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Food For Thought

short and sweet…

America could confiscate the combined net worth of the entire Forbes 400 and balance the budget for 1 year. That’s it. Put Buffett, the Walton clan, and Zuck on welfare and we’d still be up shits creek by 2013. Let’s hope the “super” committee has some better ideas. We’re not holding our breath though.

Forbes 400

Why have US equities ignored Italy/Europe the past month?

In response to this article at pragcap, which is a great site by the way…http://pragcap.com/the-stocks-vs-italian-yields-conundrum#comments

“There’s 1 of 2 things going on here in my opinion;  1)  The equity market is over the Euro crisis and is certain that the EMU governments will fix this disaster.  Or 2) There is now a disconnect between reality and perception.”

Those two points are completely valid but we think the easy explanation is as follows…

Markets were expecting a dismal Q3 earnings and jobs picture and many had baked in an accelerating US recession. We then got one decent report after another in October (payrolls, GDP, etc). Were they good? no. Did they stave off recession fears, yes (for atleast another quarter). And this is why US equity markets de-coupled from the Euro-calypse. Will it last? Not if Italy (which no one really cared much about 2 months ago) goes up in smoke. As we’ve said, be prepared for more volatility.  If you extrapolate the Greek fiasco to Italy, we would expect headlines to dominate trading.  One minute euphoria, the next the world will be ending. Don’t get married in either direction. We would certainly err to the downside especially if you see any negative US economic data come out.

Italian 10yr yields soaring today…only eclipsed by the 2s and 5s, as the curve has now inverted.

CDS for everyone…

Often times we get asked from friends or family or folks not in the industry about topics that are pretty pervasive in the media and oft cited as “buzz words”.  This is of course an old one(CDS) but I fear few people understand what CDS’s are or how they affect credit markets or anything else for that matter and they can be quite arduous to explain.  So we generally direct people to the link below for a great layman’s explanation…..enjoy.  -1689

http://www.youtube.com/watch?v=DdEI6PkGZK8

you know what this says to us…

Run……Hope = volatility. Get out of the way or risk being crushed.

“hope is a good thingmaybe the best of things” …We’re sorry Mr. Dufresne hope and markets are a dangerous combo. 

What’s on deck tomorrow?

we hope to refine this into something use-able(and without those stupid ads, don’t bother clicking on the clocks) but for now it’s just a quick test to see what it looks like. The data and links to the releases are good though, below is what’s on deck for tomorrow 9/27. –  Cheers 1689

International Council of Shopping Centers (ICSC) same store-sales 7:45AM

The S&P/Case-Shiller home price index 9AM                                                                                                                 

Conference Board’s consumer confidence index 10AM                              

The Richmond Fed manufacturing index 10AM                                                

4-week T-bill auction   11AM                                                                                             

Atlanta fed president Dennis Lockhart speaks in Jacksonville 12:30PM 

2-year T-bill auction  1PM                                                                                                   

The government is not nimble…

case in point, do you know what this is?

 

 

 

 

 

 

 

 

This is a $1 presidential coin. Though they’ve been minting them since 2007 this is the first one we’ve seen. Today, 4 years later, and like us we’d imagine most peoples gut reaction upon receiving it?  “What the F’ am I supposed to do with this?”.  Either phase out the $1 bill or kill this ridiculous program.   We’re quite sure there will be a C-span hearing on this in about 3 years when they finally hit Truman…and by that time everyone will be paying for everything everywhere(parking meters, vending machines, gumball machines in the dollar store, you know) with a cell phone or plastic.

Might as well just start minting everyone plastic Soc. Sec. cards.  no more physical money. Hit the link below to read the full story.

“Politicians in Washington hardly let a few minutes go by without mentioning how broke the government is. So, it’s a little surprising that they’ve created a stash of more than $1 billion that almost no one wants.  Unused dollar coins have been quietly piling up in Federal Reserve vaults in breathtaking numbers, thanks to a government program that has required their production since 2007.”

Treasury Spreads Tightening…Again

The “Twist” isn’t even here yet but expectations are hitting the curve hard…below is a chart of the spreads tightening since August 1st. The 2s&30s dropped 20 bps just yesterday after the FOMC release.

We aren’t sure of the reasoning for the huge sell off in equity markets yesterday and we’re not so sure the market was even sure. Any rational person(though the market is irrational) doing a probability weighting on what was going to happen yesterday couldn’t have prescribed more than a 10% chance of additional QE in the form of actual bond buying rather than a duration shift.  It seems the Twist should have been a foregone conclusion and with a few fed dissenters the last few meetings is it any wonder there was no outright QE?

There was some chatter over at zerohedge yesterday about  this move not being good for banks.  The basic premise is the old adage of “Borrow Short, Lend Long”. A flatter curve means there’s little room for banks to exploit a large spread between short and long interest rates(see chart below). The primer below should get you up to speed on the topic. (surely not the best explanation, but good enough).

http://www.fdic.gov/bank/analytical/fyi/2006/022206fyi.html

In other news, commodities are getting hit HARD this morning, gold, silver(down 10%!), oil across the board down 5%. On silver we’re looking to “buy the dip” but might wait it out today to see what happens. Fundamentals are unchanged from yesterday.

Since 8/1…

-Spread on the 2 & 10 year have dropped 72 bps from 2.39 to 1.67

-Spread on the 2 & 30 year have dropped 84 bps from 3.69 to 2.82

FOMC statement TO-day 2:15 EST

UPDATE: Release is out (hit the link)…and do the twist

In case you were all living under a rock(those of you who were foreclosed on) …The greatest anticipatory non-event(economically speaking) since, well the last FOMC release, is at 2:15….

Keep your F5 finger loose….

http://www.federalreserve.gov/newsevents/press/monetary/20110921a.htm

 

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. 

 

 

This oughta warm the heart…

Further evidence the world is doomed…

“Two dozen young men and women toting backpacks and brochures mill around cardiologist P.L. Tiwari’s office in Bombay Hospital, waiting up to 90 minutes for an opportunity to see him. They aren’t there for checkups. They want to persuade the Mumbai doctor to prescribe their employers’ brands of prescription drugs.”

Yet another country addicted to prescription drugs but if anyone knows a way to make money on this trend, by all means, let us know(is this hypocritical?). Definitely not interested in the drug makers, to much risk, but the company that makes the bottles and packaging? now you’re talking.

And how about one more for good measure…

“When the Roundup system first came out, to a farmer this was the best thing that ever happened,” says Cariker, who used the labor-saving technology to double his planted acreage, to 5,000. “Farmers thought we had died and gone to heaven.”

Not exactly: It turns out the widespread use of Roundup has led to the evolution of far-tougher-to-eradicate strains of weeds.

Do you see that fucking weed!? This is old news and surprising to no one who’s ever heard of Monsanto and Roundup but still quite unbelievable. You don’t need to be a genius to extrapolate out the trend here.  Forget the premise in the article that you should feel  bad for Monsanto because Dow might eat into their profits(someone call the waaaa-mbulance).  Farmers will become ever more reliant(cha-ching$$$) on newly developed “formulas” of Roundup and other chemicals to kill the Godzilla weeds that are killing their crops. When will it stop? Probably when the weeds become sentient beings and kill the farmers.