Archive - Oct 22, 2010 - Story

POMO is over, and with great regret we inform readers that the Fed now has zero credibility as the trades we expected to be precisely those most frontrun by the market are exactly as predicted. In other words: the CUSIPs anticipated to be monetized, and which we advised readers to lever up, buy, and flip them back to the Fed within a day, were precisely the ones that were put back. Fundamental analysis - you are fired. Enter - 100% Fed Frontrunning success rate.

In the latest amusing discrepancy to come out of the BLS, today's reported unemployment data by state indicated that at the end of September, there was a total of 129,699,600 people employed across the various states. Not very surprisingly, the biggest deterioration occurred in California which lost 63.5 K jobs, followed by New York at 37.6K (Wall Street layoffs?) and Massachusetts at 20.9K. The total change from August's 129,923,400 employed was a drop of 223,800. Well, this is a little confusing as the NFP number for September indicated that total jobs lost were 95,000, a slightly more than 50% improvement compared to the job losses at the state level. As Zero Hedge has demonstrated, the data coming out of the BLS is statistically impossible to say the least, and at best, worthless. But now at least we are getting confirmation that just like in the Fed, there may be those within the BLS, who actually know how to count. Too bad, those are not the people in charge of actual propaganda dissemination.

Today's POMO, focusing on 2013-2014 bonds has just started. As we proposed yesterday (in what led to quite a lively and interesting debate), now that even Goldman is advising clients to frontrun POMO, this may have been the top tick to the POMO frontrunning operation. A red close may just confirm that. But far more important than equities, we highlighted, courtesy of MS, just which CUSIPs will most likely be monetized (and thus submitted) the most by the Fed today. If indeed these are confirmed to be the bonds put to the Fed the most, it will merely erode one more layer of credibility the Fed has of an impartial and non-transparent organization.

Who says Canadians lack a sense of humor... And are ever wrong about the ECRI.

John Noyce, Goldman's arguably best technician, in his weekly Charts that Matter, has released one (among many) interesting observation on just how overbought the market currently is, and more specifically just how desperate the velocity of the pick up in the stocks since August has been, in order for levered beta players such as hedge funds, as we predicted in the end of August, to make up as much of their year as possible before seeing redemptions (even so many will not survive into 2010 as the entire 2/20 model is now crumbling). Specifically, by looking at where the S&P is relative to its 55 DMA, Noyce notes that every time the market has gotten to above 5% its trailing average, it has always entered a period of consolidation (read at least modest selling). Furthermore, compared to the recent trend extreme of 7% above 55 DMA, the market moved meaningfully above one just one occasion in the past: in January 2009... just before the crash to the decade lows of 666 on the S&P occurred.

The Pentagon is not too happy this morning. As the AP reports, WikiLeaks is about to release what the Pentagon fears is the largest cache of secret U.S. documents in history — hundreds of thousands of intelligence reports compiled after the 2003 invasion of Iraq. While WikiLeaks has not commented on the imminent announcement, it tweeted earlier that there is "major WikiLeaks press conference in Europe coming up." And as this disclosure would be the "most massive leak of secret documents in U.S. history" defense officials are racing to contain the damage. As a reminder WikiLeaks' last release of Adghanistan war logs made founder Julian Assange some of a persona non grata in most of the developed world. Of course, the buzz about who may be behind Wikileaks still seems to circulate every now and then. Additionally, Wiki advised interested parties who wish to book the announcement in advance to email the following address, sunshine.booking@mail.be, which however appears to be a broken one. Of course, it merely adds to the "mystery." Regardless, we will follow this and present wiki's findings as they become available.

In the wake of the sovereign debt crisis, Europe has chosen to respond with measures of austerity as various euro-zone countries pledge to cut spending dramatically in order to bring their respective budget deficits down to a few percentage points of GDP apiece. These measures also come in the much bigger wake of the credit crisis of 2008. Even more severe is the United Kingdom’s recently revealed plan to cut £81 billion or a sum equivalent to 4.5% of projected GDP and characterized by the FT as “the most drastic budget cuts in living memory, outstripping measures taken by other advanced economies which are also under pressure to sharply reduce spending.” In fact, the UK’s public sector will lose 500,000 jobs as a result of these cuts. The United States, on the other hand, is favoring stimulus to austerity by maintaining near-zero rates and planning another round of quantitative easing or the buying of longer-term Treasury securities to flood the system with liquidity. The exact amount and timing of QE2 is unknown, but it comes on top of the $1.7 trillion pushed into the system by the Fed starting in 2009.

• The real stock rally killer: Analysis: Bush tax cuts might just expire after all (Reuters)
• Bondholder `Immunity' to Losses Challenged as Irish Bail Banks (Bloomberg)
• Fed's Hoenig: Further Easing Poses Risk To Nascent US Recovery (WSJ)
• Fed's Bullard Favors Open-Ended Bond Purchases (MarketWatch)
• Ohio AG: foreclosure probe won't stop post-election (Reuters)
• False expectations: The historic infrastructure investment that wasn’t  (Economist)
• Democrats slam another campaign opponent: China (Reuters)

• Asian stocks rise as US earnings, Jobless claims boost growth optimism.
• California plans to sell $10B of notes in mid-November to pay bills.
• Fed's Bullard proposed the central bank buy $100B in long-term Treasuries in Nov.
• German two-year government note yield rises to 1%, first time since April.
• Gold set for first weekly decline in six as Dollar's strength cuts appeal.
• Hoenig says US economy is in recovery and 'growing modestly'.
• AIG said to raise $17.8B as AIA unit completes record Hong Kong IPO.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 22/10/10