Archive - Jul 26, 2011 - Story

After yesterday's economic data drought, today brings the flood as we get new home sales and Case-Shiller prices, consumer confidence and the Richmond Fed index. We also get a small POMO as part of QE Lite and also two bill and one note auctions, sucking a combined $73 billion in capital out of the market.

Bloomberg reports that George Soros will return client capital, and will focus exclusively on managing his own and his family's money, apparently in an indirect protest against the reporting hedge fund requirement of Dodd Frank. Since the capital in question is only about $1 billion of $25.5 billion, this is hardly the big move some are making it out to be, as the bulk of Soros Fund Management is already primarily funded by his own money. Also notable, is that Keith Anderson, the company's COO, has decided to depart. But yes: for all those who wished they could have given money to Soros to manage for them, it is now too late. As for the reason for the change: "Soros’s sons said they took the decision because new financial regulations would have made it necessary for the firm to register with the Securities and Exchange Commission by March 2012 if it continued to manage money for outsiders. Because the firm has overseen mostly family assets since 2000, when outside money accounted for about $4 billion, they decided it made more sense to run it as a family office, according to the letter." Expect to see many more hedge funds based on family capital, for whom external investors are merely a nuisance, do the same thing.

While pundits are still contemplating yesterday's CME move to hike collateral haircuts on US Treasurys (absolutely nothing more then merely more posturing) today's European auction results indicate that the time to expand the EFSF to the €1.5 trillion threshold may be approaching faster than anyone expected. In Spain, the Treasury sold 750 million euros of 3-month bills at an average yield of 1.899 percent compared to 1.568 percent at the previous auction and at a bid-to-cover ratio of 6.3 after 9.5 in June. Spain also sold 2.14 billion euros of 6-month bills, with the average yield rising to 2.519 percent, the highest since Dec. 2010, from 1.776 percent in June, while the offer was 2.2 times subscribed after 3.8 times at the last auction. In other words: far higher interest and far lower demand than the last such sale in June. As Reuters cites, "The most important point again is the fact that relative to the last auction yields are much, much higher ... It's not a good situation to be in," strategist at Monument Securities Marc Ostwald said. "It shows we may have had some relief last week but that relief has proven to be rather short-lived." We wonder just how much of these auctions were allocated to the EFSF monetization mechanism and/or Asian proxies that know they can promptly use it for precisely such purposes. Elsewhere Italy sold €10 billion in 6 month Bills and 2 year notes, and just like in Spain, both saw their respective yields rising and investor demand falling: 6-mo auc avg yld 2.269% vs 1.988%, bid/cover 1.56 vs 1.72, 2-yr auc avg yld 4.038% vs 3.219%, bid/cover 1.66 vs 1.87. End result of today's auctions: both Spanish and Italian Bund spreads jump to day wides as the IBEX is now underperforming on concerns Europe's second bailout bought less than a week of calm.

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