Archive - Jun 2013 - Story

There's blood in the streets - Where's Warren? Levered carry traders are rapidly realizing large crowds and small doors don't mix, even though if they liked the Nikkei at 16,000 they should love it at 12,700. It appears only physical gold traders are those who actually dollar cost average lower, when assets are more affordable. Either way, in Japan:

JAPAN'S NIKKEI 225 FALLS 20% FROM MAY 22 HIGH
JAPAN'S TOPIX INDEX FALLS AS MUCH AS 5.1%
NIKKEI 225 FALLS 6%, EXTENDING LOSSES

S&P Futures are below 1,600

In 2006, 2007, 2008 and 2009 we saw 10Y bond yields surge into June only to peak and turn lower aggressively; and in 2010, 2011 and 2012 we saw a 'mini rally' in yields into June that was not sustained, so, as Citi FX's Tom Fitzpatrick notes, while we regularly hear the mantra for the Equity market of "Sell in May and go away" maybe we should have one for the Bond market - "Buy in June after the swoon."

This evening's price action seems to be reflecting major unwinds occurring. Gappy strength in EUR suggests more repatriation (following the sell US stocks and bonds action we saw in the day-session) and even as JGBs rally modestly, Japanese stocks are getting monkey-hammered. Goldman's always-aware-of-the-risks client base just got 'muppeted' as the Long Sept Nikkei trade was stopped out at 12,700. JPY is bid on the carry unwind and is trading at the day-session lows around 95.00. This is TOPIX's biggest down day in over a week as Tech, Telecoms, and Consumer Goods are all down over 3.5%.

The Bank of England's Andrew Haldane is not a man to mince his words (see here and here) but perhaps the excess truthiness in his latest testimony to British MPs may have many questioning his ability as a central-banker (unable to lie when it is required). "Let's be clear. We've intentionally blown the biggest government bond bubble in history," Haldane said. "We need to be vigilant to the consequences of that bubble deflating more quickly than [we] might otherwise have wanted." As Canadian Carney steps into the BoE head shoes, it seems Haldane has some (indirect) advice there also, as The Guardian reports his comments that the committee had not been "entirely free" of political interference during the crisis; and that he hoped to "improve decision-making," in a less hierarchical, more diverse, somewhat humbler organization." The "biggest risk to global financial stability... would be a disorderly reversion in the yields of government bonds globally." he said, adding that there had been "shades of that" in recent weeks.

"The opposite of currency wars is not necessarily currency peace; it can easily be interest rate wars," is the warning Citi's Steve Englander sends in a note toda, as EM and DM bond yields have relatively exploded in recent weeks. The backing up of yields represents an increase in risk premium, so this will likely have negative effects on asset markets and the wealth effect abroad as well. It is difficult to explain the magnitude of the yield backup in terms of normal substitution effects, and broadly speaking, if you were to compare the backing up of bond yields with the beta of the underlying economy and asset markets there would be a good correspondence. So, Englander adds, it is fear, not optimism that is driving bond markets.

It's a good thing Obama and Xi met last week, because following the latest revelations by Edward Snowden, just released as part of an ongoing series of interviews posted by Hong Kong's South China Morning Post, there may have been some very awkward silence between the leaders of the world's superpowers. Especially since what he revealed once again exposes the US as nothing but a schoolyard hypocrite bully, which has been spinning a PR campaign "exposing" Chinese hackers as the biggest threat to internet security and privacy, when in reality it was the US that has done the bulk of snooping on Chinese soil.

It started as your everyday hexagonal discussion on CNBC with the anchors up-in-arms over the fact that (shocker) some firms can pay for early access to critical economic data items. The disdain for the 'rich' was palpable as Bernstein, Sullivan, and then Cramer all exclaimed both their amazement and surprise that this was even possible. That was when Santelli stepped into the ring and explained - in what was a relatively well-behaved exclamation - that not only was the fact that early data releases were well-known to every real trader (as opposed to those who pretend for TV) but that the issue was absolutely not about 'early access' but about HFT. When we first brought the perils of HFT to the attention of the broader trading community in 2009, it was the stuff of conspiracy theory - but now (as with many other things) it is conspiracy fact and in a few short minutes, Rick Santelli showed off his co-hosts ignorance of the real market and opened many new eyes to the damage that HFT can do in a market that is, well, anything but Reg-FD fair and balanced to all.

On December 1, 2001, Argentina’s economy was in trouble. Unemployment was high, debt was high, and recession had taken hold. But life was somewhat ‘normal’. Basic services still functioned. And no one had to really worry about... food. Or water. Then it all changed. Literally within a day...

"I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.... The accident -- the fiscal train wreck -- is already under way.... How will the train wreck play itself out? Maybe a future administration will use butterfly ballots to disenfranchise retirees, making it possible to slash Social Security and Medicare. Or maybe a repentant Rush Limbaugh will lead the drive to raise taxes on the rich. But my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.... And as that temptation becomes obvious, interest rates will soar. It won't happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future.... I think that the main thing keeping long-term interest rates low right now is cognitive dissonance."

If what Rosie is "hearing" is accurate, then the bulls better pray that David Tepper's view of the taper as being bullish is correct, or else Bernanke may go ahead and shock the market as soon as next week's FOMC press conference (the last until September) with a very disturbing gravitational reality check.

Two days ago, when Pew Research came out with a poll showing that a majority (56%) of Americans replied affirmatively to the question if "the National Security Agency’s (NSA) program tracking the telephone records of millions of Americans is an acceptable way for the government to investigate terrorism," we were disappointed if not shocked. However, what is surprising, is that moments ago Gallup has released its own poll conducted on June 10-11  "with a random sample of 1,008 adults, aged 18 and older, living in all 50 U.S. states and the District of Columbia" and which finds precisely the opposite: "More Americans disapprove (53%) than approve (37%) of the federal government agency program that as part of its efforts to investigate terrorism obtained records from U.S. telephone and Internet companies to "compile telephone call logs and Internet communications." ... The reactions to these types of government programs have remained constant over the past seven years, although Republicans and Democrats have essentially flipped their attitudes over that time period, reflecting the change from Republican President George W. Bush to Democratic President Barack Obama.

It was bound to happen: after the Tuesday "winning" streak was lost 8 days ago on the 21st unlucky week, it was the turn of the "BTFD mentality" that had prevented a 3-day losing streak in the Dow Jones since December. And while today's selling was still somewhat contained, it did not prevent the DJIA from closing below the psychological 15,000 support level, driven according to some, by the breach in the 200DMA of the USD index.

Army Gen. Keith Alexander, director of the National Security Agency and head of U.S. Cyber Command is currently testifying in front of the Senate Appropriations Committee's scheduled session. As TPM reported, Alexander had already met with the Senate Intelligence Committee on Tuesday. Sen. Dianne Feinstein (D-CA), who chairs the committee, said the committee had asked Alexander to declassify some information pertaining to the NSA surveillance programs so that Congress could better explain their purpose to the public. "I think they're really helpful," Feinstein said, as quoted by CBS News. "And that's the problem, it's all classified... If we can get that declassified then we can speak much more clearly." Watch the hearing live below.

When in April the US government reported a surplus of $112.9 billion (thanks to tax collections, Fed and GSE remittances) - the largest surplus since April 2008, many wondered if DC's profligate ways were over, and if maybe the so-called US austerity was staring to kick in. It wasn't. Because as the just released May data showed, not only did the US go right back to its deficit ways, posting a negative surplus of $138.7 billion, the largest May deficit since 2009, but the amount the US government spent, a total of $335.9 billion, was the largest May outlay in history, and only the 4th greatest spending month ever. Of course, when the most misunderstood concept in Europe - by the 17 or so "sovereign" nations that make up its disunion - for the past three years has been fauxterity, it is not surprising that US politicians are having quite a bit of trouble grasping that spending less means actually... spending less. But at least Bernanke will have something to monetize in a system in which liquid, "high-quality" collateral is becoming increasingly scarcer.

The "buy-the-dip mentality" has left the building (for now)... The Great Rotation out of USD assets continues (for now as Gold remains bid and equities play catch-down to credit)... only 45 minutes to 330 Ramp Capital...