Today the Fed released its Q4 Flow of Funds, aka Z.1, report. Using the data in this report, some have focused on such temperamental measures as household net worth, which in Q4 came out at $54.2 trillion, a $700 billion increase from Q3. What they will not disclose is that all of this increase came courtesy of the stock market, as the "Equity Shares at Market Value" line increased from $15.546 trillion to $16.234 trillion: this represented the entire increase in household net worth. Should the market dive, as many are concerned it is will once the Fed stops manipulating the mortgage (and potentially equity) market, watch all this intangible net worth disappear, as unbooked profits are just that - unbooked. Others will tell you that consumer deleveraging continues unabated, which is true: the decline in total non-financial debt in Q4 for Households and Businesses was -1.2% and -3.2%, respectively. Who made up the difference: the US government of course, whose domestic nonfinancial debt holdings increased by 12.6%. We, instead focus on Tables F.209 and F.210, the detailed listing of holders of US Treasuries and Agencies/MBS securities, as this is precisely where the Fed is the dominant market maker, and the means by which Ben Bernanke continues to manipulate the market by being the perpetual bid for 5% and lower yielding securities, thereby forcing all other yield chasers to go lower in the cap structure and buy, buy, buy all equities. And while there are no major surprises in the data set, it is notable that even as the Fed has purchased over $1.5 trillion in Agency/MBS debt, the total amount of all such securities over the past year has remained constant. The Fed has been buying everything that other have been selling. Adjust the data to exclude the Fed's purchases and one sees just how scary the MBS situation truly is.
$13 Billion 30 Year Reopening Closes At 4.679%, Directs Take Down Whopping 29.7%: A New Record, Indirects Settle For Mere 23.9%Submitted by Tyler Durden on 03/11/2010 - 14:19
Yield 4.679% vs. Exp. 4.702%, Allotted at high 82.8%
Bid To Cover a massive 2.89 vs. Avg. 2.56 (Prev. 2.68)
Indirects at miserable 23.9% vs. Avg. 42.32% (Prev. 40.77%)
Direct take down an absolutely stunning 29.7%
Direct hit ratio 44.4%
Bob Corker, Humiliated By Chris Dodd, Joins The Fed Bashing Brigade; In The Meantime Ted Kaufman Shows Everyone How It's DoneSubmitted by Tyler Durden on 03/11/2010 - 13:18
Earlier today political corpse Chris Dodd said that he would proceed with unveiling a financial reform bill on Monday without Republican participation, in a humiliating blow to Bob Corker, who was most recently seen doing all he could to help his Wall Street colleagues make sure the Volcker plan would never see the light of day. Yet with recent rumors out of Washington that not only is the Volcker plan alive and well, the double whammy for Corker may be coming any day. So what does the Tennessee Senator do? He joins the Fed bashing brigade. Among his remarks from his conference given today after his was "fired" by Dodd, was the observation that the "Fed will have its wings clipped in reform" and that the "Fed is lobbying hard to protect its marble buildings." No doubt Senator: it is people like you who make Fed (and broader Wall Street) lobbying efforts quite easy. We hope that you and all your other bought and paid for colleagues in the Senate can learn from Senator Kaufman, whose speech on financial reform we already posted earlier, but which needs to be read and understood by all who are serious about regulatory reform, instead of puppets like Chris Dodd who huff and puff, yet only want to secure a friendly donation paycheck from his core Wall Street constituency, well into his retirement days.
Here comes the first municipal Hail Mary: Detroit is attempting to sell $250 million in debt, while disclosing in the associated prospectus of the possibility of filing for Chapter 9 bankruptcy protection. The kicker as Bloomberg News reports - no recent financial statements are available. In fact, Detroit is providing investors with a a financial statement from June 30, 2008, with a fiscal 2009 report "expected" to be complete by May 31. To say that a lot has changed in the past two years for the city whose unemployment some say is in the double digits with a 3 handle,would be an understatment. Yet we are confident that having no access to actual financials will not stop investors who in their feverish quest of Return On Capital are completely forgetting about the Return Of Capital concept.
More postcards from a post-austerity Greece where 10,000 protesters take to the streets. Pick the CDS speculators out.
The older I get the harder it is to stop myself from getting too jaded, and too cynical. It is an even harder task these past few years, as I am not only working against the natural cynicism of age, but also the fact that we have all had a front row seat to the greatest financial meltdown of our generation. Too many books have chronicled all the insiders who have benefitted from this meltdown, and there are no shortage of government officials whose hands are dirty (gander at Fannie and Freddie’s lobbying recipients, and payroll lists). Occasionally, though, we get a glimpse of something good. Genuine. Void of self-interest. Today Senator Kaufman will speak on the floor about financial reform in general. We were lucky to have met the man and his staff, and to see raw energy and concern for the public good at work is rare and inspiring. The Senator is not running for re-election. All that he has done, and is doing, is because he feels it is right, and he cares about America, and its proper priorities. Agree or Disagree? Not even the point. Watching him and his staff in action makes me see how harmful lobbying is as an activity, and how bad multi-term government officials are. If we want change, maybe we should limit Senators to serving one 6 year term, or two 4 year terms MAYBE. No exceptions.
After just 5 days of relative quiet, a rumor of a Greek 3 Year bond issue is pushing GGB spreads higher over in Greece. 2 Year yields have jumped by 22 basis points to 4.91%, with concerns about the short-end of the curve are pushing the long-end wider as well, with the 10 year drifting wider. Selling in bonds has caused CDS spread to also widen, meaning that the latest round of CDS scapegoating is expected to commence in a few short minutes.
Labor Unions Preparing To Take Goldman Sachs To Task, Push For Transaction Tax In Upcoming Widespread RalliesSubmitted by Tyler Durden on 03/11/2010 - 10:58
America's labor unions are finally waking up from their deep slumber and noticing the vast schism in American society between the haves and the have nots. The catalyst: Wall Street's $16.2 billion bonus pay day. As a result Richard Trumka, head of the AFL-CIO, the nation's largest union organization, and a firm supporter of the transaction tax which was proposed in late 2009 and then promptly buried after some serious lobbying by Wall Street, will announce today "two weeks of protests aimed at Goldman Sachs Group Inc., the most profitable securities firm in U.S. history, and the country’s five other largest banks. The AFL-CIO says it plans 200 events covering all 50 states, starting March 15." Summarizing the mood of increasing populist aggression across the nation against Wall Street's uber-wealthy is labor professor at UC Berkley Harley Shaiken: “Wall Street has become a symbol of greed run amok, and what labor is doing here is seeking to demonstrate that it is speaking for working families generally, union member or non- union member.” Strikes in Greece have already paralyzed the country. Will America soon follow?
Hedge funds are not seeking to dictate economic affairs. Rather we are preoccupied by price. A market-based economy like ours requires a pricing mechanism to allocate resources and ensure that we all prosper. Get it wrong and we endure the calamity of the technology bubble and the sleazy debacle of the American mortgage crisis. It's not that hedge fund managers are bitter and seek to wreak havoc. It's just that we believe that recurring and periodic recessions reveal the economy's winners and losers. And through our endeavours, hedge funds attempt to discover the identity and inadequacies of the poor businesses. During hard times, such businesses typically go bust, allowing us to make an investment profit by betting on that eventuality, and ensuring that successful and prudently managed businesses prosper. - Hugh Hendry
- Bring back the capitalist model (Washington Times)
- Initial claims at 462,000, higher than consensus, continuing claims higher by 37,000; snow not implicated (Bloomberg, Reuters)
- Naked swap crackdown in Europe rings hollow without Washington (Bloomberg)
- Volcker rule gets lift in Senate amid reform talks (Reuters)
- Greeks strike over budget cuts, stocks decline (NYT, Bloomberg, Reuters)
- China inflation surges (Bloomberg, Reuters)
- Asian bourses turn lower after release of higher-than-expected Chinese inflation data.
- Bank of Korea keeps key interest rate at record low as economic growth slows.
- China inflation, production accelerate, adding pressure for stimulus exit.
- Chinese property prices were 10.7% higher than a year earlier in February: Govt agency.
- Federal Reserve gets a new look as regulator of largest, riskiest firms.
- Japan's Q4 GDP grew at an annual 3.8% pace - lower than the prelim reports of 4.6%.
- Oil falls below $82 in Asia as traders look for US crude demand to match growing economy.
- US Senate passes $150B bill for jobless aid, tax breaks.
RANsquawk 11th March Morning Briefing - Stocks, Bonds, FX etc.
RealtyTrac Reports 308,524 Foreclosure Filings In February, 2% Decline From January, Snow Slows Down Foreclosure ActivitySubmitted by Tyler Durden on 03/11/2010 - 01:12
RealtyTrac has reported February foreclosure activity, which at 308,524 units, was a 2% decline from January, and a 6% increase year over year. This equates to one in 418 housing units. And not surprisingly, the snow was once again implicated, this time in painting a falsely positive picture of the economy as "severe winter weather temporarily slowed the processing of foreclosure records in Northeastern and Mid-Atlantic states." From Jim Saccacio, CEO of RealtyTrac: “The 6 percent year-over-year increase we saw in February was the smallest annual increase we’ve seen since January 2006, when we began calculating year-over-year increases, but it still marked the 50th consecutive month of year-over-year increases in foreclosure activity. This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity — albeit at a historically high level that will likely continue for an extended period." In a nutshell, the foreclosure extend and pretend got a snow day holiday in February.
European Commission To Back CDS Trading Ban As Second Round Of Strikes Cripples Greece; Greek GDP Now Expected To Miss Worst Case ScenarioSubmitted by Tyler Durden on 03/10/2010 - 23:35
The Washington Post reports that the next "Lehman-sized" event may be just around the corner, as the European Commission is now supporting a ban on trading sovereign CDS. While we are in process of tracking down whether this is actual news or just some exaggeration based on semantics, we will caution, once again, that the consequences of a CDS trading ban will be severe and very likely result in the opposite of what the EC intends on achieving. Keep in mind that everyone expected the Lehman bankruptcy to be contained as it was at best a fringe cog in the financial system. The result was a systemic collapse as one interlinked component of the financial fabric imploded after another. The rush to unwind CDS positions ahead of a ban will be massive and have unpredictable consequences. But the biggest threat is what happens to bond prices, which once basis trades are made impossible, will be promptly unwound, leading to pervasive selling of the cash leg not by speculators but by plain vanilla mutual fund idiot money. What scapegoaters seem to forget is that the vast majority of existing sovereign CDS notional is tied into perfectly boring insurance "basis" trades, in which the bond is held in combination with associated CDS. Once there is an inability to have hedged cash sovereign exposure, the demand for European sovereign paper will plummet, achieving precisely the opposite of what the CDS ban is attempting to accomplish.
S&P Futures managed to test the Jan 11th highs but risk aversion in credit remains significantly shifted since then which we find intriguing. VIX is slightly higher than at 1/11, 10Y TSY 10bps lower in yield with a notable duration extension into the 5-7Y region of the curve and away from 2Y and 30Y, DXY is up 4.5% but oil is a smidge lower while Gold is -$44. All of these changes as equities reach 2010 highs once again. It is the credit shifts that we find the most notable in the last 42 workdays. IG is 7bps wider than at 1/11 (with IG intrinsics 13bps wider!). HY is 43bps wider (and intrinsics 39bps) from the closing level on 1/11. Main and ITRX are also notably wider today (9bps and 25bps respectively). In single-names, wideners outpaced tighteners by a huge 6-to-1 and while FINLs outperformed non-FINLs handily in IG names, the majors have seen dramatic curve flattening in that period as well as decompression (remember IG13 has AIG/ILFC and none of the major banks).