Archive - Mar 31, 2010 - Story

The Treasury just closed its 6th consecutive 56-Day $25 Billion auction, and the result, to those who followed yesterday's weakest 4-week auction since August, should not be a surprise. The Bid-To-Cover was the weakest 56-Day SFP CMB auction and the weakest SFP turn out since August 3, 2009. Additional the High Rate of 0.16% was the highest, and compares to yesterday's 4 Week bill High of 0.15%. The Treasury curve is now getting aggressively spooked on the short end. All this is occurring as the UST has realized its folly of trying to duration shift the curve to longer maturities: yesterday we auctioned off an 18-Day CMB, and tomorrow will see the first 10-Day CMB: this is the shortest CMB since September 2008 when we saw a 7-Day Bill, and the exception of a 4-Day CMB issued on December 10, 2009. As for who the biggest participants were - no surprise: dealers accounted for 81.2% of the auction take down. That's another $20 billion worth of stock buying dry powder costing PDs just 0.16% to gun the market for the next 56 days.

With the quarter end here, and for some countries, fiscal, coupled with FX being the primary determinant in capital flows due to yet again spiking implied asset correlations, here is a snapshot of world FX heatmaps to see where the money is coming from and where it is going.

Based on data going back 90 years, whenever the 12-month rate of change (ROC) in the Dow Jones Industrials Average has exceeded 40 percent, it has generally signaled trouble ahead. In three cases, a 12-month ROC above that level has only marked a short-term pause, after which the market traded higher. But on 11 other occasions, similarly rapid advances have been followed by notable corrections, including the collapses that followed the 1929 and dot-com era peaks, as well as the 1987 crash. Given those odds, increasingly exuberant bulls might want to have a rethink.

If there is anyone whose opinion on healthcare reform matters, it is the MRAA, or the Marine Retailers Association of America. Feel free to venture a guess as to why the people who buy (and sell) yachts are the most critical component to any Obama financial plan. So if you care about how the new health care bill looks like from the perspective of those slightly more privileged, here it is, in simplified, bulletized form, to spare you combing through over 2,000 pages.

As SocGen's Dylan Grice points out, we have gotten to the point where the Shiller PE demonstrates S&P valuations are now back in the highest valuation quintile: in other words the market is now more expensive than during 80% of the time. The risk-return at this point makes little sense, because as Grice points out the 10 year return using this quintile as an entry point is just 1.7%, compared to 11% for the lowest quintile. So what should one do: "Go take a holiday if you can. Avoid the ?boredom trades?." If those two are not an option, Dylan provides some trade ideas.

For those wondering what caused the market to take a beating at 9:42 AM Eastern, it was the 3 minute advance release of the Chicago PMI to subscribers (a topic we have discussed previously). The index came out for the general mort consumption at 9:45 AM, when the bulk of the loss had already taken place. As for the actual data, add the PMI to the latest set of double dip inflection indicative data. After declining sequential increases of 5.8%, 4.8%, and 1.8%, the March PMI recorded a substantial downward move of -6.1%, from 62.6 to 58.8. And as you can see on the chart below, if it had not been for the Inventories subcomponent, which surged by 24% from 42.4 to 52.4, the index would have likely posted a double digit drop. As for the credibility of an inventory build up so late in the stimulus cycle, we will leave that to the integrity of the actual data.

Deja vu all over again. Looks like Goldman is about to be stopped out once more on its most recent EURUSD call. The Euro is now over the 1.35 stop limit. And so Goldman makes a boatload yet again as clients lose. Keep an eye on the official close. We wonder if this means third time will be the charm for GS which should next go EUR bullish (once again, and less than a month after the first failed such call).

• Former Bernanke colleage and co-author Vince Reinhart: "Geithner and
  Bernanke Are Wrong about Fed Power. Letting the Federal Reserve keep a
  hand in bank supervision and regulation is a mistake."  (The American) Please read : Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment Author(s): Ben
  S. Bernanke, Vincent R. Reinhart, Brian P. Sack Source: Brookings
  Papers on Economic Activity, Vol. 2004, No. 2 (2004), pp. 1-78,
  in which the authors (among whom is Brian Sack, head of the Fed's
  trading desk) recall the golden days of Roosevelt's dollar devaluation,
  and hint at what's to come for the US currency
• The Greek ex-Goldman guy who just blew up the 12 Year fly by is now preparing to issue $16 billion in dollar denominated bonds by early May. Ah yes, nobody can see behind the ruse of issuing bonds in the world's worst currency. Brilliant. Here's the funny part - Tim Geithner plans to issue $16 trillion denominated in Greek Drachma (Bloomberg)
• Emerging market currencies show short-term cracks (Reuters)
• Gartmore may face withdrawals after investigation (Bloomberg, Telegraph)
• Steve Forbes: "President Obama and Speaker Nancy Pelosi rammed ObamaCare through the House by unprecedented parliamentary trickery, bribery and deceit." (Forbes)
• Obama to permit oil exploration off Virigina coast (Reuters)
• Bill Clinton's $20 million break up with Ron Burkle (Daily Beast)
• iPad sales anyone's guess as analysts skip estimates (Bloomberg)

And just to make the miss a little more palatable, February was revised from -20K to -24K just to not show a double dip inflection point. Also, keep in mind the increasingly largest employer, the US Government, is not accounted for. Next up: Friday NFP and a +200,000 consensus, of which February snow counter-adjustments and census is about pretty much all of that.

• Asian stocks decline on concern rally may overvalue earnings; Yen weakens.
• Australia gives in-principle approval for Nomura unit to set up 2nd Australian stock exchange.
• Australian retail sales and building approvals unexpectedly tumbled by 1.4% in February.
• Consumer confidence in US improves, Home Prices climb amid job optimism.
• Greece plans to sell a global bond in dollars to help raise 11.6 billion euros.
• Ireland's banks will need $43B in capital after 'appalling' lending.
• Japanese business sentiment approaches pre-crisis levels, Tankan may show.

RANsquawk 31st March Morning Briefing - Stocks, Bonds, FX

RANsquawk 31st March Morning Briefing - Stocks, Bonds, FX etc.