Jan 14
Yields were up yesterday as the Treasury completed the ten year auction (30’s today) and the Beige Book was a non-event, though weakness in CRE was noted. JPM’s Dimon said CRE is a train wreck, but the serious problems have already happened.
–CA downgraded. Liscio Report says sales tax revenues improving, but “Rockefeller Institute of Government found the first three quarters of 2009 marked the biggest decline in state tax collections since at least 1963.”
–It’s sort of a strange dynamic to have the heads of financial institutions grilled before Congress, while at the same time the Treasury is auctioning off long dated paper that we are relying upon these same financial institutions to buy (because the foreign bid is drying up), while another arm of gov’t, the Fed, is more or less guaranteeing profitability of such purchases by maintaining zero funding costs and a steep curve. If long rates continue to rise, then housing is likely to deteriorate (further). If the Fed begins to raise funding costs, the unwinding of the carry trade will get ugly, and bank earnings will suffer.
–There was a huge volume spike yesterday in mini SP that was apparently some sort of cross trade…around 200,000 contracts at a price of 1137 to 1137.50. I believe CME is allowing all trades to stand. In any event, if the market trades below that level, I would be inclined to try a short position.
