Thursday, August 19, 2010

Just Another Ordinary Thursday in Summertime

The Federal Reserve Bank of New York bought $3.6 billion worth of Treasuries this morning, but the primary dealers seem to direct the proceeds back into Treasuries today as the stock market dives on the news of weekly unemployment claims reaching 500,000 for the first time in 9 months.

For today's Permanent Open Market Operation (POMO) results, click here.

Philadelphia Fed's Manufacturing Index "unexpectedly contracted" in August, the first contraction since July 2009. Economists were expecting expansion.

But not to worry. The nation is busy discussing a "Ground Zero mosque", and the president of the United States is off to his 6th vacation for the year, with the Martha's Vineyard airspace restricted until August 29. Things cannot be that bad, can they?

Wednesday, August 18, 2010

Bank of Japan to Ease Further? 2-year JGB Yield Approaches Overnight Rate

The yield on Japan's 2-year JGB is approaching 0.1%, which is the interbank overnight call rate (無担保コール翌日物, equivalent of the Fed Funds rate) that the Bank of Japan uses to guide the monetary policy, according to Nikkei Shinbun citing Reuters Japan (the linked article is in Japanese). The last time the yield of 2-year JGB was at this level was September 2005.

Both the Japanese stock market and bond market are up. What's driving the markets is the expectation that the Bank of Japan will soon announce further easing - more open market operations and lowering the overnight call rate. The analysts cited in the article say that if it is going to be just the expansion of the open market operations, the markets will be disappointed. According to them, today's bond market action is pricing in the further lowering of the overnight call rate, which is already at 0.1%.

Will further easing stop yen from going higher? That's what they are hoping, driving both the stock market and the bond market up.

How low could the overnight rate go? Maybe we will be seeing the first instance of a negative rate in one of the biggest economies... (Sweden has done it, but it was on the deposit rate - charging banks to keep funds at the central bank.)

Google Wants to Dictate, I Mean Help With, Your Life, and It's All for Your Own Good

Google went public 6 years ago. How quickly has it become an antithesis of its own creed, "Don't be evil", which by the way Apple's Steve Jobs doesn't think highly of .

UK's Telegraph relates to us what Google has planned for us in the digital future:

Young will have to change names to escape 'cyber past' warns Google's Eric Schmidt (8/18/2010 Telegraph)

"The private lives of young people are now so well documented on the internet that many will have to change their names on reaching adulthood, Google’s CEO has claimed.

"Eric Schmidt suggested that young people should be entitled to change their identity to escape their misspent youth, which is now recorded in excruciating detail on social networking sites such as Facebook.

""I don't believe society understands what happens when everything is available, knowable and recorded by everyone all the time," Mr Schmidt told the Wall Street Journal.

"The 55-year-old also predicted that in the future, Google will know so much about its users that the search engine will be able to help them plan their lives.

"Using profiles of it customers and tracking their locations through their smart phones, it will be able to provide live updates on their surroundings and inform them of tasks they need to do.

""We're trying to figure out what the future of search is," Mr Schmidt said. “One idea is that more and more searches are done on your behalf without you needing to type.

""I actually think most people don't want Google to answer their questions. They want Google to tell them what they should be doing next."

"He suggested, as an example, that because Google would know “roughly who you are, roughly what you care about, roughly who your friends are”, it could remind users what groceries they needed to buy when passing a shop." [Emphasis is mine. The article continues.]

Tuesday, August 17, 2010

White House Releases (Sort of) Obama's Passport

with key dates fuzzed up. What is the point of this exercise, other than to get ridiculed (read the comments on the article below) and focus attention to the opaqueness about Obama?

Don't look, birthers: Obama's passport (Josh Gerstein, 8/17/2010 Politico)

"Here's something new for the birthers to chew over: President Barack Obama's passport. Says he was born in Hawaii! But the White House has strategically fuzzed out certain data, so the mystery continues.

"Now, it's his official passport, which means it's new, so the true believers will not be persuaded. Not that they ever would.

"The image comes from the most recent edition of the White House's official video diary: White House Week, which has more detail on the passport."

Notice it doesn't say "Obama II".

And this is right after Obama did away with the White House position to promote "transparency".

Federal Reserve POMO Is Back!

and the stock market melts up, like old times.

The Federal Reserve Bank of New York conducted a Permanent Open Market Operation (POMO) to buy Treasuries to the tune of $2.5 billion, its first since October 2009.

From the NY Fed:

Operation Date: 08/17/2010
Operation Type: Outright Coupon Purchase
Release Time: 10:15 AM
Close Time: 11:00 AM
Settlement Date: 08/18/2010
Maturity/Call Date Range: 08/15/2014 - 07/31/2016

Total Par Amt Accepted (mlns) : $2,551
Total Par Amt Submitted (mlns) : $20,949

For detailed schedule, see my other blog. (And just don't short the stock market on those days...)

Sunday, August 15, 2010

Dems May Raid Food Stamps (Again) to Pay for Michelle Obama's Pet Project

Michelle "Let them eat cake" Obama's "Let's Move" initiative will cost $8 billion to provide more school lunches to more children, and the money may have to come from the food stamp program, again.

The food stamp program has been raided recently to pay for the state bailout bill for teachers and medicaid, aka "bribing the public union workers so that they vote Democratic in November" ($16 billion of the bill's $26 billion is to come from the food stamp money).

Dems may use food stamp money to pay for Michelle Obama's nutrition initiative (8/14/2010 The Hill)

"Democrats who reluctantly slashed a food stamp program to fund a state aid bill may have to do so again to pay for a top priority of first lady Michelle Obama.

"The House will soon consider an $8 billion child nutrition bill that’s at the center of the first lady’s “Let’s Move” initiative. Before leaving for the summer recess, the Senate passed a smaller version of the legislation that is paid for by trimming the Supplemental Nutrition Assistance Program, commonly known as food stamps.

"The proposed cuts would come on top of a 13.6 percent food stamp reduction in the $26 billion Medicaid and education state funding bill that President Obama signed this week.

"...The nutrition bill is clearly a priority for Michelle Obama, who has made a push for healthy eating one of her signature policy issues at White House. When the House version of the nutrition bill won committee approval in July, it marked the first time she weighed in publicly on pending legislation.

"The Obama administration has not directly addressed the debate over the food stamp cuts, but it is backing the Senate bill. “We strongly supported the Senate action and look forward to working with the House to get a final bill onto the president’s desk,” an administration official told The Hill." [The article continues.]

Why would any first lady need to have "signature policy issues"? The voters didn't vote for her, did they? Why couldn't they quietly manage the household or continue working, like Tony Blair's wife did, instead of wasting more and more taxpayers' money?

Nirvana of Totally Flat Treasury Yield Curve

Zero Hedge has a beautiful and the scariest 3-D chart I've seen of the US Treasury curve from 1990 to 2012 (projection). They think that instead of the current flattening of the yields of bills and notes shorter than 10-year indicative of the imminent fed funds rate rise (thus signaling the improved economy), it will lead to a collapse of yields in 10-year note and 30-year bond, rendering the curve totally flat.

Instead of signaling the economic improvement, the flattening this time is signaling nothing. The Federal Reserve's intention to remain the buyer of last resort for the entire curve has practically dislocated the market to the extend that it is not a market - free exchange of information - any more.

From the Zero Hedge article:

"Of course, it is now obvious what the Fed wants to achieve, as it gets ever close to using the last available nuclear option: outright monetization of every single asset class."

See the beautiful, calm, flat sea of Treasuries in 2011 and 2012. I don't know what to make of it. One of the reader comments in the article says it is like the ocean receding right before a huge tsunami. Maybe.

Or it is the end - flat-lining, as in the vital statistics of the dead being flat. A strange sort of nirvana where nothing sparks, nothing moves any more. Flat expanse as far as eyes can see, devoid of life.

Be Very Wary - Goldman Sachs Is Bullish on Gold

You have to doubt your own eyes, your own sanity, when you encounter a paper that seems to agree with your investment or trade stance and that paper was written by Goldman Sachs, the firm known to bet against its own clients, and most recently, the firm who practically called a bottom on Euro in early June with the target of 1.15 when Euro was trading near 1.18 against US dollar.

I've read the paper below, which appeared on Zero Hedge on August 11, 2010. My first reaction was a dread: Oh no!!! Goldman Sachs is one of the bullion banks active in the COMEX along with the likes of J.P. Morgan Chase and Deutsche Bank. These bullion banks have been suspected and accused of shorting and naked shorting gold and silver to artificially suppress the price of gold and silver.

Now Goldman Sachs is bullish on gold?? Has it just called the top for gold?

The scary thing is that the paper makes sense to me. In summary, the two analysts who wrote the paper (David Greely and Damien Courvalin) say:

  1. There is an inverse correlation between the US real interest rate (they use the 10-year TIPS rate as proxy) and the gold speculative long positions: the lower the real interest rate, the higher the gold speculative longs.
  2. Since the sell-off of the gold speculative longs in June, there's a divergence between the two.
  3. The divergence will be resolved, sooner or later, with the gold speculative long positions catching up with the inverse US real interest rate.
  4. Since there is a positive correlation between the gold price and the gold speculative long positions, the gold price will rise as the gold speculative long positions rise.

They believe that the Federal Reserve will keep the interest rates low (the fed funds rate has been effectively zero) through the quantitative easing until sometime in 2012. Their target for gold is $1,300 within 6 months, though their trade recommendation is to go long the platinum futures.

Goldman Gold