Attempting to score on defense…Govt. Bonds
by Chart School - November 30th, 2010 12:06 pm
Courtesy of Chris Kimble
CLICK ON CHART TO ENLARGE
TLT has rallied just short of 5%, from the bottom to the top of the falling channel. TLT is at the top of the falling channel as the Dollar is up against key fibonacci resistance (see post here) and the 500 is on key support, while the VIX is up against resistance (see post here).
Game Plan…Attempt to score on defense, again. Picking up TBF, with a 2% stop.
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DiggRANsquawk US Afternoon Briefing – Stocks, Bonds, FX etc. – 30/11/10
by Zero Hedge - November 30th, 2010 12:03 pm
Courtesy of RANSquawk Video
Presenting The Belgian Donut
by Zero Hedge - November 30th, 2010 11:48 am
Courtesy of Tyler Durden
Everyone has heard of Belgian waffles. Below we present the Belgian donut, because sometimes a chart is worth a thousand CDS runs.
US-Europe Decoupling At All Time Record As SovX – Implied Correlation Spread Indicates Historic Domestic Complacency
by Zero Hedge - November 30th, 2010 11:40 am
Courtesy of Tyler Durden
In last night daily report by BofA’s Jeffrey Rosenberg, one chart stands out: the spread between the 12 month S&P 500 top 50 Implied Correlation (generically a proxy of broad US equity risk) and the Sov X, or the blended sovereign risk as indicated by CDS, which recently hit an all time high. In a nutshell: the spread has never been bigger, confirming that US domestic complacency over all things European (and the continuing levitation in stocks) has reached unprecedented levels, as absolutely no fundamentals can stand in the path of the hedge fund levered beta year end rally. In other words the China-US fatally flawed “decoupling” of 2007 has been replaced with a decoupling between the US and Europe. This will also end in tears. And this is happening even as European markets are unraveling, and as the EURUSD is tumbling, guaranteeing a drop in both US exports and the top line for US MNCs. But why worry: as 58 year old Valerie Whelan yesterday summarized it best: “It’s capitalism gone mad.” Every move in risk assets higher is merely a bet that central bankers can kick the can down the road for one more day. Nothing else. That it is unsustainable is guaranteed. Willem Buiter makes the case all too clearly that Europe will go bankrupt soon. We expect someone to make the same argument about the US very soon, especially if China does in fact commence tightening, leaving the chairman no other choice than to open the liquidity floodgates in one last attempt to preserve the dying economic system, however, this time without the benefit of being able to export inflation to China.
The chart in question:
Rosenberg’s comment:
Figure 1 shows that while sovereign credit risk in Europe earlier this year was associated with greater systemic risk (as judged by the implied correlation of S&P 500 top 50 constituent returns), the latest expansion in sovereign risk since mid-October has seen generally stable indications of systemic risk (albeit with some increases in recent days).
And while the US may pretend it can decouple from China and Europe, things in Europe, especially in the Sr-Sub Fin relationship continue to deteriorate (we will have more to say on this soon).
Longer than expected maturities for
…
BABS are a Cali Subsidy
by Zero Hedge - November 30th, 2010 11:31 am
Courtesy of Bruce Krasting
The Build America Bond program will be a topic of discussion today when Obama meets with Congressional Republicans. Like the Bush tax cuts the enabling legislation for BABS is set to expire in a month. I don’t think the BABs extension is going to meet with any opposition. While it is a side show to the tax issue; BABs is probably more important. If it isn’t extended there is going to be a blowout in the tax-exempt Muni market. Should that happen you can kiss off any hopes of extending the economic recovery. Failure to extend BABs would trigger a (new) fiscal crisis for California. That would quickly spread to a few other key states.
BABs are taxable securities that offer municipal/state issuers a 35% subsidy on interest costs. The subsidy was supposed to be revenue neutral at the federal level. The theory was that the average tax revenue would be close to the 35% paid out. It hasn’t worked like that. The BABs bonds paid a nice yield and were gobbled by investors whose tax rate was closer to zero than the 35%. So the cost falls on the taxpayers and adds to the deficit. So which states are lining up deals that are fleecing federal taxpayers? Mostly Dead Beats (excluding Texas).
BABs creates a tax arbitrage at the expense of taxpayers and to the benefit of (largely tax exempt) investors. The subsidy works. It allows states to pay up in yield while at the same time achieve a net interest cost that that is acceptable. The WSJ had this to say about a Cali BABs deal last week:
The BABs were said to have attracted twice as many bids as the amount on offer, even after the state increased the size of the deal by $525 million because of the strong investor demand.
This comment from the California Treasurer’s spokesman says it all:
“California’s struggling? Hardly. We’re not struggling. We’re succeeding. We’re doing a job that’s vital to California’s fiscal and economic health, and doing it at the best possible price for taxpayers.”
If you were a taxpayer…
$6.8 Billion POMO Closes: Brian Sack Monetizes $1.1 Billion Of Bonds Issued Last Week
by Zero Hedge - November 30th, 2010 11:21 am
Courtesy of Tyler Durden
Today’s POMO has closed, with Brian Sack monetizing $6.8 billion of bond. This is a 3.5x Submitted to Accepted ratio as PDs realize various blogs are on their POMO funding needs and thus moderate their Submission amount. Yet what is simply surreal is that the second most monetized bond was PJ3, due 11/30/2015. This is the same issue that was just auctioned off by the Treasury last week! There is no longer even a pretense of avoiding direct monetization. It is time for Bernanke to go out and just buy bonds at auction. A one week turnaround is nothing less than criminal fraud which if anything is unnecessary and pads the PDs pockets. The result was so stunning it was not even included in last week’s frontrunning guide as nobody had a clue that the Fed could be so brazen in its flaunting of direct monetization. For just holding the bond a whopping 168 hours, PDs made a few million dollars. This is criminal. But who cares. Eric Holder has still to prove that he is anything besides an organ donor.
500 support, VIX resistance at the same time
by Chart School - November 30th, 2010 10:58 am
Courtesy of Chris Kimble
CLICK ON CHART TO ENLARGE
Support, highlighted in this post yesterday (see post here) remains in play (2). At the same time, falling channel resistance along line (1) is at hand right now. No matter what the global news happens to be, these key support and resistance levels HAVE NOT BEEN BROKEN!
Now a "Bearish descending triangle" at (4) is taking shape. Keeping SH position and am going to bring down the stop on SH to 1,192, was 1,211. Will lock in gain, should the 500 index break the top of the descending triangle. Should support give way, per the descending triangle, 1,130 could be tested in quick order.
Macro And Market Thoughts From David Rosenberg
by Zero Hedge - November 30th, 2010 10:37 am
Courtesy of Tyler Durden
David Rosenberg summarizes his latest views on Europe, the EURUSD, risk, volatility, bond curves, gold, geopolitics, oil, a subsidized shopping season courtesy of no mortgage payments, and two years of home inventories.
MACRO AND MARKET THOUGHTS
All these “rescue” packages in euroland really do is provide bridge financing — they do not resolve the underlying structural problems in these countries or the deflating asset values in bank balance sheets. Greece has already breached its deficit target and a Greek default is likely only a matter of “when”, not “if” at this stage. To suggest that its economy is too small or that its debt obligations are tiny ignores the uncertainty that would prevail as credit default swaps have this nasty way of redistributing those liabilities around the world. This is what the Lehman shock taught everyone. Plus we have to consider that all these funds being earmarked for bailing out sovereigns and shoring up undercapitalized banks.
The massive selloff in government bond markets, even in countries like Belgium and Italy (let alone Portugal and Spain), is a clear sign that the bond vigilantes are now targeting the supposedly stronger governments in the eurozone. These bond vigilantes are also speculating that the national purse will be needed to keep their banks afloat and the relentless widening in CDS spreads is an added suggestion from the markets that these governments may not have the resources to fully repay their creditors once they have moved to support their banking systems.
What is notable that does not get a lot of press is that both the M3 money supply and private sector credit has contracted in the euro area in each of the past two months. The austerity packages needed to bring intractable deficits down will fuel the deflationary pressures, which will only further destabilize the financial system and add damage to the economy. While Germany is viewed as a darling in the region, its trade and banking exposures to the euroland periphery is huge. Judging by the market action, the contagion through to Belgium, Italy (never mind Portugal and Spain) is increasingly apparent. This is very much like how the problems in Thailand ultimately spread to Singapore and South Korea back in the 1998 Asian crisis. The question ultimately will be how the banking systems in the rest of the world will be affected.
Tack on…
China Approves Gold Fund; India Inflation Hits 8.5%; Universal Dumping of Spain; Lobster Smuggling Hits Australia; Asia Slowdown led by Japan, Korea
by ilene - November 30th, 2010 10:34 am
Mish reports on: China Approves Gold Fund; India Inflation Hits 8.5%; Universal Dumping of Spain; Lobster Smuggling Hits Australia; Asia Slowdown led by Japan, Korea. – Ilene
Courtesy of Mish
International news is flying this evening. With most eyes focused on Ireland and the Euro, let’s take a quick look at other news stories of merit.
China Approves Gold Fund of Funds
MarketWatch reports China Approves Gold Fund of Funds
China’s securities regulators have given the go ahead for a mutual fund to invest in foreign exchange-traded gold funds, potentially tapping interest among mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation.
Lion Fund Management Co. said they received approval from the China Securities Regulatory Commission on Monday to proceed with the fund, the first of its kind for mainland China, according to a statement posted on the Beijing-based fund provider’s website.
The fund has been granted permission to invest outside of China under the Qualified Domestic Institutional Investor (QDII), the fund managers said in the statement.
The fund will invest in gold-backed exchange-traded funds operated outside of China, though the fund provider’s statement didn’t specify which ETFs, or which markets, it was considering.
India Economy Overheats, Inflation Hits 8.5 Percent
It’s safe to add India to the list of countries growing too fast for their own good. China is the other major one.
Please consider India’s Economy Expands Faster-Than-Estimated 8.9%
India’s economy grew more than economists estimated last quarter, adding to evidence of a strengthening in domestic demand that’s stoked inflation by placing strains on the nation’s transport and power systems.
Gross domestic product rose 8.9 percent in the three months through September from a year earlier, matching the revised pace of growth in the previous quarter, the Central Statistical Organisation said in a statement in New Delhi today. That was above the 8.2 percent median estimate of 30 economists in a Bloomberg News survey.
Central bank Governor Duvvuri Subbarao on Nov. 2 raised the benchmark repurchase rate and the reverse repurchase rate by a quarter-point each to 6.25 percent and 5.25 percent, saying inflation continues to hold above the “comfort zone.”
The wholesale-price inflation rate was 8.58 percent in October, compared with the “ideal” level of 4 percent to 5 percent, according to Finance Minister Pranab Mukherjee. Consumer prices are rising
…
Inflation Expectation Tuesday: Money Managers Have An Inflated Sense of the Future… So Buckle Up!
by Zero Hedge - November 30th, 2010 10:16 am
Courtesy of Phoenix Capital Research
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Barron’s recently unveiled the results of its latest “Big Money Poll” on November 1.
Boy was it a doozy.
According to the magazine, 60% of money managers are bullish on the stock market’s performance through June 2011. All in all, the bulls expect the market to rally 6% over the next seven months.
The reasons given for this bullishness ranged from delusion (“Stocks are cheap based on historical price-to-earnings ratios,”) to the outright insane (“I see no justification for a double dip.”) Altogether, 53% of money managers think stocks are UNDER-valued.
The problem with the “stocks are cheap” argument is that it’s based on the S&P 500’s P/E ratio of 17. Now that’s not a bad number except for the fact that Financials account for 15% of the S&P 500 index (second only behind Tech at 19%) and anyone who claims that they know what the REAL earnings are at financial companies is flat out lying.
When a sector throws every and all accounting rules out the window and is allowed to value itself at whatever it likes, there is no end to the gimmickry that can be used to craft great earnings (such as claiming profits based on the fact that bond prices have fallen and the company could allegedly buy them back at a profit).
So that’s 15% of the S&P 500’s P/E that is flat out fictional if not fraudulent. As for the claims that there’s “no justification for a double dip,” well, technically it’s correct given that we never actually had a REAL recovery, so the ongoing collapse isn’t really a double dip.
After all, let’s not forget that the “stocks are cheap” crowd are the same folks who bet big on stocks going into 2008. Indeed, back in late 2007/ early 2008, Barron’s surveyed 12 Wall Street strategists. Every one of them forecast that stocks would head higher in 2008. The forecasts ranged from an increase of 3% to 18%, with the group’s…
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