Thursday – April 30th, 2009

Cutting to the chase, all things that usually matter and transmit thru to markets, do NOT appear to be doing so at moment. Talk of nearing bankruptcy for Chrysler along with some sort of building collapse in NYC and a possible car bombing outside embassy in Amsterdam?? Well none of that (rightly?) matters and we’re continuing to experience a global flight TO risk trade, at the expense of US Treasuries. Will this or wont this work AGAINST the Fed (higher rates to slow the economy and/or housing??). Simply too early to tell BUT as an off-set we’d offer that steep and steepening yield curve should HELP banking sector make money. What they do WITH that money, though, remains firmly UP IN THE AIR. Click up daily PDF for more . note couple interesting items from FT suggesting banks cutting BACK on overseas lending. Thought GOOD GOES AROUND? TGIF. Oh, wait a minute. Best, Saul/Steve


Here’s a preview of our rant:


As we look out the window and try and get our arms around all the techna-mental news that’s making it’s way through the markets, we’re struggling to be WITH the flight TO risk trade. That said, we KNOW the markets are NEVER wrong and therefore we feel a bit like the boy who cried wolf. Again.


We say all of this in context of a basic principle WE think driving most markets at the moment, namely supply/demand. This dynamic seems to favor higher yields and as we said yesterday, we’d respect technical break currently being experienced. Here are a couple of visuals from Barclays technical note (see Technicals.pdf below, for more):


— click up our PDF for pictures —


Pictures are worth 1,000 words so we don’t need to labor the point. Weak technical picture with fewer dealers (therefore lesser balance sheets to support markets) and recent Client Survey indicating less of a short base, well it all appears to add up. Again, we’ll say it, risking sounding like a broken record. We get the joke – or at least the punchline. IF, though, you don’t like the way WE say it, here’s a look at what one of the better in the biz said after yesterday’s dust settled.


GCMs David Ader’s closing thoughts:


TACTICAL BIAS: The break of 3.05%, March FOMC day high, is a significant technical event as it unwinds all the ‘good’ done by the QE expansion of that day. With, now, 3 ‘easy’ auctions having tailed and the Refunding next week in the midst of new data and just before the usually important NFP report we have to lean further on the prices. Adding to that is a lame month-end extension in Treasuries — just 0.01 yr — below average in general and below the 0.07 yr norm for April.  

Finally, picked the following one up via The Big Picture just yesterday, and sort of reminds me of where we are (or may just be) now:




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