Friday, August 13, 2010
Today's auction of $16 billion 30 Years closed at a high yield of 3.954% (55.98% allotted at high), and came at a 2.77 Bid To Cover: the lowest since May. The yield was the third lowest in history, higher only than the February and March 2009 auctions (3.54% and 3.640%). Direct Bidders came in at 18.6% - a surprisingly high number, and bigger than the previous auction, yet nowhere near the record 29.6% from March of 2010. What was most surprising was the record low Primary Dealer participation (blue segment in attached chart) - the Fed's lapdogs took down just 35.3% of the auction: the lowest in many years, if not ever. Are the PDs turning their back on the inflation risk associated with holding LT securities, and/or do they think they would be unable to offload these to retail customers? Keep an eye on PD take down in future auctions for further indications on this.
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After watching The Lottery, which uncovers the failures of the traditional public school system, I started to think about the shortcomings of the current traditional education system. Since the pinnacle of education is getting into college, I believe higher education has shifted from learning to profit maximization as its core purpose. The pursuit of short-term profit and greed is a common theme in all of the documentaries I have listed, which is what ultimately led to the predicament we are in today.
If I had to produce a documentary, I would shed a light on the inevitable student loan crisis, and the collective action we can do to prevent it from happening. (more)
Roughly 1.9 Yrs... Interested?
The euro earlier slid to a three-week low against the dollar after figures showed Greece's economy shrank more than expected in the second quarter, while euro zone industrial production unexpectedly declined in June.
Separate data showed the number of Americans filing new claims for unemployment insurance unexpectedly rose in the latest week to its highest in nearly six months, the latest sign of a flagging U.S. economic recovery. [ID:nN11227633]
The U.S. and euro zone data followed a gloomier outlook from the Federal Reserve and weak Chinese data earlier this week, underscoring worries about the global economy and prompting investors to dump risky assets. (more)*Zero to $1.7 Million in
Roughly 1.9 Yrs... Interested?
Layoffs, after all, are one of the keys to the recent profit streak. Facing a sharp slowdown in consumer spending, companies have responded by stripping their operations down to sizes that seem a better fit for current demand. The rise in profits suggests managers, whether they've dismissed workers or simply held expansion in check, are pleased with their results, in which case the current scarcity of jobs might prove a lasting condition.
The companies below are among more than two dozen S&P members whose operating margins have averaged at least 5% over the past five years, and over the past year are running at more than double the five-year average. (more)*Secrets of Successful Traders: Turn $1000 Into $1.9 Million In 1.7 yrs Trading Stocks. Extra $200 Cash Back Guarantee
By: Dan Weil, Newsmax
Investors have turned to Treasuries as a haven amid a global economic recovery that is fading. Given the explosion in government debt, that isn't a smart move, Taleb says.
The Congressional Budget Office forecast that the debt burden will total 62 percent of GDP by Sept. 30.
Taleb warned of unexpected events upsetting financial markets in his popular book “The Black Swan: The Impact of the Highly Improbable,” which predicted the financial crisis of 2008.
Now the New York University professor is “betting on the collapse of government bonds," he said at a conference in Johannesburg, Bloomberg reports.
He also urged investors to avoid stocks. “I’m very pessimistic. By staying in cash or hedging against inflation, you won’t regret it in two years.” (more)
Everything was fine last week. Even the ugly US employment numbers that were released on Friday morning were greeted with enthusiasm by the global marketplace as both the bond market and the equity market rallied. What could be better? The numbers weren’t that bad and there was always next month when they could improve. Why not hope for the better outcome in the future as the government authorities and the news reports wanted you to believe? Basically numbers like the ones last Friday are ‘Goldilocks’ numbers, not too hot and not too cold. They allow everyone to think that things are not great, but the authorities can, and will, make them better. Poor employment numbers imply the Fed will lower rates, which would make equities more attractive in the future (using the dividend discount model or something similar). At the same time bonds rally as a result of the projected lower rates, and finally the dollar declines which helps commodities and carry trades, also making it easier to repay outstanding dollar-denominated debts. Winners all around. “Sweet!”, as they say in the lottery ads here in New York. (more)
It’s safe to guess that none of the invitees will suggest the government should simply get the heck out of the mortgage market…so this morning, we’re left to speculate which options are more likely to be tried, and to tease out the resulting investment implications.
First, some relevant data: 325,229 US properties got a notice of default, auction, or repossession last month – down 10% from the previous year, but up 4% from the previous month.
92,858 properties were repossessed – up both month-to-month and year-to-year, indeed setting the second-highest total since RealtyTrac started keeping numbers in early 2005. So banks are working through their foreclosure backlog before sending out a truckload of new notices. (more)
The USDA anticipates the harvest in Russia and Ukraine will be 15% lower and Kazakhstan’s harvest will be cut by 18%. The EU’s harvest forecast was cut 3%. Following Russia’s export ban, there is talk that the Ukraine may also be announcing caps on exports or an outright ban as well. On the other hand, the USDA lifted the estimated size of the US harvest to 2.265 bln bushels from 2.21 bln estimated last month. Initially we thought that Canada could help fill the shortage, but the plains have been very wet and this is thought to be jeopardizing the size of their crop, while too dry of weather in western Australia and Argentina may threat the current crops.
We have re-worked our correlation matrix. Wheat had fallen to a 3-year low in early June. Since then, of the wide number of currencies we examined, the euro and the Norwegian krone is most correlated–with an R2 of just below 0.27. The Argentina peso, Canadian dollar and Brazilian real have R2s between 0.20 and 0.25. The Australian and New Zealand dollars, Chilean peso, and sterling have R2s in the high teens. (more)
Is China Executing a Cunning Sun Tzu Strategy to Destroy the Dollar and Cause an Upward Price Explosion in Gold?
Could China be coveting the role of the next economic superpower, thereby supplanting the USA? If so, is China planning to do this by design or is it simply awaiting this result by default as a result of the total collapse of the American economic system?
Whether we like it or not, China has already become the 800 lb Gorilla in the dining room, economically speaking. We ignore this fact at our peril. Thus it may be advisable to reorientate our thinking from that of the rationalist, pragmatic thought processes which arose out of the Enlightenment and complement our thinking with something more akin to that of the Chinese.
In order to accomplish this, it is constructive to take a closer look at the ancient Chinese philosopher, Master Sun Tzu. In an earlier article , based on a book by Harro von Senger on this theme, I have attempted to do this in connection with the Special Drawing Rights, as advocated by the Chinese earlier this year. However, I will now examine this idea in the context of the the Chinese possession of US Bonds, a subject not only of relevance to these two countries, but also for the stability of the entire international economic system. (more)
The Dow Jones industrial average (INDU) lost 59 points, or 0.6%, to end at 10,319.95.
Earlier in the session, the blue-chip Dow index sank as much as 110 points. But as the day wore on, all three indexes rebounded somewhat off their lows."We've taken a pretty big drop this week," said Steven Goldman, market strategist at Weeden & Co. "The market has gotte really oversold, so bargain hunters are coming in." (more)