The US is trying to spit out $235 Billion in debt this week to the bond market. The bond market has taken everything so far, but today the bid-to-cover ratio was 1.92. This is not a failure - anything over 1 means that all the debt sold. However, the Primary Dealers in the US must offer to swallow all debt issued, as a condition of being able to sell it - much like underwriting a share offering.
In short, anything less than 2 means that there was insufficient demand, and Primary Dealers were actually forced to swallow a portion of the debt. It's not that bad yet, but they should start running for the door. Dresdner Kleinwort fled a month ago.
Wednesday, July 29, 2009
Friday, July 17, 2009
Failed bond auctions - China
China has been failing bond auctions all week - now we have a third separate incident. China stimulus has been causing resources to soar, but they have to stop the stimulus, or do one of two things - print faster or sell US Treasuries. It's a very complex web, but suffice it to say, this places upward pressure on interest, which in turn rips down unsuccessful and fraudulent businesses.
Wednesday, July 15, 2009
The Recession is "Over"
According to the RBA's forecasts as of May:
According to Merrill Lynch, it is now over:
According to news articles quoting US Treasury Secretary Timothy Geithner, it will be over in a matter of months. Of course, he never actually says anything solid, he simply alludes:
According to Dennis Kneale, it has been over since the start of this quarter.
The market has certainly reacted accordingly. That is to say, the stock market reacted, the futures market's message is plainly unchanged. I'm unaware of a history of successful predictions from any of these sources, and quite aware of a lack of success, so I'll add my own prediction to the pot:
The global economy will be out of "green shoots" in a matter of months - that is, the hope of an imminent recovery will melt away to be replaced by fear and then panic.
The central bank predicts that the negative economic growth recorded in the December quarter will be repeated in the March and June quarters, with the economy shrinking by a total of 1.25 per cent before beginning to pick up from the middle of this year.
According to Merrill Lynch, it is now over:
"The recession is over" Merrill declared in a report Tuesday authored by Michael Hartnett, chief global equity strategist.
The brokerage’s famed horned mascot is snorting again: "We are bullish on global equities," Hartnett says in the report.
According to news articles quoting US Treasury Secretary Timothy Geithner, it will be over in a matter of months. Of course, he never actually says anything solid, he simply alludes:
"We have a powerful set of policies coming on stream," he said. "We have a very good chance of seeing the US economy and the global economy get back to the point where [they are] growing again over the next few quarters."
According to Dennis Kneale, it has been over since the start of this quarter.
The market has certainly reacted accordingly. That is to say, the stock market reacted, the futures market's message is plainly unchanged. I'm unaware of a history of successful predictions from any of these sources, and quite aware of a lack of success, so I'll add my own prediction to the pot:
The global economy will be out of "green shoots" in a matter of months - that is, the hope of an imminent recovery will melt away to be replaced by fear and then panic.
Tuesday, July 14, 2009
Futures spreads
I've been a bit out of things lately, a little dismayed at getting done by this rally. It appears that my experience is insufficient for predicting the timing of the future, so for this I turn to a source vastly better at making timing predictions - the futures market.
As I explained earlier, the futures market is chained to the stock market because it will be forced to match upon expiry of the contract, and so it never seems to drift more than about 35 points apart. From this I'll define a scale from -50 to 50, where -50 is "The End of the World approaches" and 50 is "Everlasting World Peace any time now".
The September spread is -35, or "Oh my god didn't there used to be an economy", the December spread is -30, or "Well, looks like the economy is still here... maybe we really have bottomed" and the March spread is slightly different because betting on it is less liquid - but it's between -36 and -60, which places it somewhere between "The economy is no more" and "The world is no more". I really hope it's the former.
As I explained earlier, the futures market is chained to the stock market because it will be forced to match upon expiry of the contract, and so it never seems to drift more than about 35 points apart. From this I'll define a scale from -50 to 50, where -50 is "The End of the World approaches" and 50 is "Everlasting World Peace any time now".
The September spread is -35, or "Oh my god didn't there used to be an economy", the December spread is -30, or "Well, looks like the economy is still here... maybe we really have bottomed" and the March spread is slightly different because betting on it is less liquid - but it's between -36 and -60, which places it somewhere between "The economy is no more" and "The world is no more". I really hope it's the former.
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