Archive - Dec 8, 2010 - Story

It seems it was just yesterday that the Chairman penned the following famous last words in his Washington Post Op-Ed: "The FOMC intends to buy an additional $600 billion of longer-term Treasury securities by mid-2011 and will continue to reinvest repayments of principal on its holdings of securities, as it has been doing since August. This approach eased financial conditions in the past and, so far, looks
to be effective again. Stock prices rose and long-term interest rates
fell when investors began to anticipate the most recent action. Easier
financial conditions will promote economic growth. For example, lower
mortgage rates will make housing more affordable and allow more
homeowners to refinance." Um, Chairman, so what happens now, a month after your Op-Ed justifying QE2, when the prevailing mortgage rate is about 1% higher, and is resulting in about a 10% decline in home prices to maintain the same level of affordability?

Sick of bears explaining QE2? Prefer to watch Jon Stewart roasting the monetary Hewlett Retard instead? Here is your chance. Somehow catching Ben Bernanke lying on national TV has become not only a national sport, but one that provokes uncontrollable laughter... Ironically that is the laughter of all those whose money on a daily basis is worth less and less, courtesy of the Chancellor (Chairman is so QE1) buying back $50 billion in debt every week. Presumably laughing as one's net worth is getting destroyed makes it more palatable. Just wait as the country collapses into uncontrollable hysteric guffaws as the 30 Year mortgage passes 5%, then 6%, then 7%, etc. destroying up to 25% of household net worth.

As the 10 Year continues to plunge, the one topic nobody on CNBC is daring to discuss is the absolute slaughter for all those calling for a steeper curve, and the resultant misery that banks are again experiencing as a result. With financials supposed to be the new market leaders one can't possibly bring up the sad truth that as QE2 fails, the US financial system will take the brunt of the hit. And even as Goldman and MS get their wish for a sell off in the 10 Year, unfortunately for them this is accompanied by a less than comparable dumping of the long-end, resulting in an even greater flattening of the curve, and validating our call from last night that the bond world is about to get a whole lot more flat. Lastly, as the 30 Year Cash Pay Mortgage jumps by 20 bps W/W, the result is about a $200 billion loss in home net worth in just one week. The Uberprinter is now torn whether QE3 should be one of monetizing municipals, or, as Bill Gross has been positioning so very well for the past two months, throw it all into MBS once again.

Update: Reliable sources in the trading community with closer ties to Wolverine assured us that the story published about Wolverine Trading has zero validity.

We received contacts from several independent sources in our community yesterday that Wolverine Trading, a PMM, options market-making firm in everything from global equities to commodities may have solvency issues. As of this writing this is unsubstantiated. Sources were CME floor members and financial analysts familiar with their business model. The only physical sign we saw was a lack of physical presence in some major commodity option pits for the last two days. If this is true it would be a terrible thing for the markets, as Wolverine was a classic market-making firm, one that provided backstop liquidity in all kinds of assets.

There is only so long that the Bundesbank can keep ignoring the fact that it has recently started piling on failed auction after failed auction. Today, Germany tried to sell €5 billion in 2 Year 1% Schatz notes. And while the official tally on the auction was a 1.1 Bid To Cover at a 0.92% average yield, just above our own 3 Year auction yesterday, (and a drop from the 1.4 previously) this was yet another failed auction, as the bank managed to get only €4.33 billion in competitive and non-competitive bids. The kicker: the Bundesbank retained €995 million of the issue, a whopping 20% of the proposed issue size - this is the amount it could not find any buyers for, and the deficit to what have been a non-failed auction. In other words, after the entire world was rushing to buy German paper, suddenly there is nobody willing to get in.

• Asian stock markets mostly lower after muted performance on Wall Street, oil slides.
• China purchases $3.1B of Japanese bonds as Yen beats Dollar, Euro.
• Euro slips to $1.3209 amid ongoing worries about eurozone finances.
• Consumer credit in US unexpectedly increased in October for second month.
• German exports down 1.1 percent in October following previous month's strong rise.
• Japan’s October machinery orders fell 1.4% from month before. Cons est. 0.1% decline.
• Job openings in US increased in October by 351,000 - the most since Aug 2008.
• Most Asian stocks rise; Won drops on North Korea shelling, Treasuries fall.

• Germany Trade Balance 14.2B - lower than expected
• Bachus picked to chair financial panel (Reuters)
• China’s CPI expected to hit 3.2% in 2010 (China Daily)
• Bond Vigilantes May Thwart Tax Deal (Barrons)
• U.S. sends more subpoenas in insider trading probe (Reuters)
• Banks face dark pool battle with Europe's bourses (Reuters)
• Obamanomics Takes a Holiday (WSJ)
• Every Income Group Hit as Budget Increases Taxes and Cuts Benefits (Irish Times)
• Asia's Inflation Worries Damp Holiday Shopping Cheer (WSJ)

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 08/12/10

The most troubling development was the lack of extension in Build America Bonds offered in the Bush tax compromise, and with just over three weeks remaining before they expire, the risk of them maturing without extension is high and the implications of this in muni space are very pervasive.