Friday – July 31st, 2009

Month end index extension has helped (Europe helping to drag USA up, looking at 5s/bobls and 10s/Bunds) to some degree. With GDP data out in about an hour, that is all subject to change and in that we do NOT even play economists on TV, won’t venture any guesses or throw any darts. We’re waiting anxiously like everyone else to see what is thrown our way and what, if any, implications for 2nd half of the year. Meanwhile, embedded in our PDF is a link to story about CreditInsights report regarding GE – which impacted stocks into the close yesterday. While GS UP-graded GE, CreditInsights suggests GE Cap might need some significant infusion of capital. That might have put a bit of cold water on equities, but that was then and this is now. We’d ALSO mention there’s an aweful lot of reading material – StreetStuff offers a great note by MLs RateLab on mortgages (think portfolio delinquencies and GSE buybacks). On StreetStuff you’ll ALSO find JPMs call for S&P 1,100 (by ye) and a great read by UBS – Global Econ Perspectives – The debt-inflation myth – “confounded by the fact that (near term at least) prices are more likely to fall than to rise, inflation bears are seeking refuge in the longer term. They argue that the rapid increase in fiscal deficits will force governments to generate rising prices in order to “inflate” their way out of their debt burden.” . That and much much more AND we’ve found another link to Paul Tudor Jones PBS documentary from late ’80s – TRADER – and have tried to embed on our webpage. A great look inside IF you have some spare time. Have a great weekend.


Best, Saul/Steve


Here’s an excerpt of OUR rant:


Today we are all staring down the barrel of month-end index extension that appears to be keeping the Treasury market afloat at the moment. On the heels of a much better-than-expected 7yr auction and a renewed bullish curve-flattening move, we are sympathetic to this view, to say the least. There ARE however, some questions in and around the 7yr auction process, more generally speaking, with regards to changes made recently that make it tougher to figure out where CBs bids are (or are NOT) and we can only say that we’re relieved that the auctions this week have come and GONE and, as Seinfeld always suggested HE too should do, they ended on a high note!


Over the course of the past few days we’ve been consistent in pointing out some technical levels of support (10s vs 3.72% and 2s/10s curve vs 253bps) along with some technical indicators that you may NOT have been aware of – DeMark flashing Red13 about a week ago. Late in the day YESTERDAY we sent around the following picture of 10yr yields, and we see the battle lines as clearly drawn in as follows:




For today, we’re gonna go WITH … and while it appears that we’ve decisively broken OUT of this ever narrowing range (3.71 – 3.64 today) AND this goes very much along with the message from the yield curve – which ALSO broke out in favor of (more bullish) flattening, we can’t help but continue to feel that the burden of proof REMAINS with the bond-market bulls. As we mentioned yesterday, there is NOW a very small ‘window’ of time where there is NO supply HERE and there appears to be little in the way of supply ‘across the pond’. This along WITH month-end index extension (while relatively small) should be of some consequence.


At the end of the day, though, today will be in the history books because of economic data – GDP and it’s benchmark revisions and while the GDP may be backward looking, the data WILL matter SO in that we’re NOT economists and don’t even attempt to play one on TV, we’ll keep ourselves on the sidelines until we can understand the data and implications for 2nd half of the year.


OTHERWISE, in that it IS Friday, we offer the following couple of thoughts, more as a random walk than anything else.


In as far as stocks are concerned, they came off their better levels of the day just before the close. As best WE can tell, CreditInsights (an independent and well-respected research shop) said GE Capital may need a $14B cash injection (using a severe stress test). This story came out prior to stock mkt close and may have dented stocks’ MoJo into the close.


SPEAKING OF STOCKS and in that we’re not usually a fan of confusing someone in order to sell them OUR ideas, this is one example we couldn’t pass up – from The Chart Of The Day … Dow in terms of Gold … have a look if you are seeing things clearly at the moment, as this will surely blur everything just a touch!



>> click HERE for the REST of OUR rant <<

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