RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 28/02/11
Dear Minister, Congratulations on your new appointment. As you read the civil service briefings on the present crisis, you will come to appreciate that Ireland's problems would be much easier to manage if your administration could choose the country's own exchange rate and interest rate. However, your officials and your colleagues may believe that there is no practical way to leave the present European monetary union and so achieve this flexibility. In fact, there is. Leaving the euro is politically tricky and economically costly in the short-term. But it is far from impossible. The long-term advantages clearly outweigh the short-term costs, and the politics can be managed. The following outlines how it can be done...
The US crackdown on its former business partner continues, with the US Treasury announcing it has "located and frozen" at least $30 billion in Libyan assets " as it seeks to deprive embattled leader Moammar Gadhafi of access to government and personal accounts, a department official said." Unclear is what the source of the funds was, where they were held, and whether any US banks would be impacted as a result. Also unclear is whether the US Treasury, which has to rely on a Ponzi check kiting game with the Primary Dealers to fund itself, and, of course, on the Fed to monetize its debt issuance, would confiscate any of this amount. "This is the largest blocking under any sanctions program ever,” said David Cohen, acting undersecretary of Treasury for terrorism and financial intelligence, during a conference call. “These blocking actions … are depriving Col. Gadhafi access to these assets and safeguarding them for the Libyan people." Since the bulk of the money came from the US and its European allies in the first place, it was supposedly not that difficult to track down.
And there was a time when people thought Obama was out to get the bankers...
It's not quite a triple forward (or inverse) ETF on gold just yet, but it's a start. Capitalizing on the surge in volatility in the commodity space, which together with FX has become the go to arena for day traders seeking volatility, which has been completely eradicated from stocks courtesy of the Bernanke Put, the CBOE and CFE have "announced plans to launch futures and options on the CBOE Gold ETF Volatility Index (Ticker - GVZ). Pending regulatory approval, CBOE Futures Exchange (CFE) will begin trading GVZ futures on Friday, March 25, and CBOE will introduce GVZ options a few weeks later." The reason for this product to be pushed on investors is that after peaking near 25 in December, the ^GVZ has plunged to one year lows as gold has steadily remained just off its all time highs. So if the first volatility derivative isn't generating the much needed commission broker P&L, it is time to break out 2nd and further vol derivatives. We expect a triple or more-leveraged ETF on gold and silver to arrive shortly, then followed by an ETF which tracks the theta in the first ETF , and so forth, until the entire market is dominated by "synthetic CDO-like" derivatives and nobody cares about the actual underlying, just so traders have something to keep them occupied. After all diversion, is half the battle.
It's 1:30 pm, the close of trading on the COMEX pit: do you know who is banging the close in your silver? Silver pits close at 1:25 pm, just as the flood in silver peaked. Gold followed suit, with its 1:30 pm close. This blatant attempt to dump PMs into the pit close and have silver and gold end trading on the books near the lows of the day merely confirms that "someone" is truly desperate to avoid an avalanche of margin calls. Of course, this uber-cheap trick works at best for a day or two.
Now that the Fed is by far the biggest institutional holder of US debt, it is time to conduct a periodic review of what, how and when Brian Sack has been monetizing in the past two years. As a reminder, as part of QE1, the Fed purchased $300 billion worth of Treasurys, the balance going to MBS and agency securities. QE Lite and 2 have, so far, focused only on USTs: as Morgan Stanley summarizes, as of today, the NY Fed has purchased a total of $456bn Treasuries / TIPS since August 10, or the announcement of QE Lite. Since additional LSAPs were announced in November (or QE 2 proper), the Fed has purchased $380bn. As the Fed is now roughly half completed with QE2, here is where we stand.
There’s major shift occurring right now in financial markets. Sure, the food and freedom riots that are spreading across the globe are a major indicator that civil unrest follows very closely behind resource shortages and economic turmoil… but there’s something else that I’ve noticed recently– it’s a sea change in the financial system. In the past, major crises normally caused investors to seek safe haven assets, and everything else equal, the dollar would rise. They call it a ‘flight to safety’, and investors would flock towards the perceived stability of US Treasury securities. Fast forward to today. Mubarak. Gaddafi. Khalifa. Al Said. Ben Ali. Etc. There is no shortage of turmoil right now… yet we are seeing the dollar get clobbered while gold, silver, and smaller currencies like the Swiss franc rise. This represents a major shift in the way that the market views risk. Ironically, this makes precious metals among the most attractive safe haven alternatives– the fact that they have no real functional value is a net positive. In other words, $20 wheat means blood in the streets. $2,000 gold only makes for pithy headlines, and its significance is easily dismissed when highly regarded sages like Warren Buffet dispute the notion of holding precious metals (nevermind he bought oodles of silver in the late 90s).
If CNBC is wondering whom to invite to its highly objective and oh so critical news dissemination service, they should take a long hard look at Oppenheimer's Brian Belski.
Feb. 28, 2010 (Bloomberg) -- “Rising oil prices simply do not have the shock value they once possessed” for U.S. consumers, according to Brian Belski, chief investment strategist at Oppenheimer & Co.
After all, Belsky has an impeccable oracular record.
Nov. 8, 2007 (Bloomberg) -- The decline in technology stocks today is an "overreaction'' and investors should buy shares of technology companies because they are undervalued, Merrill Lynch& Co.'s U.S. sector strategist Brian Belski said.
We look forward to Belski's appearance on nanosecond Fast Money.
Who said the CME can only hike margin rates? Today, the Chicago Merc announced that is "unveiled a
cross-margining plan that would help customers trading both interest
rate and Treasury futures, as the world's largest derivatives exchange
prepares for more competition." The step is a preemption of a comparable product to be offered by its recently sold competitor, the NYSE Borse. "The New York Stock Exchange parent expects in March to launch NYSE Liffe U.S., a rate futures market, at the same time as its partly owned New York Portfolio Clearing (NYPC) clearinghouse for the products." In addition to confirming that this step pretty much puts an end to persistent rumors that the CME may overbid the DB for the NYSE, what it also shows is that the exchange is perfectly willing to do anything it wishes when it comes to margin rules as suits it. "CME's new membership class -- called Financial
Instruments Clearing Membership (FICM) -- would provide margin benefits
of up to 65 percent between interest rate futures and Treasury
securities, it said." While we have yet to see a practical example of what this means, we predict that the implication is a major drop in margin requirements when trading products determined to be a national interest such as Treasurys.
RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 28/02/11
It appears we may have misspoken earlier when we suggested that today's peak-lunaticism will be that spouting from the mouth of one ex-Goldmanite Bill Dudley. Here is another current Goldmanite (whose recent GSAM P&L track record is in dire need of public dissemination), vying for today's prize. "If I look at the whole region together, then just at Africa in general,
MENA has the combined potential to be a BRIC-like economic group. In
this spirit, and despite all the horrible things happening in some of
these places, this revolution strikes me as being essentially rather
bullish." If it weren't for my horse...
Primary Dealers Violently Expel Just Auctioned Off Three Year Bond, As Fed Monetizes Over Half PD Holdings In Under Two WeeksSubmitted by Tyler Durden on 02/28/2011 12:35 -0400
Today's POMO closed with the Fed monetizing its usual fare of $6.69 billion in various 3 Year bonds, at a 5.81 Submitted-Accepted ratio. The surge in the S/A ratio is not surprising: a quick look at the internals shows just what the reason for the Primary Dealers' urgency was. Of the entire POMO, one CUSIP: the just auctioned off QH6 3 Year which was sold by the Treasury not even 2 weeks ago represented a whopping 81.1% of the operation. Observant readers will recall that this was the Cusip that was massively monetized ten days ago, when $5.3 billion of QH6 was purchased by the Fed. In other words, in under two weeks, the Primary Dealers have flipped over 50% of their original take down of the auction, or $19,890,840,000! In other words, had the Primary Dealers indicated their true interest in the bond, not accounting for expectations of an immediate flip back to the Fed, the auction would have been a failure. In this way, the Fed has now monetized 33.5% of the 3 Year that was sold to the unwitting public and foreign banks. Luckily, there is a 35% SOMA limit on Treasury holdings. Oh wait, that was scrapped as part of QE2.
US Military Says Repositioning Forces In Area Around Libya To Be Able To Provide Flexibility And OptionsSubmitted by Tyler Durden on 02/28/2011 12:04 -0400
Just perfectly anticipated headlines from Reuters for now.
US MILITARY SAYS REPOSITIONING FORCES IN AREA AROUND LIBYA TO BE ABLE TO PROVIDE FLEXIBILITY, OPTIONS
Whatever happened to stretching exercises? More as we see it. This week's US naval update on Wednesday afternoon should be interesting.
Dallas Fed Provides Latest Confirmation Of Corporate Margin Collapse, As Prices Paid-Received Difference Hits Fresh RecordSubmitted by Tyler Durden on 02/28/2011 11:55 -0400
Everywhere one looks (assuming one is more than just a market momentum, block order frontrunning algorithm... or a Deutsche Bank "strategist" of course), one sees relentless evidence of collapsing margins. Most recently, this was the Philly Fed, whose Price Paid less Prices Received index spread came at the highest since 1979. Well, at least it wasn't a record the Koolaiders said. Alas, that rebuttal will not work for the Dallas Fed. The latest diffusion index, which came at 17.5, on expectations of 13.0, confirmed two very much expected things: i) economic "growth" continues to be predicated on inventory stockpiling, as has been the case for the past two years, which is nothing but a highly speculative bet that demand will eventually pick up (and we pray the Dallas Fed respondents use FIFO not LIFO accounting), and ii) margins are getting crushed. Recreating the Philly Fed Prices Paid less Prices Received index shows that the differential of 45.50 is now at all time wides. Notably, the last time the spread was at or above 45 was in early 2008 following which everything went to hell. Expect to see many more diffusion indices confirm the relentless erosion in corporate margins, which in turn will result in either accelerating end-user inflation (unlikely), or imminent margin and EPS downside guidance, which even a reluctant Wall Street will have no choice but to take into account over the next several weeks.