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RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 21/09/11

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 21/09/11



Tyler Durden's picture

Twist Spin Begins As Morgan Stanley Tries To Pass Fed Action As Bigger Than Expected

And so the Twist spin (pun and all that) begins after Morgan Stanley's Jim Caron tells clients that OpTwist will remove "more duration risk than expected." He says that the operation will remove more than $500 billion in 10 Year equivalents of duration risk from the market, which is far higher than the firm's expectations, and adds that he was "most aggressive on the street" saying the consensus was for $300 billion in 10 Yr equivalents, especially with QE2 removing $490 billion in 10 Yr equivalents. Well, Jim, the problem is that you are right about bonds - when it comes to Twist a lot of it was priced in, but judging by the 30 year reaction, not all. However, when it comes to stocks, the robots had been expecting not just Twist but a significant LSAP component, potentially up to $1 trillion. Which explains the unwind. And as for the opportunity cost of Twist, it is shown in the chart below. As SMRA just predicted, the average maturity on the Fed's balance sheet is about to soar by 33%, from 75 months to an all time record 100 months. This means the Fed goes all in on being able to control rates. Should the Fed have to print, and it will before long, at that time the Fed's interest rate risk will be unprecedented, and should it lose control, it will lose not only that, but all credibility it is capable of keeping something, anything, be it inflation, unemployment or price stability, under control. Then, it will be truly time to panic.



Tyler Durden's picture

Epic Failure In Fed's Price Stability Mandate As Treasury Curve Shift Is Most Abnormal In 30 Years

As Diapason's Sean Corrigan demonstrates, the Fed has failed at not only every single explicit mandate, such as keepin inflation and unemployment under control, but in its most important implicit one as well, that of preserving price stability, following an 8 week 2s30s curve shift which has been the greatest such move in 30 years, and a nearly 3 sigma event. 3 SIGMA... In boring government bonds...



Tyler Durden's picture

Disappointment With The Fed

There are lots of things out there that once they have been done, can never be undone. Ben just disappointed the market for the first time. Whether he knew it or not he failed to beat expectations. He has been so good at managing expectations and using that as a policy tool he lost sight of how far ahead of itself the market had gotten. Everyone expected twist and seriously, what's a 100 billion in size between friends in this crazy market.



Tyler Durden's picture

Presenting The Maturity Change Of The Fed's SOMA Treasury Holdings

Wonder why the Fed's DV 01 is about to surpass $2 billion in a few short months? Because the downward sloping line below, which shows the average maturity of Fed holdings, is about to go up, up, up. And yes, that means that every 0.01% change in interest rates will mean a $2 billion capital loss for the Fed. But, oh yes, the Fed can always print money so no risk there...



Tyler Durden's picture

Goldman's Take..."A Bold Twist"

BOTTOM LINE: Fed "does the twist", announcing plans to sell short-term securities and buy longer-term Treasury securities through mid-2012. Though IOER remains unchanged, overall the move is more aggressive than expected given a) a relatively large share of purchases at the long end of the yield curve, b) plans to reinvest prepayments of agency debt and MBS back into agency MBS, rather than in Treasuries.



Tyler Durden's picture

Wall Street Pundits' Kneejerk Response To FOMC Statement

Here is the summary kneejerk response out of a panel of Wall Streeters, all of whom perfectly anticipated just this announcement. How else...



Tyler Durden's picture

2s10s, 30 Year Yield Pancakes As Bernanke Sets Off On Bank Carry Trade Deathwish

Congratulations Ben: you succeeded in getting the 30s to a near record low level (and by far the lowest for 2011) , which also means that the entire curve will soon be flat as a pancake, killing Net Interest Margin, aka curve carry for the banks, momentarily. Good bye Bank of America. Have fun riding that bear market rally with no financial leadership for the next several years.



Tyler Durden's picture

Operation Twist Is Here - Fed To Buy $400 Bilion USTs With 6 To 30 Year Maturity, To Roll MBS Maturities Into New MBS

  • FED SEES `SIGNIFICANT DOWNSIDE RISKS' TO ECONOMIC OUTLOOK
  • FED TO BUY TREASURIES WITH 6-YEAR TO 30-YEAR REMAINING MATURITY
  • FED LEAVES FEDERAL FUNDS RATE TARGET AT ZERO TO 0.25 PERCENT
  • FED SAYS PROGRAM PUTS `DOWNWARD PRESSURE' ON LONG-TERM RATES
  • FED TO SELL TREASURIES WITH 3-YEAR OR LESS REMAINING MATURITY
  • PLOSSER, FISHER, KOCHERLAKOTA DISSENT FROM FOMC DECISION
  • FED REPEATS `EXCEPTIONALLY LOW' RATES THROUGH AT LEAST MID-2013
  • FED TO BUY $400B OF LONG-TERM DEBT, SELL $400B SHORT-TERM DEBT
  • FED EXTENDS AVERAGE MATURITIES OF SECURITIES HOLDINGS
  • FED TO REINVEST MATURING HOUSING ASSETS IN HOUSING DEBT


Tyler Durden's picture

Another Delta One Casualty: Former Goldman ETF Trader Caught In Insider Trading Bust

Just because the correlation trading known as Delta One has not had enough bad publicity, not to mention the firm known as Goldman Sachs, here comes another intersection of the two circles in the most recent Venn Diagram...



Tyler Durden's picture

Notes From The Sales Desk: "All Glory Is Fleeting"

Blow up the debt, you blow up the banks. Blow up the banks, you blow up the $700tr derivatives market. Blow up the $700tr derivatives market and the world we’ve known since Bretton Woods changes forever. It’s the same thing that had Hank Paulson corralling senior members of Congress into a wood-paneled room telling them that if he doesn’t get TARP the world will end. He was wrong then and the fear-mongers in Europe are wrong now. Let the banks blow up, let the equity holders get wiped out and the debt holders take haircuts. Guess what? The sun will continue to rise. Sensible, solvent players will move in to pick up the pieces and the real business of healing a horribly broken economy can finally begin but not one second before we force real capitalism down the throats of the current crop of pseudo-capitalists running the world. We’ve had a nice run as the world’s super power. Almost 66 years at the top of the world isn’t too shabby. And no matter what happens during the next few years that would see the US knocked off its perch as sole super power, we will still be an economically important, vital member of the global community. The sooner we acknowledge that the current economic system, that we in the US sit firmly on top of, is broken and needs massive, perhaps even painful fixing, the sooner we can get back to being a great country. In the meantime, the Bernank will tell you how he plans on extending the bad system at 2:15pm. Enjoy.



Tyler Durden's picture

Guest Post: Daniel Yergin And Peak Oil - Prophet Or Mere Historian?

On 17 September The Wall Street Journal published a fascinating article on “peak oil,” “There Will Be Oil,” written by Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, an energy research and consulting firm and deserved recipient of Pulitzer Prize for his 1991 book, The Prize: The Epic Quest for Oil, Money and Power. According to The Wall Street Journal, “There Will Be Oil” “is adapted from his new book, The Quest: Energy, Security and the Remaking of the Modern World.” The essay will doubtless have widespread influence amongst prosperous The Wall Street Journal readers, but in his glib dismissal of “peak oil” theory advocates, Yergin glosses or ignores a number of issues fundamental to the larger picture, for whatever reason, and these oversights should be considered in any evaluation of the piece and the peak oil “specter.”



Tyler Durden's picture

Bank Downgrades Jump The Atlantic: S&P Cuts Numerous Italian Banks

Just so the Italian banks don't feel isolated and get more than their fair share of intraday limit down closes, here comes S&P, via Bloomberg:

  • S&P Cuts Ratings on 15 Italian Banks After Italy Downgrade
  • S&P cuts Intesa Sanpaolo ratings to A from A+; outlook negative
  • S&P cuts Mediobanca ratings to A from A+; outlook negative
  • UniCredit Spa Rating Outlook to Negative by S&P
  • Findomestic Banca Cut to A From A+ by S&P

Judging by the market response, forget QE3: QE 3000 must be coming.



Tyler Durden's picture

Meet Greek Austerity...At Long Last

Well it seems the impending maturities of GGBs has forced the Greek's hands as they drag austerity measures into the here and now - and in dramatic manner.

 

*GREEK PENSION CUT FOR THOSE EARNING MORE THAN EU1,200 A MONTH

*GREECE TO REDUCE TAX-FREE THRESHOLD TO EU5,000 FROM EU8,000

*GREECE TO REDUCE PENSIONS BY 40% FOR THOSE UNDER 55

*GREECE TO CUT WAGES OF 30,000 STATE WORKERS THIS YEAR

*GREECE TO CUT PENSIONS OVER EU1,200 BY 20%: STATEMENT

 

UPDATE: Full Statement Attached



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