Archive - Nov 1, 2010 - Story
RBA Rises Policy Rate By 0.25% Bps To 4.75%, With Consensus Calling For Unchanged, AUD Surges Across The Board, Futures FollowSubmitted by Tyler Durden on 11/01/2010 23:45 -0400
The Reserve Bank of Australia has raised rates to 4.75%, more than the consensus expected, and the result is a surge in all AUD, crosses, especially the critical AUDJPY which is the primary recipient of the USD funding largese, and is the primary correlation to the ES, meaning futures are likely to follow suit, especially since there will be no monetary tightening in the dollar in this lifetime under the current Fed syndicate. It appears the RBA has bought the decoupling theory hook, line and sinker, and with China refusing to combat inflationary forces domestically, it is up to its derivative economies (AUD, BRL, etc) to do so. Nonetheless, one must respect the RBA's concern about what inflation may do to its economy: "the economy is now subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity. Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains. At today's meeting, the Board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent."
Nicholas Colas On Why The "Keith Richards" Stock Market May Presage A Return To Old School InvestingSubmitted by Tyler Durden on 11/01/2010 23:35 -0400
BNY's always informative and entertaining Nicholas Colas has a habit of seeing the silver lining, when others only see a putrid and radioactive mushroom cloud. And in this case, we do tend to agree with him... somewhat: when looking at the transformation currently gripping stock markets, instead of taking either extreme, Colas takes the Keith Richards path: adapt and survive (instead of fading away). And in surviving, the market may just return to that “old school” model of stock picking, and thus, fundamentally based stock trading, something which all investors and market participants lament and remember fondly as a bygone era before the Fed decided to take control of the entire capital market. However, where we are far less sanguine, is that for Colas' prediction to come true, it would necessarily (and sufficiently) require the removal of the Fed and its tentacular influence on stocks. And thus the question: can the existing stock market model survive an overhaul in which the underlying economic model reverts back from a central banking primed fiat system, to some "other" form of sound monetary decision making. That, we do not know.
After German blog "All is Smoke and Mirrors" floated an idea of an organized bank run (something attempted previously in the US without much success) in France in response to French austerity protests which resulted in absolutely nothing, the effort has since expanded to a pan-European organized bank run day, and has metastasized to Italy, Germany, the Netherlands, United Kingdom and Greece. We are confident that very soon the rest of Europe, which is currently gripped in a climate of extremely unpopular austerity, will join in this symbolic protest against banking, which unlike the US, may just succeed, considering the European banking system is in total shambles, and in far worse shape than its American counterpart. Since virtually all actions in 2010 by the global central banking cartel have been geared toward stabilizing the European banking system which continues to wobble on the edge of a systemic collapse precipice, perhaps the marginal withdrawal of a few billion in deposits could be just the straw that forces a reset first in Europe and shortly thereafter, in the rest of the globalized developed (and shortly thereafter, developing, proving what a joke the whole concept of decoupling is) world. As America has demonstrated so very well, 25 weeks of consistent withdrawals from domestic funds (sorry CNBC, there have not been inflows yet) have resulted in a quarter in which bank earnings were simply said crushed. Had Americans followed through and withdrawn their deposits from banks it would have been the final straw. Luckily, the lack of organization among the US population gave the US banking system a reprieve. In Europe things are different: banks are not as reliant on trading, however, they are far more reliant on a stable deposit base. Therefore, even a partially successful withdrawal campaign could have far more dire consequences on the continent's banking, and bring the financial system to its knees.
More unpronounceable geological mayhem is about to come to the fore out of Iceland's business end. The country's volcano gods, which as we pointed out previously demand the sacrifice of a former FRBNY henchman to be placated, will not be denied, and will likely make airplane travel in and out of Europe just that more problematic, and just in time for the holiday season. While most have been following the tremor activity around Katla, this time the action takes us to the heretofore unknown, to most, Grimsvotn. As AP reports "torrents of water are pouring from a glacier that sits atop Iceland's most active volcano, an indication that the mountain is growing hotter and may be about to erupt, scientists said on Monday."
The life of a fluffer like Brad DeLong is long and hard — and contradictory: Defending his master, Paul Krugman, from all bloggers and infidels, while at the same time attacking people like David Broder, for saying the exact same things that Krugman is saying. Here's my little examination of Brad DeLong — the poor, hapless fluffer in the porn movie known as Keynesian economics. —Gonzalo Lira.
The most recent short interest report by stock indicates that the most hated name on the NYSE by a large margin continues to be Citigroup, whose 404 million shares short as of October 15 were an 0.8% increase from two weeks earlier. Not surprisingly, two of the top five names in the top 5 are ETFs, which are broadly used by hedge funds for nothing else but to hedge long book positions. The SPY and the IWM were at the 2nd and 4th position, respectively, although both saw a decline in their short interest which was to be expected in a time when the overall market was continuing to surge (it is of course unclear whether the offsetting single names that made up the hedge were sold off as well, and what the delta on the trade would have been, and, most importantly, how profitable it may have been). Ford and Qwest round out the top 5 names. Other notable names in the top 25 include XLF at 6th, Paulson darlings BAC and MGM at 7 and 9 (both of which saw their short interest collapse by 19.5% and 11.9%, respectively, even as maintaining a BAC short would have paid off more than handsomely into the EOM). The two names which saw the biggest increase in short interest were Alcoa and the VXX. And while some have made an issue over XRT's SI being more than 5 times its shares outstanding and float, check out the KRE Regiona Banking ETF: it has a short interest of 50 million which happens to be over 15 times its daily volume, and about 7 times it outstanding stock. Gotta love the logic of ETF share creation.
SEIU or not, here is a status update from Where's The Note, as the recently launched campaign to request proof of mortgage note existence approaches the 20 day limit by law within which banks have to respond to all properly-submitted verification claims.
After sustaining nearly two months of an endless ramp in stocks, driven exclusively by Bernanke's Woods Hole speech indicating that a new liquidity tsunami is coming, short interest at the NYSE has finally come in marginally. As of October 15, total NYSE Group short interest declined by 2%, from 14.3 billion to 14.0 billion shares shorted. Of course, this has coincided with the tapering of the rally, and as incremental indiscriminate squeezing power has been eliminated, so the market appears to have topped. That said, there is an over 1 billion shares delta to get back to LTM lows attained in late 2009, implying that there is likely not much incremental short capacity here, and that any more lower will have to be driven by actual selling of existing positions. Alternatively, another mindless move higher on nothing but liquidity expectations, could force an additional squeeze out of the near record number of shorts.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 01/11/10
The EURUSD finished the session lower on Monday amid renewed concerns over the Eurozone following reports that the ECB has pumped an estimated EUR 260bln into Ireland to help its faltering economy, as well as comments from economist Colm McCarthy who said that the IMF may need to step in by February if the Irish budget fails to convince the financial markets. As a result, EUR not only underperformed against the USD but also against its cross border rival GBP. Despite a stronger USD, the GBPUSD finished largely unchanged on the session on Monday after a better than expected release of the UK Manufacturing PMI for October signaled that the BoE may refrain from announcing a resumption of the asset purchase facility (APF)later on this week. The pair hit a high at 1.6090 before moving back to 1.6040 as the USD index strengthened following a better than expected ISM manufacturing report. A sharp jump in USD/JPY was observed during early hours on trade on Monday which prompted speculation of intervention by the BoJ. However it later turned out to be a miss-hit via algorithmic trading and as a result the pair moved back to low 80.00 levels. Much of the session was spent trading within a tight range and in spite of a stronger USD, the pair failed to break out and stage a decent rally of any sort.
Treasury Anticipates $700 Billion Gross Borrowing Need By End Of March 2011, To Bust Debt Ceiling In Q1Submitted by Tyler Durden on 11/01/2010 15:51 -0400
The US Treasury has just released its revised debt issuance/funding schedule for the Q4 as well its fresh estimates for Q1 2011 borrowing needs. While much of this will certainly be re-revised as it will likely soon become a function of massive QE2 driven demand than supply, as of today, the Treasury is expecting that it will have $362 billion in net marketable issuance in the current quarter (as cash balances decline by $10 billion), although the kicker is next quarter, where the Treasury now anticipates the issuance of $431 billion, in addition to a cash decline of $30 billion, implying over a $460 billion change in net debt levels. Now for some back of the envelope math: with the UST having already issued $97 billion in debt in October (per DTS), it means that Geithner anticipates issuing $265 billion in November and December. It also means that $431 billion has to be issued in January through March of 2011. Furthermore, as the most recent cash balance was $18.4 billion (ex SFP), this number will need to be replenished to $70 billion by March 2011, implying the need of another ~$52 billion in incremental debt funding. Altogether this means that roughly $750 billion in additional debt will have to be issued over the next 5 months. And since the most recent number of total debt subject to the ceiling was $13.609 trillion, adding $748 billion to this number results in $14.357 trillion. Which just happens to be $63 billion more than the recently revised debt ceiling of $14.294 trillion. Thus the US debt ceiling will have to be revised higher one more time, most likely in February or March of 2011.
Next up Genworth, Allstate, Hartford, and Prudential. What's that? You didn't think they have exposure? Well, oops. A short in either the stock or, as credit trader notes, the CDS (either naked or paired against IG) in a basket of the various multilines may not be the worst idea here.
ProPublica reports that the Securities and Exchange Commission is investigating whether JPMorgan Chase allowed a hedge fund to improperly select assets for a $1.1 billion deal backed by subprime mortgages, according to people familiar with the probe. Goldman Deja vu. Settlement due next? Or will money diverted from gold shorts to pay for legal fees mean the short squeeze onslaught in paper PM shorts is about to begin? Stay tuned to find out.
This one is sure to get Barofsky's blood boiling. Reuters has just confirmed what even a retarded, diapered, midget money will immediately grasp is nothing but a shell game of massive proportions. Basically the Treasury has announced it will proceed with a plan to give AIG the $22 billion released by various TARP repayments (presumably in the form of a loan), so that... drumroll, AIG can buy back the Fed's preferred stock interests in various layers of the AIG cap structure. In other words: Treasury gives taxpayer money to AIG -> AIG buys back rescue equity from Fed -> both Fed and Treasury trumpet massive success of AIG rescue operation, even as nothing has been changed, and more taxpayer funds are stuck, only this time higher in the cap structure, allowing existing equity interests of other investors to be pushed further in the money.
Insider Selling Surges To Multi-Month High, Hits $662 Million, Ratio Of Selling To Buying Doubles To 423x From Week EarlierSubmitted by Tyler Durden on 11/01/2010 13:54 -0400
Bloomberg reports that the week ending October 29 saw the largest amount of insider selling (by notional) in S&P500 stocks in months, possibly in all of 2010 (unfortunately our records don't go back all the way to the beginning of the year). Altogether, $662 million in stock was sold in the past week, compared to purchases of just $1.6 million. The result: an insider selling to buying ratio of 423x. This is nearly double the prior week's 229x. Yet the ratio was rescued by three brave buyers who bought up $787k and $407k worth of American Express and Procter and Gamble. Absent these two purchases the ratio would have been a disaster. What is more important is the denominator side of the fraction, as the total selling over the week hit what appears to have been a near-term record, at a total of $662 million. Biggest selling continues to take place at the (no surprise here) tech names which continue to be bid up by investors hoping a return of the dot com bubble. If there is a clearer indication that no bubble is imminent than relentless insider selling, someone please tell us. And this week the insider certainly are telegraphing just that when it comes to Oracle, Apple, McDonalds, Precision Castparts, EMC and Coca Cola.