by Chart School - December 9th, 2010 1:58 am
Courtesy of Gregory White at The Business Insider
The threat of the end of the Build America Bond program looms large, and it is scaring investors into selling out of the muni market.
It could be the next black swan looming, ready to cause an even larger problem for states already overburdened with debt.
Just check out the down move in the Muni bond ETF today. It may be off its lows of the day, but it still doesn’t look good.
by ilene - September 22nd, 2010 4:29 pm
Courtesy of Mish
Curve Watcher’s Anonymous is looking at various long-term and intraday charts of treasuries and the stock market following Tuesday’s FOMC meeting.
$TNX: 10-Year Treasury Yield Intraday Chart
Click on any chart to see a sharper image.
Note the initial spike higher in yields right on the announcement. This headfake is very typical of FOMC announcements.
SPY: S&P 500 Index Shares Intraday Chart
As with treasuries, the S&P 500 had an initial spike that quickly reversed. Both charts show fat tails.
Ultimately the rally failed (which would be typical given the flight to safety trade in treasuries).
Every FOMC meeting it seems we get the same fake reaction: The first move is typically a false move. Sometimes there is a double fake, but only rarely does the initial move keep on going. I would be interested to see comments on this.
Given that I seldom concern myself with intraday or even short-term action however, the more serious question is "Where to from here?"
2-Year Treasuries vs. the S&P 500
The pattern may not continue, but for quite some time rising treasury yields have generally been directionally aligned with rising equities. In three instances (the first three red boxes), a drop in treasury yields preceded (led) a subsequent drop in equities. The fourth box (where we are now) is unresolved.
2-Year Treasuries – Monthly Chart
Two year treasury yields have fallen to a record low, yet stocks have been rising.
5-Year Treasuries – Monthly Chart
The all time low in 5-year treasury yields is but a stone’s throw away.
10-Year Treasury Yields – Monthly Chart
New lows in 10-year treasury yields are in sight.
To help put things into perspective here is a weekly chart of $TYX 30-year treasuries, $TNX 10-year treasuries, $FVX 5-year treasuries, and $IRX the 3-month treasury discount rate. The other symbols are yields.
$TYX, $TNX, $FVX, $IRX Weekly Chart
The chart depicts weekly closing values.
Is the Bond Bull Over?
Judging from 2-year treasuries or 5-year treasuries, pronouncements of the "death of the bond bull" were certainly premature. Moreover, given how weak the economy is, I think it is odds-on the 10-year treasury note touches if not breaks the previous yield lows.
by ilene - August 27th, 2010 1:41 pm
Courtesy of The Pragmatic Capitalist
This idea that the United States is the next Greece persists. We saw it several times this week from various analysts and the regular pundits who continue to trot out this argument despite having been terribly wrong about their hyperinflation and/or default thesis over the last few years. I think it’s very important that investors understand that the United States cannot default on its obligations in the same way that Greece, a US state or a household can. Why is it important to understand this? Because markets are psychologically driven. Regular readers know I am not the most optimistic prognosticator. Anyone who has read this site over the last few years knows that I have and continue to believe we are mired in a balance sheet recession. My outlook is not rosey, but it is not dire either. I do not believe doom is on the horizon and I most certainly do not believe the United States, as the sovereign supplier of a non-convertible floating exchange rate currency, will default on its obligations.
At the center of this argument is the actual workings of our monetary system. So, how does the United States actually fund itself? Unlike a household, the United States does not require revenue or debt to fund itself. The United States government simply credits bank accounts. They walk into a room and input numbers into computers – literally. This might sound counter-intuitive to the rest of us who fund our spending through debt issuance or revenue streams, but the same is not true for the Federal Government. This was best explained last week in an interview on BNN by Marshall Auerback, a portfolio strategist with RAB Capital:
“Governments spend by crediting bank accounts. The causation is that you spend money first. What happens afterwards is bonds are issued as a reserve drain. They don’t actually fund anything. This is one of the great myths that is perpetuated by most of the economics profession. So the idea that we have “unfunded liabilities” is ludicrous. If we declare a war, for example, in Iraq or Afghanistan, we don’t go to our bond holders. We don’t go to China to give them a line-item veto for what we can and can’t spend. We just spend the money. The implicit assumption here is that somehow we have some external constraint. The
by ilene - August 6th, 2010 4:10 pm
Courtesy of MIKE WHITNEY at CounterPunch
The economy has gone from bad to worse. On Friday the Commerce Department reported that GDP had slipped from 3.7% to 2.4% in one quarter. Now that depleted stockpiles have been rebuilt and fiscal stimulus is running out, activity will continue to sputter increasing the likelihood of a double dip recession. Consumer credit and spending have taken a sharp downturn and data released on Tuesday show that the personal savings rate has soared to 6.4%. Mushrooming savings indicate that household deleveraging is ongoing which will reduce spending and further exacerbate the second-half slowdown. The jobs situation is equally grim; 8 million jobs have been lost since the beginning of the recession, but policymakers on Capital Hill and at the Fed refuse to initiate government programs or provide funding that will put the country back to work. Long-term "structural" unemployment is here to stay.
The stock market has continued its highwire act due to corporate earnings reports that surprised to the upside. 75% of S&P companies beat analysts estimates which helped send shares higher on low volume. Corporate profits increased but revenues fell; companies laid off workers and trimmed expenses to fatten the bottom line. Profitability has been maintained even though the overall size of the pie has shrunk. Stocks rallied on what is essentially bad news.
This is from ABC News:
"Consumer confidence matched its low for the year this week, with the ABC News Consumer Comfort Index extending a steep 9-point, six-week drop from what had been its 2010 high….The weekly index, based on Americans’ views of the national economy, the buying climate and their personal finances, stands at -50 on its scale of +100 to -100, just 4 points from its lowest on record in nearly 25 years of weekly polls…It’s in effect the death zone for consumer sentiment."
Consumer confidence has plunged due to persistent high unemployment, flat-lining personal incomes, and falling home prices. Ordinary working people do not care about the budget deficits; that’s a myth propagated by the right wing think tanks. They care about jobs, wages, and providing for their families. Congress’s unwillingness to address the problems that face the middle class has led to an erosion of confidence in government. This is from the Wall Street Journal:
"The lackluster job market continued to weigh on confidence. The share of
by ilene - August 5th, 2010 2:56 am
Courtesy of The Pragmatic Capitalist
Brett Arends had an excellent piece on MarketWatch yesterday regarding the true state of US corporations. You’ve probably heard the argument before that corporations are sitting on record piles of cash – their balance sheets are in immaculate condition. Right? Wrong! These comments are generally made without accounting for both sides of the ledger. What is often ignored is that the total debts of these companies has also skyrocketed. Admittedly, I’ve been guilty of this in the past when discussing corporate cash levels and Arends (rightfully) sets the record straight. He notes that corporations are even worse off today (in terms of debt levels) than they were when the crisis began:
“American companies are not in robust financial shape. Federal
Reservedata show that their debts have been rising, not falling. By some measures, they are now more leveraged than at any time since the Great Depression.
You’d think someone might have noticed something amiss. After all, we were simultaneously being told that companies (a) had more money than they know what to do with; (b) had even more money coming in due to a surge in profits; yet (c) they have been out in the bond market borrowing as fast as they can.
Does that sound a little odd to you?
A look at the facts shows that companies only have “record amounts of cash” in the way that Subprime Suzy was flush with cash after that big refi back in 2005. So long as you don’t look at the liabilities, the picture looks great. Hey, why not buy a Jacuzzi?
According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That’s up by $1.1 trillion since the first quarter of 2007; it’s twice the level seen in the late 1990s.”
This will also sound familiar to readers of John Hussman who has debunked the cash on the sidelines story more than once:
Interestingly, some observers lament that corporations and some individuals are holding their assets in “cash” rather than spending and investing those balances, apparently believing that this money is being “held back” from the economy. What
by ilene - July 21st, 2010 5:10 pm
Courtesy of Jr. Deputy Accountant
It smells like Sarbanes-Oxley: a poorly thought-out, bureaucracy-heavy piece of garbage that inconveniences everyone but the legislators who want to get reelected by making it appear as though they are effectively doing their jobs. I’m waiting patiently for someone to say there is a PCAOB of rating agencies buried in this financial reform beast (I still have yet to read the entire thing but hey, I’m probably through more of it than the asshats who voted for it ever got) and not at all surprised to hear that it’s already creating unintended drama.
The nation’s three dominant credit-ratings providers have made an urgent new request of their clients: Please don’t use our credit ratings.
The odd plea is emerging as the first consequence of the financial overhaul that is to be signed into law by President Obama on Wednesday. And it already is creating havoc in the bond markets, parts of which are shutting down in response to the request.
Standard & Poor’s, Moody’s Investors Service and Fitch Ratings are all refusing to allow their ratings to be used in documentation for new bond sales, each said in statements in recent days. Each says it fears being exposed to new legal liability created by the landmark Dodd-Frank financial reform law.
The new law will make ratings firms liable for the quality of their ratings decisions, effective immediately. The companies say that, until they get a better understanding of their legal exposure, they are refusing to let bond issuers use their ratings.
I remind dear reader that Congress may appear absolutely clueless but actually knows more than we give them credit for. I’m fairly certain the jackasses who wrote the thing knew exactly what can of worms they were opening at the time.
That is important because some bonds, notably those that are made up of consumer loans, are required by law to include ratings in their official documentation. That means new bond sales in the $1.4 trillion market for mortgages, autos, student loans and credit cards could effectively shut down.
There have been no new asset-backed bonds put on sale this week, in stark contrast to last week, when
by ilene - July 12th, 2010 4:02 am
Courtesy of Michael Panzner at Financial Armageddon
Although there are many reasons why it was not a good idea to keep dead and dying businesses alive, to spend and borrow hundreds of billions of dollars for ill-conceived stimulus programs and other boondoggles, to keep interest rates at record lows for an extended period of time, and to encourage people to hang on in hope that a recovery was just around the corner, the biggest issue with not facing the music early on is how daunting the problems have now become. As the New York Times notes in "Crisis Awaits World’s Banks as Trillions Come Due," the scale of short-term obligations that have built-up as a result of the decision to extend and pretend — or delay and pray — is frightening, to say the least.
FRANKFURT— The sovereign debt crisis would seem to create worry enough for European banks, but there is another gathering threat that has not garnered as much notice: the trillions of dollars in short-term borrowing that institutions around the world must repay or roll over in the next two years.
The European Central Bank, the Bank of England and the International Monetary Fund have all recently warned of a looming crunch, especially in Europe, where banks have enough trouble raising money as it is.
Their concern is that banks hungry for refinancing will compete with governments — which also must roll over huge sums — for the bond market’s favor. As a result, credit for business and consumers could become more costly and scarce, with unpleasant consequences for economic growth.
“There is a cliff we are racing toward — it’s huge,” said Richard Barwell, an economist at Royal Bank of Scotland and formerly a senior economist at the Bank of England, Britain’s central bank. “No one seems to be talking about it that much.” But, he added, “it’s of first-order importance for lending and output.”
Banks worldwide owe nearly $5 trillion to bondholders and other creditors that will come due through 2012, according to estimates by the Bank for International Settlements. About $2.6 trillion of the liabilities are in Europe.
U.S. banks must refinance about $1.3 trillion through 2012. While that sum is nothing to scoff at, analysts seem most concerned about Europe because the banking system there is already weighed down by the sovereign debt crisis.
How banks will come up
by ilene - June 9th, 2010 12:58 pm
Courtesy of Karl Denninger at The Market Ticker
You want to know where the spikes in the Euro came from today?
That’s "official intervention" by the Swiss National Bank and if they don’t cut this crap out they’re going to cause an equity and credit market collapse.
These jackasses now have double the Euros they held just a short while ago from these "operations", and as you can see, they’re pissing into a hurricane on even a daily basis, say much less on anything more consequential:
Congress does not have the right to get involved in the affairs of a foreign sovereign.
But Congress has every right to demand that Bernanke close his goddamn swap lines right now until this shit stops, lest The Fed be the one who is on the hook when the entire ECB structure comes apart and WE THE TAXPAYERS are on the hook.
This sort of tampering, performed by a private party, is illegal. Of course it’s routine and "expected" in the FX space for sovereigns to interfere, but much of the instability that we have seen of late has been caused by this sort of "intervention." Specifically, today it was responsible for a sixteen point, or 1.5%, jackrabbit move in both directions in the stock market in the space of less than two hours.
There is absolutely no excuse for The United States to support this sort of garbage with our taxpayer backstops. These instabilities in the foreign exchange markets make it impossible for real companies to hedge costs and profits in foreign nations and do severe and irrevocable damage to these firm’s operations.
It is also reflecting into the US Commercial Paper markets and driving spreads wider there as well. This is the very same market that locked up in 2008 and triggered the equity market collapse.
The SNB’s "interest" in doing this is clear: Half of European banks are stuffed full of debt written in Swiss Francs – in nations where the currency is the Euro! These idiots (both the borrowers and the banks that offered these "products") have now seen the principal balance of these loans represented in Euros rise by 11% in the last year.
by ilene - June 7th, 2010 2:21 am
Courtesy of Adam Sharp of Bearish News
The humble and wise Mr. Faber talks to Bloomberg TV. Highlights:
- “Quite a lot” of technical support on the S&P 500 at 1045
- Stocks are oversold near-term
- “Quite happy” to hold physical gold over other asset classes
- There was no real recovery, look at tax receipts — they are lower YoY
- June/July rally is likely, but won’t go above major resistance at 1220
- Market will probably be lower by late Fall 2010
- Fed will use strong bond market to ease “massively”
- Banks worldwide would be “gone” if not for massive government support and easy money
- Still very bearish on U.S. economy long-term, due to banksters ruining economy (my slightly-biased take on what he said)
Corporate Bonds Smacked, Yields Rise, Deals Pulled; Treasuries Rally; Yield Curve Flattens; Global Slowdown Coming
by ilene - May 25th, 2010 1:37 pm
Corporate Bonds Smacked, Yields Rise, Deals Pulled; Treasuries Rally; Yield Curve Flattens; Global Slowdown Coming
Courtesy of Mish
The 30-year long bond is sitting just 3 basis points away from hitting a 3-handle and the yield on 5-year treasuries is 1.94 after hitting 2.60 in April. That is quite a reversal.
Yield on the 10-year note is at 3.13% a price last seen a year ago.
Corporate bond sales are poised for their worst month in a decade, while relative yields are rising the most since Lehman Brothers Holdings Inc.’s collapse, as the response by lawmakers to Europe’s sovereign debt crisis fails to inspire investor confidence.
Companies have issued $47 billion of debt in May, down from $183 billion in April and the least since December 1999, data compiled by Bloomberg show. The extra yield investors demand to hold company debt rather than benchmark government securities is headed for the biggest monthly increase since October 2008, Bank of America Merrill Lynch’s Global Broad Market index shows.
Junk bonds issued in the U.S. have been especially hard hit, with spreads expanding 141 basis points this month to 702, contributing to a loss of 3.78 percent. Leveraged loans, or those rated speculative grade, have also tumbled. The S&P/LSTA U.S. Leveraged Loan 100 Index ended last week at 89.23 cents on the dollar, from 92.90 cents on April 26.
Question of Solvency
“This is a quintessential liquidity crisis,” said William Cunningham, head of credit strategies and fixed-income research at Boston-based State Street Corp.’s investment unit, which oversees almost $2 trillion.
I disagree. This is a return, and rightfully so, to questions of solvency. Many corporations were given a new lease on life in May of 2009 by once again securing funding at cheap levels.
Now, huge cracks are appearing in the corporate bond market. At least seven junk bond deals have been pulled. This environment is not good for equities.
JNK – Lehman High Yield Bond ETF
click on chart for sharper image
Is this another scare like we saw in January and February or is this the real deal? I think the latter, but I thought so in February as well.
Notice how the top in junk bonds coincided with the top in equities. I cautioned many