Archive - Aug 2010 - Story

This week, in addition to the standard weekly CFTC COT report we post in collaboration with Libanman Futures, we are happy to present data on FX as well, so readers can decide which currencies are overbought/sold by speculators/large commercials, or just look at more pretty charts.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 13/08/10

Pimco's Total Return Fund has released its July portfolio composition. The most notable difference is the cut in US Treasury holdings from 63% (or $147 billion) in June to "just" 54% in July: an almost $20 billion reduction in UST holdings. And even as he cut his government holdings, Gross kept flat or added to all other asset classes, with MBS increasing from 16% to 18% of AUM, and EM holdings increasing to a record 11% of holdings. This is undoubtedly a function of his recently publicized interest in Brazil. The question is whether Gross' EM interest will suffer the same fate as his investment in non-US developed bonds, which peaked at 19% in February and has sine plunged to a low of 3% in June, to close July at 5%. More importantly, parsing through the fund's maturity profile, we notice that Pimco's holdings now have the longest duration they have had in at least two years, and possibly ever: just 20% of Gross exposure is in sub-3 Year maturity paper. Gross' current sweet spot is in the 3-10 year part of the curve, which of course makes all the sense for the man having made his career by frontrunning the Fed - let's recall where the Fed recently announced it would be focusing its Treasury purchases.... yep - precisely the part of the curve where Pimco now has almost 60% exposure. Good work, Bill.

Keynesian stimulus can’t be blamed for all our problems, but it would have been nice if our politicians hadn’t relied on it so blindly. Debt is debt is debt, after all. It doesn’t matter if it’s owed by governments or individuals. It weighs on the institutions that issue too much of it, and the ensuing consequences of paying off the interest costs severely hinders governments’ ability to function properly. It suffices to say that we need a new economic plan – a plan that doesn’t invite governments to print their way out of economic turmoil. Keynesian theory enjoyed a tremendous run, but is now for all intents and purposes dead… and now it’s time to pay for it. Literally. - Eric Sprott

The late Friday afternoon autopilot has kicked in: with carbon-based traders hoping for an early start to one of the last workable Hamptons weekends, volume has plunged, after a promising start. The result, as always, is a gradual meltup in stock, which as has been the case recently, now diverge from bonds on a regular basis. Yet, as we showed previously, the convergence earlier this week was dramatic, and fully on the back of the algos. Take opportunities like this to short or at least, bet on convergence: short stocks, short bonds.

Rick Santelli went a little nuts this morning, in a rant that easily qualifies in his Top 3 of all time. The gratuitous rating tends to correlate with the peak dB achieved while screaming at some gratuitous idiot and/or the length of applause by fellow CME floor members. (We also appreciate the advertising). Rick gets wound up based on earlier disclosure by Bill Gross that if the government guarantee of the GSEs were removed, he would only participate in the mortgage market if there was 30% down payments by first time homebuyers (oh, and, tee hee, guess who will be present and providing "eye of the monopolist beholder" advice at next Tuesday's panel). As Rick summarizes: "the people holding, the Treasury or institutions, are locked up in this place where the subsidies can't come out; extrication is going to be difficult much less getting out of the way of anything they may do in the future." Yet what sets Rick off is the debate over why the Fed should not let housing crash to its fair value bottom, instead of artificially pushing rates lower and lower, which benefits nobody except those serial refinanciers who hope to lock in a 30 Year at 0.001%. The screamfest begins at 5:40.

Sick and tired of CNBC "interviews" in which the speaker is given 15 seconds inbetween commercials to explain why the economy is in the toilet, before another talking head from the dodecabox appears and starts spouting painfully ridiculous things? So are we. Which is why we refuse to link to David Rosenberg's earlier presence on CNBC, and instead we present Rosie's following 26 minute interview with the WSJ which is a must watch for all who want to listen to exiled Merrill Lyncher express a coherent realistic thought before some CNBC associate producer screams "cut to commercial for incontinence pills." And, true to form, Rosie starts off in style: "If you don't believe there's going to be a double dip, it's because the first recession never ended. If there is going to be a double dip, the odds are certainly higher than 50-50." For those who follow Rosie's daily letters via Gluskin Sheff (which would be all of our readers), the insights won't be particularly new, but it is always great to hear a rational and sensible human discuss things as he sees them, not as his trading book demands he sees them.

Alabama is suing BP Plc and Transocean for damages sustained from the Gulf of Mexico oil spill, the state's attorney general said on Friday. "We are making this claim because we believe that BP has inflicted catastrophic harm on the state," attorney general Troy King told Reuters. "We are suing them for the amount it will take to make Alabama whole," he said, declining to name a figure.

Continuing on the ever popular series of Artist Renderings of infamous desktops, which now includes Ben Bernanke, Tim Geithner, and Lloyd Blankfein, we present the most recent addition: that of dear leader himself.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 13/08/10

The EUR is in full plunge mode as of an hour ago. There has been no explanation for this sudden weakness, although a reader proposes a very troubling explanation:

As you might have heard 9 mainly EU-newbies sent a letter to the EC demanding to change the current system of account deficit calculation. They argue their pension reforms should be accounted for in the calculation. The letter was obtained by dpa-afx.  Could be a reason for the dropping Euro.

In a unorthodox piece by the WSJ, which goes direct to discussing some of the less than pleasant possible outcomes of central planning, Brett Arends asks "could Wall Street be about to crash again? This week's bone-rattlers may be making you wonder" and says: "way too many people are way too complacent this summer. Here are 10 reasons to watch out." And without further ado...

The indicator most hated by its creators, the ECRI Leading Indicators index, continues its bounce along the bottom, printing at -9.8% YoY for the week ending August 13 (in absolute terms 122.4, compared to a revised 121.7 from 121.8 prior), compared to -10.3%. In this way the index has once again recaptured the magical threshold of -10%, meaning Achutan et al will be more than happy to claim credit for how their index confirms the double dip is (cause, yes, that's where we are in a best case) is soon ending. Contrary to the index creators' admonitions, the ECRI LI was good enough to predict the collapse of the economy this quarter.

The latest Philly Fed professional forecaster (whose members are such resolute permabulls as Moody's Mark "How the Stimulus Worked" Zandi and BofA's Ethan "Goldman cutting estimates means I am raising mine" Harris) survey has been released and it is looking notably gloomier than before. "The outlook for growth in the U.S. economy looks weaker now than it did just three months ago, according to 36 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters see real GDP growing at an annual rate of 2.3 percent this quarter, down from the previous estimate of 3.3 percent. On an annual-average over annual-average basis, the forecasters expect slower real GDP growth in 2010, 2011, and 2013.The forecasters see real GDP growing 2.9 percent in 2010, down from their prediction of 3.3 percent in the last survey." The economists also see the chance of a negative Q3 and Q4 rising to 14% and 16.8%. So what they're really telling us is Q2 GDP was likely negative and going rapidly downhill from there.

The August UMich Confidence index came at 69.6, just higher than expectations of 69.0 and better than the previous print of 67.8. The Expectations index came at 64.1, compared to expectations of 63.7, Conditions came in at 78.3 (Exp. of 76.5), even as 1 Year inflation expectations came a little higher than consensus at 2.8, at the expense of 5 year, which in turn was lower 2.7. Stocks spike on the "better than expected" news, as cause and effect in the market continue to matter less and less.