...with one small interruption. Obama was in Greece today and the presser with the Greek Prime Minister Alex Tsipras, was something to behold. I never thought I would say it but Alex was the only one on the stage with a remote grasp of reality. The other guy...
Anyway back to basics. Things slowed down a bit today with the 10 year slipping slightly which was of course to be expected. Yet the two year closed over 1.00% and everything around the world was coming back into positive yields being dragged along by the U.S. market. Up were equities again with the NASDAQ the star performer as the rotation continues into the "Trump Economy" although if you really try to pin people down as to just what that may be things get a bit mushy except that everyone seems to agree that financials and especially banks are the place to be as the regulatory picture we almost certainly appear far brighter.
A harbinger for that view came today in the audit report on the Fed's "stress tests" requested by the House Banking and Finance Committee whose Chairman may just wind up as Secretary of the Treasury. While not as damning as some might have expected (or hoped), the report none-the-less did highlight that the Fed was far from transparent in it's approach. This is going to be argued for weeks but let's boil it down to what is really important. The objective measurements of the stress test are really no problem despite what the banking lobby would have you think. Basically, they concerned with capital adequacy and to be honest while some might think that the levels may be set too high the banks really have no problem in meeting anything that might be required. Do they infringe upon ROE? Sure, of course but not to the extent as do some of the other regulations in Dodd/Frank. But the subjective tests...ah, that's another deal entirely.
To say that the Fed can make these up as it goes along is very close to the truth. To begin, the banks have little idea as to what they are and NO idea as to the methodology by which these things have been invented. They are unique to each individual bank and can be as subjective as to the distribution of the risk assets. That is bad enough but think of it in the context of a nut job like Big Danny Tarullo running the show with crazy Lizzy looking over his shoulder. Subjective means subjective: if he doesn't like you, tough nuggies. This is exactly what happened to Citibank two years ago. You see, Danny doesn't like international exposure whether he understands it or not, and guess who is the only real international bank in his small world.
Bad? Yep, but it's not the biggest problem. As administered, what the Fed has supplied to itself is a legislatively approved power to--if they were so willing--distribute credit through the regulatory process..."We don't like this in your portfolio; we would like to see more of...say...non-prime housing loans, or green energy projects, or loans to make widgets." Now where have we seen that before? Do we really want these guys to--as we allowed Barney Frank to do while spitting all over the House conference room, "Roll the dice on this one?" A thought for your day.
And before we close a thought for the President Elect. Be careful for what you wish. China, your bete noir when it comes to currency manipulation announced today that they expect the Yuan to be in the 6.90 range by year end. A boon to Chinese exports? You bet. Currency manipulation? Only if one considers a Trump victory to be a manipulative tool in creating a roaring Dollar market. This stuff gets complicated, Donald. Don't move too fast.
Showing posts with label Bond Markets. Show all posts
Showing posts with label Bond Markets. Show all posts
Tuesday, November 15, 2016
Friday, June 5, 2015
NOW WHAT
We had a really good jobs number today, not that 280, 000 is what we need but it was well above even the highest estimates. More importantly, rather than people dropping out of the job search, more people were looking for jobs. In addition average wages went up which all in all is a good sign.
Now of course if one wishes to be consist ant in one's reasoning, one could argue that this number is a snap-back from the dismal first quarter which as everyone knows was caused by the weather...I mean, Il Duce told us so...but let's be positive and head into the weekend with a smile on our faces.
There are, of course, a few other things to consider...the Fed for one. Now as we know, everybody from Janet Yellen to Chrissy with numerous politically oriented governors in between (Brainard, Tarullo) don't want to raise rates but with this number the market sure as hell wants them to so why not do it/ Don't worry, they will not but I might want to hedge my bets and bring the fourth quarter into play if things keep looking up.
With the number, yields went screaming up with the Ten Year closing at 2.40%. Remember when it was just 1.85% just a few short months ago? On the yield the dollar rallied, the Euro slipped and the Bund dropped to 0.81% To be expected. But the really interesting thing that is going on is the manner in which the yield curve is flattening. The Long Bond hasn't moved nearly as much (3.11%) but the 5 year has been on a tear closing at 1.78% today. The curve has actually been flattening as now we are only getting 120 b.p. for the duration. In the world of "what does this mean?" I have absolutely no idea except that when confused, stay short(er) and that old bankers--and young ones--do not like flattening yield curves and as far as we are concerned nothing good comes of it...but it sure does provide copy!
Then there is Greece. James Stewart--a hell of a writer by the way--managed to highlight the Rock Star and game theory today in his column in the New York Times. Charlie to Jim: game theory has nothing to do with it. The Rock Star is a jerk working for a bunch of politicians who are way over their heads who yet might be bailed out simply because at this stage of the game it doesn't matter a toss if Greece is in or out so stop with the "grave risks to be run" talk in this game of chicken. Game theory never solved anything; people have and always will. Games are written after the fact and the odds on a flip of a coin are always 50-50. And never loose sight on the fact that Greece on 20 Drachma a day isn't a bad deal.
Beautiful weekend coming up in the Fly Over Zone. Hope you have one as well.
Now of course if one wishes to be consist ant in one's reasoning, one could argue that this number is a snap-back from the dismal first quarter which as everyone knows was caused by the weather...I mean, Il Duce told us so...but let's be positive and head into the weekend with a smile on our faces.
There are, of course, a few other things to consider...the Fed for one. Now as we know, everybody from Janet Yellen to Chrissy with numerous politically oriented governors in between (Brainard, Tarullo) don't want to raise rates but with this number the market sure as hell wants them to so why not do it/ Don't worry, they will not but I might want to hedge my bets and bring the fourth quarter into play if things keep looking up.
With the number, yields went screaming up with the Ten Year closing at 2.40%. Remember when it was just 1.85% just a few short months ago? On the yield the dollar rallied, the Euro slipped and the Bund dropped to 0.81% To be expected. But the really interesting thing that is going on is the manner in which the yield curve is flattening. The Long Bond hasn't moved nearly as much (3.11%) but the 5 year has been on a tear closing at 1.78% today. The curve has actually been flattening as now we are only getting 120 b.p. for the duration. In the world of "what does this mean?" I have absolutely no idea except that when confused, stay short(er) and that old bankers--and young ones--do not like flattening yield curves and as far as we are concerned nothing good comes of it...but it sure does provide copy!
Then there is Greece. James Stewart--a hell of a writer by the way--managed to highlight the Rock Star and game theory today in his column in the New York Times. Charlie to Jim: game theory has nothing to do with it. The Rock Star is a jerk working for a bunch of politicians who are way over their heads who yet might be bailed out simply because at this stage of the game it doesn't matter a toss if Greece is in or out so stop with the "grave risks to be run" talk in this game of chicken. Game theory never solved anything; people have and always will. Games are written after the fact and the odds on a flip of a coin are always 50-50. And never loose sight on the fact that Greece on 20 Drachma a day isn't a bad deal.
Beautiful weekend coming up in the Fly Over Zone. Hope you have one as well.
Tuesday, March 24, 2015
MAX
"See the story in the Journal today?"
"Which story? The Journal has a lot of stories."
"Come on Charlie, you know what I'm talking about."
"All you ever talk about is bonds, Max. Yeah I saw it. About the banks moving a bunch of their trading portfolio into hold to maturity accounts."
"Killer. Absolute killer. Like it's not bad enough already. Charlie, there's nothing out there. No inventory, which means no liquidity, which means trading is in the crapper, which means I can't eat!."
"Max, if I had what you spend for food in a week, my wife would be a happy woman."
"Stop bitchin'. You got out way too soon. Your choice made..."
"Made me a very content man if a poor one. But seriously, is it really that bad out there."
"It's ten o'clock in the morning and I'm talking to you. What does that tell you? Charlie, it's spooky. Treasuries? There's enough of those but there's nothing else. Honest to God, I don't know what the emerging market guys are doing. And the real problem is you can't trade...like...you can't get real short no matter how you feel because you may not be able to cover. There is NO inventory out there."
(Max, like all of his breed is prone to exaggeration). "Why? Any special reason?"
"Oh yeah, oh yeah. Nobody can figure this out. The Fed has to move but when and how much nobody's sure. On top of that everybody thinks it will be at the wrong time because these guys no nothing about the markets. I'm tellin' ya, nothing. And when they do, everything is goin' in the take with them. Everything. Prices will crash...more than they should because everybody wants out. Not just here, Over There, Asia, everyplace."
"So that's why they are moving stuff to the investment portfolio."
"That's why, so they don't take the mark when it happens. But there's a problem there too, Charlie. You remember?"
"There are rules as to one can be considered an "investment'--certainly for banks. I doubt if that has changed, and even the banks have internal rules."
"You're still good, Charlie. Of course nobody knows who's got what, so everybody's buying protection but that may not work because we're buying it from each other and nobody's doing anything without collateral which murders liquidity even more. We're still smilin' but there's a lot of guys who are really spooked--or gettin' there, including me."
"Which is why I am here and you are there. Max, you have that great place in the Keys, don't you think it might be time?"
"WHAT! Are you nuts?! This is the greatest opportunity I've seen in years! Get this one right and I'm set!"
"Get this one wrong, and..."
"I'll make it back next time. Gotta go, Charlie. Love to the Bride."
Mad Max...trader.
"Which story? The Journal has a lot of stories."
"Come on Charlie, you know what I'm talking about."
"All you ever talk about is bonds, Max. Yeah I saw it. About the banks moving a bunch of their trading portfolio into hold to maturity accounts."
"Killer. Absolute killer. Like it's not bad enough already. Charlie, there's nothing out there. No inventory, which means no liquidity, which means trading is in the crapper, which means I can't eat!."
"Max, if I had what you spend for food in a week, my wife would be a happy woman."
"Stop bitchin'. You got out way too soon. Your choice made..."
"Made me a very content man if a poor one. But seriously, is it really that bad out there."
"It's ten o'clock in the morning and I'm talking to you. What does that tell you? Charlie, it's spooky. Treasuries? There's enough of those but there's nothing else. Honest to God, I don't know what the emerging market guys are doing. And the real problem is you can't trade...like...you can't get real short no matter how you feel because you may not be able to cover. There is NO inventory out there."
(Max, like all of his breed is prone to exaggeration). "Why? Any special reason?"
"Oh yeah, oh yeah. Nobody can figure this out. The Fed has to move but when and how much nobody's sure. On top of that everybody thinks it will be at the wrong time because these guys no nothing about the markets. I'm tellin' ya, nothing. And when they do, everything is goin' in the take with them. Everything. Prices will crash...more than they should because everybody wants out. Not just here, Over There, Asia, everyplace."
"So that's why they are moving stuff to the investment portfolio."
"That's why, so they don't take the mark when it happens. But there's a problem there too, Charlie. You remember?"
"There are rules as to one can be considered an "investment'--certainly for banks. I doubt if that has changed, and even the banks have internal rules."
"You're still good, Charlie. Of course nobody knows who's got what, so everybody's buying protection but that may not work because we're buying it from each other and nobody's doing anything without collateral which murders liquidity even more. We're still smilin' but there's a lot of guys who are really spooked--or gettin' there, including me."
"Which is why I am here and you are there. Max, you have that great place in the Keys, don't you think it might be time?"
"WHAT! Are you nuts?! This is the greatest opportunity I've seen in years! Get this one right and I'm set!"
"Get this one wrong, and..."
"I'll make it back next time. Gotta go, Charlie. Love to the Bride."
Mad Max...trader.
Friday, January 9, 2015
HAPPY NEW YEAR OVER HERE
The first job report of the year was a good one...or was it? Seasonally adjusted (I don't know what that means either), the economy created 252,000 new jobs in December. Good. Unemployment fell to 5.6%. Good. Average wages fell by 0.2%. Bad. The unemployed portion of the work force rose to over 62.0%. Absolute stinko. Well look, it's better than a poke in the eye (feels better today, thank you).
The equity markets pondered this for a minute and went straight down with the DOW off 170 points at the close. So, in tying this up in a big bow, what the first of the year brings us is new job creation at a good level but perhaps lacking in quality; more people falling out of the work force because more are retiring or have simply stopped looking; a decline in hourly wages which suggests a weak job market or a market only for lower-paying jobs; the Fed making coo-coo sounds about interest rates; the dollar up again in trading and economies turning to garbage all around the world. Conclusions? The economy stinks except on the lowest rungs of the ladder (I haven't a clue why except that markets are disappearing) and the only trade in town right now seems to be a solid bid in the bond markets. Can't miss: we're buying them, foreign purchases are higher than ever as a haven from whatever and crashing currencies and the Fed ain't gonna move. One way traffic from now until... Problem is when bonds turn they turn all at once for everybody and there's blood all over the place, but until that unlucky day, bid em! Of course with interest rates at zero there have to be some shorts out there, probably quite a few. Having not a bean, I can watch this one with amused interest.
The year also started off with Il Duce off campaigning, for what I'm not sure. Perhaps no one told him the election was over. His first stop was in a Ford plant scheduled to be shut down. Somewhere there must have been a reason for that but I can't quite figure it out as of yet. This is going to be a highly political year with everything focused on the big prize coming up in 2016, Politics, more than ever before will shape and influence every governmental decision at every level. It's going to get ugly but in one area--financial regulation--we may see some surprising moves as reelection looms for some prominent Democrats and a split between the Crazy Lizzy camp and Dems seeking Donors may well occur. Again, amusement on display.
Finally, there has been considerable talk to open the year on the effect of the energy markets on the financial markets. Having had a bit of oil in my minuscule portfolio I can say with certainty that it could be ugly. Going to try to look into that over the weekend and report back. Have to see my eye guy on Monday which means dilation and all of the other goodies so Tuesday will be the earliest I'm back in action. Wish me luck
Finally, sympathy and prayers to that most beautiful of cities, Paris. We Over Here know all too well what this is like. Nous somme tout Parisienne. Vive La France.
The equity markets pondered this for a minute and went straight down with the DOW off 170 points at the close. So, in tying this up in a big bow, what the first of the year brings us is new job creation at a good level but perhaps lacking in quality; more people falling out of the work force because more are retiring or have simply stopped looking; a decline in hourly wages which suggests a weak job market or a market only for lower-paying jobs; the Fed making coo-coo sounds about interest rates; the dollar up again in trading and economies turning to garbage all around the world. Conclusions? The economy stinks except on the lowest rungs of the ladder (I haven't a clue why except that markets are disappearing) and the only trade in town right now seems to be a solid bid in the bond markets. Can't miss: we're buying them, foreign purchases are higher than ever as a haven from whatever and crashing currencies and the Fed ain't gonna move. One way traffic from now until... Problem is when bonds turn they turn all at once for everybody and there's blood all over the place, but until that unlucky day, bid em! Of course with interest rates at zero there have to be some shorts out there, probably quite a few. Having not a bean, I can watch this one with amused interest.
The year also started off with Il Duce off campaigning, for what I'm not sure. Perhaps no one told him the election was over. His first stop was in a Ford plant scheduled to be shut down. Somewhere there must have been a reason for that but I can't quite figure it out as of yet. This is going to be a highly political year with everything focused on the big prize coming up in 2016, Politics, more than ever before will shape and influence every governmental decision at every level. It's going to get ugly but in one area--financial regulation--we may see some surprising moves as reelection looms for some prominent Democrats and a split between the Crazy Lizzy camp and Dems seeking Donors may well occur. Again, amusement on display.
Finally, there has been considerable talk to open the year on the effect of the energy markets on the financial markets. Having had a bit of oil in my minuscule portfolio I can say with certainty that it could be ugly. Going to try to look into that over the weekend and report back. Have to see my eye guy on Monday which means dilation and all of the other goodies so Tuesday will be the earliest I'm back in action. Wish me luck
Finally, sympathy and prayers to that most beautiful of cities, Paris. We Over Here know all too well what this is like. Nous somme tout Parisienne. Vive La France.
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