Archive - Feb 10, 2011 - Story

Unlike yesterday's earthshattering and very perplexing 10 Year auction, today's 30 year auction of $16 billion in bonds was a dud. The bond priced at a high yield of 4.75%, 2 bps wide of the when issued, and just 2 basis points of the highest rates seen in the past several years, specifically the 4.77% seen in the April 2010 auction (not surprisingly, today the 30 Year Fixed Cash Mortgage printed at the highest rate since April of 2010 as well when the market topped last, as we pointed out previously). The Bid To Cover was a subpar 2.51 compared to the 12 month average of 2.67. Direct Bidders, who completely disappeared yesterday were here, taking down 8%, Indirects accounted for 43.1% and the Primary Dealing flippers bought 48.9% (a 73% hit rate). In other news, the interest in the long end is leaking, and the bulk of the fireworks continue to be in the belly, with major interest dropping in the 3-5 Year side, and a major pick up in Indirect interest in the 10 Year. Look for this trend to persist.

Ron Paul has just stepped up his war of rhetoric with his nemesis the Archchairsatan Rudolf Vissarionovich von Bernankestein (because never before have we had a genocidal central planner hell bent on printing the world's fate out of a deflationary collapse), and in an interview with Larry Kudlow said what everyone who is watching the day after day melt up (and wondering what comes next) openly thinks: that when all is said and done, and there is no incremental vapor and no incremental HFT levitation effect, that the US collapse will be comparable only to that of the Soviet Union. Needless to say, we are confident he is optimistic. Some economic observations from Paul: "We have so much unemployment, it is so undercounted. The free market economists report that there is probably 22% of unemployment. They pumped in $4 trillion, they should have added a lot of jobs, but how much did it cost us, and that of course is the price inflation that will come. We are moving into another 30 year period where we are going to see a reversal of interest rates, and we are going to see a crashing of the bonds like we saw 30 years ago and it's going to last a long, long time. The Fed deserves the blame for the inflation, and for the unemployment." On the amount of damage done by the Fed: "I think it's unimaginable, it could be so devastating, and could bring a strong, worldwide run on the dollar. We are in uncharted territories. I think we will see changes in our economy and our country almost equivalent to the change that occurred in the Soviet system. I think it will bring down our empire, we won't be able to afford our welfare state, and we won't be able to afford taking care of the world." And as Zero Hedge suggested previously, Ron Paul believes that the Fed's policies will actually lead to a spike in unemployment when all is said and done. Lastly, on Ron Paul view of Bernanke's central planning:"One time when Greenspan was before the committee, I told him if you can make this fiat system work as if it is the market system working, you have repealed economic law. It is positively baffling that we as a country have accepted that one individual can control the economy."

While the confusion rages over whether Mubarak [will|will not] step down, after Reuters just reported that according to Egypt's information minister Mubarak is not stepping down, suddenly concern about the Suez Canal has flared up again. Luckily, the Egypt armed forces have now secured it, so all is well.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 10/02/11

Perhaps the most stunning example of what may be in store for asset managers and pension funds (and possibly retail holders) who dare to challenge central bank monetary authority comes from the Netherlands, where we have just witnessed the 21st century equivalent of Executive Order 6102. The story in a nutshell (and as translated loosely from the primary source presented below): the glassworkers pension fund (SPVG) was ordered by De Nederlandsche Bank (DNB, or the equivalent of the Dutch central bank), that it has to sell the bulk of its gold assets. After the SPVG refused to comply with the order, the DNB went to court and the decision has come out, siding with the central bank, ordering the SPVG to sell the required gold within two months. The pension fund, which invests for 1142 employees, in late 2009 had gold bars worth 34.6 million euros, or about 1400 kilograms. The total fund assets amounted to 288 million euros at that time. The DNB argued gold is a commodity and holding 13 percent was overweight in comparison to the 2.7% average that pension funds are invested in commodities. DNB has found that such a large proportion of gold is inconsistent with the interests of the participants. SPVG sees gold as a medium of exchange, such as euros, but DNB believes that the price of gold fluctuates too much for it to be classified as an investment. Translation of the translation: the central bank has now directly ordered a fund how to allocate its gold assets, because it explicitly disagreed with the fund's statement that gold is money, claiming instead that it is nothing but a very volatile commodity. Very soon no pension funds in the Netherlands will be allowed to hold any amount of gold more than the merely nominal. This latest gold confiscation equivalent event is most certainly coming to a banana republic near you.

Kevin Warsh, the last real hawk at the Fed, excluding the primadonnas who keep bitching and moaning against QE2 yet continue to vote with the Chairsatan, has announced he will leave the Fed.

"In terms of atmospherics, Hacham said the Israeli delegation was "shocked" by Mubarak's aged appearance and slurred speech. Hacham was full of praise for Soliman, however, and noted that a "hot line" set up between the MOD and Egyptian General Intelligence Service is now in daily use. Hacham said he sometimes speaks to Soliman's deputy Mohammed Ibrahim several times a day. Hacham noted that the Israelis believe Soliman is likely to serve as at least an interim President if Mubarak dies or is incapacitated. (Note: We defer to Embassy Cairo for analysis of Egyptian succession scenarios, but there is no question that Israel is most comfortable with the prospect of Omar Soliman.)"

To those who look for confirmation of the wealth effect in every nook and cranny, better keep looking away from housing. The 30 Year Fixed Rate mortgage, that indicator of just how much "piggy bank" value US housing has, just jumped by a whopping 24 basis points in the last week to 5.05%, the highest since April 2010. And as the observant ones will point out, it was in April of last year, when the market topped out after hopes and dreams of a self-sustaining economic recovery collapsed (with Europe lending a helping hand in the process), leading to QE Lite and QE 2 several months later. In other words, in the last 2 months, housing, at least that part that has a mortgage associated with it, has lost roughly 10% of its value as incremental purchasing power has just declined by the same amount courtesy of the spike in rates. In spiking the market, Ben has once again planted the seeds of his own monetary policy destruction.

It appears Mubarak is history and may resign as soon as tonight. And since Mubarak will pass power to the CIA's main man in the region, Vice President Omar Suleiman, we doubt this will result to much social contentment. Follow the developments on Egyptian State TV, where the Supreme Council confirmed that Mubarak is currently fueling his G-6.

Earlier today we speculated that due to central planning goldilocks breaking down, and the corresponding downtick in the EURUSD, the minions of the ECB's royal palace in Frankfurt will be scrambling to pretend things are under control, and gobbling up Portuguese bonds. Sure enough, this has been confirmed. But even we had no clue to what degree the spin to "explain" the situtation would reach. According to the FT, the ECB was "forced" to buy Portugal bonds. FORCED. Because unless the ECB did what was expected of it (see global moral hazard), the convergence trade between reality and central planning may have finally generated record daily P&L. Luckily for all those who still have their heads shoved deep in the sand, the bank that Weber prudently told to go and do some anatomically impossible things to itself, was FORCED to bail out Portugal from the rough sea of reality yet again. Also, after an untarnished two week record of non-monetization, widely publicized by the ECB's favorite news rag, the ECB's SMP will once again be burdened with exposing that the beautiful dream of prancing European unicorns, purple skittles and rainbows is once again coming to an abrupt end.

While nothing new to Zero Hedge readers, the realization that everyone's purchasing power is about to be yanked from underneath them has gone mainstream. Omaha.com has just come out with a headline that leaves little to the imagination: "Get ready for higher food prices." The issue is that no matter how Chairsatan Rudolf Vissarionovich von Bernankestein spins this to whatever congressional minions he is supposed to be lying to at any given moment, the undisputed truth is that consumers have just gotten that much poorer, as prices of staples surge, and as a result capital available for discretionary trinkets plunges (here's looking at you Guitar Hero which has just been discontinued due to lack of interest... Coming to an Apple store near you in 3-5 years). Because no matter what economic voodoo Bernanke, concocts there is little he can do to change the laws of mathematics. So for those who wish to stock up on staples in advance of a price surge (thereby bringing the price jump forward), and still haven't done so, here is the "mainstream" explanation for why now is a very good time to start doing so.

With many once again believing that a rate hike is just around the corner (as has been the case for the past 2 years... the same with expectations that NFPs will finally push higher any month now), here is a reminder of what happened the last time there was a concerted effort by the Fed to contract liquidity. And this is just hiking rates. Never before has the US stock market had to ween itself off $125 billion in QE-related monthly liquidity. All in all, no matter how long Bernanke tries to delay the end of QE2, the outcome will become a self-fulfilling prophecy which will slam stocks, and by the Chairman's definition, the economy, making a QE3 episode inevitable (not to mention the $2 trillion in debt each year that has to be monetized). We are on the same side of the Peter Shiff bet who has given Steve Liesman 5 to 1 odds for $10,000 that QE3 is imminent. FX Concepts' John Taylor explains: "What happens if the Fed hikes rates? Even with a tiny hike, the good times are over...Although we think of the 1990's as great equity years, stocks were down almost everywhere and in some cases dramatically in the 6 to 9 months after the February surprise. The government bond market was a total shambles and portfolios suffered their worst year since Volker had taken control in 1979. Currencies went every which-way, but those that had a need for offshore capital were crushed as inflows quickly became outflows...With the sharp reversal in liquidity, 1994 burst a lot of hopeful balloons and was a terrible year for asset managers."

Gold, and particularly silver, lease rates (see chart) have been rising recently. The rate is found by subtracting the silver forward offered rate from the London Interbank Offered Rate (LIBOR). This likely signals increasing tightness and illiquidity in the bullion markets (as recently said by Sprott Asset Management, and UBS yesterday). The rise in silver has been very sharp, having gone from 4.29 basis points (0.0429%) to 77.65 basis points (0.7765%) since the start of the year (31 December 2010). While the rise is very sharp, it is important to put it in context, and silver lease rates remain well below the levels reached after the Lehman Brothers systemic crisis in late 2008 when silver lease rates surged to 2.5%. At the same time, the very small silver bullion market is clearly under strain as seen in the continuing backwardation. This clearly shows that demand for physical is robust, evident from retail demand in the US where there were record US Mint silver eagle sales last month. There are delays (3 to 4 weeks) to get branded LBMA silver bars (100 oz) in volume.

So what is wrong with this picture: 457,000; 419,000 (upward revised of course from 415,000); 383,000. Those are the initial claims (Seasonally adjusted, as in adjusted for snow) over the past three weeks. Stock vol (which is now non-existent), has moved to BLS economic time
series... And yes, we had a sub 400k print in December, which was also
one of those "the economy is stronger, no doubt about it moments." Most notably, the data is for the week of February 5, when all of
America was covered in a blizzard. Odd how that is not mentioned. And someone is supposed to take this number seriously? Not the market, as stocks don't respond one bit. Oh yes, the weather. One thing is certain: no snow removal workers were fired in the past month, right BLS? In the meantime, NSA claims come at 438,548, a 26k drop from the prior week number. And the cliff keeps pushing out: those on EUC and extended benefits changed by +100K and -16K respectively. Continuing claims came at 3,888K on expectations of 3,900K, with the previous number naturally pushed up from 3925k to 3935k.

RealtyTrac's January foreclosure update shows that banks are once again starting to flex their muscles. Total foreclosure events (defined by the firm as default notices, scheduled auctions and bank repossessions or REOs) came at 261,333, a decline of 17% from a year earlier, but a 1% increase from December (one in every 497 houses received a foreclosure notice). “We’ve now seen three straight months with fewer than 300,000 properties receiving foreclosure filings, following 20 straight months where the total exceeded 300,000,” said James J. Saccacio, chief executive officer of RealtyTrac. “We’ve now seen three straight months with fewer than 300,000 properties receiving foreclosure filings, following 20 straight months where the total exceeded 300,000,” said James J. Saccacio, chief executive officer of RealtyTrac. “Unfortunately this is less a sign of a robust housing recovery and more a sign that lenders have become bogged down in reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing.” What is interesting is the growing distinction between judicial and non-judicial state REO activity. Readers will recall that Bank of America (partially) stopped foreclosure activity in non-judicial states in January. "Lenders foreclosed on 78,133 U.S. properties in January, up 12 percent from the previous month but still down 11 percent from January 2010. Bank repossessions (REO) in non-judicial foreclosure states increased 23 percent from December but were still down 9 percent from January 2010, while bank repossessions in judicial foreclosure states decreased 7 percent from the previous month and were down 16 percent from January 2010." In other words, look for non-judicial activity to drop off even more.