Morning Audibles 3.31.10 - Last Day of MBS Purchases by Fed

If anybody really thinks this is the end of the line, they probably need their head examined. But it's nice to observe occasions with a little cake and a few party favors.


After all, tomorrow is April Fools Day, and therefore we have more important things on hand to celebrate in this country.


I could probably be really funny here and conjecture about all the things that might happen as MBS purchases by the FED fade under the carpet into the past, but I'd rather take a more normal approach, and treat it for what it is... Here, I'll give you the Easter Bunny version (so as to be seasonal).


Let's review what the Fed buying MBS did in the first place.



- Helped bolster fraudulent balance sheets for the next wave of liquidations.
- Given banks time to raise capital & loan loss reserves ahead of that.
- Given a feeling of 'safety' (with implicit guarantees)
- Allow for a period of "risk on" trades to occur (more on that later)*
- Create a hypothetical conduit for "risk on" trades to unwind to a desired direction (don't laugh or spit out your coffee when I say that, while I doubt that was "in the plan" - I don't think the FED is that smart), It may end up as a bonus feature.

Still, while it is now easy to understand what this form of QE accomplished in hindsight, it is difficult to understand what the withdraw of such will produce.

Remember, this move has been 'telegraphed' for a long time. Amen Ra (on this blog, and many other blogs, for that matter, have even taken to doing "countdowns" as the final day approached. To offer a comparison, remember back in February (on the Thursday before OPEX - after the close of the markets) when the FED did a surprise hike on the "discount rate"? Remember the market reaction? A quick "whoosh" in AH trading, but by the next morning, algos & HFT were treating it as nothing ever happened. Now, remember, the "raising of the discount rate" was another move that was widely telegraphed (yet nobody was sure when it was coming). This policy shift (with regards to MBS), has been known about for quite some time.

So I'm going to hazard a guess that BASICALLY NOTHING HAPPENS. Or, if it does (and on what day it occurs), will likely be attributable to the mysterious way in which the markets move in aggregate.

Bottom line? This is "priced in" (and has been for quite some time).

Now we can get in to OTHER hypothesis. Being "priced in" could actually mean that a "RISK OFF*" trend needs to ensue (as hinted about above). It's a matter of 'timing'. The official end of these purchases by the Fed comes at the end of the first quarter. So it could be, in hindsight, that the apparent strength in equities over the past 6-8 weeks (especially PD bank stocks), has been typical "window dressing" in anticipation of the final event. I mean, even if you own a "clunker" car, you're probably going to slop it up with a little "Armor-All" if someone is going to take a look at it. Right?

So I'd nominate the same hypothesis as we've been doing for the past few weeks as the possible outcome.

- Equities are probably a little overbought 'technically' here, it's probably time for a little correction
- The dollar seems to be readying for its final medium term rally of strength
- The Treasury needs yields to flatten (appropriate time for some RISK ON trades)

These are "highly probable" occurrences, but, as always, the TIMING can't be predicted. The exact duration & steepness of the move (how far - how fast) is tough to determine as well. So if you're looking at in terms of equity index levels, what does it mean? 1150? 1120? 1000? Do we push minimally higher first?

My best guess is that if we push higher now (say, within the next 3 trading days), it will only be 'marginally' higher (I've set 1183 as a bogey in that case). One thing that this Fed & this Administration have successfully accomplished thus far is to EXTEND & PRETEND. Someday we'll probably crash. But the easiest way to "get by" in the meantime is to AVOID going totally vertical.

ANOTHER date coming up on the calendar is April 14th (the anniversary of the sinking of the Titanic). I suppose we need to get about "re-arranging some deck chairs" in order to pay proper tribute.





So RELAX, and enjoy the cruise in one of these babies!


226 comments:

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call me ahab said...

b22- from the previous post-

just saw the ADP-

had to laugh-

quite bullish(-:!!!!

I wonder if the unemployment trend is your friend?


CV- haven't even had a chance to peruse your post- but that rabbit picture is a riot-

have to run and get my car emission tested- will check in later

call me ahab said...

. . .and Ra- saw your post on the saying Candyman three times in the mirror-

did you ever see the South Park version where saying Biggy Smalls three times brought back. . .well . . .The Notorious B.I.G. . .

now that show was a riot-

gotta run

Nic said...

Farewell 1170 we barely knew ye ...

CV said...

@Nic (8:39)

I'm not so sure...

These friggin ALGOS don't leave a bent penny on the table...

I'd say there's a excellent chance they'll be "picking off" any weaklings who went SHORT in the pre-market on the ADP number...

Just a guess...

(wouldn't be surprised to see 'green' at some point - 1175-ish?)

Nic said...

Moody's just downgraded Greek banks to almost certain default. LB's predictions looking spooky accurate again

Nic said...

You are right CV ... I got a little over excited by a moment of realism in an unrealistic market. Thanks for the prod.

Nic said...

Goodbye, Federal Reserve. Hello Fannie and Freddie:
http://www.reuters.com/article/idUSTRE62U1TK20100331

McFearless said...

Nic,

I saw that about Moody's (but Moody's?) I'm also noticing nobody really talking about Ireland yesterday...but it DOES matter.

CV said...

I haven't been watching the business news reporting (never really do anyway)...

But what I imagine to happen is a total AVOIDANCE to talk about ADP in terms of "private hiring"...

IOW - NFP will 'still' post a good number of Friday because of census jobs (and the media will focus on THAT)...

IOW2 - Not only will Fridays number be the last 'headline' number to go into a nice holiday weekend (where it's in the mid 70's and sunny all over the East Coast - all weekend), but by being SILENT today about what ADP truly is today, it leaves room for anyone to discredit it on Friday (because NFP clearly won't jive)...

Hence, my EARMUFFS post yesterday...

CV said...

Good thing the markets are closed Friday...

I don't think I could take it...

I'll have to go out and play golf all day, I think...

CV said...

@Nic

Don't tell me that GS is going to get 'stopped out ' on the Euro again here :-)

CV said...

Also...on ADP

Isn't it "cozy" that with a -23K number, the FEBRUARY number was revised from -20K to -24K...

See... We're IMPROVING!

Nic said...

haha ... last day of month is usually bullish euro (due to flow)then it reverts to trend. plus end of month rebalancing high jinks. Profits from currencies that have performed well reallocated to underperformers

Nic said...

CV - This ADP number is without the census nonsense so a bit more robust, no?

CV said...

The good thing about the dollar being a little weak on the open is it's THUS closing the GAP from the move last week...

CV said...

@Nic (9:31)

Correct... ADP is private payrolls... But what I'm saying is that the MSM will tend to ignore that fact...

When NFP comes in (because it will 'look' better), they'll focus on that...

Anyway, who cares? Markets will be closed on Friday thank God!

call me ahab said...

Nic-

regarding your 9:00 post-

and of course we have the Fed's promise to jump in at a moment's notice assuring the market participants in MBS that there is a guarantee of liquidity-

and the banks are getting off the hook- big pass off to the "bad" banks that are Freddie and Fannie

Mannwich said...

Go TLT, go...

I-Man said...

Morning team...
The I is sleepy.

karen said...

between Nic's FRE/FNM article and crude oil, i am beside myself this morning.. even GS sub 170, didn't cheer me..

Mannwich said...

So ADP came in at -23K but the BLS expects and INCREASE of 200K? How can we even give either method/number any credence when the disparity is so big? Does the ADP not count the census jobs that the BLS counts? I don't get it. Why even track this crap if it's so unreliable? It's basically a useless (and wildly inaccurate) "stat".

call me ahab said...

manny-

ADP is private sector

AmenRa said...

Manny

ADP is a payroll processing company. So all they have to do is look at how many checks they sent out. They also primarily cover small businesses.

Mannwich said...

@ahab: OK, so they do not count census jobs or gov't jobs. Well, that means if BLS comes in at/around 200Kish, then most of the hiring is gov't jobs? Sounds like a lasting recovery is upon us. LOL.

Mannwich said...

@AmenRa: I should have known that. My first job out of college was working as a Payroll Admin at the old "Lotus Development Corp" in the People's Republic of Cambridge, MA. Great company to work for and great location. Right on the Charles River looking at Downtown Boston. I was there when IBM did the hostile takeover. They bussed us all down to the Wang Center in Boston to hear Louie Gerstner tell us we were going to "defeat the evil Microsoft". That didn't pan out too well.

I-Man said...

Dont know if any of you are following this story, but its rather intriguing.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/30_Andrew_Maguire_%26_Adrian_Douglass.html

Mannwich said...

But we didn't use ADP. We used their competitor Ceridian (incidentally, Minny-based Ceridian).

Leftback said...

Macro Man has a superb post this morning on the whole ADP nonsense and had the situation played perfectly. The FX/bond guys are indeed the smart ones.

Now, LB has a pile of hedge to which he is adding. Looking ahead, we have the NFP (OK, the jobs are census jobs, but they are still jobs, for now). Then I have an auction to worry about, so I will leave my hedges on into the 10y/30y auctions on April 7/8 in all likelihood.

Obviously a Greek meltdown or a US equity meltdown are all positives for Treasuries so we have a stop on the hedges. It's going to be a boring week for us given our positioning.

Golf tomorrow. No rain and we need a sanity break.

Mannwich said...

@I-Man: I read about it first on ZH but haven't followed up since then. I'll check it out.

McFearless said...

Been that way for over about a decade Manny. No private sector jobs and growth in the public sector.

Also saw you ask last night if we were headed the way of Japan with regards to income. Aren't we already there? Or, at least well on our way.

Most people in the private sector have experienced raises that do not keep pace with cost of living adjustments over the last decade. Then throw some kids in the mix and consider the rate at which college costs have been compounding since 1980. This comes at the same time many have lost pension, matching contributions on qualified retirement plans, and in many cases benefits or they pay more for benefits. Social security....lol.

Meanwhile in the public sector.....

call me ahab said...

manny-

it's been all government for at least a year-

stakes in banks, car companies, insurance companies, TARP, stimulus, jobs programs, health care-

government payrolls have been increasing-

reminds me of old Marion Barry- former Mayor of DC- saying he'd rather have people on the payrolls instead of the welfare rolls

Mannwich said...

@ben: Oh, I think we're "already there" but it's going to get even more pronounced, so yes, we're on THAT path, for sure.

Leftback said...

April 1 tomorrow. Seems tailor made for a JOHNNY rally....

Looking to short equities. But not this week....

Leftback said...

Turning Japanese?

I really think so.

CV said...

I'm still wary of the possibility that we'll grind sideways here all day (with a few little blips here and there to spark some into thinking a DIRECTION change is imminent)...

I said this last week (strategy wise)...

Momo's have to go to work tomorrow (and probably next Tuesday as well)... I think Lloyd wants to 'distribute' a few equities Brians way while prices are still juicy here...

In February, Lloyd NEEDED Momos to assist in stamping that 1044 floor... Then, Lloyd & Jamie traded back and forth on low volume for a month to get us where we are (at a NET ZERO cost to them)... Now both turn to the fresh cash coming in and say "sold to you"...

It works PERFECT with the scenario LB mentioned above (10:06)... Starting on April 7&8, 'flattening' begins for awhile (Lloyd & Jamie make their money there)...

I'm actually still wary that tomorrow we don't see a slightly higher number (new high) like 1183 (because it's a better TECHNICAL FIT to some of the lower support numbers)...

Just my 2 cents... (it doesn't have to turn out that way - just a theory)...

Mannwich said...

@I-Man: Now if Maguire's allegations are true, then why wouldn't we think that other parts of the "markets" aren't manipulated as well? I mean, why does anyone think this crap is even remotely legitimate? These people are scoundrels, criminals, if you will, and if they're actually getting "help" from the regulators, why even play anymore? What's the point?

CV said...

Speaking of "squids" (and where they reside)...

Did everyone here read that now Obama thinks "offshore drilling" is PEACHY KEEN! (In our 'national interest', or something of that nature)...

Which should read... "It is in our NATIONAL INTEREST to create a facility for implementing a CARBON TAX - So that the government can make money, and more importantly that my benefactors at 85 Broad create a new stream of revenue with which they can pay me on the side for"...

McFearless said...

Manny,

If you believe the market is manipulated there is not point to being in it, you've already lost.

call me ahab said...

"Rite Aid Loss, Forecast Worse Than Expected" CNBC

now trading @ $1.56- and to think I backed up the truck and went all in when Cramer recommended it at $5.00- lol

CV said...

@McF (10:35)

I think it's important to create a distinction...

I believe that on low volume, markets CAN be manipulated on a short term basis...

On a longer term SOCIOECONOMIC basis... NO

Mannwich said...

@ben: And you don't think it's being manipulated at all? You think it's totally clean and pure? No disrespect, but isn't that a bit naive?

Mannwich said...

@ben: Did you listen to the interview that I-Man posted? I actually think the casinos in Vegas are less "rigged".

AmenRa said...

Was Cramer a seller of magical elixirs in a previous life?

call me ahab said...

manny-

I think b22's point is that you trade the market with the hand that is dealt- or what you think is going on-

i.e.- if you think the market makers and the Fed have it fixed- you go long

Mannwich said...

@ahab: I understand. I just think it's a sucker's game for the little guy.

call me ahab said...

. . .I tell you one thing- going short now is a gut wrenching decision-

much like going long last Feb/March-

and here's a story- and I have my notes to prove it-

I had written a note to myself to purchase 10,000 shares of F @ $1.00 last year- what's the worse that could happen- right? worse case- out 10 large-

anyway got busy- but came back to it and F was trading at a $1.50-

I was so certain- because I thought there was no way the market could go higher- that it would come back to $1.00- so I sat and waited-

where is it now . . .?

karen said...

from new NLY post:

"Real consumption is effectively back at pre-recession peaks, down only 0.10% from the 2007 top and currently on the rise. Meanwhile, real ex-transfer income is down roughly 7% from its peak and has remained stagnant for half a year. In the pre-war period, we’ve never experienced anything like the current situation where real consumption is greater than real ex-transfer income. This is, of course, due in part to the record level of unemployment benefits currently being paid (which are included in transfer payments). Total real transfer payments rose to over $2 trillion for the second time ever, on an annualized basis. The last time was May of 2009 on the back of the $250 checks given out as part of the American Recovery and Reinvestment Act of 2009. This month, transfer receipts eclipsed the $2 trillion mark without help from any one-offs, and transfers as a percentage of income remained above 18%. "

The last paragraph is best, but you must view the charts.

http://www.annaly.com/blog/

I-Man said...

You can see the manipulations all day everyday, in every market, if you know what to look for.

Thats what I do all day with SPY in the 1min timeframe, anticipate what "they" are going to do to screw me, and attempt to beat them to it.

The fallacy is on behalf of the manipulators, as they believe that they will succeed in bullying others into doing what they want them to do, thereby impacting the tape.

The fallacy is also on behalf of those who believe the markets are controlled by the manipulators. The markets are controlled by no one. Not even the Squid, although we like to joke about it.

Sure, they will succeed for a short time, but everyone in the game ultimately has two things they are dealing with, regardless of how much dough the play with:

Fear and Greed.

call me ahab said...

karen-

we crossed the Rubicon-

the battle has been lost- those that benefit from the government are now in the majority

CV said...

@karen

I'm pretty sure you're just READING that article and SHARING it with us (not taking it as any kind of 'trend')...

I simply read stuff like that and ask myself how it can fundamentally sustain itself that way...

Answer, IT CAN'T... But it can do so for long enough to keep 'slaves & masters' happy (and in their proper place)...

Mannwich said...

@I-Man: But it is in the "short-term" where the little guy gets raped and beaten up until he's broke. Like I said, play if you have the liquidity and you'll probably do great and some little guys will too, but there's a reason all those nice buildings were built on Wall Street over the years. It wasn't the little guy that's made most of the coin......

karen said...

Bloomberg Out of Love with Obama

Woods Mistresses: Tiger was Cheap, Randy, Gross

CV said...

@Manny

You need to become Spartacus and start a 'slave rebellion' :-)

Lord Blankfiend said...

"but there's a reason all those nice buildings were built on Wall Street over the years"

Because we know when to SELL EM, JAMIE....

karen said...

CV, my point is exactly that, UNSUSTAINABLE.

Ahab, perhaps you are right, but again, an unsustainable condition.. altho it may play out over the next 100 years.. I'll be dead!

CV said...

@karen (Tiger Woods)

So my TAKEAWAY from that article was that Tiger 'specialty' was the $5 foot long :-)

McFearless said...

No my point is not that it isn't manipulated ever but you asked the question why play at all and therefore I believe my statement makes sense. If you actually believe the market can be rigged for any meaningful period of time why would you ever participate? You will end up losing every time because of what that implies.

I think everyone is well aware that big money can push things in a certain direction for a time, but can you show proof they change the overall trend? This idea that this entire rally has been rigged, which I believe is implied in 99% of comments and articles about xyz conspiracy seems very wrong to me.

I'm talking to advisors every day that have been buying for months. Family members I know have been bullish a few months now and have been buying. Mutual funds,... are they manipulators? They had many months ago pushed to bring cash in the funds back down to where they were in October 2007. BR has been bullish for months, is he a manipulator? These people are just optimistic and bullish, so they are buying.

and if retail buys now, lets not give them the benefit of blaming Lloyd or someone else on manipulating prices until Johnny came in. Please. Nobody is forcing these people to buy, they just can't control themself. Do we look back at oil prices in 08, something so many said were manipulated and say that retail was forced into buying USO at the top? About all the Joe blows I knew that were loading up on stuff like MOS or CHK in summer 08? Were people forced into buying shorts at any point in the summer time last year, how about in March last year?

As for it being a suckers game for the little guy, my experience says otherwise. I came into this years ago with nothing. Now I have a lot more.

I remind myself every day that it's fairly well documented that conspiracy gets popular during bear markets. It's easy to find proof of this. The products used have changed but the basic premise of the story told never has.

The point is basically don't give up and get sucked into the conspiracy crap. It's going to get even worse over the next few years imo.

call me ahab said...

have to roll out-

beautiful out today- rose bushes coming in nicely-

anyway- all have a wun . . .der . . .bar . . .day!

I-Man said...

Its a tough game Manny, that many people shouldnt even try to play.

Mannwich said...

@ben: Correction: For MOST little guys. I did say in my post that some little guys do very well, but most do not. It's the ultimate zero-sum game. And the less liquidity you have to weather the storms, the tougher it is......

CV said...

@karen (un-sustainability)

You know... I'm tired of KNOWING what the eventual outcome will be, but trying to fight against it (both with $$ & words)...

That doesn't mean I've capitulated as a bear, just that I'm going to allow it to run its course to its eventual conclusion...

If you look hard, there are still ways to benefit from the idiocy... Example - I'm BURDENED NO LONGER from the notion that I have to "keep up with the Jonses"...

For me, it's not such a bad thing to be able to calmly prepare myself for that eventual day of reckoning...

For most people, I think the "mental acceptance" is the hardest part...

It's kind of why I posted that Forrest Gump thread yesterday (which you didn't read)... In the end was a quote from Forrest's mother which basically says it takes a LONG TIME for people to put certain things behind them and move on...

I started a few years ago in this process and I'm still not all the way there...

Leftback said...

"Nobody is forcing these people to buy, they just can't control themself. "

LOL.... this is the same old story of the stock market or the casino. They know they are going to lose, but there is so much PRESSURE to CONFORM by PLAYING.

Maria was on the TV news this morning, trotting out the old cliches, stocks for the long haul... etc... reeling them in...

You don't get a lot of MACRO on The Today Show.

I genuinely felt sorry for those who lost money in P1. When P3 arrives I am not going to be so charitable. Furthermore if any of the big banks goes down I will be cheering from the rooftops.

Mannwich said...

Exactly, lb. "You can't win if you don't play." That about sums up our zero sum economy and "markets". Sucker's game for everyone but the uber-informed and uber-disciplined.

I-Man said...

I hope they all go down. Every last one of them. New banks will emerge, built on solid foundations.

What we have now is a cesspool of toxic shit.

Leftback said...

Our hedges on the long bond are almost green now, we added at 9.45.
We are definitely playing this into the auctions from here.

Most likely scenario: NFP +250K, they sell the long end and buy stocks with the Q2 fund flows. Auctions next week, so we might tickle the magic number of 4.00% on the 10y, 5% on the 30y and that is going to be a RATE SHOCK for this economy. Any earnings that are WTE and it's CORRECTIONAL CITY.

I-Man said...

Its not a suckers game, its a difficult game.

Mannwich said...

@I-Man: Fair enough, and one that many "suckers" lose quite often.

CV said...

@LB

"Auctions next week, so we might tickle the magic number of 4.00% on the 10y, 5% on the 30y and that is going to be a RATE SHOCK for this economy."

---

x1000

That's CV's "bogey"...

(perhaps along with it a low 16 VIX, and a mild new high on SPX)... Maybe even a trendline 'touch' or false breakdown thrown in for good measure...

CV said...

when I say x1000, that means x2*500...

I was implying no levels there if it confused anyone...

I-Man said...

One more thought and then I really have to do what I'm paid to do around this shithole.

A sucker's game is throwing all your retirement money in a bunch of mutual funds and never looking into what its in and expecting all to be rosy.

A sucker's game is buying stocks like lotto tickets because Cramer, your barber, or some dude at the bar said it was a buy.

A suckers game is paying someone else to manage your wealth who you barely know, and expecting it to go up 10% a year with no risk.

Speculation is an art form, and its a difficult one to master. No one ever claimed otherwise.

It just doesnt do trading justice to call it a suckers game. Its not.

Johnny Retail said...

BRIAN and TAWNY told me it's like a big savings account, only better, and kinda fun. Like a casino, with chicks and flashing lights and everything. You know those guys are REAL successful, and they have boats. They would never lie to me.

McFearless said...

Manny,

We can't really get off track though and state the little guy hasn't done X over the years and somehow it is because they can't win in the game because it's stacked against him. Of course it is, do you know any business that doesn't try and create some sort of competitive advantage? Do you think if you started an electronics store tomorrow in Minny that you should just be right next to Best Buy in sales within the year? Of course you don't. Not to mention the emotional state it takes to be good at this over a long period of time.

Let's not forget that the little guy is also earning his performance, every last cent. Most of them suck, so that's the performance they earn. You earn your gains AND losses in the market. I think we all know that is true, no matter how harsh it is. If people get wiped out because they load up just before P3, tough shit, they earned it, it wasn't someone else's fault and if they didn't have any liquidity they shouldn't have been in the market, speculating, in the first place. Usually people lose when they buy lottery tickets, and that is what most people are looking for with the market.

You need skills and a ton of work to be any good at this and the work never ever stops. I don't believe, for example, that not having ever practiced or learned anything about the proper way to hit a baseball that I could just jump into a game in a few weeks and become an All-Star in the majors.

It's funny that if you asked most regular people if they could insert themselves into a pro game of any type they would admit they'd probably "get killed" yet when it comes to the market, they've got that all figured out, and if not, it's because someone screwed them, not because they didn't have the proper skills.

anyway, the Naz is green now, lol.

karen said...

CV, i didn't read the Tiger article myself because I actually do not care.. just found humour in the headline. And the epidemic of those (now Jesse James) entering "treatment" is absurd.. I DID READ your GUMP post !! not every single word of his crisscross, of course, but enuf to get the GIST.

CV said...

@ben

"I don't believe, for example, that not having ever practiced or learned anything about the proper way to hit a baseball that I could just jump into a game in a few weeks and become an All-Star in the majors."

---

Yeah, but maybe if you stay at a Holiday Inn Express, things will come around 4u there... :-)

I-Man said...

So Tiger has a big schlong... who knew?

McFearless said...

C,

Here, do it another way:

Yeah, but if I get pattern matcher, things will come around for me in the market.

CV said...

I can't wait to see how "pattern matcher" performs during P3...

CV said...

Ladies & Gents

I'll be out for a bit...

Time to go outside and do some planting...

Try to keep this thing under 1183, would ya please?

karen said...

Announced Charge Offs from Healthcare Reform called irresponsible by members of Congress. "And earlier this week Congressman Henry Waxman called the CEOs of each of these companies to appear at a Congressional hearing on April 21st."

This is all so UFB..

Tiger's Wood said...

So Tiger has a big schlong... who knew?

Believe me these last few months have not been fun. Nothing but pocket billiards. No waitresses, no porn stars... depressing.

McFearless said...

Karen,

Wow, that 11:51 is just....I don't even know what to say. We are "led" by complete idiots.

DL said...

Michael Kahn (Barrons) says that the yield on the 10-year note is going higher

http://tinyurl.com/yg654jk

DL said...

McFearless @ 12:03

No doubt Waxman has known about this for some time. And notably, the companies waited until after the bill passed to say anything.

I see no abatement in the intensity of the debate as a result of the passage of the HC bill.

McFearless said...

another near plane crash today....

karen said...

Explanations for Continued Fall in US Savings Rate

from the article:

1. Asset prices are increasing. The wealth effect and the decrease in debt-related stress associated with this increase has allowed consumers to resume their prior consumption patterns. This is where I have focused in the past.
2. Debt-related stress is still acute, particularly because of continued high rates of unemployment. This has caused consumers to draw down savings in order meet basic material needs.
3. A surge in strategic defaults has left consumers with more money to spend and is boosting retail sales.

"The bottom line in this for me is that, to the degree strategic defaults are increasing retail sales, this is unsustainable. Eventually, banks will take every recourse they can to pursue these defaulters because the losses from these loans is going to mount."

There's that word again, UNSUSTAINABLE.

karen said...

DL, of course you are right.. letters were sent to the president and congress from the corporations directly informing them of the ramifications..

McFearless said...

You know it's funny that EWI has gotten so busted on their stock charts the last few months yet the count on the long bond yield of all things has been good.

Leftback said...

Welcome to the USA where the rich get richer and the poor get food stamps.

DL said...

LB @ 12:19

And which European economy would you like us to be more like?

McFearless said...

ON the radio on the way in today I hear a proposal is out in DE where people that decline coverage will not have to pay the penalty discussed in the new bill.

Others seeing this in your state?

Without the penalty dropping insurance coverage is even more of a no-brainer for me.

Leftback said...

"the yield on the 10-year note is going higher"

This is conventional wisdom for a conventional recovery, but we are in ZIRP and QE. This is like quantum mechanics here.

"which European economy would you like"

Well, Sweden and Norway seem to have solid sustainable models....

karen said...

From Jim the Realtor:

I attended a local Building Industry Association conference on Friday 26 March 2010. The west coast manager of real estate owned, Senior Vice President Ken Gaitan, stated that Bank of America, which currently forecloses on 7,500 homes a month nationally, will increase that number to 45,000 homes per month by December of 2010.

After his surprising statement, two questioners from the audience asked questions to verify the numbers.

Bank of America is projecting a 600% increase in its already large number of monthly foreclosures.

This isn’t unsubstantiated rumor; this comes straight from one of the most powerful men in Bank of America’s OREO department.

http://www.bubbleinfo.com/2010/03/30/short-sale-tips/#comments

Mannwich said...

Of course it is, karen. The "plan" is what DL has been saying all along - extend and pretend through the '12 elections. After that, all bets are off.

Leftback said...

Actually LB would be happy if the USA went back to being the USA.

There is a lot to be said for true American capitalism, but not the crony fascist corporate kleptocracy in which we are living.

LB like many immigrants moved here for work and opportunity. Market interference removes incentive, creativity and opportunity.

DL said...

McFearless @ 12:23

I'm waiting for Obama to pass a law saying that people can wait until they get into a car accident before buying auto insurance... or that they can wait until their house burns down before they buy homeowners insurance.

Then there's life insurance...

Come to think of it, they should just pass a law repealing the laws of economics.

DL said...

"Market interference removes incentive, creativity and opportunity"

Amen to that.

karen said...

no one is aghast at the trickle of foreclosures becoming a flood ! 7500 to 45K a month from just one bank?

DL said...

Foreclosures?

There are foreclosures?

Shocking.

Mannwich said...

I'm with you, lb, but there are now layers upon layers of complexity and "interference" everywhere in our economy that far too many now RELY on to game it, make their money on it, and move onto the next scheme.

They will never simplify things by going to the source of these "problems". They will always add another layer or more on top to create even MORE complexity and thus more gaming from the parasites. Hence, real innovation suffers.

Mannwich said...

@karen: But if we simply don't acknowlege it (and "make our own reality"), does it even exist? Apparently not. Move along, please.

Leftback said...

The foreclosures will be revealed before the market opens April 8.....

karen said...

Now I'm reviewing the Irvine Housing Blog for more information..

Bankster Bailouts Did NOT Save Us from the Second Great Depression

a long read and nothing we don't already know..

karen said...

I like this Irvine Housing Blog, too. "No program exists, nor can one be designed, that does not create moral hazard and gross unfairness. That is why this issue is so difficult.

This process must be allowed to run its course. Bank of America will manage its public relations and try to look like they are working to prevent foreclosures.

In reality, Bank of America is gearing up to remove the loan owners and squatters. Expect to see a steady increase in foreclosures all year continuing for the foreseeable future."

"Should we give HELOC abusers principal reductions?
The owner of today's featured property would likely qualify under the terms of the Bank of America agreement. Let's take a careful look at the behavior of these borrowers and see if this is something we should encourage with bailouts and handouts.

This property was purchased on 7/30/199 for $348,500. The owners used a $313,350 first mortgage and a $35,150 down payment.
On 10/14/1999 they obtained a HELOC for $30,000 which allowed them to withdraw their down payment.
On 3/7/2002 they opened a HELOC for $50,000.
On 3/28/2003 they refinanced their first mortgage for $322,000.
On 3/17/2004 they obtained a HELOC for $120,000.
On 10/26/2004 they refinanced their first mortgage for $462,750.
On 10/12/2006 they refinanced their first mortgage for $625,000.
On 11/14/2006 they obtained a HELOC for $100,000.
Total property debt is $725,000.
Total mortgage equity withdrawal is $436,650 including their down payment.
It is obvious from the photos these people did not spend this money on property improvements. Where did it all go?

We all know this money went to conspicuous consumption and keeping up with the Joneses just like it did for everyone else. Do you want to see them get a principal reduction to pay for it?

I don't."

DL said...

Karen @ 12:59

Irvine is not exactly a hotbed of socialism.

McFearless said...

Karen,

Reading the individual accounts only makes me more angry.

It's all disgusting.

Leftback said...

UFB. I don't think things ever got that wild around NYC. So Cal was ground zero for HELOC-driven consumerism. But of course to some degree these people must have been everywhere to drive up prices as high as this.

Nic said...

Karen
I am a bit shocked. Just struggling with motion sickness from fx markets today

Nic said...

I wonder how they are going to keep a lid on mortgage rates ... Here people are rushing to buy before they go up, literally.

I-Man said...

When the brokers around here found out that I am looking for a loan help backstop me on my merry way to find a better way to make a living...

Guess what they all said, to a one?

Have you looked into a HELOC?

Not making this up. This is Spring 2010.

DL said...

I-Man @ 1:07

If you can get a home equity loan with a fixed rate, it's not necessarily a bad thing.

Depends what you do with the money.

Mannwich said...

I believe it, I-Man. They're clearly trying to push the reset button back to '04-'05 and act like there were just a few minor problems that, if "fixed", would allow us to resume our debt orgy again. Problem is we're at '07, which is "fine" if they can just freeze time a bit longer.

I-Man said...

I know, but I dont exactly feel comfortable taking my deteriorating equity out of a depreciating asset.

I really am at a loss of what to do about my place anyway. We bought in summer of 08, with 10% down, so I really have no equity if we are doing honest valuation anyway.

But I am all for you elaborating on that, if you care to. I respect your opinion this alot.

Nic said...

Do you live in a no recourse state I-Man?

DL said...

I-Man,

A HELOC is a "recourse loan", I believe, which means that they can come after you if you don't pay it back.

If you could refinance with a cash-out, that might be a good option.

If you've got no equity, then you're SOL.

I-Man said...

I'm really torn about this whole debt thing on many levels.

I abhor debt, my parents have been destroyed by it, I am a slave to it.

However, how else am I supposed to get anywhere without it? It seems like a necessity for what I am trying to do with my life right now.

It would take me half my life to save the money I need to feel comfortable to be able to take the business risk I need to take.

It seems like debt, or credit, is an essential piece of building a business... yet, no one wants to extend it at this point because of all the shit that has gone down.

I-Man said...

I dont even know what that means, Nic...
But sounds like I should figure that out.

I live in WA.

DL said...

I-Man,

If you're willing to put up your knee caps as collateral, I might have an idea.

karen said...

Pls don't laugh at this.. it is not funny:

Hartford Financial Services Group Inc. (HIG) became the latest company to repay federal funds it received under the Troubled Asset Relief Program, as it paid $3.4 billion to the Treasury Department to repurchase preferred shares.

Hartford funded the repurchase with proceeds from its $2.38 billion equity and debt offering undertaken earlier this month, as well as from available resources. Every bank that has repaid TARP aid has raised capital by selling shares as part of the process. Such stock sales can hurt current investors by diluting the value of their shares.

The U.S. Treasury continues to hold warrants to purchase about 52 million shares of Hartford's stock at an initial exercise price of $9.79 a share. Hartford confirmed Wednesday it doesn't plan to repurchase the warrants.

That price is attractive for the government, as Hartford's shares recently traded up 1.8% to $28.53.

72bat said...

Irvine Housing Blog: "Do you want to see them get a principal reduction to pay for it?"
not particularly. otoh, any bank that extends this kind of credit should bear the cost should the account become delinquent or default. one party or the other should bear the cost. not you, not me, not anyone else. as denninger hammers on, let the market clear these bad debts.

I-Man said...

No collateral, DL.

Except for that which you've seen.

McFearless said...

@I-man,

fwiw, one way I got my book so large so fast was by going into debt. If I knew then what I do now I'm not sure I would have done it, but it did work out. Self-liquidating debt is not bad debt. Personally I think you'd be better off finding an "angel" that would take a risk on you and provide you with some capital at a likely higher interest rate. Not easy to find but if you look for long enough someone will come up.

I-Man said...

McF:

Long Angels.

Short Banks.

karen said...

The Saudi Arabian Oil Ministry says that crude demand will rise "substantially" once the economy has recovered..

Mannwich said...

@karen: DTO going to zero too? ;-)

karen said...

from the NPR blog I posted yesterday.. "Tracking Our Toxic Asset"

http://www.npr.org/templates/story/story.php?storyId=124578382

McFearless said...

lol, what the hell else would the Saudi Oil Ministry say.

Mannwich said...

No kidding, ben. That's called "Talking your book" X 1,000.

Nic said...

and supply will increase substantially once (if ever) eye-rack gets going

Mannwich said...

If this got any more boring, my pulse would stop.

AmenRa said...

Uh oh. Currently have a weekly 3LB reversal in WTI as it's trading above 82.75

karen said...

C tapped 4.01 today, btw. would love to see a high volume red day..

DL said...

Mannwich,

I suppose you long for the days when the VIX was at 60.

McFearless said...

And what's this "once the economy has recovered" nonsense. I was hearing as far back as seven-eight months ago we were already in recovery. Remember, ECRI (never wrong, btw.) told us as much.

Not that it really matters much but retail continues to be drawn toward stocks:

Here, one e-mail among several I got today:

Ben,

Are there any areas where we could make some short term gains in the stock market to take advantage of its continued rise?

I got one the other day from a guy, along these lines:

I just heard a radio interview about a pharma company, I can't remember the name, I think it has an E in it. They said it was "ripe for a takeover" and I think we should buy it.

That one I really had to laugh at, dude does't even know the name of the company....


For me anyway, I was not having convo's like this in 2009 until perhaps the very tail end of the year. It has been nons-stop and building in 2010 though. If we rally through April I'll predict I lose at least two clients.

McFearless said...

speaking of volume, C was a huge chunk yesterday, if you take them out there was basically no volume at all.

Again, our white knight has emerged from the ashes, it's Citi, America's corporate titan. All you can do is smile at this point.

McFearless said...

Manny,

I know you don't really want to trade, but try to trade a mini contract. Just do one contract. If that doesn't get your heart beating then nothing will, low volatility or not, it's the mini's.

karen said...

This is the biggest pile of cr*p ever..

UPDATE: Mortgage Insurers Soar As Delinquencies Fall
NEW YORK (Dow Jones)--Mortgage insurers continued a recent streak of gains Wednesday, hitting highs not seen in at least 18 months, as data showed delinquencies fell in February for the first time in more than three years.

The companies, which cover potential lender losses on loans to borrowers who can't come up with a 20% down payment, saw claims skyrocket amid the credit crunch, which made it more difficult for borrowers to refinance and for lenders to resell foreclosed properties.

PMI Group Inc. (PMI) jumped 18% to $5.36, after rising earlier to $5.83, a high not seen since June 2008.

Radian Group Inc. (RDN) was recently up 8.4% to $15.84, and its earlier high of $15.98 was last seen in October 2007. MGIC Investment Corp.'s (MTG) intraday high of $11.31 was last seen in September 2008. The stock was recently up 8.5% at $10.99.

Genworth Financial Inc. (GNW), which has a large mortgage-insurance business, rose 4.1% to $18.16 after moving as high as $18.70 earlier, a level not seen since September 2008.

Both PMI and Radian have more than doubled this year, while MGIC is up about 90% and Genworth has soared nearly tenfold. Most of PMI's gains have come in the last month, amid plans to help mortgage holders and after Freddie Mac (FRE) approved a unit to write mortgage-insurance policies in case another unit has to stop because it's not able to meet capital requirements.

Data from the Mortgage Insurance Companies of America showed mortgage insurance cures jumped to 80,758 in February from 61,195 in January and 67,767 a year earlier, while defaults fell to 68,675 from 98,685 in January and 89,722 a year earlier. That meant the ratio jumped to 118% from 62% and 76%, respectively.

A reading above 100% means delinquencies are going down, while a reading below 100% means they're rising, Macquarie Research analyst Matt Howlett said, noting this is the first time delinquencies have fallen since August 2006.

He added the Obama administration's efforts to rescue homeowners are finally starting to be seen and probably added 7,000 cures to last month's data.

Friday, the worsening foreclosure crisis prompted the Obama administration to overhaul its rescue efforts by prodding lenders to reduce loan balances for "underwater" homeowners who owe more than their homes are worth.

Briggs-Ficks Securities analyst John Collopy said the recent spurt in mortgage insurers' shares was triggered by that move. He said investors are likely extrapolating that losses are going to lessen for the mortgage insurers, at least on paper, if people get help and no longer just walk away from their mortgages when they can't afford them.

But nothing's set in stone, Collopy said, and it remains to be seen what the effect of the government program will be.

Mannwich said...

@DL: Maybe not that volatile, but this is ridiculous, no? Day after day it's the same damn thing.

Mannwich said...

OK ben. Maybe I'll dip my toe and give it a shot. I'll report back.

Bruce in Tennessee said...

Manny;

I have a cure for your boredom. You need a black lab puppy. They will chew up every bit of furniture you own as well as the cuff of every pair of pants. At least through age 2.

DL said...

McFearless @ 1:43

Yes and no. If you've got at least 20K in the account, it's actually not as "exciting" as holding FAZ.

Nic said...

Bruce do you have labs? I have 4, one is 5 months

Mannwich said...

@Bruce: I'm sure that would definitely cure it but my dog now wouldn't be a happy camper. She's insanely territorial and jealous. That would create far more problems than it's worth.

Mannwich said...

My dog is nearly 7 and although she's not a chewer, she's basically destroyed our back door with all of her paw claw marks in it and her white fur is everywhere, and will be in this house 100 or more years after we're gone. She's done a number on the carpets too. But I guess we can't put a price tag on what she does give us. I think.

CV said...

Part of Nero's ancient palace collapses in Rome
March 31, 2010 - 10:50AM

---

http://www.smh.com.au/travel/travel-news/part-of-neros-ancient-palace-collapses-in-rome-20100331-rcif.html

Interesting timing...
When the "Book of Revelation" was written by St. John of Patmos, it was widely considered that the Emperor NERO (which means "black" in Italian) was the antichrist he was referring to...

Some later also attributed Napoleon & Hitler as "antichrists"...

Anyway, to have Nero's ANCIENT PALACE in the news is odd...

Mannwich said...

Liking my TLT today though. 88 held once again.

karen said...

You know, delinquencies can rise, fall or flatten out.. but they can't do all three at once.. FNM is reporting that "its January total serious delinquency rate for single-family houses.. hit a new record of 5.54%, a jump from the December's 5.38%, and double the 2.77% in January 2009."

McFearless said...

DL,

yes, I could see that with FAZ, but I'd rather trade a mini any day of the week, for a lot of reasons.

Manny,

Just be very careful if you go mini's, do some homework first and start really small. I'd think it'll keep you interested though. I've had my heart beating right through my chest trading mini's.

McFearless said...

C,

I may be incorrect but NERO's name numerically was also 666 yes?

karen said...

CV, thank goodness you are back.. i've been posting for both of us and am exhausted (and sick of myself!)

CV said...

@McF (1:59)

I think so...

DL said...

McFearless,

I am long one ESM0 at the moment.

One thing I like about it is the tax reporting. Just one number at the end of the year.

CV said...

@karen

I was out getting my "pea" garden set up...

I-Man said...

The tax part alone is worth the switch.

I-Man said...

SPX, you dont really love me... you just keep me hangin on...

karen said...

From Anonymous Monetarist:

That truth being the banksters are still too bankrupt too go broke.

How broke you ask?

Here's a real simple example. Consider just the off-balance QSPE of three of the too-big-to-jail banks:

Smells Fargo

Total Qualifying Special Purpose Entities(09/30/09): $1,796,209,000,000
Total On Balance Sheet Assets(Grant's 03/19/10): $1,262,354,000,000
Total Tier 1 Capital as a % of QSPE : 5.2%

Citigroup

Total Qualifying Special Purpose Entities(06/30/09): $828,300,000,000
Total On Balance Sheet Assets(Grant's 03/19/10): $1,856,646,000,000
Total Tier 1 Capital as a % of QSPE : 15.3%

J.P. Morgan

Total Qualifying Special Purpose Entities(06/30/09): $574,000,000,000
Total On Balance Sheet Assets(Grant's 03/19/10):$2,031,989,000,000
Total Tier 1 Capital as a % of QSPE : 23.2%

So in other words, not counting the VIEs (Variable Interest Entities), which are also held off-balance, if Smells Fargo's QSPE's are, in actuality, worth less than 94% of par then they have no Tier 1 Capital, using the 'fingers and toes' accounting method. Considering that Florida and California is at least 20% of their book, do we need to elaborate further? A mark on Citigroup's QSPE of 85% or less and J.P. Morgan's of 77% or less and it's Tier None for them also. Pay no attention to the FDIC marks behind the curtain folks! Securitizations are not like snowflakes because each are unique but rather because they all melt fast when the heat of observation is applied.

DL said...

Karen,

Do we have to memorize all these numbers?

Bruce in Tennessee said...

Nic:

I have two labs, by far the best two I've ever owned. One yellow, and one black. They go everywhere we go on the weekends, which is usually somewhere in the woods or rivers..

They have very different personalities. One is very protective, one tries to get under the bed during thunderstorms.

karen said...

simple ten year yield chart ($tnx) not looking so uppity, fwiw

karen said...

I'm sorry, DL, I really should just go away and have someone sext me when this is over..

DL said...

I love labs.

Just can't leave them alone for very long.

(So I don't have one).

Bruce in Tennessee said...

Manny:

Our two labs bring us a lot of joy. But the black lab drives me crazy sometimes. She lives to fetch, and when you are working on the pastures or something outside, she'll drop an old stick at your feet until you either throw it, or it drives you nuts. The dog never tires...

CV said...

@karen (2:09)

Enter LB... :-)

Nic said...

I knew you were good people Bruce. I won't listen to LB :)

I-Man said...

Whats a lab without mud and camo?

Bruce in Tennessee said...

Lefty was born a cat person...

Bruce in Tennessee said...

Exactly I man...

72bat said...

@ karen @ 2:09
my extended family members finally put their collective feet down and insisted i stop copying them links to stuff like yours @2:04.
they also put their hands over ears and eyes and kept chanting real loud "nonee-nonee-nonee can't hear you"

DL said...

CV @ 2:13

I was thinking the same thing.

I don't have a snappy comeback.

karen said...

well, that is a shock. i didn't know LB was a person!

Leftback said...

That's an unbelievable set-up right there..... cat person, indeed.
LB will ignore the obvious one-liner. Why? Because we have CLASS.

Karen, I am sure Tiger would be happy to sext you at the close.
Assuming he has access to a cell phone these days.

DL said...

B in T @ 2:16

You can't keep labs cooped up all day in a co-op in Manhattan.

I-Man said...

I-Man is having his first serious duckhunting withdrawal spasm of the year thanks to all this lab talk... and its only April.

P3 better hit fast, or I'll be working seagulls and coots by July.

Leftback said...

LB knows a thing or two about labs. But not dogs.

Bruce in Tennessee said...

@DL:

You shouldn't have to keep DL cooped up in a co-op in Manhattan either....

I finally developed concrete poisoning and am deeeelighted with my new digs...

karen said...

My in-laws raised labs.. i helped.. can i still be part of the group?

DL said...

labs... meth labs, diagnostic labs, cell biology labs...?

Bruce in Tennessee said...

I-Man:

Duckhunting is quite good, but nothing on earth beats a covey rise of bobwhites with a couple of good pointers, (one backing the other) and good conversation with a good friend on the covey rise and going after the singles. If one of my old friends called and said lets go quail hunting this fall I would take a month off...

McFearless said...

we've got a cat, she's cool, but i can't stand the hair, would rather have a dog but we aren't ever home so it wouldn't be fair to the dog.

CV said...

My portfolio has been on the "s-lab" lately with all the other bear cadavers...

Does that count?

Bruce in Tennessee said...

You are right Ben. And cats are ok, I suppose, in their own,superior way. But dogs always love you. They are like best friends who love you even though your eyes are a little too close together...(the Geithner look).

Leftback said...

Bill Gross bought back all those bonds he didn't want the other day....
we are right back at a 1.02 on the 2-yr again. Amazing scenes.

karen said...

another steps forward:

The cost to U.S. companies of the landmark U.S. health-care overhaul continued to mount Wednesday as Boeing Co. (BA) said it would take a $150 million charge against first-quarter earnings because of tax changes in the legislation.

Leftback said...

A real snoozer. The DXY has been absolutely flat for 4 hours now.

I guess we are all waiting for Friday now....

Leftback said...

Bruce, what was your alma mater? Where did you gain your erudition and then where did you learn your surgical skills?

Vet school?

Leftback said...

"it would take a $150 million charge"

Political theater.... these corporations are cheeky chappies.

DL said...

Karen @ 2:26

Don't worry. Obama's tax on tanning salons is going to reap a huge winfall for the government. And Minnesota's going to balance their budget with a tax on tattoos.
It'll all work out just fine.

DL said...

"I guess we are all waiting for Friday now".

I suppose that's true of currency traders.
Stock traders, not so much.

Leftback said...

Yes. Equities will be up tomorrow. But we are too busy hedging our fixed income positions right now.

Wonder what happened to Karen? Perhaps Tiger called...

McFearless said...

I'd love to see us down 1% by the close, but I realize that's the stuff dreams are made of.

DL said...

LB,

Just don't take your shorts off.

Leftback said...

No Bond Report today. Except this: TREASURIES are up.
BIG. Got that, Bruce?

DL said...

McF,

1% isn't much unless you're really leveraged for it. (e.g., 20 SPY put options).

McFearless said...

DL,

I'm mentioning 1% more due to the fact that we haven't pulled back even 1% in over 30 days now I think.

Healthy? I think not.

And also, every percent counts, gotta start by going down 1% before you can be down 10%.

Nic said...

A lot of currency traders stay well away from NFP. Today currency traders are waiting for AUD trade balance numbers and JPY Tankan large manufacturers Index numbers later tonight.

I-Man said...

20 SPY put options?

What kind of cavalier would roll with that kind of leverage???

I met my end with 30 SPY puts in Jan. Not one of my better trades.

McFearless said...

Was anyone here smart enough to buy the Bank of Ireland yesterday? That seems almost too easy.

DL said...

McF @ 3:16

If you're looking at it on a closing basis, I think that this is the longest run we've seen (without a 1% decline) in quite some time.

My take is that the 10% decline won't start at least until we retest the 1177 level.

(Lloyd wants to suck in a few more sheep off the sidelines).

Bruce in Tennessee said...

We know big here in Tennessee, lefty....and we know up. We know the big up and the kinda big up...we know the little up.

All this wisdom can be found on the Tiger Woods web site...


www.golfisnotallIdo.com

DL said...

I-Man @ 3:18

Last Friday morning I bought 18 SPY calls (117 strike).... sold them on Monday.

karen said...

To Whom It May Concern:

The nitty gritty on forex rollover and carry explained..

http://www.theessentialsoftrading.com/Blog/index.php/2010/03/31/forex-rollover-and-carry-explained/

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