Archive - Apr 2010 - Story

Another day with a plethora of consumer stock breakouts, defying higher interest rates, ongoing problems with the PIIGS, and other assorted credit-related convulsions and algospasms.

It seems traders are just waiting for the day when 10 blocks of ES move the market by 10%, and represent all the daily volume. Because at this rate we will get there in less than a year, just in time for the Dow to hit 36,000. At 0.751MM ESM0 volume is 40% below the trendline average by this point in the day. In a week we would be at half; in a year - 99%? The Prime Dealers and Liberty 33 is more than happy with this: it simply means much less capital has to be allocated to push the market in any one direction as moves in the broader market now have absolutely no breadth.

...It appears the answer is yes.

Today's move in the 10 Year is not being matched by German Bunds. The result: a spike in 10 year UST-Bund spreads to over 90 bps, a level unmatched since mid-2006. Yet one wonders just why the percevied flight to German safety persists, when as disclosed previously, German banks have over half a trillion in exposure in Southern European countries. Should the domino effect of Greece finally materialize, it is difficult to make the case that marginal deterioration within the German banking system can be isolated without major fallout to the very core of the economy.

Greece has been largely forgotten by the media over the past 2 weeks. This is somewhat perplexing in light of what is happening over in Europe: 1) Greek 10 Year spreads are back to crisis levels, hitting 6.53% today, 50 bps higher than the sub 6% reached in early March when speculation that the EU would fix everything; 2) German disagreements with other eurozone countries on the shape of the Greek bailout are getting more acute by the day, and this is nearly a month after the European "bailout" has been announced. Even as the S&P dropped in February on Greek fears in early February to the YTD lows on February 5, coupled with a spike in GGB 10 Years to 7%+, since then the S&P has been rising at a 60 degree angle, even as the yield on the Greek bond is now chasing to catch up with S&P rate of increase. There are no news that can shake the conviction of the S&P that Dow 36,000 is next.

For all who doubt the Obama administration will raise tax rates into the stratosphere in the very near future, here is a chart created by dshort.com which compares the total level of debt to GDP with Federal tax brackets over the past century. The correlation between the two is unmistakable. Unless the administration promptly finds a way to reduce the massive amount of debt that it continues to issue (in March alone the US Treasury issued a massive $333 billion in net debt), tax rates will have no option but to spike to levels not seen since the 50's. And that means a tax bracket for the highest earners of about 90%... You didn't think socialism comes cheaply now did you?

The just completed 3 Month and 6 Month Bill auctions were the weakest ones conducted so far in 2010. Out of 14 auctions conducted so far across both maturities this year, the 3 Month closed at the highest rate seen since December, at 0.175%, coupled with the lowest Bid To Cover over the same period, coming in at 3 month low of 3.6.The same is true for the 6 Month: the closing high rate of 0.265% was the highest in 2010, combined with the weakest Bid To Cover YTD, at 3.63. Direct bidders once again came in to save the day.

The 10 Year is on the verge of breaking the 4% resistance, last seen in June 2009. This follows today's auction of 3 Months (0.175%) and 6 Months (0.265%). At last check we were a few thousandths away from the important psychological level, even as oil is surging.

As Zero Hedge first reported, the Fed is beginning its meeting discussing whether or not to hike the Discount Rate in a few minutes. The meeting is closed to the general public. We will bring you any decision reached by the Fed members as soon as one is disclosed (if any).

Wikileaks has released a classified video leaked by "a number of military whistleblowers" which depicts "the indiscriminate slaying of over a dozen people in the Iraqi suburb of New Baghdad -- including two Reuters news staff." Full video attached - warning: video is very graphic.

Today Rosenberg releases yet another piece that scratches the veneer off the government "data" and finds that the less presentable truth is always beyond just skin deep.

Today's two anti-inflation perspectives come from the creme of the crop of establishmentarianism, and two of those who had no inkling the biggest financial crisis in history was about to hit until long after it did, one of whom was responsible for creating it, and the other, responsible for using up taxpayer funds to stay in business: Moody's and Morgan Stanley. Despite the firms' track records, the thoughts presented merit presentation in this most critical of debates.

The payroll data Friday was roundly trumpeted as a sign the economy was advancing strongly. White House advisor, Larry Summers, is quoted in a headline projecting that the economy had achieved “escape velocity”. The concept, we suppose, is that the economy is finally free of the recession gravity that has been holding it back. The 162,000 jobs added were the best in three years. But the number was below the consensus and well below the more optimistic estimates that blossomed late Thursday. The primary negative in the report was a drop in hourly earnings. That is a rather rare occurrences with some mild deflationary implications. Another negative was the length of unemployment for so many folks.

Whitney Tilson's T2 rose 4.6% in March, and 10.1% in Q1, primarily due to its GGP holdings. Also, Iridium appears to still be in business and generating returns for T2. Other longs include such non-blue chips as Borders, Winn-Dixie, Resource America and Yahoo. The fund's short book seems to not have done so well, with key names Lululemon, DineEquity and MBIA surging during the period. The one bright spot on the short side was Palm.

RANsquawk 5th April Morning Briefing - Stocks, Bonds, FX