Comments: The Fannie Mae 3.5% bond hit our previously mentioned price target of 103.00 this morning. It has hit this price target without the benefit of a "Risk-Off" trade in equities...but this "RIsk-Off" trade may be fast approaching. Technically, there is a good argument to be made that equities are completing a counter-trend rally going back to the October 2011 lows, and completing this counter-trend rally essentially right now
I get my Daily Deal email from Groupon this morning...
53% Off Justin Bieber Singing Toohtbrushes
Roflmao...
Fannie 3.5%: Nice little trading pennant, the chart appears to want to go higher. We discussed the immediate 103.00 target yesterday, and I wouldn't be surprised to see it achieved today.
10 Yr Treasury 1.95: The 10 Yr popped above 2% on ADP (+325,000 private sector jobs) and an Initial Jobless Claims beat (surprise! /sarcasm on), but is coming back to earth on European news, more on that...
Euro: The Euro is sinking like a stone at 127.97...very disturbing news coming from Europe...D-Day for Greece appears to be March, link, and now the current Greek bailout package has been delayed until, you guessed it, March link . The only word that comes to mind is FUBAR. A massive game of chicken. Add on top of that, we have the halting of trading on Italian banks just now occurring, link
Comments: The Fannie Mae 3.5% chart hit 102.94, within a whisker of the 103 target we have previously mentioned over the past several week.
Moving into the realm of further speculation, I think equities are in the process of topping out in a counter-trend move going back to the lows in early October, and that we should see that process complete itself in the 10 trading days or so. There are two extraordinarily large items overhanging the market: the European banking and sovereign debt crisis, and the potential of legitimate conflict with Iran and the blockage of the Straits of Hormuz and it's impact on oil prices.
Both of these items create a massive "Risk Off" environment, which it would seem to me would indicate an initial move into US Treasuries and hence, higher prices on the Fannie Mae 3.5% coupon, i.e. lower mortgage rates. At this point, I'm looking for prices to exceed the September 22, 2011 intraday high of 103.91.
However, I do not believe that the breach of 103.91 is going to be long-lasting. One needs to be prepared to lock-in rates.
I bolded the words initial move above for a reason. The reason is I do not believe that the rates will be long lasting because the reaction to current events could be quite drastic: 1) QE3 by the Federal Reserve, probably leaked in early to mid February with an official announcement at the March meeting, the market is now trained to understand that any Quantitative Easing by the Fed means higher inflation and higher interest rates, and 2) the conflict with Iran brings along with it a conflict with China. Iran expots 22% of it's oil to China, and the US has just imposed an embargo on Central Banks dealing with Iran. Do we really expect China to go along with such an embargo for very long? Not. Going. To. Happen. There is deep conflict with China (and Russia) embedded in our embargo of Iran. Remember, China has been pursuing separate bi-lateral trade agreements with it's trading partners to back away from trading in dollars. This will only further accelerate this trend that's already in place. As this conflict with Iran progresses, we could see a hardening of positions on the part of China, and as a retaliatory measure towards the U.S. an overt selling of U.S. Treasuries as a part of a response mechanism by the Chinese.
A few key dates for Europe From Calculated Risk Blog
Jan 6th: Euro-region November unemploymentfrom Eurostat.
Jan 9th: German Chancellor Angela Merkel and French President Nicolas Sarkozy meet in Berlin.
Jan 24th: EU finance
Jan 30th: European Union leaders meet in Brussels on debt crisis.Feb 9th: ECB holds rate meeting.
Feb 19th: Proposed date for Greek general election.
Feb 20th: Euro-area finance ministers meet in Brussels.
Feb 29th to March 1st: Italy redeems 46.5 billion euros of bonds.March 1st and 2nd: EU leaders meet in Brussels.
March 8th: ECB holds rate meeting
March 12th: Euro-area finance ministers meet in Brussels
March 20th: Greece redeems 14.4 billion euros of bonds.
March 30th: Euro-area finance ministers meet in Copenhagen.April 22nd: France holds a presidential election.
ZeroHedge | http://www.zerohedge.com/news/exposing-american-banks-multi-trillion-umbilical-cord-europe
European banks could do a lot more damage (to American economy) than expected as they pull back
Manufacturing in the U.S. grew in December at the fastest pace in six months, remaining at the forefront of the expansion entering 2012.
The Institute for Supply Management’s factory index climbed to 53.9 last month from 52.7 in November, the Tempe, Arizona- based group’s data showed today. Fifty is the dividing line between growth and contraction, and economists surveyed by Bloomberg News forecast the gauge would rise to 53.5.
January 3, 2012
Currently, the 30 year Fannie Mae bonds are down 24 bps at 102.59...Actually, not too bad considering that 10 Yr Treasuries were at 2.00% this morning, although they've backed off to 1.96% currently.
Not anything mentioned today on CNBC, but there have been plenty of times in the past where I've heard CNBC commentators making snarky comments directed in general at "financial bloggers" but were veiled references at specific ZH blog entries.
To CNBC...I've watched your channel since it's infancy. I watch FNN religiously before you were even conceived. I remember the days of Neil Cavuto and Kathleen Campion...Me and you go way back...
But cut out the snarky comments directed at ZH. ZH does some things much better than CNBC. They cover the sausage making that goes on at the Fed. ZH provides the ugly details that CNBC glosses over or doesn't mention. They cover the European unwind in much better detail that CNBC.
There is a place in the world for both. No need for the snark, we can judge for ourselves.
In the comments section of the bond chart just posted I mentioned: "It looks like the more ambitious objective of 103.91 (from Sep 22 high) is going to be next target, and should get fufilled." I left out that the target should be fufilled sometime between the 2nd or 3rd week of January.
At least Vegas gives you pretty girls in skimpy outfits with plenty of free booze to go around. The ES doesn't even give you a kiss.
Frankly, I don't think this can last much longer (but I could definitely be wrong), with treasury yields indicating anticipated recessionary levels (although with help from the Fed and currency flight from Europe) and stocks remaining elevated. A big problem with such heavy Fed intervention is that it distorts what the markets are indicating.
Do we listen to the bond market, or the stock market? If you put a gun to my head, I'd say listen to the bond market. Of course, the rational thing to do is probably to simply stay out of the market entirely...sometimes the most profitable trading path is to take a vacation.
The Packers are the heart and soul of Green Bay. Fans own "stock" in the team, and season tickets are a valuable commodity. That made tickets to the Christmas night game with archrival Chicago either the best gift a fan could find under the tree, or (if her sign is to be believed) a perfect way to get back at a cheating boyfriend.
http://sports.yahoo.com/nfl/blog/shutdown_corner/post/Packers-fan-uses-game-t...
I would be laughing if it wasn't so tragic...If you're wondering the depths of European desperation, as well as China's, consider the following stories are a mere two months apart. There was no way in hades that China was ever going to step up to the plate for Europe.
Oct 27, 2011:
http://www.ft.com/intl/cms/s/0/7505d210-00ba-11e1-8590-00144feabdc0.html#axzz1hcMBJbzc
December 25, 2011
http://www.advisorperspectives.com/dshort/updates/Four-Totally-Bad-Bears.php
This chart series features an overlay of the Four Bad Bears in U.S. history since the market peak in 1929. They are:
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The series includes four versions of the overlay: nominal, real (inflation-adjusted), total-return with dividends reinvested, and real total-return.
http://cboblog.cbo.gov/?p=3042
The federal government's finances are pretty complicated and not always easy to understand, and most of CBO's reports about the budget outlook are fairly lengthy and detailed. In fact, one of the questions we're most frequently asked is how much the government spends and takes in each year. For those who are not very familiar with the budget, finding the answer is sometimes harder than it should be.
CBO's newest infographic—that is, information presented in a graphic form—describes some key elements of the federal budget, including a breakdown of its major components and a visual history of the budget and federal debt over the past 40 years. This graphical budget primer is more accessible than some of our longer reports, and we're hopeful that it will make the federal budget easier to understand.
Today's infographic is the latest installment in our ongoing effort to present more budgetary information in a graphic form. This past summer we provided a set of easy-to-view slides on the outlook for the budget and economy. In addition, we published an infographic on Social Security, which provides historical statistics and projections of the program's financial status, the number of workers per beneficiary, the distribution of recipients, and the program's share of federal spending.
Jonathan Schwabish of CBO's Health and Human Resources Division and Courtney Griffith of CBO's communications team prepared today's infographic.
http://cboblog.cbo.gov/?p=3058
Today CBO released the latest in a series of statutory reports on transactions undertaken as part of the Troubled Asset Relief Program (TARP)—the program established in October 2008, during the financial crisis, to enable the Department of the Treasury to promote stability in financial markets through the purchase and guarantee of “troubled assets.”
To further our effort to demystify certain aspects of the federal budget, CBO also prepared an infographic on the TARP. Its aim is to summarize the most pertinent details about the TARP since its inception: the types of assistance, cash disbursements, and net budgetary costs or gains.
What is CBO’s current estimate?
CBO estimates that the net cost to the federal government of the TARP’s transactions, including the cost of grants for mortgage programs that have not been made yet, will amount to $34 billion. CBO’s analysis reflects transactions completed, outstanding, and anticipated as of November 15, 2011.
That cost stems largely from assistance to American International Group (AIG), aid to the automotive industry, and grant programs aimed at avoiding home foreclosures: CBO estimates a cost of $59 billion for providing those three types of assistance.
But not all of the TARP’s transactions will end up costing the government money. The program’s other transactions with financial institutions will, taken together, yield a net gain to the federal government of about $25 billion, in CBO’s estimation.
How does the estimate differ from our March 2011 estimate?
CBO’s current estimate of the cost of the TARP’s transactions is $15 billion higher than the $19 billion estimate shown in the agency’s previous report. That increase in the estimated cost stems primarily from a reduction in the market value of the government’s investments in AIG and General Motors.
How does the estimate compare with OMB’s estimate?
The Office of Management and Budget (OMB), in its latest estimate, projects the program’s costs to total $53 billion. CBO’s current estimate is less than OMB’s estimate, largely because CBO projects less spending for the Treasury’s housing programs under the TARP; that difference is partially offset by CBO’s higher estimate of the cost of assistance to AIG.
How does the cost compare with our original estimate?
CBO’s current estimate of the total disbursements by the TARP and the net cost of those disbursement is well below what was originally envisaged. Only $428 billion of the originally authorized $700 billion will be disbursed through the TARP, CBO estimates.
When the program was created, the U.S. financial system was in a precarious condition, and the transactions envisioned and ultimately undertaken engendered substantial financial risk for the federal government. Nevertheless, the costs directly associated with the TARP, when taken in isolation, have been toward the low end of the range of possible outcomes anticipated when the program was launched—in part because funds invested, loaned, or granted to participating institutions through the Federal Reserve and other government programs besides the TARP helped limit those costs.
This report was prepared by Avi Lerner of CBO’s Budget Analysis Division. The infographic was prepared by Jonathan Schwabish of CBO's Health and Human Resources Division and Courtney Griffith of CBO's communications team.
