Don't Look now But Treasuries are Selling Off

Just a quick note folks.

The 10 year is selling off today:

Quick Take:

I have been keeping a close eye on treasuries today to look for signs of the European debt contagion spreading over here to the US. I find the selloff today in treasuries to be pretty ominous considering the fact that stocks are down triple digits as I type.

Remember: We are selling massive amounts of treasury debt next week.

Here is the schedule:

"13 wk Bill
05/10/10
05/13/10
26B
26 wk Bill
05/10/10
05/13/10
26B
3 yr Note
05/11/10
05/17/10
38B
10 yr Note
05/12/10
05/17/10
24B
30 yr Bond
05/13/10
05/17/10
16B"

The risk of a global sovereign bond panic is possible if these auctions don't do well IMO. Let's get real: Our debt to GDP ratio is really no better than Greece or Portugal's. To think "it's different over here" is akin a realtor telling you that "real estate always goes up!".

The vigilantes could easily do the same thing to our bonds over here. All hell could break loose if we see bad BTC's. Focus carefully on the longer end bond auctions next week. Those should be a very tough sell following the chaos in the European debt markets that we saw in the past week or so across the pond

To be fair, treasuries have soared in the last several days so we were due for a pullback.

Gold and silver are also soaring today which could be a signal that people are looking for alternatives to US bonds with their "flight to safety" trades.

Disclosure: No new positions at the time of publication but very tempted to short T-bills at these levels.

Wall St in Disarray as DOW Tumbles 1000 Points

Wow...What a day. Let's take a look at the tape:


My Take:

Whoa! As you all know by now the DOW dropped about 1000 points in a matter of minutes before rallying back at the close.

The finger pointing started almost immediately after the drop. CNBC reported that it was a rogue trader that hit the wrong button on a sell order.

Hehe...Yeak ok...If you believe that one you then I have a beautiful shrimping boat in Alabama to sell you.

Folks, I am sure we will hear a million reasons why the market dropped off like it did today. They will blame it on everything from the the quants to the rogue traders to the supposed financial reform bill that plans on potentially breaking up the TBTF banks.

The bottom line is we now have another crisis of confidence in the markets. I believe that the drop we saw today was a result of a variety of things but the article below(if true) would explain a lot. Hat tip to Naked Capitalism for this find.

From Washington's blog:

"The tide is now turning towards real financial reform:

In a major development, Senator Harry Reid is now supporting breaking up the giant banks and auditing the Fed

Number two Senate majority leader, Sen. Dick Durbin (D-Ill.), came out Tuesday in favor of a far-reaching amendment that would break up big banks and cap their size (the Brown-Kaufman amendment)

Senator Feingold has announced that he will filibuster and financial regulation which does not include serious banking reform

I asked a friend on the hill – a top aide for a very important Congress member – whether people would be wasting their time by calling their Senator. I explained that many people called and demanded that the U.S. not invade Iraq, but that Congress just ignored us. I said that many people feel that traditional political activism, like phone calls, can’t work, as the level of political corruption is too high.

He responded that given the bipartisan support of many congress people and the American people for financial reform, this is very different from Iraq.

He urged everyone to call their Senators and demand the giant banks be broken up and the Fed be audited.

Senator Sanders’ bill to audit the Fed will probably be voted on today. Please call your Senator now.

UPDATE:

A deal was struck in the Senate today regarding an audit of the Federal Reserve.

Senator Dodd worked out a compromise with Senator Sanders, and Dodd will now become a co-sponsor of the bill.

The bill would:

Require the non-partisan General Accountability Office to conduct an independent audit of the Board of Governors of the Federal Reserve System that does not interfere with monetary policy, to let the American people know the names of the recipients of over $2,000,000,000,000 in taxpayer assistance from the Federal Reserve System, and for other purposes.

And the bill provides:

Notwithstanding any other provision of law, the Board of Governors shall publish on its website, not later than December 1, 2010, with respect to all loans and other financial assistance it has provided during the period beginning on December 1, 2007 and ending on the date of enactment of this Act under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Term Asset-Backed Securities Loan Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility, the Term Securities Lending Facility, the Term Auction Facility, Maiden Lane, Maiden Lane II, Maiden Lane III, the agency Mortgage-Backed Securities program, foreign currency liquidity swap lines, and any other program created as a result of the third undesignated paragraph of section 13 of the Federal Reserve Act."

The Bottom Line

If the above information is accurate then the market had every reason to respond like it did. A burst of selling based on bad news can also trigger the HFT quants to sell because their algorithms are designed to dump stocks on high volumes of weakness.

I have said all along this rally was a sham and the fact that the DOW dropped 1000 points in a matter of minutes proves to you that the street is rigged and run by HFT's that game the markets on a regular basis.

There was a lot of damage done today. The market HATES uncertainty and we got a lot more of it at a time where things are already fragile as a result of Greece and the European debt crisis.

We also lost a lot of confidence in the stock market. The extreme volatility we are witnessing on Wall St recently is very unhealthy.

Remember: Confidence is everything when it comes to market making. The system is at risk when you are not confident that what you are buying is actually worth anything.

The only way we fix this is through radical financial reform. I hope the above article is correct.

The banksters have had their time in the sun. It's time to throw out the garbage on Wall St and create a financial system that people can believe in.

The aftershocks of today's price action will be felt for a long time. I am sure many trading accounts were completely liquidated based on today's debacle. A couple of hedge funds might have gone down as well.

Hopefully Washington took notice and will take the necessary measures to wring out the blatant fraud that is now so prevelant on Wall St.

Disclosure: No new positions at the time of publication.

Greek Chaos!

Scary.....



Edit:


Yikes! Greek government just past the austerity measures and the mob is now growing.

Greek Debt Contagion Worries Rattle Wall Street

Stocks sold off sharply today as worries around the fiscal health of Greece and the rest of the PIIGS finally hit equities in the US.

I must admit that yesterday's bounce surprised me after the sharp selloff in Europe earlier in the day. I guess I shouldn't be shocked: The bulltards are really good at sticking their head in the sands and pretending everything is fine as they buy buy buy.

It usually takes a sledgehammer to the head like we saw in late 2008 in order to finally get the bulls to finally stop hitting the "buy" button. I thought Greece would be a suffucient blow to the skull on Monday, but the message didn't get through until today.

Let's get real here for a second folks: The European soveirgn debt crisis issue is a serious problem for everyone around the world and it is not going away anytime soon.

The US banks alone have $176 billion in exposure to the PIIGS:

"NEW YORK, Feb 9 (Reuters) - U.S. banks have $176 billion in exposure to Greece, Ireland, Portugal and Spain, with risks concentrated among the 10 largest U.S. banks, Barclays Capital said on Tuesday.

The FFIEC data shows that 10 U.S. banks -- Bank of America (BAC.N), Citigroup (C.N), JPMorgan, Wells Fargo (WFC.N), Bank of New York (BK.N), State Street (STT.N), Goldman Sachs (GS.N), Morgan Stanley (MS.N) and the U.S. branches of Deutsche Bank (DBKGn.DE) and HSBC (HSBA.L) -- hold 96 percent of the risk, Barclays said.
The banks have $86 billion in exposure to Ireland, $68 billion to Spain, $18 billion to Greece and $9 billion to Portugal, Barclays said."

My Take:

If the issue was just Greece it could easily be handled. The problem is Wall St is asking "who is next?" versus saying its contained because the debt burden looks just as bad among the other PIIGS countires.

As a result, this is slowly developing into a game of domino's where the risk is if one of them tips over(via default like Greece) the rest go down with them.

As I said last week, the money is not there to save all of the PIIGS without massive money printing which I don't believe the ECB is willing to do.

The Euro then becomes a giant question mark because countries may decide to take things into their own hands by flipping back to their old currencies.

Haven't We Seen this Game Before?

This debt crisis(although different) reminds me a lot of the subrime crisis which eventually almost took down the banking system here in the USA.

Like Greece, our meltdown started with a small area of the global financial system which we called subprime loans. The bankers quickly came out and said that subprime was "contained" just like Greece "supposedly" is right now.

Later on of course we learned that this was a bunch of hogwash when we realized that just about all of the MBS's of mortgage debt that were created during the housing bubble turned out to be basically be worthless.

Of course,you would never know this if you saw it on any banks balance sheet today. Most of this debt is still market at full value thanks to our new "fraudulent" accounting standards.

I think we are about to see the same thing occur in Europe as this crisis no longer stays "contained" and begins to unwind.

Fiscally these two crisis are very different: Fundamentally however, the problem remains the same:

The oligarchs of the world want to live the good life at the expense of the middle/lower class peasants. When a crisis hits, the elite want the peasants to pay for their greedy mistakes via higher taxes and other austerity measures.

The bankers/oligarchs pulled it off over here by creating the TARP and forcing the taxpayer to backstop all of their mistakes.

The same thing is being attempted in Europe as we speak. The ECB and IMF are ready to puke up $146 billion to Greece alone! This is absolutely disgusting in my view.

The retirement age in Greece is 55! What are they smoking over there?

The Bottom Line

It appears the looting will never stop no matter where you are in the world. The bankers in the USA told us that the economic system would blow if we didn't bail them out.

They thanked us by gambling our taxpayer money in the stock market casino where they took enormous risks and made billions in bonuses. The bankers didn't care if they lost because it wasn't their money they were spending: It was ours!

Once they got the game rigged via faulty accounting standards and front running the market via HFT's"high frequency trading", they paid us back our TARP money. Sigh.... The whole thing makes me want to vomit.

I expect too see a similar extortion attempt by the PIIGS and bankers in Europe in coming weeks. Remember, if the PIIGS go down so do the European bankers.

I am sure they will try and threaten the world by saying that the whole financial system will blow if they let someone fail or default.

It won't be so easy this time though because I think the world has wisened up. For instance, there is vehement opposition in Germany to bailing out any of the PIIGS. Making things even more interesting is the fact that the German elections are held in May.

In the meantime, the German politicians vote on the Greek bailout on Friday. All 16 countries involved in the Euro need to approve this bailout via their own forms of Congress. This includes Portugal and Spain which is a joke in and of itself since both countries are broke.

Germany however is the key, and the concern is the Germans are not sure that Greece has the political will to enforce the austerity rules that have been agreed upon by the two countries.

I guess its kinda hard to tell an angry mob of Greeks that they can't retire until age 67 when they used to be able to walk at 55!

There are HUGE protests scheduled later in the week in Greece. If things get outta hand with torches and pitchforks, it might force Germany to second guess their agreement and make the politicians lean towards voting "no" on Friday.

Keep an eye on the developments across the pond. The bond vigilantes started pounding the PIIGS bonds once again today. Spreads are blowing out after a brief 1 day relief rally following the Greek bailout announcement.

The bond market loves to call your bluff and force your hand after you make a play like the ECB did on Friday after announcing the Greek austerity bailout.

The bond traders know that the debt issues run much deeper than just Greece, and they want to know what the ECB is going to do to "save" the other PIIGS. What's scary is I don't think there is an answer to this question because the money isn't there to save all of them.

If they don't get an answer, I believe credit spreads will continue to blowout which means the risk of a sovereign default is very real.

If this default fuse gets lit, all hell could break loose in the markets.

Disclosure: No new positions at the time of publishing.