It's Four O'clock Somewhere

A day in which the Dow ended up 0.12%, the NASDAQ up 0.41%, and the S&P 500 up 0.37%. A day in which NYSE trading volume hit 1.095 billion shares (down 0.528 billion from yesterday). A day in which equity traders seem to have looked at the news and said "Heck with it. It's 4 o'clock somewhere." All of the excitement came out of the bond markets today where, driven by concerns about the US' long term deficit[1], even the POMO buy-back of TIPS wasn't enough to keep Treasury prices up. Heck, it wasn't even enough to keep TIPS prices up (5-year TIPS yield up 0.108, 10-year up 0.156, 20-year up 0.116, and 30-year up 0.094).

For what it's worth, this is being seen as a correction. Not as a sovereign debt crisis. "For example, the cost of insuring US government debt in the credit default swap market was little changed at around 40 basis points..." That's a good sign.

Oh, and the banks love the rising yields. That means that they can plug their excess assets into low-cost Treasuries, get a better return on the money, and then use those secure assets as their reserve for lending. Coincidentally (?), the financial sector was up 0.27% - beaten only by technology.

Given how bland the markets were today, is there anything going on out there that could impact the markets in the next few days. Sure there is.

The BBC is reporting that Anonymous' war on MasterCard has crippled at least one payment firm's ability to process transactions that use MasterCard SecureCode. If accurate, this could indicate future problems for any credit card company - at least until they figure out how to circumvent the problem.

Gordon Brown, the former British Prime Minister, is predicting a major crisis in the euro in early 2011. Given that "early 2011" is about 3 weeks away, that could further shake up the already-traumatized European financial markets[3].

Russian jets disrupted Operation Keen Sword, the US-Japanese war games celebrating the 50th anniversary of the alliance between the United States and Japan. Keen Sword is taking place in the Sea of Japan, near territory whose ownership has been disputed by Russia and Japan since the end of World War Two. It's not exactly North Korea Crazy levels of international tension, but it is a reminder that you don't have to have Pyongyang involved to have border tensions.

[1] At least the equity and bond markets are beginning to react in opposition to each other again. That's something.

[2] $6.149 billion in TIPS were submitted to the Treasury for purchase, and the Treasury only took $1.63 billion of them. That should give you some indication of how much people want long term Treasuries right now.

[3] Assuming they actually care what Gordon Brown thinks.

It's POMO Day!

POMO: Permanent Open Market Operations.

Which means what? Well, an open market operation is one of the means by which a central bank controls short term interest rates and/or the base money supply in the economy. If the central bank is buying a financial asset then it's trying to pump more base money (typically newly printed cash) into the economy, which should in turn reduce interest rates (as there's such an embarrassing wealth of wealth that there's no real point in charging much of anything to loan it out). If the central bank is selling a financial asset, then it's trying to suck base money out of the economy, which should then increase interest rates.

Today? Today, the Fed is buying TIPS. Look for TIPS prices to rise and TIPS yields to fall. In theory, at least.

Your Word For The Day: Grotty

First off, the euro is up and PIIGS bond yields are down on rumors. The rumors start with a report from "G20 sources" that deputy finance ministers from the G20 nations had discussed the terrible European situation in a conference call on Monday. This, combined with the US Treasury announcing it would send someone to Europe to discuss the EU's pending economic collapse with governments in Berlin, Madrid and Paris[1], has naturally (obviously) led to the conclusion that the European Central Bank will calm the situation by massively increasing their purchases of European sovereign debt.

Jim Cramer, in his lucid days, said that "tips are for waiters". Keep that in mind, until the ECB actually says it will do something.

The European rumors and good factory data out of China (specifically, their Purchasing Managers' Index hit a 7-month high of 55.2) seem to be driving the futures up. There are a few bits of domestic news that could hinder the joyous rumor-driven market frenzy, however.

First off, the Fed is going to have to release details about the emergency loans they handed out during the 2007-2009 market collapse. You remember those, right? The massive bailouts of AIG, and Goldman Sachs, and Morgan Stanley, and Merrill Lynch, and Lehman Brothers...

Oh, wait. That's right. They didn't bail out Lehman Bros. The people who are really excited about the release of the data are curious to see why they didn't get bailed out. Also, most analysts are expecting the data to be disclosed in a less-than-helpful fashion. Or, as Christopher Whalen (managing director at Institutional Risk Analytics) puts it: "My sense is they're going to give us the disclosure in the same grotty fashion (as before). It's not going to be well organized so you'll have to sort through it."[2]

Imagine that. The Fed might not want people to figure out what they're doing. Shocking. Shocking, I say.

Second, Challenger, Gray & Christmas, Inc. has released a report that employers announced 48,711 job cuts in November, up 28% from the 37,986 job cuts in October. In what passes for good news, this is still down 3.3% from the job cuts announced a year ago in November. But hey, they're being offset by plans to add 15,900 seasonal employees in the retail sector and 500 in the transportation sector last month. {3]

[1] Because the US is obviously in a position to explain to other nations how to bring their economic problems under control, and to explain how to implement austerity measures.
[2] Grotty. Adjective. seedy, wretched, dirty
[3] Because temporary seasonal jobs obviously offset the loss of full time permanent jobs. Obviously.

Articles cited:
ECB talk lifts battered euro as crisis worries spread (http://www.reuters.com/article/idUSLDE6AO0HG20101201)
Futures rally on euro bounce, strong Chinese data (http://www.reuters.com/article/idUSTRE69O1D320101201)
Time for Fed to show who crisis loaned benefited (http://www.reuters.com/article/idUSTRE6B014S20101201)
48,711 November Job Cuts UP 28% From October (http://www.challengergray.com/press/PressRelease.aspx?PressUid=151)
Short on votes, deficit panel delays decision (http://www.reuters.com/article/idUSTRE6AS4Z120101201)

Fed Bearish On 2011 & Insider Trading Probes Continue

Let's take a break from the latest round of North Korean Crazy [1] and, instead, look at the US and the sort of domestic crazy we can get up to.
First off, it turns out that the Federal Reserve is in the process of downgrading the future. They had an unscheduled video conference meeting on 10/15 and a regular meeting back 11/2-11/3.

You can read the minutes at http://www.federalreserve.gov/monetarypolicy/fomcminutes20101103.htm, but here's the highlights. They've revised their 2011 predictions for GDP downwards from between 3.5% and 4.2% to between 3.0% and 3.6%. They're also expecting unemployment to remain near 9.0% through most of 2011 and still be over 8.0% by the end of 2012. So not much good news there.

If you're following the excitement over the insider trading probes, there are some new developments. Janus Capital Group and Wellington Management Co have been asked for information related to the insider trading investigations that made the news on Sunday and Monday. Wellington has been asked for documents from "federal officials". Janus has filed a form 8-K (you can read it at http://www.sec.gov/Archives/edgar/data/1065865/000110465910059711/a10-21753_18k.htm) to cover their Regulation FD Disclosures. The filing states: "Janus Capital Group Inc. ("Janus") has received an inquiry regarding the recently disclosed insider trading investigation on Wall Street calling for general information and intends to cooperate fully with that inquiry. Janus does not intend to provide any further updates concerning this matter unless and until required by applicable law."

The Wall Street Journal reports that MFS Investment Management of Boston has also been contacted, but they have declined comment.

"Fed pondered radical steps amid weaker outlook" (http://www.reuters.com/article/idUSTRE6AI2AQ20101123)

"Fund firms asked for documents by authorities" (http://www.reuters.com/article/idUSTRE6AL4DT20101123)

[1] With their number one hit single "Shellin' UR Hood"