Archive - Sep 8, 2010 - Story

Today's $21 Billion 10 Year auction (technically a reopening of a 9 Year 11 Month Note, cusip NT3) closed at a fresh 2010 low yield, 2.67%, and the lowest since only January 2009's 2.419%. The Bid To Cover jumped from 3.04 to 3.21, in line since the 2010 average of 3.16. Yet the most notable observation, and confirming our expectation that Indirect bidders have a soft spot for the 10 Year, or frontrunning the Fed ever to the right on the curve, was the Indirect take down, which came at the highest number, or 54.7%, since September 2009. Direct Bidders plunged to the lowest since November 2009, which is expected: when every traditional player can't get enough of the auction, there is no need for the mysterious London bidder to emerge. Primary Dealers at 38.3% dropped to the lowest level since May 2010. The auction came in tight of the When Issued (2.685%), meaning there was a selloff into the auction, and now we are likely to see a pickup in bids for the 10 Year into the close, especially with an upcoming Obama address.

While certainly not news to most people, the following visual guides from Mint on the two most critical monetary concepts should provide a vivid explanation to all those who are still confused as to why deflation is good for savers and for the middle class in general, and bad for the Fed, for banks, and for all those who are levered to their gills in toxic, non current debt. As for all those who still think that hyperinflation is a function of rising prices, there are other, more appropriate blogs for you.

...and would probably be kicked right off CNBC for daring to do that. Nigel Paul Farage, who is a member of the United Kingdom Independence Party (UKIP) Member of the European Parliament for South East England, but most notably one of the most famous euroskeptics, goes nuts on EU Commission President Jose Manuel Barroso, tearing down the commission self-evaluation, and noting among many other things that according to EU polls, in the last 6 months those having faith in the EU has dropped by 10% in Germany, 17% in Greece, 9% in Portugal, and "less than half of EU citizens believe that being a mamber of the club is worth it." On the ever debated topic of the one currency, Farage says that the "euro doesn't suite Germany and doesn't suite Greece." The most damning statement address to Barroso: "People don't respect you because you cheated to get the Lisbon Treaty through." With truth like this you know this will be a must watch clip. All it is missing is Santelli... and Erin Burnett to moderate.

As usual, we present visual aids for the learning disabled (i.e., those based at 100 F Street, NE) in their Sisyphean quest of understanding a market structure that is about 20 years ahead of where the SEC currently is. Below, courtesy of William Banzai, is what the regulators would find if they could get their conflicted and confused little hands on a HFT trading terminal.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 08/09/10

Sheer poetic brilliance from the world's greatest realist: "The current situation reminds me of mid 2007. Investors then were content to stick their heads into very deep sand and ignore the fact that The Great Unwind had clearly begun. But in August and September 2007, even though the wheels were clearly falling off the global economy, the S&P still managed to rally 15%! The recent reaction to data suggests the market is in a similar deluded state of mind. Yet again, equity investors refuse to accept they are now locked in a Vulcan death grip and are about to fall unconscious." Albert Edwards, Soc Gen

According to CNBC, Goldman is now seeking to sell its prop trading desk. And somehow private equity firm KKR is rumored to be involved. Let's say that again: a private equity firm (that typically has a 3-5 year investment horizon and a capital lock up even longer) is alleged to be looking at a principal trading desk (i.e. a hedge fund that has a 3-5 second investment horizon). So either KKR is becoming a hedge fund, or the firm's principals have decided to shorten their lock up to the industry average +/-3 days. Nonetheless, as this news was most certainly better than expected, the KKR follow-on offering should now have no problems to be completed without a glitch.

The CEBS has just issued the following statement on the recent disclosure by the WSJ that not only was the stress test a fraud, but all sovereign debt representations continue to be lies (and EuroStat still has no clue what the real debt of Greece is). In other words it all contained - buy stocks, sell puts, take our a 7th mortgage and buy that long awaited 576th iPad. In the meantime, lies and fraud shall continue until confidence returns.

We like Erin Burnett: after all she is ranked 33 on the Fortune 40 under 40. Who can not like someone who has managed to get that high in the rankings on pure talent, although some recent CNBC appearances did seem to indicate a slight, shall we say, bias, when her guests tend not to disagree with Ms. Burnett's misperception of the world. Indeed, in a recent appearance on Meet The Press, the youngish CNBC anchor made some statements that go straight to errorchecking and bias validation. At 47 minutes into the  interview (extracted) Ms. Burnett says: "I think the problem is you have the fastest job creation in this recovery than you have in any recession in 25 years... Technically speaking this recovery has not been tepid." Alas, we are not sure who fed the CNBC employee these "facts" and figures, but they are patently false.

News out of the Irish government is that Anglo Irish bank will be split into a funding bank and an asset recovery bank, saying that the bank's "own plan in its current form does not provide the most viable and sustainable solution." Those who are familiar with Lehman will recall that this was a plan expected to be put into place for Lehman, in which a CRE-asset holding division would be spun off and allowed to roll off its assets. This plan was scrapped as it was deemed unviable. Glad to see it will work in Ireland.

Some of the JPY weakness this morning is being attributed to a rumor making the rounds that the BOJ has asked Japanese banks to prepare for possible fx market intervention tonight. Seeing how the BOJ has been full of nothing but hot air, and other byproducts recently, we are confident that nobody will buy it - traders now want action, not words. The brief spike in JPY crosses has been promptly regained. Furthermore, with new EURCHF record lows every day, we believe the likelihood of intervention in the Swiss currency is far larger, and we are surprised nobody is wondering how Hungary is doing these days, where the Forint has been in freefall, and domestic borrowers are about to embark on a default tsunami.

Just Reuters and Bberg headlines for now, but judging how the Irish 10 Year, Irish CDS, and Irish Bund spreads all jumped in unison to fresh record highs on the news, the market can't be too happy about the fact that someone in charge is stupid enough to recognize that such a thing as reality exists. It is high time for Tim Geithner to suggest the next round of the National Lampoons European Stress Test: there is much confidence that needs to be "restored."

• Michael Lewis: Beware of Greeks Bearing Bonds (Vanity Fair)
• Gold nears record as economy bears circle markets (Reuters)
• Just like everything "else" was responsible for the financial crisis, so BP blames "everything else" for the oil spill (Bloomberg)
• ECB to proudly fund the ponzi in Europe for another year in 2011 (Reuters)
• Portugal auction meets strong demand, mostly from the ECB which is now in the "stick-save" business (WSJ)
• China 'Tightening' Speculation Follows Property Surge (Bloomberg)
• Austerity lite sure makes for good theater: Sarkozy to Change Pension Bill, Won't Budge on Retirement Age (Bloomberg)

A new report in the Irish Times discusses how Irish Nationwide, where incidentally sovereign CDS spreads just hit a fresh all time wide record north of 400 bps, discusses how the insolvent bank, in a supreme example of just how prevalent ponziness has become in the current Central Bank subsidized environment, is now issuing bonds... to itself. In a circular issuance scheme that would make the Greek finance minister blush with envy, "Irish Nationwide has issued €4 billion of Government-guaranteed bonds effectively to itself. It can use the bonds to draw €4 billion in funding from the European Central to help tide it over a key refinancing period later this month." At its core, the scheme is nothing new, having been used repeatedly by Europe's most bankrupt countries, although the small scale in this case, and the blatant inability to even cover up the circularity has many worried that if the ECB needs to step in for such "modest" amounts to preserve bank solvency, it is all pretty much just a matter of time before it is game over for Ireland's banks. And elsewhere, confirming that defaults are imminent, the CFO of Anglo-Irish has just said it would be a disaster to default on its bonds. He is, of course, absolutely correct.

Following this morning’s report of a decline in mortgage applications, it’s all from the Fed this afternoon – the beige book, a Fed speech, and the monthly report on consumer credit…