RANsquawk European Morning Briefing – Stocks, Bonds, FX etc. – 30/09/10
by Zero Hedge - September 30th, 2010 6:28 am
Courtesy of RANSquawk Video
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DiggHow the POMO works – Treasuries and the fat kid who won’t play fair
by ilene - September 30th, 2010 2:49 am
How the POMO works – Treasuries and the fat kid who won’t play fair
Courtesy of Rohan at Data Diary
We have been following a simple gameplan that says buy risk when the government is stimulating and sell when the stimulus effects begin to fade. The key barometers for this view have been various leading economic indicators (ECRI, OECD etc). These have been weakening for some months (latest OECD here) with the markets trading sideways across this period.
But ever since Bernanke spoke at Jackson Hole (here), there has been growing conviction that the Fed is about to evoke the second coming of quantitative easing – and that it will be at least be to the tune of $1 trillion. This would be in addition to the reinvestment of the proceeds of maturing MBS that the Fed has been stuffing back into the markets since August.
While there has been no authorative announcement on QE2, the comments from the Chairman and his colleagues are suggestive that this action is close at hand (a neat summary by Calculated Risk here). Additionally, the uniformity of the message being delivered across informed commentators is consistent with an administration and its quango managing information flow by innuendo. The balance of market opinion, as measured by equity prices, has QE2 as a backable event.
So for the purpose of this analysis, let’s assume that the consensus view is right and the Fed will ramp up into QE2 (subject only to a possible timing constraint around the Congress elections). Does this qualify as government stimulus – and is it then a buy signal?
What kind of stimulus is the POMO?
Leaving aside the emergency liquidity measures that were initially installed by the Fed, the purpose of ‘unconventional monetary policy’ in Brian Sack’s words (who runs the POMO for Fed – here) is:
The LSAPs (large scale asset purchase programs)…were intended to support economic activity by keeping longer-term private interest rates lower than they would otherwise be.
How is this achieved? Again over to Brian:
For Treasury securities, the reduction in yields would occur through narrowing the term premium, or the expected excess return that investors receive for their willingness to take duration risk. By removing a considerable amount of duration through its asset purchases, the Fed has kept the term premium narrower than it otherwise would have…
Daily FX Retail Trader Contrarian Analysis
by Zero Hedge - September 30th, 2010 2:42 am
Courtesy of Pivotfarm
Retail Traders as a herd are wrong…most of the time (sorry guys its true).
This daily report is designed to help traders find opportunities to trade against this group. The premise is very simple we are looking for 66% of retail traders to be trading either long or short a currency pair, we then look for opportunities to fade (trade against) this group. For example if 72.99% of traders are long the USD/CHF we look for opportunities to short that pair.
The pairs that we feel offer the highest opportunity for success are described in the Shortand Long Zones.
What’s New Today? Retail Short positions in the EUR/USD have weakened a little (needed a few percentage points to hit the magic 66% number). On the flip side we have are seeing further strengthening of the retail longs in the USD/JPY and EUR/CHF.
Provided by Pivotfarm – The Home of Support and Resistance Trading
Are The 250,000 Foreclosure Sales From Q2 About To Be Reversed, As Fitch Prepares To Downgrade Foreclosure Fraud Companies
by Zero Hedge - September 30th, 2010 12:30 am
Courtesy of Tyler Durden
Minutes ago RealtyTrac has released its Q2 summary snapshot. In summary, Q2 saw 248,534 properties in some stage of foreclosure (default, scheduled for auction or bank-owned) sold to third parties. This represented a 5% increased from Q1, and a 20% decline from Q2 of 2009. The average sales price of a foreclosure property was 26% below the average sales prices of regularly sold homes. “While foreclosure sales increased in the second quarter, non-foreclosure sales increased even more, spurred on by the homebuyer tax credit that expired during the quarter,” said James J. Saccacio, chief executive officer of RealtyTrac. “That had the net effect of lowering foreclosure sales as a percentage of total sales during the quarter, but that may be a temporary dip as the removal of the tax credit could drive more buyers back to discounted short sales and REOs.” Ah, but herein lies the rub: with pretty much everyone now halting evictions, and foreclosure themselves, all those who are looking for foreclosure bargains will be very, very disappointed. Because while the actual market is digesting the implications of what the recently announced JPMorgan moratorium on foreclosures means (very bad things), Fitch has already fired the first shot and announced it would downgrade mortgage companies engaging in foreclosure fraud. Well, that means preeeetttty much all of them. And the most troubling implication: all those who bought foreclosed properties may soon be facing a transaction unwind, once it becomes clear that there isn’t a clear title owner.
From the NYT:
Fitch Ratings said that Wednesday it was asking mortgage companies about their internal processes for executing foreclosure affidavits. If it finds the processes lacking, Fitch will consider downgrading the company’s rating.
The agency also said if the issue is widespread, the resulting delays and extra costs to foreclose could increase losses related to residential mortgage-backed securities.
Bottom line is look for RealtyTrac’s foreclosure numbers to take a sharp turn lower in coming months as the foreclosure fiasco hits near and far, and all those banks holdings trillions in RMBS to renew their push against the FASB’s recent MTM initiatives. Because as Bruce Krasting pointed out earlier, the 1,500 or so people that are sweating like a Wall Street whore in church and have chopped their left testicle off to never, ever allow…
Peak Gold Is Upon Us
by Zero Hedge - September 30th, 2010 12:17 am
Courtesy of madhedgefundtrader
If you had any doubt about what the driver has been for gold’s meteoric rise to $1,300, take a look at the chart below showing the spike right at the Fed’s announcement that QEII was in the cards. With the speed of a mainframe running the latest algorithm, this bid spread to the other precious metals and commodities as well.
Last week, gold ETF’s purchased a staggering 16 tonnes of the yellow metal worth $582 million. The 800 pound gorilla, the (GLD) now owns $38.5 billion of the barbarous relic, making it the sixth largest owner in the world, ahead of Switzerland and China.
These are heady inflows into such a small space. All of the gold mined in human history, from King Solomon’s mines to the bars still in Swiss bank vaults bearing Nazi eagles (I’ve seen them) would only fill 2.5 Olympic sized swimming pools. That amounts to 5.3 billion ounces, about $6.3 trillion at today’s prices. For you trivia freaks out there, that is a cube with 65.5 feet on an edge.
Peak gold may well be upon us. Production has been falling for a decade, although it popped up to 83 million ounces last year worth $108 billion. That would rank gold 17th as a Fortune 500 company, along with Wells Fargo Bank (WFC), IBM (IBM), and drug store CVS Caremark (CVS). Total above ground reserves amount to only 16% of global public debt markets worth $39 trillion (click here for The Economist magazine’s global public debt clock at http://buttonwood.economist.com/content/gdc ).
That is not much when you have the entire world bidding for it, governments and individuals alike. Talk about getting a camel through the eye of a needle! We may well see the bull market end only when those two asset classes, government bonds and gold, see outstanding values reach parity, implying a sixfold increase in gold prices from here to $7,800 an ounce.
No wonder buying is spilling out into the other precious metals, silver (SLV), platinum (PPLT), and palladium (PALL), as well as copper (CU) and other hard assets. As much as I love the gold inlays in my teeth, and sometimes leave waitresses quarter ounce gold eagles as tips at restaurants, this is the reason I have been stampeding readers into the yellow metal for the past 18 months.
This is…
Sabrient Divers – 09/30/2010
by Sabrient - September 30th, 2010 12:00 am
Top 5 Divers |
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| Stock | Rating | Analysis | ||
| USG | STRONGSELL | USG has shown a significant decrease in recent earnings health, and analysts are also becoming increasingly skeptical about near-term prospects. | ||
| TXI | SELL | Degradation in recent earnings and declining long term growth prospects are pushing TI lower and lower in our stack. | ||
| UIL | SELL | A double whammy of reduced long-term expectations and recent significant declines in historical earnings result in UIL showing up on our Divers list. | ||
| AMT | STRONGSELL | Projected long-term growth for American Tower is going down, expected value is decreasing, and tough times are ahead. | ||
| STI | STRONGSELL | Expectations for SunTrust are decreasing along with projected valuation. | ||
Sabrient Risers – 09/30/2010
by Sabrient - September 30th, 2010 12:00 am
Top 5 Risers |
||||
| Stock | Rating | Analysis | ||
| AMD | BUY | Projected value continues to rise for AMD while long term increases in earnings growth are also becoming more widely expected. | ||
| ALK | BUY | The projected value for Alaska Air is still rising quickly even though past earnings have already improved significantly. | ||
| RNT | BUY | Aaron Rents has shown a remarkable increase in projected value recently, with the majority of analysts expecting higher than previously expected earnings. | ||
| AA | BUY | The projected value for Alcoa is still rising quickly even though past earnings have already improved significantly. | ||
| AYE | BUY | Many analysts are expecting higher than previously expected long term growth from Allegheny Energy, and its near-term earnings outlook is also improving. | ||
Hawk, Hawk, Dove – Stocks Go Birdwatching
by Zero Hedge - September 29th, 2010 11:42 pm
Courtesy of Tyler Durden
The market’s latest fascination: birds.
Here is BofA’s Hans Mikkelsen explaining why those who wish two trades stocks should be able to react within milliseconds of spotting blue tits and other flying objects.
High Grade new issue supply has totaled $108bn so far in September, and in terms of unguaranteed issuance this is the most since the outbreak of the Financial Crisis in 2008, the busiest month of September, and the fifth busiest month overall on record in unguaranteed issuance. With $230bn priced so far, this has also been the busiest third quarter on record. However, we expect a significant slowdown in supply going forward as we approach the 3Q corporate earnings reporting season and issuers enter blackouts. For the month of October we expect just $50-60bn of HG supply, and for the fourth quarter we are not looking for more than $150bn. While we recognize that there is significant uncertainty associated with these estimates – and certainly the third quarter surprised to the upside – with continued inflows that suggests investors will need to focus their attention back on the secondary market. While the decrease in supply can be incrementally supportive of spreads, this adds just marginally to the larger picture that conditions of excess demand already favor spread tightening toward year-end.
So add birds of the Federalus Reservus order and family, to the only other thing that matters for stocks these days: just how much money Brian Sack will devote to such humanitarian purposes as giving insiders such as Jeff Bezos, Larry Ellison and Steve Jobs the undreamed of price levels from which to continue selling their stocks.
If Brazil’s So Strong, Why Is It Using An Accounting Trick To Hit Its Budget Goals?
by ilene - September 29th, 2010 11:04 pm
If Brazil’s So Strong, Why Is It Using An Accounting Trick To Hit Its Budget Goals?
Courtesy of Joe Weisenthal at Clusterstock 
Brazil is hot (especially it’s currency), but unlike with China you almost never hear any chatter about it being on an unsustainable path.
That alone is probably reason to pay close attention. As Nassim Taleb would tell you, crises don’t come from places where everyone and their mother is anticipating a crisis.
Not that Brazil is in any imminent trouble, but it’s interesting that the government seems to be engaging in accounting tricks to hit its budget goals.
Market News International (via Kid Dynamite) explains how the government is hitting its target of a surplus of 3.3% of GDP:
President Lula has called the Petrobras capitalization plan, worth $69 billion, "the biggest equity offer in the history of capitalism."
But of that $69 billion, $43.5 billion came from Petrobras itself, to pay the government for 5 billion barrels of undeveloped ultradeepwater petroleum reserves, and that in turn was paid for using a government loan.
Felipe Salto, a specialist in public accounts at the Sao Paulo consultancy Tendencias, told MNI the government loan to Petrobras was "an ingenious piece of financial engineering."
In sum, for $43.5 billion of the $69 billion capitalization, no money changed hands, as the company essentially gave the government shares in return for the petroleum reserves.
However, R$24.7 billion ($14.4 billion) of the government’s loan to Petrobras came via the state BNDES development bank. The government is lending $14.4 billion to the BNDES, which it is lending it to Petrobras, to pay the government. But government accountants are booking this $14.4 billion as revenue.
Look, Brazil is still running a surplus, so its government probably won’t have a funding crisis. But the fact that the goal was only hit via a one-off accounting move is an early warning.
Ontario Teachers’ Comes Full Circle?
by Zero Hedge - September 29th, 2010 10:52 pm
Courtesy of Leo Kolivakis
Invest in NZ reports, New Zealand Yellow Pages sale suspended:
The Yellow Pages Group has suspended its planned sale of the business, citing a satisfactory price as unattainable in the current economic situation. The owners of the New Zealand business said they had withdrawn their planned sell because they felt the business would not achieve what they termed “a satisfactory price” in the prevailing economic conditions.
The firm’s owners, Unitas Capital, based in Hong Kong but formerly known as CCMP Capital Asia, and Canada’s Ontario Teachers’ Pension Plan purchased the firm in 2007. Back then, the two firms paid 2.24 billion for the New Zealand Yellow Pages. Whereas a number of interested parties had shown great interest, the Yellow Pages Group shareholders, together with the banking syndicate decided to close the planned sell, said the firm Monday. The firm said it will not be pursuing the sell further.
According to the firm, the existing economic situation does not suit large scale merger and acquisition activity and subsequently, the expectations of the shareholders with regard to value are unlikely to be met in the current market. The banking syndicate would now continue with plans to restructure the company’s debt, and planned to stick with the business long-term.
The move now means the owners of Yellow Pages Group have effectively suspended considerations for a potential buyer. As a result of the suspension, the banking syndicate will now look to complete its already advanced plans to restructure the debt and intend to take a long term view as owners of the business.
Yellow Pages’ Chief Executive Officer, Bruce Cotterill, said it was good to have some clarity after the uncertainty associated with the sale process and the related media speculation. The banking syndicate has been working hard to achieve an outcome that will take Yellow Pages into the future, he added. Yellow Pages Group is keen on working with the banking syndicate to finalize the debt restructure and move forward.
According to Cotterill, there are a number of extremely positive initiatives being developed within the company at present, which will ensure our success in the next few years. We are fortunate to have had a very supportive relationship with our banking syndicate who have enabled that to happen.
The Ontario Teachers’ Pension Plan (OTPP), commonly referred
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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