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Curve Flattening Continues: 2s10s Now Under 240 bps

Tyler Durden's picture




 

The most ominous sign for US bank P&L continues to not relent: the 2s10s curve, which is the primary source of "revenue" for the hedge funds formerly known as US banks until a bunch of idiots came along and repealed Glass-Steagall, has just gone inside 240 bps. As before, we view this as the primary margin call threat, as billions, if not trillions, of wrong-way bets on curve steepening move further out of the money with every passing basis point. Once the first major repo counterparty blinks and demands a trand unwind, this trade will snap and we could see an even faster flattening, which would lead to some scary consequences for every other asset class.

 

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Tue, 05/25/2010 - 14:17 | 372422 svendthrift
svendthrift's picture

Larry Summers Makes The Case For Another Round Of Stimulus Spending

 

http://www.huffingtonpost.com/2010/05/25/larry-summers-obamas-top_n_5887...

 

Jumping god damn. Larry fucking Summers.

Tue, 05/25/2010 - 14:18 | 372429 react1200
react1200's picture

Break out the guillotine on this co* sucker.

Tue, 05/25/2010 - 14:59 | 372567 legerde
legerde's picture

Thats funny...    You were very polite to bleep out the word 'cock'. :) hahah!   Wouldn't want to offend anyone. :)

Tue, 05/25/2010 - 15:21 | 372633 RichardENixon
RichardENixon's picture

"Censorship is cool"-- Butthead

Tue, 05/25/2010 - 15:53 | 372711 legerde
legerde's picture

I'll try again... There was a point to my laughter.  But thankfully for everyone, this will be my last attempt to share the point..

Death/destruction/guillotine/murder??  No problem, pleasing to the eyes actually. 

The word cock??  Careful now, wouldn't want to offend... I'm glad someone is protecting the innocence of the children...

Tue, 05/25/2010 - 14:27 | 372455 Peak Everything
Peak Everything's picture

"It is not possible to imagine sound budgets in the absence of economic growth and solid economic performance," Summers said.

 

Hmmm... now layer in declining net energy into this mess and you see the true gravity of the situation.

Tue, 05/25/2010 - 14:33 | 372468 svendthrift
svendthrift's picture

What is the optimal public demand? Whatever exists. If you remove public demand, the "economy" will contract. That's the reasoning. Government can never shrink and only grow, by this logic. Keynesians and their obsessions with aggregate demand.

 

 

Tue, 05/25/2010 - 14:47 | 372513 Paystee Gangsta
Paystee Gangsta's picture

Larry Summers is a butt-ugly pigfucker... and that's all I have to say about that

Tue, 05/25/2010 - 14:29 | 372459 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

As we move into this Hyperstagflation/hyperinflation/hyperdeflation scenario, should we sit back and drink some beers or what? 

Last chance to buy gold....ALL ABOARD!

Tue, 05/25/2010 - 14:53 | 372537 MatrixSurfer
MatrixSurfer's picture

Some shrewd hedge fund manager is buying far out of the money puts on u.s. treasuries - as a better value than gold....  seems like a good idea at first blush

Tue, 05/25/2010 - 16:01 | 372733 Sam Clemons
Sam Clemons's picture

Interesting.  We must consider that America currently has the iron gut and could continue to print to buy its own debt to suppress interest rates.  Interest rate manipulation is turning out more important than the stock market.  In fact, creating recessions works out very well for the government to auction more and more debt.  I believe Japan's interest rates have been flat for far longer than the mind would have ever imagined - I'm not sure of the underlying differences between the US and there though.

Tue, 05/25/2010 - 22:22 | 373452 Dreamwalker420
Dreamwalker420's picture

The primary underlying difference between the US and Japan is the fact that the dollar (USD) is held as the "reserve currency" by many central banks worldwide.  Given the exposure these CBs have to dollar valuation, they impress a significant amount of political pressure on the Fed.

Devaluation of the JPY affects CBs, but doesn't destroy them.

Devaluation of the USD leaves CBs with massive amounts of worthless paper.  Because a massive sell off in Treasuries would further decrease the value of USD, they have no choice but to hold them as they slowly loose value over time.  Hence, CBs have begun a shift from purchasing Treasuries to obtaining physical gold as they have discovered the dangers in being leveraged to the dollar.

As noted by recent comments from the SNB, a CB can intervene in the FX market with unlimited capacity.  This translates to a policy expectation that a CB will print as much money as necessary in order to control the market.  And likewise, they will buy as many toxic assets as necessary to maintain the status quo.

The US Fed has completed a QE of $1 trillion, and the ECB is quickly in pursuit of it's own QE of about $1 trillion.  With leverage, the money being printed has an impact on markets of at least ten times more than the actual QE.  This translates into hyperinflation for those outside of the CBs sphere of influence, and stagnates the economies to maintain the status of the favored banks.

Moral hazzard and unintended consequences are the only reasons a Fed Chairman speaks publicly.  When it has become obvious that the army of dollars is insufficient to exert control, Bernanke speaks publicly to the issue of the Feds "independence."

The function of a Republic allows the capitalist system to work within the parameters of the free markets.  However, at the point of dysfunction, the government is compelled by popular opion to exert authority and extract some form of compromise to the system to appease the imbalances created by the accumulation of wealth among the few at the expense of the many.

Make no mistake.  Bernanke is peeing on your leg and telling you it is raining.  His job at the Fed is to ensure that the brunt of any financial pain is felt not by the banks he represents.  Instead, he speaks to reinforce the notion that the banks remain free from the entanglement of policy on their blatant abuse of the system.

Inflation and unemployment stain the reality of the need for "independence" of the Fed.  As it has failed to address either of these massive problems, and upon study of the Feds actions, one can easily conclude that the mantra of the Fed is not to address unemployment and to exascerbate the inflation crisis, thereby devaluing the paper that they have spread throughout the world.  All of this on the "Full Faith and Credit of the United States."

Fool me once, shame on you ... the Great Depression.

Fool me twice, shame on me ... the Great Recession.

Fed policy effects not only the people of the United States, but all the nations of the world that have chosen to accept dollars as their basis for functioning in international markets.

Tue, 05/25/2010 - 14:42 | 372500 mudduck
mudduck's picture

Uglierna can fulla smashed ass-holes.

Tue, 05/25/2010 - 14:16 | 372424 react1200
react1200's picture

a global glass steagall now!! 

Tue, 05/25/2010 - 14:19 | 372436 Mako
Mako's picture

That would equal a mushroom cloud now.

Tue, 05/25/2010 - 14:19 | 372425 John McCloy
John McCloy's picture

"hedge funds formerly known as US banks"

Priceless. Because that is all they are and what makes it even more frightening is that they coordinate their market moves together. The Sherman Act was created for instances precisely like what is occurring while colluding with our politicians.

Tue, 05/25/2010 - 14:41 | 372491 Carl Spackler
Carl Spackler's picture

Good observation TD, but come on.

Commercial banking in the USA has always been a "carry" trade...borrow short and lend longer.  Today is no different.

Quantitative Easing just shook up the white "snow" in the little carry trade glass jar...you know, the one with the little snowman inside...to re-emphasize the profit-making potential of that carry trade, and help to earn banks' way out of credit risk management problems. Now the yield curve begins to re-adjust back (i.e., the snow settles).

So, sometimes you win more on this trade, and sometimes you win less.  So long as your credit quality is okay, you still win.

Nothing has truly changed here, other than the diminishing marginal return from QE, which American banks should have always expected from the day that the Bernanke Syndicate moved in and flexed its muscle.

 

Tue, 05/25/2010 - 14:19 | 372426 etrader
etrader's picture

The Curve is going Erin Burnett shaped....

They really need it to MCC.

 

Tue, 05/25/2010 - 14:18 | 372427 Prison Justice
Prison Justice's picture

Well the banks must have still done pretty well considering this chart blown out to 2001 shows that this was at the current level or lower from 2004 to 2007, and I'm fairly sure they were pumping out some serious profits (still) back then.

Tue, 05/25/2010 - 14:50 | 372527 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

Serious profits are not enough for Lloyd "Smiegal" Blankfein. I can see him now, running around the terrace of 15 CPW, shouting "Me wants more profits. My precious profits!!!"

And to address the other guy who said global Glass-Steagall would be a mushroom cloud, well... no matter how much frosting you smear on a dog turd it'll never be a cupcake. All these rich-on-paper investors and retirees don't want to see the fact that this system is a complete and utter sham.

Tue, 05/25/2010 - 14:18 | 372428 Rider
Rider's picture

Tyler,

Its okay, you can say "Trillions if not Quadrillions" if you include derivatives.

Tue, 05/25/2010 - 14:18 | 372431 tony bonn
tony bonn's picture

oh for god's sake! quit your henny penny bs....there is more bailout money where this crisis comes from....

Tue, 05/25/2010 - 14:18 | 372432 jkruffin
jkruffin's picture

Rut RO!  Global banks need $1.5 trillion due to capital deficits.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHnO_pWL.tRk&pos=2

Tue, 05/25/2010 - 15:29 | 372666 RockyRacoon
RockyRacoon's picture

But they will come out smelling like the proverbial rose when they enact the suggested Geithner "stress tests".   Look how much it did for U. S. banks.  More shuckin' and jivin'.

Tue, 05/25/2010 - 14:21 | 372442 Ned Zeppelin
Ned Zeppelin's picture

sooo. . . you're leveraging 2s to acquire the yield of 10s, and all of a sudden the valuations of the 10s vis a vis the 2s rise? or is it as simple as the yield collapsing on the 10 side of things...someone who trades this or understands it kindly weigh in . . .

Tue, 05/25/2010 - 14:21 | 372443 HarryWanger
HarryWanger's picture

Shaping up to be a brutal sell off into the close again. Volume picking up to the downside.

Tue, 05/25/2010 - 14:29 | 372458 papaswamp
papaswamp's picture

Nobody wants to be holding the bag overnight  in case the NK's start lobbing arty at the south.

Tue, 05/25/2010 - 14:56 | 372550 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

Aw, c'mon Harry-- you're not gonna buy the dips?

As for SK/NK I have a feeling this is a convenient setup to make us not look at the utter disaster in the Gulf. SK waited a month to bother to make "strong statements" and posturing. But as to your point, you couldn't pay me to hold anything overnight given the sheer amount of batshit crazy things happening on a daily basis.

Tue, 05/25/2010 - 14:30 | 372462 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Harry, it will all be ok.

Tue, 05/25/2010 - 14:22 | 372445 The_Euro_Sucks
The_Euro_Sucks's picture

which would lead to some scary consequences for every other asset class.

 

Gold belongs to every other asset class. Still it is the only one I want to hold (physical only). Would be a nice to be able to pick up a bit more for even lower prices. Somehow I fear gold is excluded but me is an amateur, so what do I know.

Tue, 05/25/2010 - 14:30 | 372461 papaswamp
papaswamp's picture

Silver...poor mans gold. I love the stuff.

Tue, 05/25/2010 - 14:35 | 372465 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Look at PMs through this "dip".  They held up, gold made out!  I mean, what would people rather be holding right now?

Just look at the markets during the last half an hour!  Gold and silver move up vert, and the market follows.

Gold and silver run the world!  Literally, as banks hold them as assets, yeah...

http://www.kitco.com/charts/livesilver.html

Tue, 05/25/2010 - 14:44 | 372505 Stormdancer
Stormdancer's picture

I have watched with gentle smiles and much applause as the "gold bitch" has slowly, successfully transited the transformational milestones to becoming a beautiful princess occupying her proper place in the world. 

I knew in my heart that as the golden queen took her rightful place in the royal court, so too my time would come.....as the consort of kings.

 

BEHOLD!

 

THE SILVER SLUT!

 

 

Tue, 05/25/2010 - 14:53 | 372539 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The market worships the gold bitch and silver slut.  Look at the rally.  I am calling the bottom DJ 9800.

Tue, 05/25/2010 - 15:09 | 372599 ElvisDog
ElvisDog's picture

Anecdotal observation - pre-1965 silver coins have all but disappeared from the local coin shop where I go to buy them every month. They may be very hard to find anywhere in the coming months.

Tue, 05/25/2010 - 14:32 | 372469 John McCloy
John McCloy's picture

Interesting report of FBI investigating death threats against politicians.Seems the average citizen is none to happy. Voting them out in November should be a cinch.

"Senate Sergeant at Arms Terrance Gainer says threats against members of Congress were up 300 percent in the first few months of 2010"

Read more: http://www.politico.com/news/stories/0510/37726.html#ixzz0ou92MKJq

http://www.politico.com/news/stories/0510/37726.html

 

Wed, 05/26/2010 - 07:10 | 373877 OldTrooper
OldTrooper's picture

Perhaps.

However, the strange ability of the voter to select the most destructive, two-faced, lying criminal out of the pack and put him (or her) into office is uncanny.

Tue, 05/25/2010 - 14:33 | 372472 depression
depression's picture

Anyone have a match handy, let's get this bon-fire started already !

Tue, 05/25/2010 - 14:39 | 372476 CoverYourBasis11
CoverYourBasis11's picture

For some reason I am hearing black eyed pees.....

Tue, 05/25/2010 - 15:20 | 372630 Herne the Hunter
Herne the Hunter's picture

my humps? (as in, curves?)

Tue, 05/25/2010 - 14:47 | 372517 Tic tock
Tic tock's picture

..mushroom cloud?!

Tue, 05/25/2010 - 14:58 | 372559 Goldinsacks
Goldinsacks's picture

Gold is great until it's confiscated again!

Tue, 05/25/2010 - 15:06 | 372586 faustian bargain
faustian bargain's picture

Gold will still be great for all the non-idiots who keep their gold.

Tue, 05/25/2010 - 15:11 | 372603 Goldinsacks
Goldinsacks's picture

It won't be allowed in trade so what's the point?

Tue, 05/25/2010 - 15:20 | 372628 silvertrain
silvertrain's picture

  I really cant see that happening..I wont sit here and say nothing is impossible but I dont think tahts likely..They would then be telling the world that gold is there daddy and nothing else works...You think they are going to lower to that level? How would confidence be installed in a brand new fiat system if they come for your gold? Unless the new system is back by a basket of pms then I would say maybe..

Tue, 05/25/2010 - 15:22 | 372641 Goldinsacks
Goldinsacks's picture

They did it in the 30's and they'll do it again.  Silver is where it's at.

Tue, 05/25/2010 - 15:35 | 372679 RockyRacoon
RockyRacoon's picture

They will not confiscate for a variety of reasons, the main one being that we are not on a gold standard any longer.  There are other reasons....

With the official price of gold at $35 an ounce, a foreign bank presenting $35 million paper dollars received 1,000,000 ounces if the Treasury delivered gold bullion. However, when the Treasury delivered gold coins with a face value of $35 million, it delivered only 967,500 ounces, saving 32,500 ounces. Each $20 Liberty and St. Gaudens (Double Eagles) contains .9675 ounce of gold. The smaller coins contain the same proportions. Therefore, it was to the Treasury Department's advantage to give out U.S. gold coins instead of bullion bars. Additionally, before Roosevelt's call-in, millions of old U.S. gold coins already had made their way to Europe.

Read more: http://www.cmi-gold-silver.com/gold-confiscation-1933.html#ixzz0oyIjIlvK
Tue, 05/25/2010 - 15:56 | 372715 Goldinsacks
Goldinsacks's picture

You should be asking yourself these questions.  Why is the people's gold being sent to Europe in a gold skimming operation?  Why has Fort Knox not been audited since Eisenhower?  They didn't take the gold because we were on the gold standard.  It was to create the illusion of a gold backed currency and to transfer American people's wealth so they would have nothing of value but this fiat bullshit.

Tue, 05/25/2010 - 15:27 | 372660 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

They will not try.

Tue, 05/25/2010 - 15:30 | 372668 Goldinsacks
Goldinsacks's picture

Executive order: By virtue of the
authority vested in me by Section 5(B) of
The Act of Oct. 6,
1917, as amended by section 2 of
the Act of March 9, 1933, in which
Congress declared that
a serious emergency exists, I as
President, do declare that the national
emergency still exists;
That the continued private hoarding
of gold and silver by subjects of the United
States poses a
grave threat to the peace, equal
justice, and well-being of the United
States; and that appropriate
measures must be taken immediately
to protect the interests of our people.

"Therefore, pursuant to the above
authority, I herby proclaim that such gold
and silver holdings
are prohibited, and that all such
coin, bullion or other possessions of gold
and silver be tendered within fourteen days
to agents of the Government of the United
States for compensation at the
official price, in the legal tender of
the Government. All safe deposit boxes in
banks or financial
institutions have been sealed,
pending action in the due course of the
law. All sales or purchases
or movements of such gold and
silver within the borders of the United
States and its territories,
and all foreign exchange
transactions or movements of such metals
across the border are herby prohibited.

"Your possession of these
proscribed metals and/or your maintenance
of a safe-deposit box to
store them is known to the
Government from bank and insurance
records. Therefore, be advised
that your vault box must remain
sealed, and may only be opened in the
presence of an agent of
The Internal Revenue Service.

"By lawful Order given this day,
the President of the United States."

Tue, 05/25/2010 - 15:39 | 372690 RockyRacoon
RockyRacoon's picture

You are quoting an old, repealed law.  What's the point?

December 31, 1974, with Executive Order 11825, President Gerald Ford repealed the Executive Order that Roosevelt used to call in gold in 1933.

Read more: http://www.cmi-gold-silver.com/gold-confiscation-1933.html#ixzz0oyJnvOU0
Tue, 05/25/2010 - 15:46 | 372698 Goldinsacks
Goldinsacks's picture

The point my friend is that they did it once and they can do it again.  Sure we're not on the gold standard yet but our good old buddy Ron Paul may have something to say about that in 2012.  Plus how are we going to pay for WWIII with useless fiat currency?

Tue, 05/25/2010 - 15:55 | 372714 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I do this once a week it seems....

Cue Theme music...da da daaaaa da da da da daaaaaaaaaaaaa..............

Obama, in the case of a National Emergency, orders all gold to be turned into the treasurie to help fund the new currencie (Amero?  SDR?  Farmville bux?).  He orders SWAT teams to move from door to door asking for gold.....

OK your dream scenario is on, now what?

First, Americans believe this is a ploy to confiscate not their gold, but their guns.  SWAT teams are met with arms.  Next, the SWAT teams are called off after two weeks of searching once they realize NO ONE and I mean no one, is turning their gold in. 

Americans will not go for it, and who do you want to bet on?  The team that brought you Katrina (the US government) or the American people? 

I am betting on the American people rising to the occasion, however forced, and late.

Tue, 05/25/2010 - 16:08 | 372722 Goldinsacks
Goldinsacks's picture

God I hope so.  But there are just so many sheeple that I guarantee most will just give it up.  No SWAT needed.  Here's case and point.  "Get cash for gold!"  "We'll Give half the melt value!"  I wouldn't be surprised if all those shovel sellers are gov sponsored.

Tue, 05/25/2010 - 16:20 | 372776 RockyRacoon
RockyRacoon's picture

We are on the same side.  I was just not giving you due credit for your comments.  I, for one, am not worried about "sheeple".   They will just have to take care of themselves.  I'll give aid and assistance to anyone who is physically able and mentally willing to establish an equitable society -- should it come to that. 

Thanks to Mr. Hendrix for the backup, but I think all 3 of us are on the same basic wave length.

Tue, 05/25/2010 - 16:25 | 372785 Goldinsacks
Goldinsacks's picture

In this day and age that is all we can do is unite against this great evil.  God bless.

Tue, 05/25/2010 - 16:20 | 372777 A Nanny Moose
A Nanny Moose's picture

Those sheeple....don't own gold in the first place. If they did, I would gladly relieve those people of their golden burden, in case I need to trade for beer, food, and bullets at some point.

Those that do own it are far less gullible than in 1930, even then the govt would have to have proof of possession.

Tue, 05/25/2010 - 16:28 | 372782 RockyRacoon
RockyRacoon's picture

True!  It was the U. S. against "them" in the '30s.  Now it is "US" against our own government at this juncture.  Beware the "sheeple" as mentioned.  They will turn in their wedding rings and the wife's gold trinkets as ordered. They will fall for any gov't propaganda and turn us in with little provocation or reward.  (I doubt, however, that Mr. T will turn in his bling.)

Tue, 05/25/2010 - 15:00 | 372573 geminiRX
geminiRX's picture

Plunge team really trying to end the day green - or make the situation look "less bad"

Tue, 05/25/2010 - 16:28 | 372789 A Nanny Moose
A Nanny Moose's picture

Right on queue. More reliable than Amtrak

Tue, 05/25/2010 - 15:04 | 372579 gerryscat
gerryscat's picture

Newbie here, can someone explain "demands a trand unwind", especially what is a trand. Cheers!

Disclosure: shorting, shorting, shorting, except gold/silver.

 

Tue, 05/25/2010 - 15:07 | 372591 jkruffin
jkruffin's picture

probably a typo,  he meant trend more than likely or possibly trade

Tue, 05/25/2010 - 15:15 | 372615 lizzy36
lizzy36's picture

demands a TRADE unwind

Tue, 05/25/2010 - 15:17 | 372619 Treeplanter
Treeplanter's picture

I'm betting gold and silver will begin to act contrary to the market dive.  Very bummed out I didn't take profits on my miners right after the recent tops.  Could have used the extra cash to top up with some of the stronger ones for the next leg up.  What's worse it that was my working plan.  Delusions of a nice gold spike destroyed my common sense and ignored my experience.  It's comforting to know that impending economic collapse will likely rescue my cash, hopefully while the dollar still has some pretense of value. The first Euro country to default is the winner of that race.  Our banker overlords can't make spoiled people bite the bullet while they party on.  Slogan for the new paradigm, "Bankruptcy is your friend.  And it annoys the bankers to no end."  Eh?

Tue, 05/25/2010 - 15:26 | 372654 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

DJ 9999.16

A number to behold.

Tue, 05/25/2010 - 15:44 | 372692 RockyRacoon
RockyRacoon's picture

Have you got your HAT ?  Dust off the cobwebs 'cause you may need it several times.

Tue, 05/25/2010 - 15:50 | 372703 RichardENixon
RichardENixon's picture

Dow 10,000 yo yos are the latest craze. The hats are wearing out from all the take it off, put it on, off, on nonsense.

Tue, 05/25/2010 - 16:24 | 372783 RockyRacoon
RockyRacoon's picture

Yo-yos.  Why didn't I think of that.  Ah, the entrepreneur in America is still alive!

Tue, 05/25/2010 - 15:36 | 372682 taraxias
taraxias's picture

One more day on NYSE where Bernanke demonstrates his omnipotence.

We're not worthy, master, we're not worthy !!!!!!

 

 

 

And the fraud continues unabated. This is America folks.

Tue, 05/25/2010 - 15:55 | 372713 Miles Kendig
Miles Kendig's picture

Jenny Craig makes it to this curve.

Tue, 05/25/2010 - 16:39 | 372821 FranSix
FranSix's picture

Mining stocks:  The gold in the ground has to be blasted out of the rock face, the ore then hauled to the surface, processed and refined into bullion, either in a mint or the c ompany refinery, and sold into the market before confiscation can happen.

And if the mining company is in another country, or is multi-national, there is no ability to control movements of doré gold or sulphide concentrates from one country to another to be refined elsewhere, because doré or concentrate is essentially useless until refined into bullion.

Canada may be a good place to start looking, because there are TSX listed companies which are cross-listed on the AMEX or the NYSE,  and usually junior exploration companies always have a pink sheets cross-listing with their issue on the TSX Venture exchange.

Note also that any TSX Venture exchange company is by some strange coincidence usually  cross-listed on the berlin exchange, so Europeans can take advantage any time they like, because the intent is to hide this fact.

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