosure process (excluding bank-owned properties) had been vacated by the distressed homeowner, representing 21 percent of all properties in the foreclosure process." This means that neither the distressed homeowner or the foreclosing lender taking responsibility for maintenance and upkeep of the home, leading to a veritable army of Vacant Dead housing units that are spreading like zombies across the nation in the most improbable housing "recovery" of all time.

The 'field-of-dreams' recovery is dismally missing in action. This morning's inventory-to-sales data shows the US total at 1.32x - its highest since the financial crisis and highest in a decade aside from that. The worst sector - or more over-produced or mal-invested - drum roll please... Autos. As the following stunning chart shows, over the last 22 years, the auto-industry has only had a higher inventory-to-sales in the midst of the crisis. If we build it, they might not come... (and aparently they didn't).

It's crunch time for Ukraine.

While the Fed's interventions have certainly bolstered asset prices by driving a "carry trade," these programs do not address the central issue necessary in a consumer driven economy which is "employment." In an economy that is nearly 70% driven by consumption, production comes first in the economic order. Without a job, through which an individual produces a good or service in exchange for payment, there is no income to consume with. With the Federal Reserve now effectively removing the "patient" from life support, we will see if the economy can sustain itself.  If this recent Bloomberg poll is correct, then we are likely to get an answer very shortly, and it may very well be disappointment.