Recap 2014-10-17


Anecdotal Items Bullish Risk:

· Greenlight Capital, the hedge-fund firm run by billionaire David Einhorn, plans to raise money for the first time in two years to take advantage of recent market turmoil

· Via @lebullmarche and Trace: Yesterday clients bot $932mm of paper, multi-yr record -> dealer inventory is now just >$5bn- lowest in over 12months

· BBG: Firms from Pacific Investment Management Co. to Blackstone Group LP say they are poised to scoop up speculative-grade corporate bonds after yields rose to the highest levels in more than a year. They’re looking for bargains after building up the highest levels of cash in almost three years. “Credit is a buy here, specifically high yield” bonds and loans, Mark Kiesel, one of three managers who oversee Pimco’s $202 billion Total Return Fund, said yesterday in a Bloomberg Television interview. At Blackstone, Chief Executive Officer Stephen Schwarzman told investors yesterday that the firm’s $70.2 billion credit unit is ready to “feast” on lower-rated, long-term debt, particularly in Europe, after “waiting patiently for something bad to happen.”

· GS: The recent sell-off in oil has been mostly driven by positioning based upon expected fundamental shifts as opposed to currently observable shifts. While looking into 2015 we have sympathy for these medium- to longer- term bearish views that have driven prices lower, we believe it is too much too early. Prices have also likely overshot to the downside particularly as the lower we go the tighter the near-term balances become. This leaves us near-term constructive despite being bearish as we look further out… We estimate that net specs have priced in a 300 million barrel build between now and the end of March, which is a 2.0 million b/d surplus. While potentially possible, it would require solid delivery from Libya, Iraq/Kurdistan and Brazil. The net spec selling ultimately moved prices into a region where many producers’ puts had been struck, increasing the selling of oil futures by non-commercial traders as they manage the risk incurred from producer hedging programs in a falling price environment.

This came out yesterday, and could be quite simulative – allowing non GSE companies to potentially securitize mortgages again.

WSJ: U.S. Regulators Poised to Finalize Relaxed Mortgage Rules

· regulators are expected to finalize a far looser set of standards for mortgages packaged into securities and sold to investors than initially proposed in April 2011.

· The rules, which stem from the 2010 Dodd-Frank law, will no longer require that borrowers make a 20% down payment to get a so-called “qualified residential mortgage.” Instead, loans will have to comply with a separate set of mortgage standards, including limits on how much overall debt a borrower can have in relation to monthly income.

Interesting items re: BoJ. Does it sound like they want to do more QE?

· Iwata said that the Bank is internally making simulations on exit strategy.(!)

· Although the impact on FX market was limited, it is worth noting that the BoJ failed to collect the target amount in today’s T-bill purchase operation for the first time since the initiation of QQE

There are some very interesting weekly charts today:

10y: Massive hammer candlestick on 10y yields… but the close remains lower week on week in the context of a year long downtrend:

The 5y chart is even more interesting… the massive bear trap in Sept resolved into a reversal below the bottom of the rising triangle. 5y yields are now in no man’s land, technically speaking, without a clear trend.

2y yields, however, closed at the bottom of the rising channel that started with the Taper Tantrum. The technical setup for a bet for higher yields looks pretty good:

The S&P chart looks decent. Massive hammer candle stick with intra-week levels below but a weekly close above multiple long term supports. (50wk ma, the 1880 level, the 12/31/13 close) Obviously we’ll need to see more constructive price action in the coming weeks to confirm, but for now, it’s looking good.

Likewise, CDX HY spreads widened above but closed below long term resistance:

The VIX chart showed how unexpected this move was. The entire body of the weekly candlestick was above the weekly Bollinger Band. The last time that happened was the week of August 12th, 2011. While that week did not mark the ultimate low for stocks, it did mark the high for the VIX and the beginning of the consolidation phase.


  • U Michigan Confidence improved to 86.4 vs 84 exp and 84.6 prev
  • US Housing Starts was a better than expected, but Building Permits were a bit weaker. However, both were positive and revisions for both were higher.
  • Canada Core CPI was stable at 2.1% as exp
  • BOE’s chief economist Haldane said he has grown gloomier on the outlook for UK growth and he now believes rates can stay “lower, for longer.”
  • Gulf nations to oppose any cut to the OPEC production ceiling according to the WSJ. A source said “if we are going to end up with lower market share and prices will fall anyway, let’s stick to market share.”


  • Mon: German PPI, RBA Minutes, China Retail Sales, IP
  • Tue: US Existing home Sales, Japan Trade Balance, Australia CPI
  • Wed: BoE Minutes, US CPI, Canada Retail Sales, BoC, DoE Oil Inventory Report, New Zealand CPI, Japan PMI, China PMI
  • Thu: EU PMI, UK Retail Sales, Jobless Claims, FHFA House Price Index, US Markit Mfg PMI, EU Consumer Confidence
  • Fri: German GfK Consumer Confidence, UK 3Q GDP, US New Home Sales