Just like Goldman top ticked the EURUSD trade to within a few hours of the multiyear low of the pair when it issued its downgrade from 1.35 to 1.15, so today's notice that Goldman is now bearish on the dollar should be enough reason for everyone to short the living daylight out of the euro. Amusingly even as the GS Global Market team sees a major slowdown in the US, somehow the rest of the world (BRICs) is supposed to pick up the slack, even as Jim O'Neill himself has now said he expects China to decelerate materially. Also, according to Goldman's "GS Bond Sudoku Model" the fair value on the 10 Year is at 3.1%, "with a very grim macro backdrop needed to justify yields at 2.5% or below." Well if the Sudoku says so... Altogether confusion is rampant, but the only thing that matters is that Goldman is now buying dollars and selling euros.
Details of the latest offering of the 3-10-30s have been released. Between July 12 and 14, the US Treasury will auction off $69 billion of 3, 10 and 30 Year bonds.
- $35 billion in 3 Year Bonds on July 12 (link)
- $21 billion in 10 Year Bonds (reopening) on July 13 (link)
- $13 billion in 30 Year Bonds (reopening) on July 14 (link)
We anticipate there will be no glitches in the take down of this latest total, which amounts to about 33% of the average recent monthly deficit, as "direct bidders" continue to increase their participation. These auction will be promptly followed by another 2,5,7 offering as there are hundreds of billions in budget shortfalls that can only be funded thru endless debt issuance.
The irrational exuberance of the last 24 hours has evaporated following the Meredith Whitney downgrade of Goldman 2010 EPS, but mostly after reports that some European banks are so busted they managed to fail an exquisitely doctored test designed so that no banks would fail. The market is once again wondering if someone can fail this farce, what would the test of reality look like? The result: the traditional carry-risk correlation has once again recoupled and with countless such occurrences continues to be the most routinely profitable intraday trade available.
The irrational exuberance of the last 24 hours has evaporated following reports that some European banks are so busted to fail an exquisitely doctored test designed so that no banks would fail. The market is once again wondering if someone can fail this farce, what would reality look like? The result: the traditional carry-risk correlation has once again recoupled and with countless such occurrences continues to be the most routinely profitable intraday trade available.
Just a rumor for now. On the other hand, it conforms precisely to Credit Suisse's earlier announcement that Post Bank, in addition to Greek ATE, Piraeus, Helenic Postbank NBG would fail the Stress tests. (more to come).
RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 08/07/10
Some interesting developments in the mutual fund arena, where a trailblazer, the Appleseed Fund, has announced that beginning July 1 it will no longer invest in Too Big To Fail banks: "Given the failure of regulators to prevent the previous credit crisis
and the subsequent failure of legislators to break up the massive and
very much interconnected banks that helped to create the crisis, it is
incumbent on depositors and investors to vote with their wallets. Until
the financial system is truly restructured, the Appleseed Fund will
avoid investments in too-big-to-fail banks, choosing instead to invest
in regional banks, community banks, and credit unions which lend money
to families and businesses that operate in the productive sectors of our
Nat gas is in freefall after the EIA reported a much larger than expected build up in natgas inventories: the Energy Information Administration reported an increase by 78 billion cubic feet for the week ended July 2. Expectations were for a 70 bcf increase, while the last week reading was at 60 bcf. The result is a freefall in the price of nattie which has now plunged 5% for the day, and is back to early June levels. Today's move is sure to result in major adverse P&L at some of the key players in the space.
Freddie 30 Year Fixed Rate Mortgage Rates At Fresh All Time Lows Are Little Help For Housing; Rosenberg's Views On Pervasive "Revolts"Submitted by Tyler Durden on 07/08/2010 10:45 -0400
Today, Freddie Mac announced that the 30 Year FRM declined to a new all time record low, dropping by 1 bp to 4.57% from the week before. Yet even as mortgage rates hit fresh weekly records courtesy of the Fed's undisputed control of the mortgage market, the only thing increasingly more certain is that even at 0.00% there is precious little marginal demand in the primary market for housing. Here are the latest observations from Rosie on precisely this phenomenon, and much more.
The IMF has issued a less than stellar outlook of the US economy after consultations with US government authorities, in which it cautions that even as the outlook has generally improved, major downside risks remain: "On the downside, the backlog of foreclosures and high levels of negative equity, combined with elevated unemployment, pose risks of a double dip in housing; the continued deterioration in commercial real estate poses risks for smaller banks; and financing conditions remain tight, especially for smaller firms reliant on bank finance. Most recently, and tipping the balance of risks to the downside, sovereign strains in Europe have become an increasing concern, potentially impacting the United States through financial market and, in a tail risk scenario, trade links." Also notable is the fund's warning on the state of the US consumer and the perceived overvaluation of the dollar: "It follows, as also emphasized in last year’s Article IV, that the United States can no longer play the role of global consumer of last resort, underscoring the importance of measures to boost growth and demand in current account surplus countries. With the U.S. dollar now moderately overvalued from a medium term perspective, this will need to be accompanied by greater exchange rate flexibility/appreciation elsewhere."
CNBC Guest Says Absent Plunge Protection Team Stepping In, Market Would Fall; Wien, Kernan DisgustedSubmitted by Tyler Durden on 07/08/2010 09:44 -0400
A highly amusing exchange occurred earlier on CNBC when guest Damon Vickers of Nine Points Capital had an unexpected moment of truthiness and turned some heads when he said that "unless the plunge protection team comes in over the next couple of days, the markets are looking very dicey here." When a disgusted Joe Kernan asks if Vickers was making a joke about the PPT, the response is "absolutely not - it's common knowledge that the government steps in and does things to step on the gas and buy stock here and there." To which Byron Wien has a strong retort: "I don't believe it." All that and much more in the clip below. In the meantime, the market is sure having a field day with stocks as once again bad news are discarded and the smallest glimmer of positivity serves as a springboard for yet another ramping short covering spree.
- Asian stocks rally as growth in US retail sales eases concern.
- China bought a record $7.9B in short-term Japanese debt in May
- EU stress tests will cover 91 banks, accounting for 65% of the area's banking industry. Assume bond value drop.
- Hoenig, Fisher say stimulus isn't needed to assure recovery.
- IMF sees rising risks slowing recovery pace.
- Japan's Machinery orders slump 9.1%, most since 2008.
- AES Corp announces a $500M stock repurchase program.
- BP aims to fix leaking Gulf of Mexico oil well by 27 July
The Baltic Dry, which contrary to what some may claim, actually is one of the best leading indicators on global trade and thus the health of the economy, continues to plunge, and is now below 2000, hitting fresh 14 month lows, at 1940. It is now at the levels last seen during the March 2009 "generational" low, and just after the Lehman bankruptcy. Yet futures are up as initial claims beat expectations by 6,000 very statistically relevant people.
Bullion dealers provide liquidity for clients seeking to add or subtract risk from their own portfolios. They operate as brokers, advisors, and counterparties to their clients at various times during dealings. For our example today, we are focusing on the counterparty aspect of a dealer/ client relationship.
- Jim Willie: Road to Perdition (Financial Sense)
- Paper gold versus the dollar? Interview with Jim Rickards (Institutional
- Reid so toxic his son campaigns without last name (Bloomberg)
- ECB holds rates at 1%, faces liquidity grilling (Reuters)
- And somehow the IMF raises growth expectations as the world enters a
double dip (Bloomberg)
- Hedge funds "frozen in headlights" cut trading as markets swing (Bloomberg)
Initial Claims Come In At 454K, On Expectations Of 460K, Drop From 475K, EUC Plunge By 368K As Benefits ExpireSubmitted by Tyler Durden on 07/08/2010 08:36 -0400
Initial claims dropped to 454k from 475k. Continuing claims drop by 224,000 to 4,413,000. This is as expected courtesy of the end (for now) in unemployment benefits for many cohorts of unemployed. Of course, with claims over 400k it means continued losses in the broader work force. Also, Not Seasonally Adjusted Claims Rise by 22,560. Most notably, this has impacted EUC claims which plunged by 368k to 4,147,551 for the week ended June 19. Look for EUC to drop by up to a million as the delayed EUC data thru the end of June trickles in.