Friday – May 29th, 2009

We look away for a very short period of time and yield pops 50bps, states and local governments are issuing TAXABLE issues and now, just yesterday, The BeachBoys front man, Billy Gross, was on TV chatting up the idea of Treasuries being TAX FREE? Huh? Attempting to move on, as hard as it is at the moment, it strikes US as interesting how the facts haven’t changed much at all, just the yield levels have. Opportunity knocking? Quite possible but we’ll take a deeper dive over the weekend and have more in-depth next week. At the moment, top bullet from USAToday re small biz runnin outta credit is replay of OLD NEWS – Advanta (one of largest providers of lines of credit to small biz here in The States) cutting credit lines effective this weekend. Thanks for that. That and much much more today attached. Most new, but some might very well be more ‘old news’ as we attempt to point out some things that crossed our inbox while we were operating under radio silence. One housekeeping note – StreetStuff daily has ‘table of contents page’ with clickable links right TO notes. Technicals do NOT at the moment, but might. Curious what you think. Any and all feedback would be welcome.


Meanwhile, here’s an excerpt of our rant:


Since we’ve last checked IN here in this space, 10s have popped by about 50bps, GM is on the brink, N Korea has lit up several nukes and oh yeah, the Yankees are tied for first?! All this and the stock market’s laughed, cried and DONE JUST ABOUT NOTHING … We find this very interesting and NOT very amusing, all at the same time.


Based on the top bullet above (inflation rates to ZIP ‘over there’) still has us leaning towards liking selling HERE vs buying ‘over there’. This trade is somewhat less exciting at the moment as the front end of the US curve has cheapened up nearer to ‘support’. We’ll call it 1.00% just for drill and this means that patience will have to be the virtue. In the meanwhile, here’s an updated look at 2s/Shatz:




Does this in and of itself make us willing BUYERS of Treasuries? Depends on timeframe and intestinal fortitude, to be quite honest with you … As WE see things, there’s a large’ish month-end index extension TODAY, there is NO coupon supply until June 9th (3s), GMs on the BRINK, N Korea is trigger happy and all of THAT is topped off with a bit of Fed buying next week. At the risk of OVER SIMPLIFYING things, it appears that the laws of supply and demand have not yet been repealed and we’ll go with it.


Whether or not one see’s VALUE, though, at these levels, well, that right there’s another story entirely.


One that Barrons magazine has taken upon themselves to talk about ALL YEAR LONG:


Jan. 5, 2009
Cover Story: The bubble in Treasuries is ready to pop


May 18, 2009
Cover Story: The bear market in Treasuries will worsen


Any questions? Right … ok then, we’re moving on to the following couple of tid-bits.


First, from Barrons overnight – Treasury Yields Leap to Fair Value Up And Down Wall Street, Friday, May 29th. After a fairly good explanation of the ‘convexity crew’ trials and tribulations and the Sell-A-Thon that took place as the markets repriced lower, the note in Barrons today concludes, “Clearly, Treasuries were in a bubble when they yielded just 3% for 10 years. Technical factors have nearly doubled that yield from the lows, but not fundamentals — which still reflect a recessionary economy and debt deflation. As a result, Treasuries are back to fair value for these conditions.”


Next, well, you have to check out latest video of the Beach Boys front man, Billy Gross, who just yesterday afternoon was talking about Treasuries – 10s at 3.70% – 4.00% – as an ‘attractive entry point’, especially on a relative basis, vs MBS. Even MORE importantly, though, was commentary about Treasuries being TAX FREE. THAT gem comes in just about 6min mark of the interview, right near the end, and seems to US outta left field. We’ve got video embedded on our webpage to, as that one is a keeper … check it out.


Suppose that is OK reference, as the Yankees made up 5 games and are now tied for first but in terms of the bond market, we’re frightened to even think about unintended consequence IF there’s a SINGLE SOLITARY SHRED OF TRUTH TO THE CONTENT AT THE END OF THIS INTERVIEW. It’s FRIDAY and we’re more frightened than we should be!






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