3/20/14…what’d I say??? (Yellen)

Quote of the Day from the Friars Club Encyclopedia of Jokes: “Women like silent men. They think they are listening.” – Marcel Achard…can you hear me now?

Bloomberg Quote of the Day: “I never think of the future. It comes soon enough.” – Albert Einstein…and the older you get the more you see how true that is…

Bloomberg Top Stories:

*Stocks Slump With Bonds as Dollar Climbs on Fed Comments; Copper Declines

*Bonds in Europe Decline After Yellen signals U.S. Rates Likely to Increase – ? DUH!!!

*Shadow Banking $4.5 Trillion Repos Spur SEC Plan to Curb Broker Leverage – finally!

*Yellen Retreat From Thresholds for Changing Policy Doubted as Yields Rise

*Deutsche Bank Increases Jain, Fischen Pay by 53% in First Year as Co-CEO’s – egad!

*Ex-JPMorgan Trader Martin-Artajo Challenges Findings of Regulator in U.K.

*Strauss-Kahn Plans to Raise $3 Billion for Hedge Fund as Post-IMF Pursuit

*GM Ignition Victims Need Help From Bankruptcy Judged to Pursue Compensation L

*Wildcatters Retake Legendary Spindletop Gusher in Return to East Texas Oil

*It’s Spring, When Wall Street Job Cuts rise With Temperature – Wall Street Warming?

*China Capitalist Road Reaches Indiana as Investing Doubles to $14 Billion

*Planes Hunting for Missing Jet Fail to Find Objects Spotted by Satellite

*Russian Might in Trade to Energy Frustrates EU Move for Unity on Sanctions – bad!

*Alberta Premier Redford Resigns as Travel-Expenses Scandal Frays Support

*Pentagon’s Gamble on Getting More Money From Congress Called Into Question

Wednesday’s Market Comments”

Not much of a day…kinda slow…and then…BOOM!!! Welcome to the markets, Chair Yellen!!! Pretty innocuous right? No, and perhaps the article above on the $4.5 trillion repo market that is concerning the SEC (why not the Fed???), is the reason as everything was down except Crude for obvious reasons and the dollar…ditto!

So it was ‘take ‘er down!’ and they did with the most pain felt by Dow Utilities (-1.4%), the best performing index YTD, along with bonds – which erased nearly all gains back to 3/3, Gold which dropped nearly $18 and an intraday low since 3/7…goodbye gains!

The Dow 30 fell 0.7%, S&P 500 -0.6%, Dow Transports were ‘best’ at -0.4%, while the two Nasdaqs and Russell 2000 were off 0.6% and 0.8% respectively. NYSE Financials declined by 0.7% but look: Brokers FLAT; KBW Banks +0.8%?; Nasdaq Banks +0.2%. BofA held its place as most active with a 1.5% gain?…while GE was -1.4%???

Ah, even NYSE Volume which remains below average at least rose to 3.26B shares from a very weak 2.91B and 2.84B shares. REAL trades on the floor rose to a well below average 664M shares (12-mo ave. is 717M), fro the back-to-back 2nd and 3rd lowest volumes of 2014. Since 3/10, the last 700M+ day the average has been just 640M shares. Perhaps that will change tomorrow…at least NY state is now looking into high freak trading’s impact on the markets…where is the SEC on this? Ostriches! Manipulation, you don’t say…yes TB DOES SAY!

Advance/Declines AND Breadth were weak as opposed to Tuesday’s positives: A/D: NYSE -3x/+3.2x/+2.6x/+1.4x/-2.0x, Nasdaq -1.8x/+3.1x/+1.8x/+1.2x/-3.3x; Breadth -2.4x/+3.8x/+3x/-1.2x!/-5.2x!!! and -1.4x/+3.3x/+1.7x/+1.04x/-3.4x!/+1.8x/-3.3x/-1.2x. New 52 Week Highs were little changed at 266 vs 269 vs 242 vs 146 vs 164 vs 117 vs 251 vs 226 vs 382 vs 486 while New Lows were 37 vs 32 vs 36 vs 72 vs 79 vs 63 vs 44 vs 35 vs 20 vs 16 (new low).

Overnight Comments:

Bonds: pummeled by Yellen comments have now given back almost all the gains since 3/3, led by TIPS – the long one lost over a point. The question is whether this was a typical ‘knee jerk’ reaction, which TB believes it was! (10’s 2.77% vs 2.67%, 3/3 high 2.79%; 30’s 3.65% vs 3.61% from 3.73%). Overnight starting to weaken again: 10 yr 2.78% -1/8; 30 yr 3.66% -1/16; TIP 1.38% -5/8!!! Recent ranges: 30 yr high was 3.97% on 12/31; the 10 yr recent high 3.03%! Long TIP recent high was 1.64% The (record?) low of 0.36% was set on 4/5/13.  Libor update: 0.234% 3 mos, 0.330% 6 mos. –  record lows set recently: 3 mos  0.233%!!! 6 mos 0.329%! NOTE the Fed Funds rate has averaged 0.08% since 5/22/13 and is steady at 0.07-0.09%!!! Foreign bond yields higher across the board led by Greece/Portugal: Germany 1.65% +6! UK 2.78% +8! – recent high 3.03%! France 2.21% +5 Italy 3.43% +4 Spain 3.37% +4; Portugal 4.37% +2; Greece 6.81% vs 6.63% vs 6.70% +12!!! three weeks ago intraday low hit 6.57%! Recent range now 6.57% to 12.57%. Japan: 0.59% -2.

Gold closed lower again at $1341.30 -$17.70 – $38 in three sessions! two day after a new recent high of $1392.60, highest high since 9/4/13 – that ended in an outside day and nearly a negative key reversal!It has closed above the psychological $1300 every day since 2/12! It has also been above the 200 day since 2/14, which is major support at $1302. Jan. 2’s low was $1181.40 – A MULTI-DECADE LOW!!!  Psych level: $1300 support, also technical with the 40 day, $1308. Further support at the 50 day ($1295). Overnight, crashing again: $1322.20 -$19.10!!! Low $1320.90!!! $57 in 4 days!

Crude benefitting from Ukraine issues closed higher at $100.37 +.67 with a session high of $100.46 – 200 day is $100.27! Two days ago the session low of $97.37 lowest since February 6th which resulted in a negative key reversal!!! It had held ‘par’ since 2/12 – the first time since 12/27/13! 1/14’s low was worst since 5/2/13: $91.24! The record high of $114.83 was on 5/2/11, the low since on 10/4/11 is $74.95: $93.60 is the midpoint!!! Recent rally high and close are $110.70 and $110.53 respectively. First SUP is now the 200 day ($100.27), then the 40 day ($99.95), followed by the 500 day at $98.60. The recent range is $85.61-$112.24 since March 1, 2012. Overnight, $99.93 -.44.

Global equity markets WEAK: UK -1% vs – vs +0.4% vs +0.6%; France -0.8% vs +0.2% vs +1% vs +0.9%; Germany -0.7% vs +0.7% vs +0.8% vs +0.8%; Japan -1.7%! vs +0.4% vs +0.9% vs -0.4%; Hang Seng -1.8% vs -0.1% vs +0.5% vs -0.3%; Korea -0.9% vs -0.1% vs +0.7% vs +0.4%; India -0.4% vs – vs +0.1% vs +0.2%. U.S. equity futures weaker but in a narrow trading range: DOW -41 (range 73); SPX -4.60 (9); NDQ -11.50 (18).   

 

Some random thoughts:

…what’s all the ‘yellin’ about? Did we expect her to say she would ease? Increase QE spending? For her first FOMC meeting as chair, the press conference went pretty well – give her a ‘B+’. In the obtuse language of the Fed she only blundered once when saying the 6.5% unemployment rate was not a trigger. She qualified it by saying that part-time workers who want to work full-time add another 5% to the figure…which is correct. What she failed to even mention is the labor participation rate which at 66% is just off the lowest level in 35 years!!!

So…what’s it all about…Alfie? It’s about this: she, like Bernanke and any respectable Fed Chairman is still concerned about the prospects of ‘deflation’ – we have already had dis-inflation and one could argue that with wages being low and ‘managerial’ (sic) jobs being created to eliminate overtime (here’s your 10% raise and congratulations on making management…oh, but you are expected to work 60 hours not 40 – sukkah!). If you doubt this consider that the government is looking strongly into this issue – again, on creation of ‘faux’ management jobs.

Put yourself in Yellen’s (or Bernanke’s) place – TB would prefer Big Ben’s since he just collected $240k for a 20-minute speech in Dubai (well-deserved for all he put up with our Congress on), or 41k more than he earned in arguably the most important…certainly economically…job in the country. Would you feel comfortable with a Fed Funds target of 0-0.25%? …especially when the effective rate is just 0.08%?

Furthermore, the QE purchases were funded not only by selling treasuries, but by encouraging the banks to hold ‘excess reserves’ for which the Fed pays them a ‘bounty’ of 0.25% – hmmm, lemme see…I am paying ‘zero’ for the funds…I can write a 30-year mortgage at 4.50% (up from 3.25% at the low!), I write it, sell it to FNMA/FHLMC who in turn sells it to the Fed, while I retain the 0.50% servicing fee! It’s called thinking small! Flip it a few times and I’m earning as much as the original mortgage and with no risk asset on the books…sweet!

Ah, but it gets better as today’s headline story says…we create repo’s and flip those over and over and the only ‘risk’ is if rates rise and I have to put up more collateral! That is what caused the S&L crisis – the first one when rates rose unexpectedly and the ‘haircut’ increased. It is also very similar to what happened with credit default swaps because of not being standardized. You bought one, sold it – buy selling protection (kind of like the Mafia), but you still had it on your books: one long, one short…and they kept piling up: maybe ten or even twenty times…unless you were AIG and just kept selling default insurance! But wait…these are repos of treasuries, mortgages, no risk here…not credit, just interest rate, and if you over-lever, it too will bite you in the ass!

How else can you explain yesterday post-Fed? Stocks DOWN, Bonds DOWN, GOLD DOWN AND DOWNER, only the Dollar rose on prospects of ‘higher rates’ (don’t hold your breath except those ‘imposed’ by the market), and Crude which barely rose thanks to Russia/Ukraine.

Now to sum it all up: do you want to be long going into Friday’s ‘quadruple witching’ options expiry? If so, you are much braver than TB but as the saying goes: there are old pilots, and bold pilots, but there are no old, bold pilots…right?

China too is a time bomb…here we are warning them to fix their economic problems and they have the gall to tell us to fix our own! Ours are a mess but at least our data is reliable – ok, mostly. But wait…in 1988, didn’t we tell the Japanese the same thing…with the same response? They were the king of the hill…then…then into a deep recession, don’t call it a depression…please…and still can’t get out of it. Think about that a while. Why hasn’t anyone else pointed this out? (Stephen Roach has a new book out that warns of a U.S. – China divorce and the risks involved).

Speaking of failure to compare…why is TB the only connecting Russia and pre-WWII Germany when Hitler said, ‘we are only taking back what is Germany’s’? For the very same reason Europe…and especially the U.S. ignored it: it would hurt economically!

Have a great day…can’t wait for tomorrow’s ‘quadruple witching’…can  you?

TB

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