| Kidder Reports Archive, Wednesday, Dec 23 |
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Latest Posts, News & Opinions
Euro: 1.4325 vs 1.4255 (16:03) Dollar-Yen: 91.664 vs 91.784 Feb Oil spikes to $76.48, up +$2.08 from $74.40; bullish inventory draw down Spot gold is $1,087.29, up from $1,083.20 DJIA closed at 10,466.44 +1.51 +0.01% S&P closed at 1,120.59 +2.57 +0.23% Today's Recap ABC Consumer Comfort Index Matches 2009 High of -42, up 5 points in 2 weeks Tokyo markets closed for Emperor's Day Shanghai Composite Index closed higher and rebounded from Tuesday's 1-3/4 month low The Baltic Dry Index fell -91 to 3,063 Tuesday, its 12th consecutive decline Uruguay surprised with a 1.75% rate cut to 6.25%; lower inflation, too strong peso BoE members voted unanimously to keep plugging along; no surprises, markets pleased MBA mortgage applications drop -10.7% w/w; purchases fall -11.6%; refi's drop -10.1% Bankrate: 30yr mortgage rate rose 9bp Tuesday to 5.20%; up from 5.06% on Friday Ford expects to close a deal to sell Volvo subsidiary to China’s Geely in 2010 -WSJ Canadian GDP Grew +0.2% In October Personal income +0.4% vs expected +0.5% and previous +0.2%; biggest gain since May Wages and salaries component up +0.3% after a +0.1%increase in October Personal spending up +0.5% vs expected +0.7% and previous +0.7% PCE deflator +1.5% vs expected +1.6% y/y Core PCE 0.0% m/m and +1.4% y/y (expected +0.1% and +1.5 y/y); prior m/m +0.2% Personal saving as a percentage of disposable personal income is 4.7%, same as Oct Fed’s Reverse Repo Tests Going Well, Industry Group Head Says - BW in Stocks UMich Sentiment at 72.5, up from 67.4 in Nov, but less than expected 74.0 New home sales fall -11.3% to 355,000 rate, much worse than 421,000 expected New home inventory falls 2.1% to 235,000, lowest in 38 years Median new home price down 1.9% y/y Crude inventories fall 4.9 mln barrels \\ Gasoline inventories fall 900,000 barrels Both banks and broker-dealers end their fiscal year on Dec 31; no longer staggered 2Y, 5Y and 7Y auctions next week; $95 bil in new cash and settles on Dec 31 Many investors have closed books and won't bid for Tsys until Jan 08:30 Jobless claims 08:30 Durable goods 13:00 Recommended early close
Analysis BCA Big Pic CalcRisk CW Econoday EconPic MFGR Mish MS Roubini
2010: The Year to Focus on Sovereign Debt - It is the interest burden alone that constitutes the debt service item. Another aspect of this construction about sovereign debt is that it is deflationary. Rising debt burdens consume greater and greater portions of income. They restrain spending. That is why the assumption that the increasing debt will bring on a large inflation is not necessarily correct. -Big Picture Exit Strategies for the Global Central Bank -Morgan Stanley
Bond Market Briefing Bloomberg Bloomberg Tsys SMRA Reuters Wrightson
After mounting a good size early rally, Treasuries finished mixed succumbing to the reality of next week's supply. Retail flows were decent, especially following the soft housing data, but dried up after the auction schedule. Fast/pro accounts were on both sides initially, but ended as sellers. The curve spent the session in a small corrective flattener after setting another historic wide on Wednesday. Techies view today's price action as another "dead cat" bounce, which helped reduce the oversold conditions but may have made the market more vulnerable to another leg down as the tech picture remains bearish. Participants anticipate a dull range trade on Thursday unless data really surprises. - Courtesy of JK at 15:00 The steep yield curve in the present environment is NOT a harbinger of recovery — it’s a brake on recovery because it encourages banks to own Treasuries rather than risky assets (see below). Here are my top ten reasons to expect the yield curve to flatten. - David Goldman in Columnists The spread between Dec 2010 euribor and eurodollars closed at 32.5, narrower by -20.5 from 53.0 on Dec 11. The Dec 2010 Euribor-Eurodollar spread has been narrowing below its 18-day average (last at 50.5) for most of December. This narrowing of the EU/US interest-rate differential probably means traders are losing faith in 'an extended period' of zero US interest rates. The spread provided an early warning to exit the dollar carry trade. US stimulus producing weak, distorted recovery - The economy grew by just a 2.2 pct annual rate in the third quarter, all accounted for by inventories, government and “cash for clunkers.” Past recoveries from such steep downturns ran at 5 pct-plus growth. Economic distortions and crowding out may be extracting their toll. -Reuters The technical chart picture worsens, with the caveat that we are in serious oversold territory. Technicians fear the a breach of 10yr 3.75% could cause a freefall towards the 4.00% area. Not that participants need more bad news, but tomorrow brings the announcement of around $122 bil in supply for next week. -Courtesy of JK, our News Guy
Chart Feature Euro futures low close is 1.4252 Tuesday Monday Dollar index sets a 3-1/2 month high Tuesday
The U.S. Dollar Index, a basket of six major currencies against the dollar, has violently retraced its losses over the last four months and sits just south of its 200-day moving average. It would be construed as bullish price action if the index can break through top-end resistance levels. -Roseman in Commentary
Columnists Asia Times Beat Bloomberg Econ View David Goldman Plessis Pritchard RealClear
Fitch cautions Britain and France on AAA rating - its bluntest warning to date that Britain and France risk losing their AAA status unless they map out a clear path to budget discipline over the next year. -Pritchard
Commentary Aleph Baseline Hutchinson Kid Dynamite Mauldin Naked Noland Oracle Roseman
My TIPS, Treasuries, and Inflation Model - Aleph (KR: real brain trust stuff) The collapse of AIG were a deliberate strategy by Goldman. To realize on their bet against the housing market, Goldman needed the CDO bonds to collapse in value, which would cause AIG to be downgraded and lead to AIG posting collateral and Goldman getting paid for their bet. I am confident that Goldman Sachs did not reveal to AIG that they were betting on the housing market collapse. - At Naked Capitalism
Commodities List Bloom Energy Kitco Drum Reuters CLG Gold G Soy H Wheat NGF HGF CRB
New York City urged New York state on Wednesday to ban natural gas drilling in its watershed, adding unprecedented support to critics who consider the chemicals used to mine for shale gas as poisonous to drinking water. The biggest city in the United States joined environmentalists and small-town neighbors of drilling operations in trying to hinder the exploitation of one of the most promising sources of U.S. energy -- the Marcellus Shale formation.
Currencies Bloomberg Brown Bros USD Index Laidi AL Twitter Reuters Spot
Dollar drops on bad news but will be later supported by retreating stocks. \\ Latest Figures are just another reason why S&P will continue to fail the 50% retracement of 1120. \\ REVISION SAGA continues. New home sales from +6.2% to +1.8% and Q3 GDP from initial 3.5% to 2.2%. Sticking to the ways of Bush BLS -Laidi
Current Events Atlantic Buchanan Common Counter Harpers Huff Global Salon Slate Time
Break the CIA in Two - After the CIA-led fiasco at the Bay of Pigs in April 1961, President John Kennedy was quoted as saying he wanted to "splinter the CIA into a thousand pieces and scatter it into the winds." I can understand his anger, but a thousand is probably too many. \\ Better is a Solomon solution; divide the CIA in two. That way we can throw out the bath water and keep the baby. Covert action and analysis do not belong together in the same agency—never have, never will. That these two very different tasks were thrown together is an accident of history, one that it is high time to acknowledge and to fix. -By Ray McGovern in Common Dreams Bernanke and the Corruption of Washington Culture - Rewarding a Catastrophe - his is worth repeating. If Bernanke knew what he was doing, he should have been able to see as early as 2002 that there was a housing bubble and that its collapse would throw the economy into a recession. -Dean Baker in CounterPunch
Foreign Policy Afghan Anti-War Asia Times Cole Debka FP Brief Stratfor Walt Wired
Secretary CLINTON. Well, as we have with so many other countries— obviously, we have troops in a limited number of countries around the world; some have been there for 50, 60 years, but we have long-term economic assistance and development programs in many others. And we think that’s a likely outcome in both Afghanistan and Pakistan, that we would be there with a long-term commitment. -GW in Grumpy Guys
Grumpy Guys Cluster FA GW G's Mess Jesse Kadrosky Michaelson Ticker Martenson Zero
There seems to be some difference in just how many houses are for sale. One source cites 3.52 million existing houses. Another says that with the shadow inventory there are 5.7 million units. Rising mortgage rates will hurt ongoing sales and house prices continue to fall. -Michaelson
South America Merco Ambito AP FT Bloom Independent Economist Strat
Uruguay cuts basic rate and eases credit to sustain US dollar - Merco Abducted governor killed by rebels, Colombian authorities say Family’s killing unites Mexico against drugs lords - FT
Science AlterNet Farmer Discover Global Edge MIT Next New Scientist
Applied Materials Moves Solar Expertise to China - The company says its future is in the Chinese market. -MIT In an economy structured around industrial agriculture, sustaining small farms can be a challenge. 'Slow money' economics could be the answer. -AlterNet
Stock Market Briefing Futia BW Pragmatic Nikkei Schaeffer St Smart 24/7 Wall St Yahoo
The S&P500 has yet to break above 1120, which is the 50% retracement from the Oct 2007 highs to the March 2009 lows. We have been pointing out the 1120 level as an important level for equities since this October 22nd article and it remains a staunch barrier ever since. -Laidi in Currencies Goldman sees very low rates, stronger than expected earnings, strong commodity demand and investor reallocation driving prices higher. Goldman sees no rate changes through 2011 – one of the most accommodative outlooks of any bank we have covered. -Pragmatic The next weekly patterns will be for the next monthly strength period to begin on Wednesday, Dec. 30, and to run through Thursday, January 7. - Street Smart
Bond Market Briefing Bloomberg Bloomberg Tsys SMRA Reuters Wrightson
Wednesday close: The 2Y/10Y is flatter by -1.5bp to 282.7; record close is 2.84.2 on Dec 22 10Y yield is +1.0bp to 3.748% (vs 3.497% on Nov 6) 10yr Tips is +1.2bp is 1.385% 2Y yield is +2.5bp to 0.922% (vs 0.848% on Nov 6) Tips CPI inflation gauge is cooler by -0.2bp to 2.363% - YTD high is 2.374% on Dec 22 * Gauge was 0.135% on Dec 31; decade average is about 2.70% * All-time low is 0.010% on Nov 20; recent low is 1.55% in July * The 2008 high was 2.613%; gauge was 1.94% just before Lehman bankruptcy 90-Day Spreads in Dec 2010 - - - Spread Dec10 - - - Euribor Dec10 - - - EDZ0 On Tuesday, the spread between Dec 2010 euribor and eurodollars was 32.5, narrower by -20.5 from 53.0 on Dec 11. The Dec 2010 Euribor-Eurodollar spread has been narrowing all month -- that is, it has been below its 18-day average (last at 50.5) for most of December. Narrowing of the EU/US interest-rate differential probably means traders are losing faith in 'an extended period' of zero US interest rates. The spread provided an early warning to exit the dollar carry trade.
Currencies Bloomberg Brown Bros USD Index Laidi AL Twitter Reuters Spot
Wednesday closes at 15:48 Euro: 4.4330 vs 1.4255 Dollar-Yen: 91.639 vs 91.784 Euro-Yen: 131.34 vs 130.82 Canadian dollar: 1.0481 vs 1.0577 Aussie dollar: 87.96 vs 87.66
Calendar Econoday SMRA Wrightson Barchart Any Date
Christmas Holiday (except in Japan, Israel, go get the drift) Monday, 12/28 10:30 Dallas Fed manufacturing survey 13:00 2Y note auction Tuesday 12/29 07:45 Chain Store Survey 08:55 Redbook survey 09:00 Case-Shiller index 10:00 Consumer confidence 13:00 5Y note auction 17:00 ABC Consumer Comfort Index Wednesday, 12/30 07:00 MBA mortgage applications 09:45 Chicago PMI 11:00 KC Fed index 13:00 7Y note auction
Baltic Dry Index - - - Bloomberg - - - Google
The Baltic Dry Index fell -91 to 3,063 Tuesday, its 12th consecutive decline. The BDI is down 1,598 points from its 14-month high on Nov 19 at 4,661. The multi-month low is 2,163 on Sept 25 and its 2008 high was 11,793. The 20 year average is near 2,300. With a 30%+ sell-off currently in process in the Baltic Dry Index we have to ask ourselves if the fundamentals in China and the global shipping industry aren’t weaker than many equity markets would have you believe. - Seeking Alpha
2Y Yield Spread: Germany Over US - - - Tsys Yields
At 11:08 Tuesday, the spread of Germany 2Y over US 2Y is +31 vs +54 on Dec 7 German Dec 2Y is 1.19%, higher in yield by +3.0bp US Nov 2Y yield is 0.88%, higher in yield by +2.5bp; record low is 0.64% on 17 Dec 08 On Dec 7, Mar euro contract was 1.4815 vs 1.4227 today
Nikkei Forecast- - - Nikkei - - - NKH0 - - - DJH0 - - - NKH vs DJH
The Nikkei is expected to open up +84 Wednesday in Tokyo. The NK/DJ spread is +70 vs -387, its 21-day average. Accordingly, NK is trading very rich at 457 above to DJ.
Archives and All Links - - - Archives
Keep In Mind
Either currencies or debt markets will blowup in next financial dislocation Public finances of the major Western countries are going to become unmanageable Four troubled giants are on life support and need continuing infusions Banks face huge rollovers of their corporate debt in next few years Consumer spending remains persistly weak Unfavorable conditions in residential real estate Commercial real estate foreclosures will have “catastrophic effects” Continued policy reflation should see trade weighted index fall to fresh lows (BCA) Core inflation is nearly impossible (statistically, anyway) Stocks represent valuable enterprises which are inflation and dollar hedges Either currencies or debt markets will blowup in next financial dislocation -- Dollar, gold and the VIX are likely to produce the biggest gains -- Australian Dollar and Brazilian Real appear particularly overvalued -- China and Hong Kong have ‘dangerous’ bubbles in the real estate market -- Global economy could down dramatically if China slows growth because if inflation Public finances of the major Western countries are going to become unmanageable -- Bond market pressures on the PIIGS: Portugal, Italy, Ireland, Greece and Spain -- Credit-rating agencies are on collision courses with Spain, Portugal and Greece -- Social security systems likely to be raided and social unrest is probable -- Many state/local/provincial/regional governments face a funding crisis Four troubled giants are on life support and need continuing infusions -- AIG, Fannie Mae, Freddie Mac and GMAC are long-term wards of the state -- Total risk they pose to the taxpayer far exceeds that of the big banks Banks face huge rollovers of their corporate debt in next few years -- More bank failures: 140 failures ytd and over 500 banks on so-called problem list -- S&P has warned that nearly all of the world's big banks lack sufficient capital Consumer spending remains persistly weak -- Unemployment likely to move above 10.0% again after Nov drop from 10.2% -- To get a 5% unemployment rate within 7 years, US needs 300,000 new jobs a month -- Gasoline prices are higher than year ago and a cash flow drain on consumers Unfavorable conditions in residential real estate -- Residential investment is best leading indicator; huge overhang of vacant units -- Higher mortgage rates likely when the Fed stops buying GSE MBS on Mar 31 -- Significant increase in Alt-A and Option-ARM mortgage resets in 2010 -- Second wave of defaults likely as a result of resets and strategic defaults -- At least 23% of all homeowners with mortgages are underwater Commercial real estate foreclosures will have “catastrophic effects” * Fitch warns of huge CRE losses for life insurance carriers on mortgages * $1.4 trl in commercial loans are due in next 5 years; much will not be renewed Continued policy reflation should see trade weighted index fall to fresh lows (BCA) -- Yen may become the funding currency to short to fund the carry trade -- Dollar in bear market until Fed signals confidence in growth and hints of exit! -- Capital controls to curb hot money flows if dollar weakens again -- But watch trade deficit -- if it continues to narrow, the dollar may do better Core inflation is nearly impossible (statistically, anyway) -- Owners' equivalent rent is largest single component of the core CPI at 24%. -- Rental vacancies remain high, landlords have virtually no pricing power -- CapU is 71.3%, up from post-war low of 67.6%; but still curbs inflation and wages Stocks represent valuable enterprises which are inflation and dollar hedges -- Inventories and staff are very lean; operating leverage gives earnings much upside -- Dollar devaluation is huge positive for firms with int'l revenues; and visa versa -- Emerging economies with reserves, high productivity growth, low debt are valuable
23 December 9AM
Eurobondonline - Fixed Income - CarryTrade - Eurex - Euribor - EquityIndex - SFE - Ratios EquityIndex We are long ESH0, NQH0, DJH0 We have stop reversals, opposite the trendspotter.We are short Feb Vix CBT we are long ZBH0, ZNH0, ZFH0, ZTH0 We have stop reversals, opposite the trendspotter . we are long TBT and PST Fixed Income ETF's CBTSpreads We have steepners on. ZBH0 - ZTH0 trades 3.03 ; We are short 2 ZBH0/long 7 ZTH0 from 2.97 bp's; ZFH0 - ZTH0 trades 1.02 bp's . We are short 5 ZFH0/long 6 ZTH0 from .96 based on daily moving average cross. Eurex we are short Bund , Bobl , long Schatz & long Gilt .We have stop reversals , opposite the moving averages. Eurex Curve We have steepners on Mar10 Bund/Schatz trades 1.54. We are short 2 Mar0 Bund / long 9 Schatz at 1.335 bp's ;Bobl/Schatz trades .65 bp's; We are short 5 Mar0 BOBL/long 12 Shaz at .53 bp's CarryTrades: Mar10Bond - GEH10 trades 4.37 bp's, We are long 1 ZBH0/short 5 GEH0 from 4.22bp's and will add when there is a moving average cross ZNH0 - GEH0 trades 3.64 We are long 2 ZNH0/short 7 GEH0 at 3.50bp's and will add when there is a moving average cross Mar10CBTSwap - GEH0 trades 5.68 bp's We are long 1 SRH0/short 3 GEH0 at 5.37 bp's and will add when there is a moving average cross Mar10Bund - IH0 Euribor trades 2.61 bp's We exited long 1 Bund/short 3 IZ9 from 2.77 bp's at 2.59. and will reset near 2.75 Mar10Gilt - LH0 Short Sterling trades 3.79 bp's We are long 1 Mar10Gilt/short 5 LH0 from 3.68 bp's and will add when there is a moving average cross Mar10SFE10Yr - GEH0 trades 5.20 bp's We are long 1 SFE10yr/short 2 GEH0 at 5.21 bp's and will add when there is a moving average cross EURO$ We are long GEH1 GEH0 - GEH1 trades 1.36 . We are short GEH0/long GEH1 at 1.36 Euribor We are long IH1 IH0 - IH1 trades 1.12 . We are short IH0/long IH1 at 1.12 Short Sterling We are long LH1. LH0 - LH1 trades 1.64. We are short LH0/long LH1 at 1.64 LU0/LU1 - IU0/IU1 We sell 10 LU0 / buy 10 LU1 at 1.64 and buy 6 IU10/sell 6 IU11 at .91 = .73;Dec 3 we exit at .66.LU10/LU11 Sterling - IU10/IU11 Euribor trades .75 Dec 21 - short 10 LU0 /long 10 LU1 at 1.67, long 6 IU0 /short 6 IU1 at .91 = .76 SFE we are short SFE 10yr, 3yr & IRU0 . We have stop reversals , opposite the moving averages. SFECurve We are long 5 IRH0/short 5 IRZ0
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