Archive - Jan 2010 - Story

Greek CDS hits another all time record at 342.50 bps. Greece is now trading nearly 5 times as risky as the entire universe of investment grade US corporates. In other news, Greek Prime Minister Papanderou repeats for the third time (and fourth, and fifth) that the country will not, repeat not, repeat not, repeat not, repeat not, need a bail out from the EU, and will not (etc) drop the euro or leave the eurozone. If only anyone believed the man. Anyway, where is that damn ESH0 ramp job when you need one? The best way to send a signal that all is good in the world is for Liberty 33 to trade a quadrillion e-mini's with itself.

The notable fudge factor in today's initial claims report had nothing to do with EUCs or continuing claims (people are now rolling off both faster than ever), but the spread between the Seasonally and Non-Seasonally adjusted insured unemployment rate. As the DOL indicates, the Seasonally Adjusted Ins. Unemployment rate was 4.6%, while the Non-Seasonally Adjusted equivalent came in at 3.5%: a 110 bps spread. The last time the delta was so wide was back in January 1992!

I know there is still a great debate on whether the Chinese economy is in a great bubble state. For my thinking, any time private credit is created at such as rapid rate as it was in China in 2009 something has got to give somewhere. I will leave the finer points of the debate to the China watchers, but it is clear where my thinking on this one lies.

Taking a playbook straight from Wall Street, consumers maxed out their store-branded retail cards and decided simply to not pay them in November-December. And even that could not prevent December retail sales from coming it at below expectations: one wonders just what it is that will drive the retail dynamo that ever more clueless pundits on CNBC claim will boost 2010. Here are the facts: "Fitch notes that in December more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis." Well, at least the government got something out of this (if not private retailers) and managed to revise November sales slightly higher. Good luck repeating this.

• Roubini joins the bandwagon: The coming sovereign debt crisis (Forbes)
• So much for a strong showing by the consumer in December: retail sales fall 0.3% on expectations of a 0.5% rise, 2009 retal sales fall 6.2% - biggest drop since 1993 (Bloomberg)
• Initial claims pick up once again, add 11,000 to 444,000 (Bloomberg)
• David Boskin with a frank discussion of economic data manipulation by the government: Don't like the numbers? Change 'em (WSJ)
• No shit Sherlock: Merkel says Greece means Euro faces "difficult" time (Bloomberg) but, but, how will Bernanke kill the dollar then?
• Pin the tail on Blankfein is a game nobody wins (Bloomberg)

RealtyTrac reported its December foreclosure number which came in at 349,519, a 14% jump from the previous month, and a 15% increase from December 2008, and an end to the favorable declining monthly trend July. And according to Rick Sharga, SVP of RealtyTrac, 2010 is expected to see between 3 and 3.5 million foreclosures, which will be another record. Some recovery.

• Asian stocks, Aussie, commodities advance as Australia beats jobs estimate.
• Australia's jobless rate unexpectedly falls to 5.5% in December.
• Beige Book: US economic conditions 'improved modestly' in recent week.
• Budget deficit sets December record of $91.85B reflecting fallout from deep recession.
• Computers shipped to US in Oct-Dec quarter rose 24% YoY - IDC.
• Chavez suspends rolling blackouts in Venezuela's capital, sacks electricity minister.

RANsquawk 14th January Morning Briefing - Stocks, Bonds, FX etc.

Since Congress, the Senate and the president are all powerless to prevent the looting of the middle-class, it is only fitting that Jon Stewart will give it a try. When common sense, logic and reasoning all fail to make a dent in the status quo of immaculate corruption, maybe at least humor will have some success.

Most relevantly, Jon asks the $64k question: "Are our banks made of balsa wood held together by baby tears."

What happened at 12:03pm Eastern Time? There were no reports out, the 10-YR Note auction wasn’t until 12pm, and the S&P500 was a bit stonewalled just under 1137.00 after a rally from the day’s low. As the market advanced slowly through the congestion it hit: a MASSIVE order, or series of orders, lifted the offer in the e-minis. But it wasn’t your garden variety large order of 2,000 mini’s – I’m talking about 114 times that size.

Courtesy of reader vertek7, we find out that today's crowning moment of S&P manipulation was purely a function of yet another fat finger. We say manipulation, because while according to the CME the two 200,000 ESH0 block trades allegedly offset each other, the market ended up shooting higher as a result, which was likely driven purely from favorable robotic interpretations of the volume spike. This market is so broken, and so upward biased, the mere observation of abnormal volume activity is sufficient to gun it higher. Also, can someone please explain how 200,000 e-mini contracts can possibly trade without soaking up all of the advertisied bid and offer side on the NBBO? HFT - meet e-minis. We hope the SEC is reading and comprehending (albeit ever so slowly) all of this, while it solicits public commentary to find out just how fucked up this market is.

In an extremely intriguing development today Google threatened to close down its China operations after unearthing a highly sophisticated attack aimed at accessing gmail accounts of Chinese human-rights activists. According to Google the attacks originated in China and included accounts of U.S. and E.U. based activists. Google made the announcement today in its blog-post titled "A New Approach to China".

The recent focus on the dangers of HFT algos gone wild was validated earlier today when the NYSE slapped Credit Suisse with a massive $150,000 fee for "failing to adequately supervise development, deployment and operation of proprietary algorithm, including failure to implement procedures to monitor certain modifications made to algorithm." The action involved Credit Suisse algorithm known as SmartWB, implemented by the Swiss firm in 2007, whose function is to "examine the closing imbalances of various exchanges and to attempt to trade profitably based on the algorithm’s assessment of the imbalances and other market data." Yet on November 14, 2007, something went wrong... In fact quite a few somethings...

Following up on the popular Global Tactical Asset Allocation report posted yesterday, we present Damien Cleusix' deep dive in equities: the GTAA - Equities version. "Valuations are now above levels where performance going forward will not please the buy & hold crowd, even if we go back to the good old days, the credit bubble stops deflating, growth reaches pre-2007 level in a sustainable manner .... At 1200 on the S&P 500 will be priced more expensively than all of the structural tops pre-2000 (well 1997-2000) except the final tail of the 1929 move ... This does not imply that the market will fall in the short or even the medium term but that a further rise will only have speculative and no investment merit if bought. Our base assumption remains that we will fall to significantly undervalued levels before a new secular bull market can start (in the developed world as you know we believe that we are in a secular bull market in emerging markets). This currently implies a sub-530 level on the S&P 500 going up by 5-6% a year."

Spreads were broadly wider in the US as all the indices deteriorated. IG trades 14.3bps tight (rich) to its 50d moving average, which is a Z-Score of -1.5s.d.. At 79.25bps, IG has closed tighter on only 5 days so far this year (268 trading days). The last five days have seen IG flat to its 50d moving average.

Indices generally outperformed intrinsics with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but widened the skew, ExHVOL outperformed but narrowed the skew, HY outperformed but narrowed the skew.