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Rosie On Further Evidence Of The "Mother Of All Margin Squeezes"

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Wed, 12/15/2010 - 13:30 | 808449 DavidRicardo
DavidRicardo's picture

You are right.  Bet on higher yields.  He hasn't heard the latest mantra coming out of Washington:


Yields don't matter.


Remember when it was, Deficits don't matter.  Well, we've kicked into higher gear now.

Wed, 12/15/2010 - 13:31 | 808451 Robslob
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Boooya moment!

Wed, 12/15/2010 - 13:31 | 808456 6 String
6 String's picture

Oh, Rosie. You are embarassing. ZH, you are seeing the light. I would love to see someone, anyone explain to me how the Federal Reserve exits, when they will be loading up on their own junk dung notes for the next two years, minimum.


Wed, 12/15/2010 - 14:09 | 808604 erik
erik's picture

I think it is safe to say that the American motto of the last decade has been, "there is no exit strategy".

The bulls would probably say that we are going to grow our way out of this problem and the Fed can slowly divest its considerable positions.

Wed, 12/15/2010 - 17:01 | 809313 hangemhigh
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yes, grow our way out. that's the ticket.  all we need are more and bigger tax cuts!!!

Wed, 12/15/2010 - 19:35 | 809954 CrashisOptimistic
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There does not need to be an exit.

The Fed can hold the bonds to maturity.  Ordinarily, at that date the Treasury has to return their capital.  The Fed will tell them not to bother.



Wed, 12/15/2010 - 13:31 | 808457 DavidRicardo
DavidRicardo's picture

Add this to the annual issuance of about $1.5-$2 trillion in gross debt issuance, and one can see why the supply-demand picture in bonds, far from being determined by economic fundamentals, will be very entertaining in the future.


And add stealth monetization and your're at about $16 trillion.


Remember that the United States Government now directly controls 40% of the economy.  What's that worth, in terms of monetization?

Wed, 12/15/2010 - 13:31 | 808459 ShankyS
ShankyS's picture

We can't afford BAB. States are screwed. Speaking with state rep last week says GA has 1.8B deficit out of the gate. Layoffs galore coming soon. Muni collapse immanent.

Off topic - I know of listed bank here that will announce more layoffs soon. Execs sweating bullets.

What is it gonna take to get people in the streets to stop the Fed before all is lost (if it is not already)?


Wed, 12/15/2010 - 14:02 | 808575 erik
erik's picture

BABs has been sell the rumor so far.  Will the news be the certainty (end of Congress session) BABs is not extended?  Once that becomes concrete we could see a one day capitulation in muni bonds and a subsequent rally.  Potential trade opportunity only of course.

Wed, 12/15/2010 - 13:33 | 808461 DavidRicardo
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If you want to understand the American economy going forward, better start researching in detail how a statist economy operates.

Wed, 12/15/2010 - 13:34 | 808465 plocequ1
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And Then God said " Let there be POMO" and it was done. And God saw that it was good.

Wed, 12/15/2010 - 13:35 | 808468 DavidRicardo
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The U.S. state and local governments will not be on the receiving end of as much federal aid in 2011 and yet face even larger fiscal gaps. So higher taxes and declining expenditures in this key 13% share of U.S. GDP is another clear downside risk and offset to the “goodies” that Washington just doled out (have a look at U.S. Munis Face Growing Credit Risk on page 22 of today’s FT).

The Government is already mulling over how to bail out the states without it looking like a bailout.  You'll have to look hard to see how this is done, because there will be every effort to camouflage it.

Wed, 12/15/2010 - 13:53 | 808543 the not so migh...
the not so mighty maximiza's picture

It will be something snazzy like "Obamas gift to Lincolns union"

Wed, 12/15/2010 - 14:24 | 808679 Cleanclog
Cleanclog's picture

Teacher grants, prison medical grants, transportation grants, mental health grants, clean water grants, clean air grants, etc  all to be funneled through the states in order to keep "critical" programs and unemployment from getting worse - that's my guess on how the Federal Government will "bail out" the states.  But that won't really fix deficits as much as keep status quo.

Wed, 12/15/2010 - 13:43 | 808498 RobotTrader
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U.S. Dollar getting squeezed higher.

Wed, 12/15/2010 - 13:51 | 808527 Ferg .
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Soaring against everything ; except the Canadian Dollar , which I can only assume is a result of today's oil surge .

Wed, 12/15/2010 - 13:59 | 808568 erik
erik's picture

the Swiss franc is also a winner so far in December, but not today.

Wed, 12/15/2010 - 14:05 | 808587 Ferg .
Ferg .'s picture

It's still doing exceptionally well against the Euro and Pound . Eur/chf and gbp/chf at record lows .

Wed, 12/15/2010 - 14:14 | 808627 erik
erik's picture

That makes sense to me.  If I'm European and part of the EU, I don't trust the Euro with what is going on, and I certainly don't trust the reserve currency USD either.  The Swiss franc is a logical safe haven.  However, Switzerland is all banks and insurance, so we need to see their exposure to the EU debt crisis before we can be completely comfortable.

Wed, 12/15/2010 - 19:51 | 810014 CrashisOptimistic
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Canada has oil and a lot of it.  More important, they are way, way pre Peak.  Hard to argue with Canada long-term.

Wed, 12/15/2010 - 16:24 | 809216 Bear
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"Squeezed higher?" ... Au contraire, the advance of the dollar is based upon growing positive fundamentals and a central bank that is dedicated to maintaining a solid and stable dollar.

Wed, 12/15/2010 - 13:45 | 808504 Cdad
Cdad's picture

Europe remains a clear downside risk for the global economic outlook with the problems spreading to Spain and Portugal (the ECB is now planning to double the size of its capital cushion in response to the spreading sovereign and bank credit problems). Contagion risks are being underestimated by Mr. Market

This might have something to do with why the comedy routine over the last few days on the EUR/USD chart has now turned into a Youtube video shot outside of a Hooters...and guys long this cross are hanging over the rail just now and hacking out this currency.

But I don't trade currencies, so what do I know?


Wed, 12/15/2010 - 13:47 | 808516 RobotTrader
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New highs in the S & P 500 priced in Euros and British Pound.

Wed, 12/15/2010 - 13:48 | 808519 TWORIVER
TWORIVER's picture

TLT suuport comes in first at 87, then 83.

Wed, 12/15/2010 - 13:56 | 808547 erik
erik's picture

the market is stair stepping downward, about to break yesterday's lows.  a very controlled selloff so far.  just ticked below yesterday's lows on the SPY.

Wed, 12/15/2010 - 14:05 | 808589 Cdad
Cdad's picture

Yes, the very surprising ;) rally in oil futures is holding things together enough so that robots--having lost track of their inside, front running tips sheet due to "messaging" problems on the NYSE--do not need to panic....YET.


Wed, 12/15/2010 - 14:19 | 808650 erik
erik's picture

I wonder what happens if the CFTC actually grows a pair and makes speculation limits a reality.  We need a new sheriff in town already.

Wed, 12/15/2010 - 16:19 | 809191 Bear
Bear's picture

Speculation limits? That's all the market has going for it now.

Wed, 12/15/2010 - 14:12 | 808616 johngaltfla
johngaltfla's picture

Of course when you the the .gov and Fed willing to eat the margin losses for the big players and leave the intermediate and small players to suck wind, it's no big deal.

The reality is that there are a lot of retailers who will be consuming post-Christmas shit sandwiches for meals becaues their margins squeezed them over the edge and into insolvency.

Wed, 12/15/2010 - 14:20 | 808656 Dismal Scientist
Dismal Scientist's picture

'In other words, the closer you are to the commodity complex, businesses have greater pricing power. And, the closer you are to the consumer at the final stages of production, the less pricing power you have.'

This is the comment that makes the most sense for 2011. Got miners ?


Wed, 12/15/2010 - 14:23 | 808672 erik
erik's picture

"(iii) the new folks in Congress are going to do more to limit or reduce fiscal stimulus instead of reinforcing it."

really?  the republicans took more seats for next year, but they've done very little to cut down on the debt in the lame duck session.  Congress doesn't want to decrease spending, they just want to decrease their opponents spending.

i'll believe it when i see it.

Wed, 12/15/2010 - 15:41 | 808979 Groty
Groty's picture

I don't always agree with Rosie, but he's spot on about margins.  I've been saying since the market started sniffing out QE2 on August 27 that margins were peaking.  The market seems to think end demand will drive top line growth, so even with contracting margins the bottom line will still grow.  Ain't gonna happen. 

People who think equities won't sell off because there's no alternatives are also misguided.  That complacency in the face of declining margins makes the market riskier now than any time in the past two years.  We're going to get a major correction soon.  The only question is will the performance chasers keep it from happening before year end or does it happen in January-February.  Everybody I talk to say January, which means the market probably already peaked. 

Wed, 12/15/2010 - 16:16 | 809176 Bear
Bear's picture

No, no, no way ... I listened to CNBC yesterday and they said that happy days are here again and that the market will surge through the end of the year and the go on to make new all time highs in 2011.

I don't know where you get your information ... but my broker says buy, buy, buy!



Wed, 12/15/2010 - 16:36 | 809272 cosmictrainwreck
cosmictrainwreck's picture

so Robo is your broker? or is it smails? well it's 3:30 PM.... th' boyz are sure try-try-trying to goose those silly indexes end-of-day, as always.... don;t look too good right now. oooops - egg on face again Dow jumps 8 points in a blink... unbelievable

Wed, 12/15/2010 - 16:54 | 809358 eidetic
eidetic's picture

Re Bond Capitulation:  Mr Rosenberg may be an accomplished fundamental observer but he's not a market analyst.  See our latest view on the long bond here -- http://www.metalaugmentor.com/eforum/?p=5598

Wed, 12/15/2010 - 19:54 | 810030 Fearless Rick
Fearless Rick's picture

You present a very convincing argument, especially the non-technical end-note which captures the Fed's QE-and beyond. The real wild cards are the new tea partiers in congress and whether they actually will impose fiscal sanity, though their efforts may only serve to forestall the inevitable.

What I found interesting in Rosie's analysis was again, at the end, where he mentions retail figures. They're not great, and may not even be good. Short term, the upcoming earnings season looks to be stressful. Equities will be hit and we all know where money goes when that happens.

Wed, 12/15/2010 - 18:23 | 809697 mkkby
mkkby's picture

Tyler, I think you need to explain why you think the fed needs to unwind the paper they've bought.  I don't think they ever will.  Why would they?  It's just printed monopoly money to them.  They don't need to make a profit or limit losses.  Ever.

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