Archive - Feb 24, 2011 - Story

Unlike yesterday's weak 5 year bond auction, today's auction of $29 billion in 7 Years was completely unremarkable. The bond priced at 2.854%, in line with the When Issued, and came at a 2.86 Print To Cover, pretty much unchanged from the previous 2 auctions. Directs once again came weak at 4.48%, the lowest since October 2009, which is yet another confirmation of our view that February UK purchases will be drop, and whether that's China, Petrodollars or shadow Fed purchasing, the "UK" February total will barely budge. Indirects came in line with the average at 49.66%, while Primary Dealers were at 45.86%, the highest since November. But altogether considering some of the weirdness we have seen in the primary issuance market, this was a perfectly normal tip of the belly auction.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 24/02/11

Laszlo Birinyi, best known for his straight line extrapolation method applied to everything, except of course crude which would result in WTI hitting 10 trillion by the time the Hungarian says the S&P would approach 2,854 in three years, has released his list of Teflon Twenty companies that supposedly are immune to any news. Arguably these are the stocks that comply best with the ruler interpolation method of price prediction. These also happen to be the biggest momo names in the world. Once the market crack is confirmed, these are the names that will result in early retirement for those who STFD. On the other hand, it also means we will have many more years of Birinyi, and his attempts at 20+ kHz communication, on Comcast, coming up with totally insane predictions.

The NYSE has released its January margin debt data. Not surprisingly, total margin debt hit a peak of $290 billion, the highest since September 2008, but the one category that shows just how much purchasing is occurring on margin is total Free Credit less Total Margin Debt drops to the lowest since the all time credit bubble peak in July of 2007! At ($45.9 billion) this number is just below the ($52.8) billion last seen just before the August 2007 quant wipe out which blew up Goldman's quant desk, and arguably was the catalyst for the beginning of the end. In other words, as we have shown, everyone is now purchasing on margin and the level of investor net worth is the lowest in over 3 years. Which means that should the market decline from this week persist and the Fed be unable to stop it, the margin calls will start coming in fast and furious, and unwinds in otherwise stable products like gold and silver are increasingly possible as hedge funds proceed to outright liquidations.

A week after S&P announced it was converting its European ratings to unsolicited as was reported previously, the rating agency now proceeds to do the same to the world's most insolvent banana republic: "Standard & Poor's Ratings Services today said it converted its issuer and issue credit ratings on the U.S. federal government (AAA/Stable/A-1+) to "unsolicited." Unsolicited as in nobody wants it. In other words, following Europe, the US will now lock out S&P in providing the agency with information. "We are converting our issuer credit ratings on the U.S. government to "unsolicited," as we do not have a rating agreement with the sovereign. Standard & Poor's will nonetheless continue to rate the U.S. government and classify the ratings as unsolicited, as we believe that we have access to sufficient public information of reliable quality to support our analysis and ongoing surveillance, and because we believe there is significant market interest in the U.S. government rating." It is a good thing then that by now everyone knows just how relevant S&P's ongoing AAA/Stable rating on the US is.

Reuters reports that authorities have arrested a 20-year-old Saudi national on charges he tried to use a weapon of mass destruction and potentially targeted former President George W. Bush, the Justice Department said on Thursday. Khalid Ali-M Aldawsari, who was admitted into the United States in 2008 on a student visa, was arrested in Texas on Wednesday by FBI agents. He was accused of purchasing chemicals and equipment to make an improvised explosive device, the Justice Department said. Last time we weapons of imaginary destruction surfaced, Iraq got bombed back to the stoneage. It is so difficult to see where Obama is going with this...

Congratulations Centrally Planned Garbage Motors: GM slides to below its IPO price, hitting $32.75. And now we get to see if GETCO has been swimming with no bathing suit on the entire time.

Add another lunatic to the roster:

• BULLARD SAYS 'NEVER SAY NEVER' REGARDING POSSIBILITY OF QE3
  
• BULLARD SAYS INFLATION EXPECTATIONS ARE HIGHER, A SUCCESS OF QE
• BULLARD SEES OPTION OF BUYING BONDS MORE GRADUALLY INTO 3RD QTR
• BULLARD SAYS INFLATION WILL PROBABLY ACCELERATE

And Ahuel "Foley" Weber chimes in:

• WEBER SAYS INTEREST RATES CAN ONLY MOVE TO NORTH

While the quant funds are desperately seeking modelers for a "deranged middle east dictator" algo, the US economy continues to prolapse. From the release: "Sales of new single-family houses in January 2011 were at a seasonally adjusted annual rate of 284,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.6 percent (±11.2%) below the revised December rate of 325,000 and is 18.6 percent (±15.4%) below the January 2010 estimate of 349,000. The median sales price of new houses sold in January 2011 was $230,600; the  average sales price was $260,300. The seasonally adjusted estimate of new houses for sale at the end of January was 188,000. This represents a supply of 7.9 months at the current sales rate." Less than 500 homes (Z) sold in the over $750,000. And the stunner: only 19k non-annualized homes were sold. The lowest monthly total ever. (and as JT Smith points out, of the 19K, 53% were vacant lots or under construction).

FmxConnect uses several proprietary indicators to predict volatility trends. One indicator, the TrendVol actually gives directional signals as well. Simply stated, if this week closes above 1416, there is a high likelihood of a 75 to 175 move higher in gold over the next 2 months. Although if the indicator hits, we'd expect the move to happen in a more compressed time. The signal does not usually waste time letting you know if it is right or wrong. The indicator combines Bollinger bands, implied volatility, skewness, and historical volatility to determine speed and direction of a potential move. The actual calculations involve using these indicators to create and proprietary oscillators.

The latest news from the ABC.net.au should come as no surprise to those who know all too well that one can't eat gold: "Gaddafi own private plane is loaded with gold bullion and lots of hard currency, mainly dollars, and is preparing to flee to Zimbabwe to stay there with his friend Robert Mugabe." Yet there is speculation that instead of pulling a Ben Ali, Gaddafi may pull a Hitler: "Earlier, one of Mr Gaddafi's former ministers predicted the Libyan leader will follow in Adolf Hitler's footsteps and commit suicide rather than give up power. Mustapha Abdeljalil, justice minister until he quit over the bloody crackdown on protesters, says he expects Mr Gaddafi to make good on his pledge to die on Libyan soil rather than slink into exile. "Gaddafi's time is up. He is going to go like Hitler. He is going to commit suicide," Mr Abdeljalil told Swedish media." In either case, we are skeptical that much of Libya's oil infrastructure will survive the binary outcome. As a reminder, Libya had 143.8 tonnes of gold (or Tungsten as the case may be) as of December 31, per the WGC.

"Libya is not Egypt or Tunisia" ... where have we heard this before. The Libyan leader continues to blame the protests on hallucinogenic pills, and now adds it is Al-Qaeda's fault.

As we pointed out yesterday, while the US navy is seriously starting to amass in the Persian Gulf region, it has left the Mediterranean and more importantly, the Libyan coastline unguarded. With concerns that Gaddafi will follow through with what we speculated on Monday was a Saddam-like "after me the flood" act and burn his oil facilities, this may not be the most prudent thing. Luckily, here comes Germany. According to Spiegel, Germany has sent three warships to Libya which may possibly get involved in a "military engagement."

Initial Claims, which were obviously revised higher from 410K to 413K, dropped well below expectations, printing at 391K, on expectations of 405K.  With claims continuing to hug the 400K line, this means that unfortunately the economy is not creating nearly enough jobs: as a reminder per the CBO, the US needs to create over 100K jobs a month just to stay in line with population growth. Continuing claims dropped from an (upward) revised 3935K to 3790K, as more and more people hit the 6 month continuing benefits cliff. They also are hitting the end of their 99 week extension period: those on extended benefits dropped by -111,087. That said, with California claims data partially estimated, and all of Massachusetts, Hawaii and Oklahoma data based entirely on the wind, this data has the credibility of an NAR report. And while the employment picture was better than expected, the capital goods data was a total disaster: January US Capital Goods orders non-defense ex. aircraft plunged by -6.9% M/M on expectation of just a -1.0% drop (Prev. 1.4% Rev. 4.3%). And just excluding Transportation, durable goods collapsed by 3.6% on expectations of a 0.5% increase. Time for those downward GDP revisions.

Full initial claims report.

That latest entrant to the "whorism" political class, Saudi Arabia, is getting desperate. After yesterday's attempt to prostitute itself out to its people by literally handing out $37 billion in a glaring demonstration that it has never heard the "money can't buy you love" saying, now the FT is reporting that "Saudi Arabia is in “active talks” with European oil companies to meet the production shortfall left by Libya, the clearest indication to date that the leader of the Opec oil cartel is about to boost supplies to stop further rises in the oil price, which surged to near $120 a barrel on Thursday." The FT's commentary is partially correct: "You can only expect the price to go up. It is fear of the unknown. The risks are all to the upside,” one senior oil trader said. "Saudi Arabia needs to respond." It does, but not to fill the gap. Following the latest attempt at recreating Helicopter Ben's monetary policy, Saudi Arabia suddenly finds itself clutching at cash straws.As UBS' Andrew Lees points out: "Saudi's USD37bn bonus to the population equates to USD10.45bbl on its 2009 production of 9.7m bpd. Saudi already needed USD74bbl to balance its budget in 2008. In December last year the talk was that its budget deficit would be 40bn riyals having been 86.5bn riyals the previous year as it spent heavily on salary increases for soldiers. With this increased spending it seems Saudi will need about USD85 - USD95bbl to balance its budget, or it will need to ramp up production by about 10% (more capital spending) without prices falling." Oops. Do you see what happens Larry when a country hands out money it doesn't have? We hope for Saudi's sake that it has some POMO desk interns running things there as effectively as in the US. But until we get some confirmation, we continue to back the truck up with Saudi CDS, a process which started when these were first quoted in the double digits.