Tuesday – August 25th, 2009

The lead story HAS to be all about Ben. We’re really FINE with that. Might be the best thing Obama has done so far. We’ll end up liking this guy yet. That aside, though, we’d urge one and all to NOT overthink right now as we’re in the middle of the dog days of summa. Prices can move (both up and down – imagine that) and these moves don’t necessarily have to mean ANYTHING. The news on the other hand, is not necessarily that Green Shooty, to be honest with you. China’s Premier made some comments o/n and Chinese shares trade down 5% right away. They recovered half their losses, but … Bloomy has a story from McCulley – “Pimco’s McCulley Says Bond Bull Market Has Peaked”. Seems to US those couple of stories almost SORTA net themselves OUT. NO BLOOD so far. We then turned to WSJ for Ahead of Tape column – ‘Double Dip Threatens Housing Recovery’. But wait a minute. Jim Cramer and Larry Kudlow just said yesterday not to worry and that Doctor Doom (Roubini) had NO idea what he was talking about. So NOW we’re really confused, as Jim Cramer’s NEVER wrong, right? Moving on to another from WSJ – ‘Homeowners Problems Deepen’ . appears a study out suggest once a homeowner falls behind on mtg, tendency is to NOT get caught UP. Really? Shock of all shocks. Stocks down then massive UP (but still net down MORE than 30% … AHEM), yer on verge of losing yer job or have done so already and oh yeah, yer largest asset – yer house – is worth a friggin FRACTION of what you thought it was at the peak. Last we checked, neither Jimmy Cramer OR Kudlow told you when to sell yer house/stocks and start renting. But we digress. We are well aware of the impending supply today and the market is currently and AGGRESSIVELY UNCH. With this in mind, the Daily Pivots are mostly SUPPORT today and as we move out the curve it becomes even MORE noticeable. 30yr Daily Pivot today is 103.04/4.31% (vs currently 104.04/4.25%). Have a great start.


Here’s an excerpt of our PDF:


What’s On OUR Minds


WE BEGIN NOW w/another note from Ani, our resident Relative Value expert:


Bernanke stays. Anyone surprised? The shock would have been his dismissal. The only surprise is the timing. Big decisions get postponed to the fall;  but then, maybe this wasn’t the big  decision that the heads on TV made it out to be. The reaction?


Nothing, but we think the short end libor contracts should rally – the Fed is on hold for sure. Buy EDU0 for a trade. There’s room in EDH0 too, and it is safer; but we prefer EDU0 simply because it rhymes with our short term (1-2 weeks) bullish  view on Tsys in general……….Plenty of talk about China lately- everyone is on the same page now- that China is the new global engine of the future. That’s why the wild ride SHCOMP took last night is significant. Chinese stocks fell, then clawed back much of the way after relatively innocuous comments by the Premier.


In Relative Value land, spreads are unchanged. We are still watching Tsy  2-3-5- fly and 7-10 curve, which have moved enough to dismiss entry as fresh trades here, but should have some more room to go. We expect to have newer trades in the next couple of days as they line up due to month-end and the beginning of a more active trading season.


IF one were to put YESTERDAYs trade in context of Friday’s trade, we really would be hard-pressed to make too much out of ‘things’ as we regained much of what was lost in the bond markets. Don’t get us wrong – there are many ‘out there’ who are terrific and make quite good livings creating stories to fit the price action. We’re just not into that at the moment, as we are smack dab in the middle of the dog days of summer. We’ve been told to think about large month-end index extension trade that occurs next Monday and we’ve been hearing about this for about 2.5wks now. As an aside, IF it’s that easy and well-known, how much of a trade is left there on the table? Seems as though maybe even this is over-think and again, we’re hesitant to read too much into mkts at moment.


With all of this in mind, we’re turning our thoughts to Bernanke about to get reappointed and with this in mind, OUR first thoughts were of relief. We might wind up LOVING Obama yet. Smartest thing he’s done so far, in OUR opinion. Aside from calling The Bottom in stocks back in March, that is. On that note, we’re just asking IF he’s gonna tell us when to take profits from that trade? But we digress. We are more interested if and when he tells us all to get short Treasuries and to this point, we’ve seen nothing along those lines. In fact one MIGHT be better able to argue that Tiny Tim has been out pressing the flesh HARD with the Far East and suggesting at every opportunity he gets, that everyone buy our debt. We saw articles in the press about how China is still buying and how households are buying too. Sorta seems like a feeding frenzy, eh? Good thing we get to take down $109bil in notes this week. A week we remind ourselves that there are NOT many around to bid – so we’ve got THAT going for us … which is nice.


Times like these, we can’t help but try and take a step back in effort to try and look forward. We’re going to reproduce some thoughts and a rude/crude look at seasonals that have worked out very well over the last several years. We’ll offer these thoughts as a sort of guidepost and reasoning behind wanting to buy some sort of ‘supply-related’ dip (?) that is NOT one based solely on the month-end index extension trade. That does help though and we’re OK with it. We’ll also look at this dip (IF it happens) as one we can be OK with, regarding some of the ideas and levels we’re watching just above – we’ve NOT updated pictures as we feel they are still relevant – ie liking selling here vs buying ‘over there’ – 5s/Bobls now at about 9bps (having gotten some on vs 6bps and then more at ZERO. Right trades for the right reasons in quiet markets …


Here’ is OUR thought process on seasonals: 


just thinking outloud … from the beginning of the last week of August thru end of 1st week of Sept, here’s what we found:

2001 10s went from 4.95 to 4.75 (-20bps)

2002 4.30 to 3.90 (-40bps)

2003 4.60 to 4.33 (-27bps)

2004 4.31 to 4.08 (-23bps)

2005 4.25 to 3.96 (-29bps)

2006 4.84 to 4.72 (-12bps)

2007 4.61 to 4.38 (-23bps)

2008 3.87 to 3.55 (-32bps)


avg from 2001 thru 08 = approx 26bps …




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