Archive - Feb 25, 2010 - Story

The New York Fed has released this week's Primary Dealer net holdings update. While the data indicates that PD's were aggressive sellers of virtually everything (USTs, Corps, Agency, except MBS) in the prior week, the one category that stood out was Treasury Bills, in which net short exposure reached levels last seen during the Lehman bankruptcy. Last week's net short exposure of ($15) billion compares to the ($26) billion two year low seen on September 17, 2008. The Lehman collapse period was very curious as during it PDs saw both a record selling in Bills followed by a record buying of Bills, all within a month: whereas in the week ended 9/17 $41 billion of Bills were sold/shorted, the week of October 22, saw a covering/buying spree of over $51 billion. We have not seen this kind of amplitude in the past two years. Over the past 5 weeks, PDs have sold a total of $29 billion in Bills, starting with a net long exposure of $13.8 billion in the week ended January 13, and culminating with a net short of ($15) billion on February 17.

When the S&P500 came upon the 3:15pm close, the market had settled negative, but hardly. The rally was good for 17.50 points from the low equating to a 1.6% reversal. And in case you didn’t know, a 1% market move equates to well over $100 billion in market capitalization. Therefore, this amazing move tacked on ~ $180,000,000,000.00 to the US (non-rigged) market cap. How nice. Oh, did I mention this was based on a RUMOR…an UNFOUNDED RUMOR? Not to worry though folks – you can bet your bottom dollar that the fellas on Fraud Street weren’t about to let a massive rally fade away to nothing. After the initial period when AAPL denied the rumor and the market churned around 1097.00, then the market went even higher. Said another way, Fraud Street kept the gains based on a known FALSE rumor…and then…wait for it….wait for it…I G N O R E D the real news of the morning. It was a well timed replay of the Greek bailout rumor of Feb. 9th. How healthy is this market if its best moves are 100% fabricated bull$#it? I have another question or two: Who benefited from this other than Goldman Sachs? I wonder how many magical S&P500 at-the-money calls were purchased moments before the explosion? I wonder if the SEC will investigate? Would the Lame Stream Media ignore this if a false rumor triggered a 1.6% rout? OK, I know the answer to the last two – and it’s no.

The Federal Reserve's assets were at $2.27 trillion as of February 25, jumping by $6 billion sequentially. Securities held outright: $1,975 billion (an increase of $62.6 billion MoM, resulting from $59 billion increase in MBS and $3 billion in Agency Debt), or $8 billion increase sequentially. The fed has completed $169.1 billion of $175 billion in the agency MBS program, or a 97% completion, and 96% complete with purchases of Agencies. The Fed has completed $1.21 billion of its $1.25 billion MBS debt purchase program, or 97%, through February 25. There is just $45 billion left in QE. Net borrowings: $103 billion. The monetary base increased by $81 billion in the past fortnight to $2.14 trillion. The ratio of total assets to Monetary Base declined slightly to 1.06x. Float, liquidity swaps, Maiden Lane and other assets: $191 billion. The CPFF program was at $7.7 billion. FX liquidity swaps are now at zero: we are carefully keeping an eye on this metric as any increase presently would indicate banks are again experiencing a dollar funding shortage. Maiden Lane I and Maiden Lane II increased and were $27.2 and $15.5 billion, while Maiden Lane III as always continues pretending it has value and came flat at $22.4 billion.

In our first of many "Trench Warfare" segments, we share with our readers the perspectives of various floor and desk traders and analysts, in this case CBOT floor trader F.S., whose valuable perspective sheds some much needed light on today's odd market behavior, and on just who was responsible, and profited from it.

For all those who wish CNBC would actually focus on the real problem areas of discussion, such as, oh, say Greece, and do some reporting instead of pandering to mutual fund managers puimping their books, here is a clip of what is really going on in this southeast European hotbed of IMF bailout activity.

In a speech before the Imperial College in London, Bank Of England Policy Committee member David Miles made it almost a virtual certainty that Quantitative Easing will continue in England, saying it is "entirely plausible" that further QE will be appropriate. According to Market News, Miles said that the minutes of the February meeting of the MPC showed QE could yet be expanded, and said that for him the decision to keep QE unchanged at that meeting was "finely balanced". "It is entirely plausible that as economic events unfold it will become clear that an even more expansionary monetary policy will be appropriate," Miles said. "To deny such a possibility must mean that you either cannot imagine significant downside risks for economic activity and inflation - which suggests an imagination deficit disorder - or believe that monetary policy has become ineffective."

The more horrific the jobs situation, the higher retail stocks are powerjammed by the Robots. Just another example of how the junior 19-year traders at the biggest desks are being horsewhipped by the FemBots to "buy whatever is going up". Its all about gang tackling the "biggest % movers" on the Heat Maps.

Dear Mr. Bernanke, dear idiots at the SEC (to paraphrase an extremely observant Harry Markopolos), and dear everyone else who is just an empty chatterbox and a mouthpiece for other conflicted interests, who claim baselessly that it is all the CDS traders' fault that Greece is about to be flushed down the toilet. We present to you the ratio of cash to synthetic (CDS) exposure. As Bloomberg points out, the "maximum amount on the line if 10 government defaulted, $108 billion, is 0.98% of their combined $11 trillion in sovereign debt." So these less than 1% marginal players are now blamed for the end of civilization? How about blaming sellers of cash bonds? Or, here's an idea, how about actually looking at the root cause, like for example governments, who with the assistance of Goldman Sachs, have lied for a decade about the true state of their finances, and have misrepresented on sovereign prospectuses all their economic exposure for years, which was subsequently signed off by countless auditors and lawyers. The corruption goes to the very top, and the SEC idiots are now investigating CDS traders? There will be no end to the insanity and lunacy, until there is a revolution in this country, or until CNBC allows a rational and objective person to talk on its network, whichever comes first.

No better way to spike the market with no ETF flows than to gun ES volume. And we mean VOLUME. And the supreme irony: Goldman trader commentary -

" This rally seems futures driven. Over $9BN of ESH0 exposure has traded in the market place over the last 10 minutes. We have zero ETF flow on the move higher...just more of what we've seen over the past 2 weeks"

Yes Goldman, we agree. And you know better than most.

To all who trade this manipulated lunacy, you have our sympathies. A 1% market move equates to well over $100 billion in market capitalization. And this value just materialized because Apple stock will (allegedly) be $50/share instead of $200, so the quadrillions in cash on the sidelines can buy buy 4 shares where before they could buy one. Just brilliant. Goldman/JPM/33 Liberty just raped everybody for lunch. And to complete the lunacy, this just made top Bloomberg news. The absurdity is just surreal. In other news, the Greek revolution will be televized in 1 minute YouTube 360x240 mp4 clips via iPhone.

For all those who expect to see a strong dollar result in lower gold prices: our condolences. Gold is now as much a flight-to-safety target, as the the ra(p/b)idly devaluable dollar (and all other fiat currencies), as has been repeatedly observed on Zero Hedge. The chart below demonstrates that over the past three weeks, not only has dollar strength resulted in gold strength, it has resulted in gold strength at a 6X multiple.

As always, we start with the Dax, a smaller market bt geometrically and technically a much better indicator or the market than the S&P. On the weekly chart we are still in a bearish scenario where we retraced 61.8% of the sell-off of 2008/2009, and we would now be entering anoher major bear move. Breaking it down since the recent tops, after we reached the 5,389 target on the downside we had recommended trimming or cutting short in a rebound that we thought would take us to the 100-dma at 5,740/5,725. There we advised both tactically and medium term short positions again (See daily chart). - Nic Lenoir

Yields 3.078% vs. Exp. 3.103%

Bid To Cover 2.98 vs. Avg. 2.75 (Prev. 2.85) - this is a record Bid To Cover

Indirects 40.30% vs. Avg. 55.87% (Prev. 50.94%) - this is very weak

Indirect bid cover at 72.7%

Allotted at high 9.60%

Direct taken down whopping 17.2% - this is also a record.

We have long observed the recent tendency for the EURJPY to track the SPY almost identically on an intraday basis. Today, this relationship is no exception. To be sure, some correlation traders have over the past several months picked up on this trend and use it with a higher R2 than any other corr. The keyword here, however, is recently. What has caught our attention is a long-term chart of the EURJPY, which today tumbled to levels last seen in February 2009. A long-term correlation convergence implies that either the EURJPY will bounce to 145 or the SPY will tumble 40% lower to 75. Most likely outcome: the two meet somewhere in between, which is why we believe a EURJPY/SPY convergence trade is very attractive here.

Influence Of Dollar/Euro Mutates Somewhat. Is It Real Or Temporary? – Stocks rose in light volume regaining nearly all of Tuesday’s losses. Crude oil also regained its losses from the prior day. Gold, however, opted out of the traditional troika. Some of the stock gain was attributed to assurances in the Bernanke testimony that rates would remain low for a very long time. Certainly, the timing of the morning rally lent credibility to the Bernanke influence. Stock rose almost vertically around 10:20 as his testimony began. The dollar’s movements showed some muted influence on both stocks and oil. Shortly after stock trading had begun, the dollar weakened from pre-dawn levels. There was an Alice in Wonderland type thesis around the mid-morning softening of the dollar. It occurred as TV screens showed the demonstrations in Greece turning rather ugly. The thinking was that European partners might be more motivated to help, lest the violence worsen and spread to other challenged sovereigns. As the images left the screens, the dollar began to tick back up. - Art Cashin