Archive - Oct 2013 - Story

In what had already been exposed as a 'contentious' meeting the minutes of the last Un-Taper FOMC meeting show a Fed in turmoil...

• *MOST FED OFFICIALS SAW QE TAPERING THIS YEAR, HALTING MID-2014
  
• *FOMC FORECAST `GRADUAL ABATEMENT' OF HEADWINDS SLOWING GROWTH
  
• *A NUMBER OF FOMC PARTICIPANTS SAW RISING FISCAL POLICY RISK
• *SEVERAL FOMC PARTICIPANTS SAW FINANCIAL CONDITIONS AS TIGHTER

Of course, the question is - will Yellen be a consensus-seeker or dictator?

Pre - S&P 500 Futs 1653, 10Y 2.66%, 10/17 bill 40bps, EUR 1.3515, Gold $1310

Curious why algos suddenly are buying because other algos are buying because other algos are buying, pushing the S&P higher by 10 point in virtually no time? Simple. It appears at least one vacuum tube decided to scan the news archive, and fell upon the Politico story from 7 AM Eastern which said that the Republicans and Democrats had met in a secret meeting.

Just a few weeks ago, the Icelandic government started threatening to use the European 'template' of removing guarantees on large deposits (though maintaining its capital controls) indirectly pressuring the wealthy to spend (for fear of haircuts). However, the capital controls have backfired as Bloomberg notes, Iceland’s private sector is running out of cash to repay its foreign currency debt, according to the nation’s central bank. The Prime Minister has said that the FX shortfall - exacerbated by his own policy restricting the selling of Krona - is "a matter of huge concern." The government’s biggest challenge is to allow capital to flow freely without triggering a krona sell-off that would cause Iceland’s foreign debt to spike and undermine the nation’s economic recovery.

The Bill bust up may be causing ripples and major headaches for short-term funding liquidity, and as of today for repos and money markets, but for now at least, the tranquility on any point in the curve longer than a month is untouched. Case in point, the just completed 10 Year auction in which the Treasury sold $21 billion in a reopening of the VS6 CUSIP, at a yield that was well through the When Issued 2.666%, pricing at 2.657%, even if this price was hit following a gradual sell off in the 10 Year throughout the day. The Bid To Cover of 2.58 was somewhat concerning as it was well below last month's 2.86 and below the 12 month average of 2.78, bet better than the auctions from August, July and June. The internals were also less than remarkable, with Dealers taking down 40.2%, Indirects ending up with 38.6%, and Directs left with 21.2%, all in line with the TTM average so hardly remarkable. Altogether a quiet auction and one that confirm so far at least, the debt ceiling concerns are solely limited to the 1 Month Bill end of the treasury curve.

Today 3:00 pm nomination by Obama of Janet Yellen as the next Fed chair was hardly news (certainly wasn't news to stocks which briefly dipped below their 200 DMA) in the aftermath of Larry Summers' self-elimination, but nonetheless the sellside brigade was quick to praise her now official nomination for one simple reason: it means more of the same Bernanke policies that have done nothing to benefit broad America, but more importantly have resulted in year after year of near-record Wall Street bonuses, and unprecedented asset bubbles. Why shouldn't the banks then be giddy with excitement that the status quo will not only continue, but the monthly $85 billion in liquidity may in fact increase in time? Below is a selection, courtesy of Bloomberg, of the most vocal praises sung on behalf of the former San Fran Fed president byt the numerous banks that currently exist only thanks to the Fed's actions in 2008.

The 19% increase in the Case-Shiller home price index since March 2012 is widely thought to have boosted the prospects for overall household spending via the “wealth effect” transmitted by rising prices and cash out refinancing. But as Bloomberg's Joseph Brusuelas notes, claims that spending is about to snap back should be interpreted with caution.In fact, there is little evidence that the bottoming out of cash out refinancing is translating into rising demand for the moribund service or non-durable retail sectors. Perhaps a lesson for Ms. Yellen here?

Late last night, Paul Ryan wrote a WSJ op-ed titled "Here's How We Can End This Stalemate" in which some believe he provided the framework for what a possible fig leaf offering on the government shutdown and debt ceiling compromise could look like. While on the surface this may be grounds for optimism, the reality is that Ryan, whose entire proposal is based on the assumption that Obama is willing to negotiate which for now he has shown repeatedly he won't, merely fell back to his traditional "grand bargain" talking point made so clear during the Mitt Romney presidential campaign. What Ryan does suggest is yet another angle to a common bargaining position, one which would be certainly more palatable to Obama: because in order to get both parties happy and reach a compromise, all that would happen is for various long-term assumptions would be changed, with zero actual, real current impact - something politicians are good at, because it does not generate an adverse impact during their tenure (afterwards, it becomes someone else's problem).

'They' said it could never happen... 'They' said to BTFATH... The Dow has now dropped 6.2% from its highs 14 days ago  - the biggest such drop in 11 months and for the first time in 2013 has crossed below its 200-day moving average. The trend is no longer your friend it would seem...

With a surprisingly apologetic note, IB just hiked margins on yet more of the "cult" momentum stocks that have signified the dot-com 2.0 bubble. Almost as if they know they know that their actions are the final straw on the camel's back:

We sincerely apologize for exercising our discretion to modify requirements with short notice, but believe this action to be warranted given the current market conditions.

Today's 30% hike follows Monday's 100% rise in margins and affects stocks such as TSLA (-16.5% from highs), QIHU, and SFUN.

Neither American political party is worth supporting. Each has interests inconsistent with those of the American public. The claimed political differences are mostly cosmetic, designed for marketing advantage. Both parties act in their self interest which does not coincide with that of the citizens or the well-being of the country. Each party behaves like a self-serving criminal gang. The quaint concept of serving the public exists no longer. The political Ponzi scheme of tax, borrow and spend has reached its limit.

It would appear the momo algorithms have been set to full reverse warp speed. A combination of broker margin hikes and a high-beta to a falling market is claiming a few more "cult" stocks victims this mornings - and the volumes are huge...

As we first pointed out, yesterday's stunning, near-failure in the 4-Week Bill auction, was the straw that broke the illusion of the market stability's back and as even Goldman pointed out, led to the first true "fear-driven" drop in stocks. Today, things are getting from bad to worse, as it is not the Halloween Bill, but the October 17 issue that is getting Friendo'ed as can be seen on the chart below - the 10/17s just hit 42 bps, a nearly 20 bps move in minutes! But while disturbing, what is going on in cash is just the beginning of the story. It is what is going in the shadow markets that could really light the fireworks on fire.

In the equity asset management world, the word risk is ubiquitously interchangeable with the word "volatility" for myriad asset allocation models that promise mathematical precision way beyond the realms of possibility in a dynamic world. However, extending that definition of risk, we thought it worth pointing out that, for the last month, US Treasury bonds have become more volatile (more risky) than Italian and Spanish bonds. Something to ponder for The Fed's new head we suspect...

When on October 1, fallen billionaire Eike Batista's OGX Petroleo & Gas, missed a $45 million bond coupon payment, some were surprised but most  had seen the writing on the wall. After all, Brazil's second largest oil company after Petrobras, and the crowning jewel of Batista's EBX Group, had been under the microscope of investors and certainly creditors (and if it wasn't it certainly should have been) after oil deposits that Batista had valued at $1 trillion turned out to be commercial failures. And so the countdown to the inevitable bankruptcy filing began. Overnight, Bloomberg reports that the wait should not be long (in fact it may coincide with the default of that other insolvent mega-creditor: the United States), and will mostly certainly take place before the end of the month, following the retention of bankruptcy specialist law firm Quinn Emanuel.

Yellen is in; nothing is resolved in DC; and there's no news on the wires - so it makes perfect sense that once again as the 830ET period ticks by that commodity prices - especially gold, silver, and copper enter what many in the business call "free fall." All sarcasm aside, this is becoming far too ubiquitous - but of course with the CFTC closed for business, while the cat's away the algos will play.