Flight to Safety
Very Weak 5 Year Auction Raises Speculation That Neither US Dollar Nor Treasurys Are Flight To Safety Any LongerSubmitted by Tyler Durden on 02/23/2011 14:19 -0400
The US Treasury completed the latest ponzi shuffling of Treasuries to Primary Dealers (who will shortly send it all back to the Fed, pocketing a few hundred million in bid/ask spreads and commissions in the process), selling $35 billion in 5 Year bonds at a 2.19% high yield, the highest since April 2010. The internals, as has lately been the case, were not pretty. The bid to cover was 2.69 compared to 2.97 previously and 2.76 LTM average. Directs took down just 7.7%, as it now becomes obvious that the "UK" is no longer gobbling up bonds, and we expect the UK-bond build up as per TIC will stop in a month or two tops. Indirects also took down less than average, as foreign banks purchased just 34.2% of the auction, compared to 41.5% on average. Which of course means that PDs had to step into save the day: at 58.2%, PDs took down the highest amount since July 2009. Lastly, the auction prices about 2 bps wide of the when issued. That we could have such a weak auction in a day when risk is surging, is a stunner. Have gold and silver (and the CHF) finally become the widely accepted new risk avoidance products, instead of the USD and the UST? If so, that is a far bigger revolution than anything happening in the Maghreb now.
Perhaps it is time for Doug Kass to reevaluate his "gold to triple digits" thesis?
Yet another confirmation that there is nothing left in this market for sensible stock pickers, courtesy of Lehman's head of quant strategy, Matt Rothman: "In summary, the lower the quality of the company the more they are helped by an easy monetary regime. In these situations, true fundamental investors who focus on such banalities as valuations, free cash flow generation, the repeatability of earnings and the return on shareholder equity find themselves struggling to generate returns." What is sad is that Fed's tinkering with the stock market has now eliminated even that old-time staple trade: the Flight to Safety. Why be worried when the Chairman will not let anything fail? "Bluntly, if you had laid out for us the headlines at the beginning of the month, given them to us in full detail, and asked us to predict how our Quantitative Factors would have performed, well, we would have been wrong. Embarrassingly wrong.... There was simply no flight to quality among investors...Aside from the Euro/Dollar trade, there wasn’t much of a quality trade really anywhere in the market." And with QE3 planning already in process, this inverse flight to safety trend, where increased risk means an even faster scramble for the shittiest assets imaginable, will only get more pronounced. Welcome to the true new normal.
As stocks continue to correlate with exactly nothing, and are once again lost in their own HFT dreamworld, which fools Atari in believing the toxic crap it is churning millions of times each second is worth something (and the exchanges gladly continue to pay liquidity rebates for said churn), the capital continues to quietly flow to safety. The EURCHF is now persistently hugging the 1.29 line, which a mere month ago would have sounded like suicide for the SNB, the 2s10s30s is unchanged on the day, as the treasury complex refuses to budge, and lastly, gold, which has surged from $1,234 to almost $1,250, as ever more money is put into safe assets. As usual, stocks (especially the high beta variety) are the last to get the memo. Once they do, the snapback will, as usual, be vicious.
And once again, all of Europe is dumping its deposits in Switzerland, running away from domestic banking centers, and making the lives of Hungarian CHF-denominated debtors a living hell. The EURCHF just hit an all time low of 1.3066. The Bank intervention sonar just went apeshit as both the BoJ and the SNB are fully expected to intervene at any moment.
Will The EU's Greek Indecisiveness Spell The End Of The Euro Resurgence And Start A USD Flight To Safety?Submitted by Tyler Durden on 01/31/2010 14:18 -0400
When the euro emerged as a consolidated currency over a decade ago, hopes were high that its advent would present a challenge to the USD as the default world reserve currency. Times were different (and much simpler, with shadow banking complexity a tiny fraction of the current $1 quadrillion+ behemoth) and as BofA says, "perception that the euro is well placed to rival the USD as a reserve currency has underpinned the increased euro allocation to a level much greater than the sum of the roles played by its constituent parts. This has been justified on the grounds that the unified European financial markets would offer similar breadth, depth and liquidity to those of the US." Alas one concept largely ignored was that unlike the US, where there has been one consolidated bond market reflecting the underlying marginal credit and liquidity risks behind the US currency, in Europe "there remain 16 separate government securities markets with very different levels of credit risk and liquidity." The ongoing Greek crisis has only reminded pundits of this phenomenon all too well.
The one month T-Bill is now trading negative (-0.01%). Year end window dressing is either woefully early or late. Flight to safety is woefully right on time. Lehman redux.
Treasuries and equities now being bought together, the only driving factor is the continued crashing of the dollar. Apparently every asset class is now a safe haven from the continued pillaging of the US currency.