Archive - May 29, 2014

Prof. Ken Rogoff’s book ‘This Time is Different: Eight Centuries of Financial Folly'; is one of the best researched public works on the subject of sovereign debt. And Rogoff’s conclusions (though hotly contested due to an ‘Excel error’) were that, sensibly, governments which accumulate too much debt get into serious trouble. Duh. Not exactly a radical idea. But in an article published yesterday afternoon on the Financial Times website (based on a recently published academic paper), Rogoff did propose a new idea that is radical: ban cash. All of it.

Despite all the doom and gloom in the market, we would have loved to have these employment numbers three years ago.

One supremely smart CNBC talking head summed it all up, "today's negative GDP number was excellent news," and sure enough, thanks to someone's multi-billion-dollar bid at the all-time-highs mid-afternoon, we went to the moon, Alice. Trannies are on target for their best month since October (+5.7%). The dash-for-trash has a new life as "most shorted" have now risen 6 days in a row - the biggest squeeze in over 3 months. This all happened as bonds rallied (though yields rose modestly on the day), VIX rose, USDJPY would not play along and aside from the spike in volume, on a total lack of liquidity. Gold and silver were monkey-hammered early on but limped back off their lows as WTI crude rallied from the GDP print on. The S&P 500 is now only 30 points short of Goldman Sachs June 2015 target.

in the past year it has became very clear that the asset class where the growth of HFT has been most pronounced is not in equities but in FX - perhaps linked to the tidal departure of all carbon-based FX traders all of whom it now appears were engaging in gross "chat room" mnaipulation - and to a lesser extent, options. But one place that seemed somewhat immune from the ravages of the constant millisecond back-and-forth churn and quote stuffing known as high frequency "trading" were bonds.

No longer.

It was interesting over the last couple of days to watch a series of both hosts and analysts scratching their heads and fumbling for answers over the recent decline in interest rates. After all, how could this be with inflation creeping up due to much stronger economic growth? More importantly, asset prices are clearly telling investors to get out of bonds as the "great rotation" is upon us as we launch into this new secular bull market, right? The recent decline in interest rates should really not be a surprise as there is little evidence that current rates of economic growth are set to increase markedly anytime soon. Consumers are still heavily levered, wage growth remains anemic, and business owners are still operating on an "as needed basis." This "economic reality" continues to constrain the ability of the economy to grow organically.

Someone decided that 1436ET was the perfect time to buy $1bn worth of S&P 500 futures (10k contracts) in 1 second (and $1.8 billion in that minute)... this flush of volume is the largest minute of the day and lifted all equity indices and ETFs in one magical move. As a result of the order, bonds rallied even as and VIX is higher on the day.

Francois Hollande is not having a good week - disastrous elections over the weekend, followed by record high numbers of jobseekers (destroying his promise to deliver jobs), and now his banking system is under attack; as the WSJ reports:

US JUSTICE DEPT SEEKS >$10B BNP PENALTY FOR SANCTIONS EVASION: WSJ

A final resolution (and a guilty plea) of the yearslong investigation of the French bank is likely weeks away, WSJ notes but it does remain ironic that in flexing his enforcement muscles, DoJ's Eric Holder is about to crucify yet another non-US bank.

... Obama Has Committed War Crimes As Well

Presenting today's rhetorical pop quiz: spot the odd labor market out, dominated by the financial industry, also known as the place which has benefited by far the most from QE, which may have failed most of America, but certainly has unfailed America's financial industry, where things have never been better.

Hope=Billionaire Bukake on steriods...

"Get ready to change your thinking on US Treasuries. The larger bear trend is set to emerge," is the ominous warning from BofAML's MacNeil Curry. As yields keep tumbling lower, he believes, US Treasury yields are either testing or fast approaching levels from which we should see a base and eventual resumption of the larger, long-term bear trend.

When American explorers first traveled through north Texas, Oklahoma and Kansas, they referred to it as "the Great American Desert" and they doubted that anyone would ever be able to farm it. But as history has shown, when that area gets plenty of precipitation the farming is actually quite good. Unfortunately, the region is now in the midst of a devastating multi-year drought which never seems to end. Right now, 56 percent of Texas, 64 percent of Oklahoma and 80 percent of Kansas are experiencing "severe drought", and the long range forecast for this upcoming summer is not good. In fact, some areas in the region are already drier than they were during the worst times of the 1930s.

Moments ago, the Treasury department concluded its auction activity for the week with the issuance of $29 billion in 7 Year Notes (Cusip WN6), which in keeping with the prior two - 2 and 5 Year - auctions earlier in the week, also had a modest tail: the bond priced at a 2.010% yield (73.9% allocation) compared to a When Issued of 2.009%. Then again, considering the big drop in yield from April, when the same auction priced at 2.32% this is perhaps not too surprising.  Notably, this was the first 7 Year auction tail since December, and is once again notable considering the overall strength of the secondary bond market.

A dispassionate discussion look at the rally in US Treasuries

According to RIA, quoting Slaviansk people's mayor Vyacheslav Ponomaryov, about 1,200 Ukrainian army soldiers have been killed during a special operation in Slaviansk, and eight helicopters and 15 armored vehicles were destroyed. Supposedly this includes the 1 helicopter whose crash was reported previously. "According to our information, the Ukrainian army has the following losses and damages: 1,200-1,300 people were killed, eight helicopters, 15 armored transport vehicles, and three [artillery] weapons destroyed. They are suffering huge losses. I’m speaking only about Slaviansk," Ponomaryov said in an interview with the Latvian radio station Baltkom.