Archive - Mar 11, 2015 - Story

Perhaps inspired by our article that the 10 Year was trading very special in repo this morning, touching -1.79% as shorts had piled into the auction on hopes of covering ahead of what many had expected would be a weak auction, some "experts" predicted an imminent tail in today's auction. Well, moments ago the 10 year closed about as solid as they come, with the High Yield of 2.139% pricing 0.4 bps through the When Issued of 2.143%, dampening any hopes to cover profitable shorts into the auction, and ending any speculation about a tail.

To summarize: Greek pensioners are now paying the IMF, which is paying Kiev, which is paying Gazprom, which is paying Putin.

Finally some good news for brokers of ultra-luxury Manhattan real estate. Following the recent freeze in the most expensive housing segment in NYC in which "deals slowed to a trickle" as a result of the soaring US Dollar, and the crack down on offshore illegal wealth, it appeared that the final housing bubble left in the US that has yet to pop, that which focuses on properties $5 million and higher, was on the edge. Its day or reckoning may be delayed, however, following news that the most traditional buyer of high-end Manhattan real estate, Wall Street bankers themselves, may be finally coming back following a 2% increase in Wall Street bonuses in 2014, which pushed the average bonus to $172,860.

It is becoming just a little too much of a daily occurrence but instead of a rail freight car crashing, today we see a massive explosion and fire erupt from an oil tanker crash in Detroit... As gas prices remain low, the shift from rail to road will likely increase the frequency of these scenes....

On Friday we warned that massive retail inflows into the largest crude oil ETF were about to collide head-on with the widest contango in four years leading, in all likelihood, to “carnage.” Here's what happened.

Whether the world's central banks are 'co-operating' or competing is up for question but the tsunami of policy easings so far this year is making the 'surprise' rate cut, unsurprising. As Bloomberg reports, Thailand today became the latest to execute an unexpected interest-rate cut, bringing the total to 23 in 2015. While only 6 of 22 economists expected it, the Southeast Asian country -- a onetime export powerhouse that’s seen its manufacturing mojo dim somewhat in recent years amid historic flooding and political infighting -- lowered its main rate to 1.75%. "The surprise move suggests the economy is much weaker than expected," noted one analyst, adding that "it is negative for the baht and there’s concern that lower rates may lead to more outflows as the U.S. is expected to raise rates."

An initial kneejerk higher after last night's surprise API inventory draw is long forgotten as USD strength (and no signs of global growth returning) has dragged WTI Crude back to $48.01 - its lowest in almost 5 weeks... As traders awaited today's DOE inventory/production report, it appears expectations were that there will be a 4.75 million barrel build, notably divergent from API's print... and sure enough DOE printed 4.512 million barrels - the ninth weekly build in a row. That immediately sent WTI tumbling beloiw $47.50 on heavy volume. Storage concerns grow as Cushing rose a greater-than-expected 2.32mm barrels and production hit a new record high at 9.366 mm b/d.

In an attempt to secure some stability, i.e., funds, now that Venezuela is no longer able to tap Chinese bailout loans as last-recourse funding, Reuters reported that Venezuela's central bank is in talks with Wall Street banks to create a gold swap that would allow it to monetize some $1.5 billion of the metal held as international reserves, according to government sources familiar with the operation.  Under the swap, the central bank would provide 1.4 million troy ounces in exchange for cash.

All is not what it seems. Markets are upside down. Some ‘risk?free’ assets can be purchased for a guaranteed loss. EU asset markets (ex?Greece) are soaring at the same time that EU disunity is rising. An interest rate hike by the Fed is likely to cause a rally in Treasury bonds and a steep correction in US equities.

Earlier today, Greek Prime Minister Tsipras was busy not making German friends, following the latest Greek overture to confiscate German assets in response for allegedly unpaid German WWII reparations. “After the reunification of Germany in 1990, the legal and political conditions were created for this issue to be solved. But since then, German governments chose silence, legal tricks and delay. And I wonder, because there is a lot of talk at the European level these days about moral issues: is this stance moral?” Tsipras said and added that "despite the crimes of the Third Reich and Hitler’s hordes, the German debt was written off." As a result Greece is now seeking to recoup German WWII reparations which may amount to as much as 80% of Greek GDP!

It appears the new normal has reached peak 'consequence-free'-ness. As South African reporter Vuyo Mvoko prepared for his live TV report - standing in front of a camera, bright lights, and various cameramen and crew - two armed men decided it was an opportune time for a mugging... and the whole farcical and dangerous scene was caught on tape...

Whether this is just a function of recent/upcoming 3/10/30 bond auctions, or if Europe's central banks are quietly loading up on paper thus forcing another collateral squeeze is currently unknown.

"The ECB could move to cutting the depo rate further to maintain loose financial conditions and especially to prevent a taper tantram forcing EURUSD higher," Citi says, commenting on steps the central bank may be forced to take in the event some core countries (i.e. Germany) are unable to source enough eligible assets to meet purchase targets under PSPP. Just two days in, speculation is growing about the viability of the program.