Friday, August 13, 2010

$16 Billion 30 Year Auction Prices At 3.954%, 2.77 Bid To Cover, Lowest Primary Dealer Take Down
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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The College Loan Bubble is the next one to pop!

If I had all the time and money in the world, I would spend it on documentaries that create world-shaking change that ultimately shift the ways things are done in culture, society, and the world. My favorite documentaries include The Cove, Food Inc, and The Corporation, and I’m really looking forward to Waiting for Superman, which comes out this fall. All of these documentaries shed an exposing light on things we often overlook – food, business, and education – revealing truths and problems that need to be collectively reformed in order to make the world a better place.

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)

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BNN: Top Picks

Peter Brieger, chairman and CEO, GlobeInvest Capital Management, shares his top picks.

click here for video

FOREX-US dollar rises broadly on global growth fears

(Reuters) - The U.S. dollar rose against major currencies on Thursday, extending the previous day's gains, as an unexpected rise in U.S. weekly jobless claims and weaker-than-expected euro zone data spurred safe-haven demand.

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)

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3 Companies Whose Margins Doubled

Rising corporate profit margins are giving government economists fits. For the large American firms that make up the S&P 500 index, earnings next year are expected to set a new record, surpassing those recorded during the bubbly four quarters ended June 2007. Typically, profits that large would be invested into new plants and machines and spur a hiring spree. However, companies now seem content to hoard cash.

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)

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'Black Swan' Author Taleb: US Bonds Will Collapse, Avoid Stocks

By: Dan Weil, Newsmax

Investment author Nassim Nicholas Taleb isn’t buying the government-bond rally that has sent the 10-year Treasury yield down to a 16-month low of 2.68 percent.

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)

John Taylor Explains Why The "Global Frown" Will Turn Europe Upside Down
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)

“Fixing” the Housing Market

Sometime early next year, the Obama administration will propose how to revamp the US mortgage market. Next Tuesday, the White House will hold a “summit” on the issue.

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)

Wheat and Currencies

Wheat is trading higher today, positioning to snap a 4-day profit-taking decline. The US Dept of Agriculture provided updated its forecasts for grain production. It now forecasts a global harvest for year than began June 1 at 645.7 mln metric tons, down from 661.1 mln metric ton forecast last year and 680 mln metric tons in the year that just ended. It also cut its forecast for the inventory that will be on hand at the end of the current planting year next May.

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?

By Elizabeth Brinsden

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[1], I have attempted to do this in connection with the Special Drawing Rights[2], 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)

Signs of Collapse: 30k apply for Public Housing in Atlanta

Stocks pare some losses but end lower

( -- Stocks closed modestly lower Thursday but recouped earlier losses, as investors digested an unexpected rise in jobless claims and Cisco Systems' cautious outlook.

The Dow Jones industrial average (INDU) lost 59 points, or 0.6%, to end at 10,319.95.

The S&P 500 (SPX) fell 6 points, or 0.5%, to end at 1,083.61, and the Nasdaq (COMP) dropped 18 points, or 0.8%, to settle at 2,190.27.

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)