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Gleacher Market Commentary

Tyler Durden's picture


Market commentary from Gleacher's Russ Certo

I have tried hard to not have strong views in market recently given what seems to be possible tectonic shifts.  Despite this, I feel as though there was alot of pent up energy at recent range lows and is now being released, to say the least.  We had weeks of very defined range that broke and the damn broke.  After a tepid 3yr auction, I think players extrapolate the increased level of difficulty of having to increase the DV01 of a 10yr and 30yr to follow, particularly in light of trying to repair wounds from December rinsing, November rinsing.......Adult swim.

So, fear is a powerful motivator and with Big Ben possibly being held accountable to riots, emerging unrest, food and energy inflation, repackaging smaller of consumer staples like soft drinks to portion control (a form of inflation)  etc, higher health care costs, transportations costs, taxes, and a general erosion of purchasing power, some feel as though the needle has moved in terms of the Fed HAVING to meet market impulses.  So, tectonic asymmetry with BOTH the 10 year note auction tomorrow and the Chairman of the Board.  Alot of uncertainty to have to commit some capital.

To air some thoughts, Ben is known as helicopter Ben.  And he rarely disappoints.  Further, any explicit communications likely won't have imminence.  Even if the Chairman decided to give lip service to tightening schemes, they could be in the form of gradualist interest on reserves, matched sales, symbolic forward discount rate moves and the like.

Maybe the market is adjusting to what appears to be an increase in the time table for such measures and that the shedding of duration led by the belly of the curve, where QE2 purchases are mostly dictated, is the FIRST reaction. However, I feel as though Ben can A) do what he does BEST and disappoint by being dovish or B) illustrate he is a salty tough banker doing his job and be hawkish.  Either way the long end likely does better as a countering to worst fear expectations in market or a banker with religion protecting the price of longer stream cash flows.  Recall, Greenspan tightened 17 times and had long rates rally.

As for the 10 year auction, it should be best under-written in an environment of fear and expectations leaning on a side to tip a boat.  There has been a tendency for the second leg of auctions series to perform well in light of the extreme negative sentiment to the poor results of the first tranche in a series.  Real money could easily muscle this one around given street positions and expectations.  And I think the zenith of these expectations will be mid-morning staring the supply in the face of supply......and of Big Ben.   


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Tue, 02/08/2011 - 18:59 | 944527 SashaBelov
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Why is CNBC not reporting about bond market massacre? :)

Tue, 02/08/2011 - 19:02 | 944539 hambone
hambone's picture

Then it didn't happen...(and if it did, it's cause there is stronger demand and economic activity)...but it didn't happen so no song / dance needed.

Tue, 02/08/2011 - 19:33 | 944608 solgundy
solgundy's picture

"Why is CNBC not reporting about bond market massacre?"


it never happened, unless Steve "Bart Simpson" Liesman says it didn't..."you can't prove it,you can't prove it"

Tue, 02/08/2011 - 20:17 | 944677 treasurefish
treasurefish's picture

Why isn't the media reporting about that secret meeting Obummer had with Canada?


It's leaving conspiracy speculators to come up with some wild ideas, like:


CORPORATE CANADA just ceded to the CORPORATE US in a hostile takeover!


Is there any truth to this?  Who the hell knows, but it sounds a whole like a Jekyll Island-styled deal, which wouldn't surprise me after the closed door meetings for Obamacare.

If it is true, at least Obobo went for the 4x4 V8 Range Rover instead of the El Camino dragging it's rear bumper over every speed bump!  


BTW:  I went to to try to verify this story. I didn't find it, but here is something fun to try while you are there:

1. Click on #4 of the slide show.  Is Obummer peeping on Nancy Pelosi?

2. Right-click and save the photo to your desktop.  The file is named "hero!"



Tue, 02/08/2011 - 19:00 | 944534 hambone
hambone's picture

A little too erudite for my taste...give me a thumbs up / down.

Tue, 02/08/2011 - 19:19 | 944574 mynhair
mynhair's picture

Hang on, still trying to figure out the spellings errors for the true meat.....

the damn broke?  The Bernank is no longer cursed (at)?

Tue, 02/08/2011 - 19:44 | 944634 Midas Mulligan
Midas Mulligan's picture

There were "alot" of them, to be sure.

Tue, 02/08/2011 - 19:59 | 944673 VegasBD
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there is alot of them. oops, i meant a lot. dumbing me up already.

Tue, 02/08/2011 - 19:20 | 944579 bogey4
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Or just as likely, the bond market which hasn't to date believed the recovery story, is starting to price-in GDP growth and higher demand for loanable funds.

But that runs contrary to the "no recovery" argument thus no mention...


Tue, 02/08/2011 - 21:29 | 944881 blind squirrel
blind squirrel's picture

Fed Fund futures pricing in 100% chance of Fed hiking rates to 0.50% at Dec meeting.

Up from 26% on Jan.31 and 82% chance yesterday's close.

Tue, 02/08/2011 - 19:22 | 944582 Traianus Augustus
Traianus Augustus's picture

Clearly someone in charge of the buy button was out to lunch during the auction today.  Tomorrow he will be chained to his/her desk to make sure that the ten year is WELL subscribed!!!!

Tue, 02/08/2011 - 19:43 | 944631 rosiescenario
rosiescenario's picture

"Ben is known as helicopter Ben".....passe


now known as B-52 Ben....bigger payload.

Tue, 02/08/2011 - 19:48 | 944645 Midas Mulligan
Midas Mulligan's picture

If FRN payload's the game, then "Galaxy" Ben's the name. Lockheed certainly had a considable amount of foresight, assuming a fellow like Ben would happen along.

Tue, 02/08/2011 - 20:05 | 944690 rosiescenario
rosiescenario's picture

......I agree, but kinda like the alliteration of B-52 Ben...

or, we wish to stay with heli's...maybe 'sky crane Ben' would better match the massive golden (excuse me, make that paper) shower he is bestowing on WS????

Tue, 02/08/2011 - 20:52 | 944812 prophet
prophet's picture


Tue, 02/08/2011 - 19:46 | 944637 Fourth Horseman...
Fourth Horseman of the Apocalypse's picture

The wild card will be the new POMO schedule announced Thursday afternoon.  QE II is strictly $75 billion per month but QE Light is a function of the massive MBS portfolio the Fed holds.  Up till now, it has been $40 billion per week but with mortgage applications to refinance a mortgage dropping over 50% (and an appropriate lag), QE Light could fall to $20 billion per month.  Given the recent balance sheet of the Fed showing that the MBS portfolio was flat WoW, there is a chance that POMO Light may be less than $20 billion per month.  Worth watching.  


Tue, 02/08/2011 - 20:36 | 944774 hambone
hambone's picture

Just a thought

W/ trillions in Treasury debt to be rolled over annually plus trillions in new issuance, the interest costs are more important than ever.  Japan has double the debt but 10yr rates at 1.3% (cause we are told Japanese are so patriotic they buy 'em out of civic duty and in deflation get some sort of real return). 

Anyway, US had $413B gross interest costs in '10 (partially offset by SS surplus of $200B) so real interest paid was bout $200B.  CBO expects interest costs for '11 to be $438B (again partially offset by SS surplus of $200B) for real interest paid of $225B.  Ahh, but this assumes rates only slightly edge up from all time lows seen in '10.

Given short end interest rates went to 0% and even 2yr was .32% (from 5% as recently as '07)...lotsa paper rolled at aberationaly low rates...lotsa short bills and notes needing to be rolled over now on top of new issuance.  GD2 fears allowed massive paper to roll with no total interest paid hike. 

Ahhh, but now the rise of the 2yr hitting .86% today (and like for 3yr, 5yr, etc.) means generational low rates are gone. 

This should comes a much larger than expected need for borrowing just to pay the Debt interest this year - maybe $100B, $200B or even $400B more than expected ($300B to $700B total interest paid...out of $2T in tax rev)dependent on how far the short rates mean revert.  We are now in the deep end of the pool. 

Plus I'm not even sure if there will be a SS surplus (accounting?) to help offset true interest paid as in recent years...this would be an additional $200B hit.  Somehow I think a $2T deficit will be no problem this year as we are picking up speed in our debt death spiral.


Tue, 02/08/2011 - 21:23 | 944867 blind squirrel
blind squirrel's picture

Debbie Downer

Tue, 02/08/2011 - 21:35 | 944894 hambone
hambone's picture

wah wahhhhhhh

Tue, 02/08/2011 - 22:48 | 945123 bogey4
bogey4's picture

Very good points hambone.  And I'm pretty sure SS is operating in the red currently due to high unemployment and early retirees hitting the "trust fund" hard, so we've got that going for us also.

Tue, 02/08/2011 - 20:36 | 944779 dick cheneys ghost
dick cheneys ghost's picture

wikileaks. breaking on oil: US says saudi's cant pump enough oil to keep lid on prices.




wanted you guys to get this news first. 

Tue, 02/08/2011 - 21:09 | 944837 topcallingtroll
topcallingtroll's picture

Scary shit. Energy stocks for the long haul. Check out energy trusts too.

Tue, 02/08/2011 - 20:42 | 944798 HedgeFundLIVE
Wed, 02/09/2011 - 02:24 | 945512 Grand Supercycle
Grand Supercycle's picture

Interesting chart for anyone who hasn’t seen it yet :

S&P500 monthly chart January 15 2011

Wed, 02/09/2011 - 07:28 | 945852 oh_bama
oh_bama's picture

The portion control is due to health concern and americans being too fat!!

Have nothing to do with food inflation!

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