Archive - Dec 2010 - Story

With the new medium of mass communication in all matters financial and economic having been recently discovered to be cartoons (as the penetration of written text discussing such arcane topics as the Fed, debt and addition ends up being trapped within a very narrow echo chamber), we present the latest and greatest 3 minute summary, which even a third grader will understand, of what is gradually becoming accepted as the most troubling social, economic and political development in America - record social, income and wealth inequality... and its very disturbing consequences, which at last check have resulted in some form of social upheaval in almost every situation.

Today's CFTC data reveals some interesting inflection points. First, looking at the perishables, there seems to be a resumption in bullish sentiment, especially in coffee and corn. This is to be expected as the last week saw an inflation scare which prompted many to expect a fresh rise in commodities (despite concerns of year-end profit taking which has materialized pretty much as anticipated in the year's best performing asset class - precious metals). Where things get more interesting is looking at the various parts of the Treasury curve: after 3 weeks of rather indiscriminate selling, net spec contracts in both the 2 Year and the 10 Year have seen a modest resumption in buying, although that previously most beloved part of the curve - the 5 Year is still unable to find a base. Although the 5 Year is still the only bond that has a net positive spec balance: all others are now negative. In other words, where we go from here is pretty much a crapshoot, as this is nothing more than a coincident indicator in the latest volatile asset. Lastly, looking at currencies, we see an interesting trend - after the USD saw a substantial pick up in the past two months as Europe faced its second sovereign bankruptcy (but has for now been buried under the rug), bearish sentiment is coming back again. Yet unlike before when there was a rather obvious inverse relationship between the EUR and the USD, this time the deterioration in USD sentiment has metastasized to the Yen, and the Euro (the CHF has been rather insulated, which is as expected, as the currency continues to to be the last ditch safety currency and thus less volatile to sovereign insolvency risks).

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 10/12/10

Courtesy of another no-news day, punctuated by another low volume stock levitation and Bernie Sanders' 7 hour and continuing speech, we return to our theme of childish humor in presenting random Bloomberg ID screengrabs.

Lessons learned from understanding the "Wash, Rinse, Repeat" cycle, fueled by "Infinite Fiat", provided by The Ben Bernank. And finally figuring out how the stock market works. By running with the herd of institutions which have inside information on which way the Fed, the U.S. Treasury Department, and the Washington Plutocrats want to push stocks. It is the key to survival if you trade for a living.

With the Federal Reserve now actively participating in capital markets, it should be noted that just like every other asset manager, the Fed has to be held accountable for its trading efficacy. After all, the Treasury takes every opportunity to remind the US public how courtesy of record amounts of new government debt, it has managed to make "profits" on its assorted investments, which are merely transfers of risk from one entity to another, and the "another" being the US taxpayer, although not directly, but indirectly via the now ludicrous amount of US debt which will never be repaid. Which is why the US taxpayer may want to know that in just the most recent POMO schedule - that from early November to December - the Federal Reserve has lost $2.4 billion in taxpayer capital by its mistimed market operations, primarily due to the recent rise in interest rates. This is $2.4 billion that has not evaporated, but instead has been transferred to Primary Dealers under the "profit on trade" category. This is also money that will be used to determine, and fund, banker bonuses.

From Pimco, which is heavily invested in munis, and has a very vested interested in the extension of the BAB program:

• The initial catalyst for the selloff in the tax-exempt muni market
  was the sharp selloff in the U.S. Treasury market. Also, a significant
  increase in supply weighed heavily upon the muni market.
• It now appears that the BABs program could be in jeopardy, as a
  provision to extend the program has not been included in the current
  Senate tax bill.
• The supply of tax-exempt municipals remains robust at a time when
  many investors do not have the cash flow to add to their muni holdings.

With everybody presenting their ideas and themes for 2011, most of which are replete with crayon drawing of rainbows, koolaid and unicorns, here is David Rosenberg's list of 10 thoughts for what to look for in 2011.

The Treasury has released the November deficit, which at $150.4 billion was about $12 billion worse than expected. Total receipts were $148 billion, of which individual income taxes were $64.3 billion, while the government actually refunded $3.1 billion for corporate taxes in the month. While cumulative receipts since the start of the new fiscal year are better than in the prior year period ($135.7 billion compared to $109.1 billion), it is the expense side that is far more important: in November the government spent $299.4 billion, the bulk of which going to the Department of Health and Human Services ($72 billion), social security ($64 billion), and Defense ($57 billion). The department of education saw a whopping $7.6 billion in funding in November. What is more troubling is that the interest expense is starting to rise: in the two months ended November 30, the US government paid $43.5 billion compared to $40.8 billion last year. Of course, this is to be expected, as total US debt is about $1 trillion higher now than it was last year. And, as always, what is most notable is that in November total debt increased by $192 billion to $13.861 trillion from $13.669 trillion. In other words, we are now at a point that every dollar in receipts is matched by 1.3 dollars in incremental debt.

The New York Fed has announced its 2nd POMO schedule. In the next month, Brian Sach will buy another $105 billion in bonds, which is lower than we expected, and may indicate that Sack is not expecting the MBS prepaying to accelerate. There will be 18 POMOs in the next month. And December 21 will be another day that will have two POMOs held: one at 11am and one at 2pm. With negligible trading volume, we expect the ramp in the market then to be ridiculous.

Senator Bernie Sanders commenced a filibuster speech at 10:25 am this morning objecting to the proposed tax extension. Three hours later, and now joined by Mary Landrieu, the soliloquy (or is that duoloquy) continues. While the backstage dealing will likely not be impacted much if at all by this speech, it does provide for entertaining viewing. Bernie sure is passionate about the topic.

A&P stock (GAP) has just been halted. As reported earlier, this is likely in connection with the company's imminent filing. Hopefully the avalanche of sellers managed to get out in time.

Score one for the farce team. That scourge to market efficiency, fairness and integrity, Sergey Aleynikov, about whom we have written tomes, has been found guilty. The HFT code in question, that can "manipulate markets" is safe and sound, back with its true master, Goldman Sachs, which firm promises its malicious attempt to squeeze CDS traders in 2007 is completely irrelevant, and the sheeple once again don't understand that the firm's intentions were nothing but pristine.

Now that it appears that the Build America Bond program may end up being pulled in just two short weeks, those who are most reliant on the program for their continued existence are starting to not only crawl out of the woodwork, and make their voices heard, but pull the usual trick of threatening with cataclysms unless they get what they want. Sure enough, enter California Treasurer Bill Lockyer. Per Bloomberg" “Allowing the BABs program to die would undermine the economic recovery and harm taxpayers and working families across the country,” Tom Dresslar, spokesman for California Treasurer Bill Lockyer, said yesterday by telephone. And the justification: taxpayer cocaine is the best damn cocaine money can buy: “I know that stimulus has become a dirty word but you’d be hard-pressed to find an economic recovery program that has worked better.” And that is all that is needed to convince the masses of corrupt politicians: after all as Neel Kashkari made it all too clear both 2 years ago, the world will end unless bankers or their administratively placed cronies get anything they need to maintain the ponzi on their behalf. And lastly let's not forget that the biggest beneficiary of the BAB program is none other than PIMCO...which is incidentally where Kashkari gets his paycheck currently.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 10/12/10