According to the just released NYSE short interest update, the number of shares short on the NYSE group has just dropped to 2010 lows, after dropping by over 1 billion since the August highs. This has occurred pretty much in linear fashion: in the last 4 months, there has been just one two week period in which the shorts have increased. What is just delightfully ironic, is that even as broad market volume has collapsed, biweekly short covering has surged on a relative basis. In essence, the bulk of the market buying has been short covering, which traditionally is always 'offer-lifting' heavy, as shorts are willing to pay any price to cover underwater positions, especially if there is an accelerant involved, such as when a repo desk advises its "client" that State Street has decided to force squeeze financial stocks for the nth time since March 2009.
Following today's ugly 5 Year auction, and hot on the heels of the 180 degree EUR reversal from this morning, coupled with the renewed surge in gold and silver, the entire bond complex is again in free fall (and no, Build America Bonds has not and likely will not be renewed in its current form), lead by the 30 Year. And if this was based on an expectation of real rates rising, as the pundits would claim, which would be an expectation of economic improvement, then gold would not be flirting with its all time highs. Which means that today's market action in every asset class is representing the economy accurately, especially following the 4th consecutive home price drop be Case Shiller... every asset class except for stocks of course. Then again, with volume once again abysmal (MVOLNYE just under 1,400), HFT/Fed levitation programs are the only thing that is trading 100x P/E hot grenades as per always.
Simon Black's "Best Of 2010": Explains Why Planting "Mutiple Flags" Is Crucial For Our Insolvent AgeSubmitted by Tyler Durden on 12/28/2010 - 14:46
Simon Black, who for the past few months was frolicking in middle earth has reemerged again, this time from Buenos Aires, and shares a "Best of 2010" compilation with readers. "As we're quickly approaching the end of December, I thought it would be appropriate to republish a few letters from earlier this year. 2010 brought substantial growth for this community-- our numbers swelled, and I know that many readers probably missed some important letters from earlier days. Today I want to repost a letter that I originally sent to you in early January, just after the 2009 holidays. In it, I defined what planting multiple flags is, and why everyone should be thinking about it. As the events of 2010 have unfolded, I think those reasons have only become stronger."
Today's $35 billion 5 Year auction closed surprisingly weak, pricing at a high yield of 2.149%, a huge tail as they were trading at 2.07% WI. The bond came at a 2.61 BTC, Indirects accounted for 35.6%, Directs for 6.2%, and the balance, or well over half, was soaked up by Primary Dealers, who had to make sure this auction was not a dud. As access to our Treasury database is limited those wanting to see the auction represented visually will have to take our word for it for just how ugly it was. We are confident the bond weakness will be misrepresented by the Kool Aid Krew as a very positive development for stocks.
Next European Leg Down? First Failed ECB Monetization Sterilization, As Central Bank Has E13 Billion Shortfall In Bond BidsSubmitted by Tyler Durden on 12/28/2010 - 12:09
Today, to little fanfare, the ECB managed to obtain just E60.8 billion in tender interest for its most recent 7 Day SMP "peripheral bond monetization" operation, whereby it needed at least E73.5 billion to be able to offload all of its cumulative acquired sovereign bonds to other financial institutions: a de facto sterilization, which is why the ECB has so far been claiming it is not monetizing debt (as it constantly rolls the held balance on other bank balance sheets). That is no more: following today, the ECB is left with just under E13 billion in sovereign holdings and thus are not sterilized. This development follows Monday's announcement, which was reported first on Zero Hedge, that the ECB acquired 100% more in peripheral bonds in the prior week compared to two weeks ago. Another notable development: the number of bidding banks participating in the tender operation dropped to just 41- the lowest since the inception of the program in May when Greece went tits up and all of Europe was supposed to bail each other out in perpetuity. And what is most disturbing is that this complete lack of interest (or telegraphed lack of bank liquidity) happened even as the marginal rate jumped by over 50%, from 0.6% to 1%- the same as the maximum rate allowed on an auction. Should banks not come back with tender takedown interest next week, this could very well be the catalyst for the next leg down in the European crisis. Because despite what ING economist Martin Van Vliet told Reuters, "It has happened before but I wouldn't make too much of a big deal out of it", we would make a big deal out of it, as this has actually not happened before. For confirmation that ING economists may want to take an Excel 101 chart, below is the buffer shortfall in every auction since the program's inception. As is all too obvious, this was the first one that missed by a mile.
The December Consumer Confidence (Conference Board, not UMich) number misses expectations of 56.3 by a mile printing at 52.5. This is also a material drop from the November 54.3 print. On the very important topic of jobs, "Those saying jobs are "plentiful" decreased to 3.9 percent from 4.3
percent, while those stating jobs are "hard to get" edged up to 46.8
percent from 46.3 percent." And while this completely irrelevant data point (and how it could be down when the market is up is beyond is) is pushing stocks lower, elsewhere we see the Richmond Fed come way ahead of expectations, coming at 25 on expectations of 11. Nonetheless, since the recent weakness in other regional diffusion indices has been completely ignored in recent weeks, we see no reason why the market should suddenly pay attention to this traditionally secondary Fed indicator.
If Bernanke is hoping to eventually have restore HELOCs as a piggybank for the greater US population, he better come up with something quick. The Case Shiller for October, as always nearly three months delayed, shows that the double dip in home prices which started in June, is persisting. And since both new and mortgage refi apps have plunged in recent weeks following the spike in the 30 Year cash mortgage rate, do not expect to see any rise in Top 20 Composite MSA home prices. From the October print: the October SA Composite 20 came at 143.52%, a decline of 0.99% from September, and just down from a year earlier. There was a sequential decline in 18 of the 20 MSAs, with just Denver and DC posting an increase. The biggest drops were in Atlanta (-2.13%), Chicago (-1.80%), and Minneapolis (-1.76%). The decline was even worse on a non-seasonally adjusted basis, where the sequential decline in the Composite 20 was -1.32%. As the attached chart demonstrates, the double dip is accelerating, as the sequential drops are increasing in magnitude. This data flatly continues to refute claims that there is any economic recovery going on, as the primary source of middle class wealth continues to decline in value.
Guest Post: Retirement Account Fantasy And Middle Class Erosion – 1 Out Of 3 Americans Has Zero Dollars In A Retirement AccountSubmitted by Tyler Durden on 12/28/2010 - 09:44
Many Americans live precariously close to the edge of financial insolvency flirting with economic disaster daily. If you casually browse mainstream articles and watch any amount of television you would think that the US still had a vibrant and strong middle class. When we pull back the covers on the current financial situation we realize that many Americans are merely getting by and many would like to live in some 1984 Orwellian fantasy world where suddenly things are back to financial equilibrium. 43 million Americans are depending on government food assistance to get by. But many more millions are merely living paycheck to paycheck hidden in the cellar of the headlines. 1 out of 3 Americans has zero in any retirement account (not one slowly eroding dollar). Half of Americans have $2,000 or less which puts them one month away from needing government assistance. With the volatile job market and turbulent Wall Street middle class Americans are feeling the once prided stability being slowly washed away. Let us examine how retirement is now becoming more of a fantasy for many Americans.
Considering our level of nervousness following an uninterrupted battery of gold endorsements by Cramer, we felt much better when a week ago Doug Kass decided to bash gold based on his half-reading of Howard Marks' latest letter. To be sure, we assumed that this merely opens the way for yet another year end rally to all time highs, in line with the prediction by John Embry from two days earlier. And it may happen just yet: gold has surged by $8 in just the last 8 minutes and appears to be on track to surpass the $1420s record highs on short notice.
- Backlash over use of Fed crisis cash (FT)
- Non-US banks gain from Fed crisis fund (FT)
- U.S. gas price tops $3 a gallon, highest since Oct '08 (Reuters)
- Japan November Consumer Prices Fall for 21st Month as Deflation Persists (Bloomberg), signaling recovery is stalling
- Japan Production Rises, Signaling Recovery Is Intact (Bloomberg)
- Retailers Hurt by East Coast Blizzard as Post-Christmas Shoppers Stay Home (Bloomberg)
- Japanese Stocks Retreat on Commodity Prices, Strong Yen; Inpex Declines (Bloomberg)
- After a six month delay, the US budget will be delayed again (WSJ) good news is: 2011 may actually have a budget... eventually
Even though news of the Chinese rate hike have so far spared the US stock markets, the Shanghai Composite, the SHCOMP, is now down 5 days in a row, and is back to a level last seen in October 2010, at 2,733, following a 1.7% overnight decline. What is more peculiar is that the main Chinese index is now down almost 15% from the highs reached in the recent upswing, specifically the 3,160 close from November 8. Yet during this entire time, the US stock market continues to melt up on ever lower volumes, and if futures are any indication, last night's latest drop in Chinese stocks will be ignored yet again, as the reverse decoupling thesis is now the prevalent paradigm, 4 short months after it was China's turn to "grow" the world out of the re-recession.
Home prices, Richmond Fed, and a couple of readings on consumer confidence. More importantly, POMO is back, and Brian Sack will buy back $6-8 billion of bonds due 6/30/2013 – 11/30/2014, in the second to last POMO of the year. Tomorrow, Sack will buy some of the 2 Years that were auctioned off yesterday as the great shell game continues.
With Frau Merkel continuing to talk tough about the need for fiscal discipline, and rejecting euro bonds, it appears that there will have to be more market turmoil before the inevitable decisions are taken. GREED & fear says inevitable because it still seems likely that the end game will involve some form of German acceptance of collective fiscal responsibility and debt restructuring. This is partly because the German establishment is so committed to the euro and partly because of the practical fact that German banks have such big exposure to the debt of the European periphery countries. The past week have seen further signals that the above will be the end game.