Short End Weakness Continues - Weakest 56-Day Cash Management Bill Auction Follows Lousy 4-Week Bill AuctionSubmitted by Tyler Durden on 03/31/2010 - 12:13
The Treasury just closed its 6th consecutive 56-Day $25 Billion auction, and the result, to those who followed yesterday's weakest 4-week auction since August, should not be a surprise. The Bid-To-Cover was the weakest 56-Day SFP CMB auction and the weakest SFP turn out since August 3, 2009. Additional the High Rate of 0.16% was the highest, and compares to yesterday's 4 Week bill High of 0.15%. The Treasury curve is now getting aggressively spooked on the short end. All this is occurring as the UST has realized its folly of trying to duration shift the curve to longer maturities: yesterday we auctioned off an 18-Day CMB, and tomorrow will see the first 10-Day CMB: this is the shortest CMB since September 2008 when we saw a 7-Day Bill, and the exception of a 4-Day CMB issued on December 10, 2009. As for who the biggest participants were - no surprise: dealers accounted for 81.2% of the auction take down. That's another $20 billion worth of stock buying dry powder costing PDs just 0.16% to gun the market for the next 56 days.
With the quarter end here, and for some countries, fiscal, coupled with FX being the primary determinant in capital flows due to yet again spiking implied asset correlations, here is a snapshot of world FX heatmaps to see where the money is coming from and where it is going.
Based on data going back 90 years, whenever the 12-month rate of change (ROC) in the Dow Jones Industrials Average has exceeded 40 percent, it has generally signaled trouble ahead. In three cases, a 12-month ROC above that level has only marked a short-term pause, after which the market traded higher. But on 11 other occasions, similarly rapid advances have been followed by notable corrections, including the collapses that followed the 1929 and dot-com era peaks, as well as the 1987 crash. Given those odds, increasingly exuberant bulls might want to have a rethink.
If there is anyone whose opinion on healthcare reform matters, it is the MRAA, or the Marine Retailers Association of America. Feel free to venture a guess as to why the people who buy (and sell) yachts are the most critical component to any Obama financial plan. So if you care about how the new health care bill looks like from the perspective of those slightly more privileged, here it is, in simplified, bulletized form, to spare you combing through over 2,000 pages.
As SocGen's Dylan Grice points out, we have gotten to the point where the Shiller PE demonstrates S&P valuations are now back in the highest valuation quintile: in other words the market is now more expensive than during 80% of the time. The risk-return at this point makes little sense, because as Grice points out the 10 year return using this quintile as an entry point is just 1.7%, compared to 11% for the lowest quintile. So what should one do: "Go take a holiday if you can. Avoid the ?boredom trades?." If those two are not an option, Dylan provides some trade ideas.
For those wondering what caused the market to take a beating at 9:42 AM Eastern, it was the 3 minute advance release of the Chicago PMI to subscribers (a topic we have discussed previously). The index came out for the general mort consumption at 9:45 AM, when the bulk of the loss had already taken place. As for the actual data, add the PMI to the latest set of double dip inflection indicative data. After declining sequential increases of 5.8%, 4.8%, and 1.8%, the March PMI recorded a substantial downward move of -6.1%, from 62.6 to 58.8. And as you can see on the chart below, if it had not been for the Inventories subcomponent, which surged by 24% from 42.4 to 52.4, the index would have likely posted a double digit drop. As for the credibility of an inventory build up so late in the stimulus cycle, we will leave that to the integrity of the actual data.
Deja vu all over again. Looks like Goldman is about to be stopped out once more on its most recent EURUSD call. The Euro is now over the 1.35 stop limit. And so Goldman makes a boatload yet again as clients lose. Keep an eye on the official close. We wonder if this means third time will be the charm for GS which should next go EUR bullish (once again, and less than a month after the first failed such call).
- Former Bernanke colleage and co-author Vince Reinhart: "Geithner and
Bernanke Are Wrong about Fed Power. Letting the Federal Reserve keep a
hand in bank supervision and regulation is a mistake." (The American) Please read : Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment Author(s): Ben
S. Bernanke, Vincent R. Reinhart, Brian P. Sack Source: Brookings
Papers on Economic Activity, Vol. 2004, No. 2 (2004), pp. 1-78,
in which the authors (among whom is Brian Sack, head of the Fed's
trading desk) recall the golden days of Roosevelt's dollar devaluation,
and hint at what's to come for the US currency
- The Greek ex-Goldman guy who just blew up the 12 Year fly by is now preparing to issue $16 billion in dollar denominated bonds by early May. Ah yes, nobody can see behind the ruse of issuing bonds in the world's worst currency. Brilliant. Here's the funny part - Tim Geithner plans to issue $16 trillion denominated in Greek Drachma (Bloomberg)
- Emerging market currencies show short-term cracks (Reuters)
- Gartmore may face withdrawals after investigation (Bloomberg, Telegraph)
- Steve Forbes: "President Obama and Speaker Nancy Pelosi rammed ObamaCare through the House by unprecedented parliamentary trickery, bribery and deceit." (Forbes)
- Obama to permit oil exploration off Virigina coast (Reuters)
- Bill Clinton's $20 million break up with Ron Burkle (Daily Beast)
- iPad sales anyone's guess as analysts skip estimates (Bloomberg)
And just to make the miss a little more palatable, February was revised from -20K to -24K just to not show a double dip inflection point. Also, keep in mind the increasingly largest employer, the US Government, is not accounted for. Next up: Friday NFP and a +200,000 consensus, of which February snow counter-adjustments and census is about pretty much all of that.
- Asian stocks decline on concern rally may overvalue earnings; Yen weakens.
- Australia gives in-principle approval for Nomura unit to set up 2nd Australian stock exchange.
- Australian retail sales and building approvals unexpectedly tumbled by 1.4% in February.
- Consumer confidence in US improves, Home Prices climb amid job optimism.
- Greece plans to sell a global bond in dollars to help raise 11.6 billion euros.
- Ireland's banks will need $43B in capital after 'appalling' lending.
- Japanese business sentiment approaches pre-crisis levels, Tankan may show.
RANsquawk 31st March Morning Briefing - Stocks, Bonds, FX
Call it poetic justice. In its pursuit to kill CDS "speculators", Greece has shot itself in the foot, and potentially hit a major artery. Earlier today Greece tried to do a quick drive by with a €1 billion in a reopening of a 12 Year auction. Instead, it barely managed to get €390 million off: a miss by 61%, which anywhere else would have caused the organizers to scrap the auction and never mention it again (but not here). The lack of demand for the remarkably stupid surprise auction, orchestrated by former Goldmanite Petros Christodoulou, achieved no incremental funding for Greece but merely spooked the entire curve, and forced buyers of yesterday's 7 Year auction to take immediate losses, as the bond traded down from 6% to 6.27% (not to mention a move wider in CDS). This is the third sequential auction in which primary buyers have taken post break losses. At this rate of disappointment (yesterday the 7 Year had a meager 1.4 Bid To Cover ratio), soon Greece will be unable to pull anything issuance off. Yet the bigger reason for the lack of demand is even simpler: the hounding of all those who hedge exposure with CDS. It doesn't matter if one has naked or hedged positions - any purchase of Greek protection is enough to get the European secret services scouring through your garbage. And this is precisely what Zero Hedge and many others have been warning about for weeks. And just in case we might not have been clear enough, here is Deutsche Bank explaining once again, just how negative for primary issuance and for sovereign borrowers, the escalation in the anti-CDS rhetoric is.
In what could be a first step to appeasing the US and its requests for CNY revaluation, Caijing has reported that China may be considering expanding the daily yuan trading band. The yuan currently fluctuates up to 0.5% around the central CNYUSD parity set by the PBoC - today, for example, the CNY was stronger by 1 pip from 6.8264 to 6.8263. As reported by Market News, citing an
unidentified Chinese government source, "If the central bank does not want to see a quick rate hike, a
better way to fight inflation would be to expand the daily yuan trading
band to allow the yuan to appreciate properly." One interpretation of this development is that China, anticipating a delay of the Treasury report widely expected to brand China a currency manipulator, will placate the US just marginally and split the baby in the middle, by allowing a trading band expansion. Of course, this will do nothing to actually revalue the Yuan, devalue the dollar and boost US exports, but it will allow the Obama administration to save face and say "look, China made a concession" which the teleprompter will explain is an indication that the Obama administration now has the upper hand in Sino-US negotiations, followed by a round of applause from yet more to be soon unemployed people.
Forget April - for Jim "Mad Money" Cramer March may well have become the cruelest month. First, we broke the news that Cramer's TheStreet just became the object of an investigation by the SEC. What should be more troubling for the Mad Money Maestro is that the latest Mad Money Nielsen numbers just came in. And they stink: March was the weakest month for Jim Cramer's show in well over a year. After posting a slight improvement in February courtesy of the market's consternation with Greece, March was a collapse. Expect many more sound effects, props, gimmicks (luckily, no incremental cleavage is possible) shortly. Also expect much more pro-cyclical stock advice (buy if the stock market is going up, sell if vice versa), and more big picture proclamations that are refuted within 24 hours. Also expect many more ads for male incontinence products as the show has to resort to showing increasingly "distressed" advertising inventory.
The Census aims to be every man’s hero. It promises an economic stimulus, a reduction in unemployment, and greater funds for every community. Of course, the reality is much closer to a game of musical chairs with your money. And guess who will be left standing? The most immediate impact of the Census is that it distorts unemployment rates. With 1.2 million hired temporarily during the fall, the Census is already skewing the unemployment numbers in the government’s favor. Specifically, the fall data shows unemployment at 9.8% (Sept), 10.1% (Oct), and 10% (Nov). Who can forget the hoopla over the November reduction from 10.1 to 10? To government officials, it was as if the clouds had parted after a relentless hurricane, “proof” that the massive stimulus spending was working. In an attempt to get a clearer picture of the effect from the Census on unemployment data, we evenly subtracted the 1.2-million Census bump across fall’s unemployment rates and found the new numbers ringing in at 10.1% (Sept), 10.4% (Oct), and 10.1% (Nov). If a one-tenth-of-a-percent drop in November was a reason to celebrate, then a three-tenth-of-a-percent October upward revision is a reason to cringe. In the months ahead, expect the same number games.