Archive - Mar 29, 2010 - Story

Yesterday we discussed the S&P futures capitulation following last week's record cover in Large S&Ps of over 66,000 contracts. We just got word that as of 11:20 am CST UBS has purchased another 3,000 S&P Large (thank you open outcry). Cost to them: nearly $1 billion. On a cash equivalent margin basis, this is about $20 billion in S&P moving power. As UBS is not quite as, let's say, connected as GS et al, these are considered to be short covering trades.

RANsquawk 29th March US Afternoon Briefing - Stocks, Bonds, FX etc.

The Investment Company Institute notes that the week of March 17 saw the largest inflows into domestic equity mutual funds since just before the February correction. At $1.6 billion, the inflow was the second highest in 2010, and only topped by the January 20 number of $2.2 billion. Yet the year to date number is still negative by a large margin at ($2.6) billion, even as the market has risen by 3% since the beginning of the year. The money to push the market higher has certainly not come from domestic equity mutual funds. And as we pointed out in the most recent TIC analysis, foreigners had sold a record amount of Corporate Bonds in January, likely translating in a lack of desire for US equities as well. Where did the demand come from? Why primary dealers, who continue to acquire zero interest Bills and use the proceeds to purchase stocks in a continuation of the Fed-funded carry trade.

The US Treasury is filling the Primary Dealer demand for ultra-short term, zero interest Bills. Today it announced it would auction off:

• $31 Billion in 4 week Bills, maturing April 29
• $25 Billion in 56-Day Cash Management Bills, maturing May 27
• $17 Billion in 18-Day Cash Management Bills, maturing April 19

While this is the 6th 56-Day auction since the SFP reopening in February 24, the 18-Day is a new addition to plug the endless PD demand for cheap money which can be used for other much more lucrative purposes, such as buying equities for example. We expect all these Bills will come out at a yield of about 0.1% as banks do all they can do take advantage of ZIRP for as long as they can.

Greek CDS are moving 10 bps wider from 293 to 303 bps as demand for the bailed out country's bonds was much weaker than expected. Greek weakness is spreading to other European countries: The cost of protecting other euro zone government bonds from default were also mostly higher. The German 5-year credit default swap rose to 30.1 bps from 28.9 bps. In the meantime, and in keeping with the Greek tradition of scapegoating, the very weak demand for the new 7 Year issue was blamed on... Easter.

The People’s Bank of China (PBoC) is also playing an increasingly supportive role for gold on the demand side. PBoC’s gold holdings are currently at 1.6% of its US$2.4tn total reserves – a fraction by international standards. If PBoC decides to rebalance its books to its recent peak gold holding as a proportion of reserves of 2.2% in Q4 2002, WGC estimates it could account for a total incremental demand of 400 tonnes at the current gold price....Assuming the US Geological Survey’s figures are correct, China may exhaust existing gold mines in just six years. - World Gold Council

The UK, which many think is quickly becoming the uber-Greece of Europe, just got a pat on the shoulder by S&P.

First Goldman was stopped out on the bullish EUR call, now it appears that the firm is about to be stopped out for a second time, less than a week after its revised, bearish call on the EUR currency. This will likely be the second time the newly relocated bank will be massively wrong about the direction of the EURUSD in the span of a month. With the stop out at 1.35, and the euro almost hitting that earlier today, could we see this trade unwinding as early as today? In the meantime, Goldman will have made massive profits on both trades, even as its biggest clients lick their wounds and wonder what the hell just happened.

In the Prose-Laden Land of Labour, One Word Taxes Are King (Or: "Are Sovereigns Too Weak for the Stairs?")

• The Stamp Tea Bonus Bank Tax gains footing. (Instead of forcing taxpayers- read: everyone- to foot the bill for bank bailouts, we'll force big banks to pay pass the cost down to their customers- read: everyone- to foot the bill). [the wall street journal]

• Apparently, the House of Commons has decreed that the term "special relationship" (Winston Churchill, 1946) that has referred for decades to the close ties between the US and the UK is no longer to be used.  (Commons see nothing "special" in "special relationship").  [breitbart]

• Not to be outdone, UK Tories start campaigning on cutting national insurance.  (UK to become health care free market, provide US with cheap generic drugs?) [the financial times]

• Unconvinced that notorious pack dozen corgis-walker, frequent Buckingham Grand Staircase ascender and sporadic dressage-rider Her Majesty the Queen of England could ascend the 12 foot, 17 step rise, Canada forbade the Queen an opportunity to make the trek.  The Queen is displeased.  ("Not only will I climb those stairs, your heads will roll down them after a quick application of Her Majesty's Royal Axe by Her Majesty's Own Royal Hand.") [times online]

The BEA released its February Personal Income and Outlays data: continuing the trend of PI outpacing or same as Expenditures, the sequential change in February Personal Income came in at 0.0%, lower than the 0.1% consensus. On the other side, expenditures increased by 0.3%. Previous revisions indicated that January PI has been an increase of 0.3%, while PCE was greater by 0.4%. Most troubling, this implies that the Personal Savings Rate declined by 0.3% from 3.4% to 3.1%, the lowest this metric has been in over a year. Keep in mind, the primary reason why Goldman sees that 10 Year at 3.25% (as opposed to Morgan Stanley's 5.5% call) is because of the "increased" savings by US consumers. Now that these same consumers have decided to put their money in iMaxiPad pre-orders, maybe Goldman will consider reevaluating their Treasury forecast.

• Fannie and Freddie: the biggest income (Post)
• Paulson's $32 billion funds prompt too-big-to-succeed concerns (Bloomberg)
• China jails Rio Tinto staff to 7-14 years (Reuters)
• Dubai World said to offer shortfall guarantee in debt proposal (Bloomberg)
• Suicide bombers kill at least 37 in Moscow metro (Moscow Times, Reuters)
• China knows the time for laying low has ended (FT)
• Stocks soar but many analysts ask why (NYT)

• American shoppers emerging with Best Buy's sales signaling retail revival
• Asian stock markets traded mostly higher Monday, amid renewed confidence in the region.
• China gold demand may double within decade, WGC says.
• Euro rises against Dollar as Greece aid plan boosts confidence in Europe.
• European banks face a $209B shortfall on property debt refinancing
• Greece's Papandreou faces $21B bond burden after securing EU's support.

The story that disappeared quicker than it came, with a flock of seagulls getting the blame, may be coming back again - now AP is saying that South Korea is shifting the attention back to North Korea, saying the communist country may have intentionally floated a mine to damage the sunk ship. More as we get it.

RANsquawk 29th March Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 29th March Morning Briefing - Stocks, Bonds, FX etc.