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).

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….


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.

The yellow brick road in the land of Oz…

For those interested in Aussie gold miners, below is an excerpt from a GS report released today, from the land down under. Take it for what it’s worth(probably very little)…We certainly dabble(long) in miners but do not hold any on this list(no particular reason) …Cheers -1689

Key Take-Outs:

• The US dollar gold price has risen ~35% since February this year; however of the gold equities that we cover only AQG has made returns of a similar nature. Several gold equities have actually dropped in value during this period, which suggests that gold equities may rally towards the end of this year. • Early in the year, gold looked set to fall on the back of a brighter assessment of the recovery in the US. However, the onset of social unrest and political upheaval in firstly Egypt and then Libya had investors looking to the metal as a safe haven. • This has been followed by the continued deterioration of sovereign debt concerns in Europe – largely with Greece, followed by the speculation over the direction of the US economy exacerbated by the downgrade of the country’s credit rating to AA+. These issues, along with the stalled economic recovery have led to ongoing weakness of the US dollar, which directly leads to rises in the gold price as a mechanism of wealth protection.

• Using the estimated gold price being factored into our stocks at the current share prices, SBM and KCN are clearly the best value stocks at ~US$1,000 and US$1,200/oz respectively being factored into perpetuity. • There is also a marked breakdown in the correlation between the gold price and the share price over the last year for NCM, KCN, SBM and OGC.

Investment View:

• Gold is in our preferred commodity exposure list, primarily as a means of wealth protection in these volatile times. We cannot see a speedy resolution to the issues mentioned above, and thus we would expect continued support for gold moving forward.

• Our preferences in the gold space are as follows:

NCM; $38.34; HOLD; Target $48.00  KCN; $7.83; BUY; Target $12.50  SBM; $2.22; BUY; Target $3.80      

 TGZ; $2.17; BUY; Target $4.00  AQG; $11.04; HOLD; Target $12.00      OGC; $2.62; HOLD; Target $3.25

PRU; $3.67; HOLD; Target $3.75

Disclosures of Interest

ALACER GOLD CORP.: AQG: Goldman Sachs and/or its affiliates expect to receive or intend to seek compensation for financial and advisory services in the next 3 months from the company, its parent, or its wholly owned or majority owned subsidiary.

KINGSGATE CONSOLIDATED LIMITED: KCN: Goldman Sachs and/or its affiliates expect to receive or intend to seek compensation for financial and advisory services in the next 3 months from the company, its parent, or its wholly owned or majority owned subsidiary.

NEWCREST MINING LIMITED: NCM: Goldman Sachs and/or its affiliates expect to receive or intend to seek compensation for financial and advisory services in the next 3 months from the company, its parent, or its wholly owned or majority owned subsidiary……….

Treasury Spreads Tightening…

As QE3 is on deck in the form of the “Twist”, here’s a visual on treasury spreads tightening since July 1st.

-Spread on the 2 & 10 year have dropped 91 bps from2.72 to 1.81

-Spread on the 2 & 30 year have dropped 84 bps from3.90 to 3.06












Cheers -1689

Let’s play “what’s wrong with this screenshot”…









Time’s up…That’s alot of green on not so great news. True it may be that QE3 is being priced in(and has been for a month now) but that only makes me wonder what’s next if the upcoming stimulus is already priced in?

A bit of Sunday afternoon humor…

When Kevin Costner is finally revered as a clairvoyant genius for producing Water World, we may all look back on this moment as the turning point in world history….

Merkel’s Party Defeated in Berlin as Social Democrats Retain State in Vote

The Greens took 18.4 percent, their best-ever result in the city, and the Left 11.5 percent, meaning that the current SPD- Left coalition cannot return to power. The SPD can now choose to govern with either the Greens or the CDU as junior coalition partner.  The Pirate Party, which campaigned on open access to technology and Internet freedom, took 8.9 percent to win its first seats in any legislature in Germany’s 16 states.

The Pirate Party? This is getting out of hand.  In all seriousness, it’s fairly meaningless but still shows that some progressive( and probably poorer) folks in Berlin are frustrated.  We’ll have to watch this trend closely though, an uptick in scurvy cases could spell more serious trouble for Merkel at the polls.


Yurts and Yaks…

As we said before, our brokerage in Mongolia, BDSec, has sent us a few gems via e-mail and here’s another from last winter…We highly recommend opening an account prior to 2012 just so you can receive this years card when it hits the presses.

When was the last time you saw Lloyd Blankfein riding a yak? This could solve a lot of our banking issues or make for some great reality TV. Get these guys together(Eurozone included), send them to Mongolia, give em a yurt, some yaks, and an endless supply of Kumis and see what happens.     Cheers, it’s Friday. – 1689

Seasons Greetings

$52 million for what?

Preface: Other than the fact that this story is from BBG, it’s pretty off topic. We’re also not trying to offend anybody but…are you kidding me?

“Calvin Wilson goes from one corporate boardroom to another, pleading for donations to finish a memorial to his brother-in-law, LeRoy W. Homer Jr., and 39 others who died on Sept. 11, 2001, when their hijacked flight crashed into a Pennsylvania field. Tears often roll down Wilson’s cheeks as he makes the pitch. Even after years of fundraising efforts by Wilson and family members of others who died on United Airlines Flight 93, co-piloted by Homer, donations have fallen $10 million short of organizers’ $62 million goal, leaving the memorial incomplete.”

We wouldn’t donate anything to this either. They’ve spent apparently $52 million building a memorial out in the middle of no-where Pennsylvania? $52 million? what a waste. Are we being insensitive? Why not setup an ongoing foundation or charity and give $$ in the victim’s names to things they cared about. Case in point, LeRoy W. Homer Jr. was a pilot, he had the opportunity to make a solo flight at 16? give that opportunity to a few less fortunate kids. Instead, now there’s a $52 million monument that isn’t going to help anybody. Great way to make the world a better place, huh? Surely corporations have given to causes less worthy and far greater sums of money have been wasted(atleast half the defense budget) but this is the story at hand today.

EDIT: Well after a quick search there is a LeRoy W. Homer Jr. Scholarship fund that’s doing exactly what we said above, which is wonderful, but doesn’t change the premise of our opinion on the memorial site.

The market mover of the day…

Lets break it down:
The Players: ECB(Euro), BOE(England), BOJ(Japan), SNB(Swiss), US Fed
What: These Central Banks will lend, at a fixed interest rate, US dollars in unlimited quantities to commercial lenders(Banks)
Why: Banks, especially in the Euro Zone, are having a hard time borrowing money, especially dollars. One of the main reasons is that US money market funds are understandably reluctant to lend to European banks creating a negative feedback loop of sorts. The banks have trouble borrowing because investors fear liquidity(or solvency) issues which leads to even further liquidity issues….and so on.
When: Three operations by the BOE, SNB, ECB on October 12, November 9 and December 7. The BOJ will do the same on October 18.
Result: They are trying to alleviate the above mentioned liquidity concerns in European banks. The ECB currently provides 7 day dollar loans every week. These new loans will be longer term(3 months).