The Week Ahead - 27 September 2010

Themes for me this week will be the longer tern notes being auctioned by the US Treasury on Monday, Tuesday and Wednesday where I'll be looking for any weakness. Then on Thursday there is the US Initial jobless and continuing claims for September plus on Friday I'll be paying close attention to US ISM manufacturing for September.

I'm keen to see if there is any real improvement in US jobless numbers and manufacturing or if the can is just continuing to be kicked down the road in the hope of better days materialising all by themselves.

Australasia, Japan and China
All times are AEST

Mon 27 September
09.50 Japan Merchandise trade balance total August
09.50 Japan Adjusted merchandise trade balance August
09.50 Japan Merchandise trade exports August
09.50 Japan Merchandise trade imports August
12.00 China Industrial profits August

Tue 28 September
15.00 Japan Small business confidence September

Wed 29 September
07.45 New Zealand Trade balance August
07.45 New Zealand Trade balance 12 month August
09.50 Japan Tankan large manufacturers index Quarter 3
09.50 Japan Tankan large manufacturing outlook Quarter 3
09.50 Japan Tankan non-manufacturing Quarter 3
09.50 Japan Tankan non- manufacturing outlook Quarter 3
09.50 Japan Tankan large all industrial Capex Quarter 3
10.00 Australia Conference board leading index August
12.30 China HSBC manufacturing PMI September

Thu 30 September
07.45 New Zealand Building permits August
09.15 Japan Nomura/JMMA manufacturing PMI September
09.50 Japan Retail trade August
09.50 Japan Large retailers sales August
09.50 Japan Industrial production August
11.00 Australia HIA new home sales August
11.30 Australia Building approvals August
11.30 Australia Private sector credit August
11.30 Australia RP data-rismark med val August
12.00 New Zealand NBNZ activity outlook September
12.00 New Zealand NBNZ business confidence September
14.00 Japan Vehicle production August
15.00 Japan Housing starts August
15.00 Japan Annualized housing starts August
15.00 Japan Construction orders August

Fri 1 Oct 09.30
Japan Job-to-applicant ratio August
09.30 Japan Overall household spending August
09.30 Japan Tokyo CPI September
09.30 Japan Jobless rate August
09.30 Japan Tokyo CPI ex-fresh food September
09.30 Japan Tokyo CPI ex food, energy September
09.30 Japan National CPI August
09.30 Japan National CPI Ex Food, Energy August
11.00 China PMI Manufacturing September
15.00 Japan Vehicle Sales September


North America & Europe
Times are London, UK time

Mon 27 September
UK Hometrack housing survey September
13.30 US Chicago Fed national activity index August
15.30 US Dallas Fed manufacturing activity September

Tue 28 September
Germany CPI September
Germany CPI - EU harmonised September
07.00 Germany GFK consumer confidence survey October
09.30 UK GDP Quarter 2
09.30 UK Current account Quarter 2
09.30 UK Total business investment Quarter 2
11.00 UK CBI reported sales September
14.00 US S&P/CaseShiller home price index July
15.00 US Consumer confidence September
15.00 US Richmond Fed manufacturing index September

Wed 29 September
09.30 UK Index of services (3mth/3mth)
09.30 UK Net consumer credit August
09.30 UK Net lending sec. on dwellings August
10.00 Euro Zone Business climate indicator September
10.00 Euro Zone Economic confidence September
10.00 Euro Zone Industrial confidence September
10.00 Euro Zone Services confidence September
13.30 Canada Industrial product price August
13.30 Canada Raw materials price index August

Thu 30 September
00.01 UK GFK consumer confidence survey September
08.55 Euro Zone Unemployment change September
08.55 Euro Zone Unemployment rate September
13.30 Canada GDP July
13.30 US GDP (annualized) Quarter 2
13.30 US Personal consumption Quarter 2
13.30 US GDP price index Quarter 2
13.30 US Core PCE Quarter 2
13.30 US Initial jobless and continuing claims September
14.45 US Chicago purchasing manager September
15.00 US NAPM-Milwaukee September

Fri 1 October
09.30 UK Bank of England housing equity withdrawal Quarter 2
09.30 UK PMI manufacturing September
10.00 Euro Zone Unemployment rate August
13.30 US Personal income August
13.30 US Personal spending August
13.30 US PCE deflator August
13.30 US PCE core August
14.55 US University of Michigan confidence September
15.00 US ISM manufacturing September
15.00 US ISM prices paid September
15.00 US Construction spending August
22.00 US Domestic vehicle sales September
22.00 US Total vehicle sales September

Upcoming Treasury Auctions
As found at http://www.treasurydirect.gov/RI/OFAnnce

Long term notes are highlighted.

As always, do your own research and have a great week.

The Week Ahead - September 20, 2010

Australasia, Japan and China
All times are AEST

Mon 20 September
13.00 New Zealand ANZ Consumer Confidence Index September

Tue 21 September
08.45 New Zealand Net Migration August
11.30 Australia Reserve Bank's Board Minutes September
13.00 New Zealand Credit Card Spending August
15.00 Japan Leading Index CI July
15.00 Japan Coincident Index CI July
16.00 Japan Machine Tool Orders August

Wed 22 September
08.45 New Zealand Current Account Balance Quarter 2
08.45 New Zealand Account Deficit-GDP Ratio Quarter 2
10.30 Australia Westpac Leading Index July
14.30 Japan All Industry Activity Index July

Thu 23 September
08.45 New Zealand GDP Quarter 2

Fri 24 September
11.30 Australia Financial accounts Quarter 2
11.35 China MNI Business Condition Survey September


North America and Europe
All days and times are London UK time

Mon 20 September
United Kingdom Rightmove House Prices September
13.30 Canada Wholesale Sales July
15.00 US NAHB Housing Market Index September

Tue 21 September
09.30 UK Public Finances (PSNCR) August
09.30 UK Public Sector Net Borrowing August
12.00 Canada CPI August
12.00 Canada Bank Canada CPI August
13.30 US Housing Starts August
13.30 US Building Permits August
19.15 US FOMC Rate Decision September
19.15 US FOMC Statement September

Wed 22 September
09.30 UK Bank of England Minutes September
10.00 Eurozone Industrial New Orders July
13.30 Canada Leading Indicators August
13.30 Canada Retail Sales July
15.00 Eurozone - Euro-Zone Consumer Confidence September

Thu 23 September
08.30 Germany PMI Manufacturing September
08.30 Germany PMI Services September
09.00 Eurozone PMI Composite September
09.00 Eurozone PMI Manufacturing September
09.00 Eurozone PMI Services September
13.30 US Initial jobless and continuing claims September
15.00 US Leading Indicators August
15.00 US Existing Home Sales August

Fri 24 September
09.00 Germany IFO - Business Climate September
09.00 Germany IFO - Current Assessment September
09.00 Germany IFO - Expectations September
13.30 US Durable Goods Orders August
15.00 US New Home Sales August

Upcomming US Treasury Auctions

* Long term notes are highlighted.

Have a great week...

More market manipulation

Here we go again

If you have been following my recent posts about the correlation between US treasury bond sales and drops in the market you won't be the least bit surprised to hear that I'm banging the drum yet again. First let me apologise for not making a post over the past week or so, I've been away in Sydney and then laid up with a virus I brought back with me.

More BS safe haven stories doing the rounds today

I had taken the snapshot below from the Upcoming Treasury Auctions page earlier yesterday and thought we might see some stories trotted out today so as to drive fear into the punters and in-turn driving the money out of stocks towards US Treasuries. Here are a few stories news items from Reuters today;


Global stocks, euro down on Europe banking concerns and
Wall St futures signal weaker start for stocks and
Bonds rise on renewed European bank jitters


What are the auction details?

 

Note the 182 day bills and more importantly the 3 year notes up for auction today and also the 9 year 11 month notes tomorrow followed by the 29 year and 11 month Bonds on the 9th September. 

To often to be a mere co-incidence

This is now the third fortnight in a row I've documented the news that is circulated on the date these longer term bonds are being auctioned turns negative on stocks and suggests US treasuries as a safe haven. It's almost sad really that the public are being manipulated into buying this rubbish debt from a country that has a bigger addiction to debt than a junkie has to crack. 

Don't play the game

So we can see the pattern clearly now but how might we play the game? I can only suggest that you don't get sucked into buying bonds and if you check out this post you'll see why I say that. By all means sell your long positions and take shorts for the few days that the bonds are auctioned, but be sure and exit those shorts on the morning of the last day of the longer term auctions, in this case September 9th, because as quick as the media talk it down they turn around and talk it straight back up once the demand for bonds has been filled. 


As always, do your own research and stay sharp. Things aren't always as they seem. 

If you missed my previous posts regarding bond auctions you can see them here and here.

US Treasury Auctions - Part 2

More jitters in the markets again next week?

On August 9, I posted a blog titled US Treasury Auctions (view it by clicking the link). In that post I stated I had noticed a pattern where-by when the Treasury were auctioning longer term bonds and notes, news was released that created jitters and negative sentiment in global stock markets and at the same time suggested that money was fleeing to the save haven of US Treasuries. It's worth clicking the link to view the previous post if you missed it.

So further to that post I'd like to show you two things. 

First here is a copy of the Treasury Bond Auctions for the week ending 14 August . Click for a larger view

From The Economystic Times

Note the long term bonds being auctioned on the 10th, 11th and 12th of August?

Now compare that to this chart of Wall Street Cash (a CFD futures chart). Click for a larger view

From The Economystic Times

See the arrows? 

They highlight the dates 10th, 11th and 12th of August and show that the market fell corresponding to the longer term treasury auction dates.

What does it all mean?

Well now have a look at the US Treasury Bond auctions for next week. Click for a larger view

From The Economystic Times

I'm going to guess again this coming week that some sort of news is going to be released that will give global markets the jitters and send money fleeing to the safety of US Treasury bonds and notes perfectly timed with the auctions. I could be wrong, but based on the auctions and what I've noticed in the past we could see the market fall on the 23rd, 24th, 25th and 26th of August.

As always do your own research and back-checking before making any investment decisions. You can find the Upcoming Treasury Auctions on this page http://www.treasurydirect.gov/RI/OFAnnce


Update: 20 August 10.30am New York Time


The "Flight to safety of US Treasuries" stories and headlines have started

Check out this link from Reuters - Investors dumped risky assets on Friday and fled into bonds and safe-haven assets
and this from the folks at Bloomberg - Treasuries Rise, Stocks Fall on Economy

Update: September 8

I thought I'd ad this chart of the S&P500 futures with the yellow arrows indicating the market falling over the course of the bond auction days as I had predicted above.

Bond market trap

Biggest risk to bond holders

It's said that the biggest risk to bond investors is rising interest rates, this is because if you buy a bond with a 10 year maturity which pays a yield of say 4%, then in two years time you want to sell that bond and rates for similar term bonds have risen to 6%, you're going to need to sell your bond at a discount to it's face value to entice a buyer to buy it.

Why?

Who's going to want to buy your 4% bond when they can buy one that pays 6%. This being the case, what will happen to all this long term bond debt the United States Treasury has been issuing lately when interest rates start to rise again?

Yields on 30 year notes are now below 4%, so it's hard to imagine they can get any lower and still remain as an attractive form of investment. Sure, investors like safe investments but they also demand returns and for my money, there is simply too much risk to take on one of these long term bonds at such low rates of return.

Fleeing to the safety of US treasuries

It's only a matter of time before the "Flee to the safety of US Treasury Bonds" line, which is about as see-through as a Paris Hilton party dress, is seen for the bullshit it is and when that time comes the yields will rise and the game will be over.

To start with what's going to happen to the big licks of debt that have been sold at the super cheap rates of the past year and a bit?

It's all going to need to be sold at a huge discount or held at a shitty rate of return for what will seem like an eternity for the holders. I mean lets face it, who's going to want to hold 30 year bonds at 3.8% if yields were to rise to say 6.9%, think bursting bubbles, think huge discounts to face value.

Sure the Fed will tell you today that they expect rates to be low for an extended period, but their track record on economic predictions is as about as credible as a Goldman Sachs investment advisor trying to sell you something named after an ancient calculator.

Besides have you ever considered the Fed might have a vested interest in putting out that line? What would happen if no-one wanted to buy these trillions of dollars in bonds, how would the US Government raise the cash is desperately needs going forward? What would happen to the US economy and the sale of US Treasuries if people started to question the ability of the US Government to honor it's commitment to repay it's debt? What would happen to the US dollar? More importantly, what will happen to the Fed?

Rising rates

One of two things, if not both are likely. Rates will rise as they always do when the risk is seen to be greater. Then if a higher rate of return isn't enough to entice buyers, there is the real risk of collapse of the US treasury bond market as everyone discounts the existing bonds they hold to dump them on the secondary market.

To understand where I'm coming from, you first need to be clear on how the value of a bond is calculated when sold on the secondary market. Below is a simple back of the envelope calculation, there are a few other factors that need to be considered to get an truly accurate figure but this will serve to give you the general idea.

What's a bond worth on the secondary market?

OK for arguments sake lets work with a $1000 bond for the purpose of this example and lets also assume you paid face value for it, that is you handed over $1000 and for the sake of the calculation we'll also say it's a 30 year bond at 3.80% with interest paid annually just to simplify the whole calculation and demonstrate a worst case scenario. Worst case because the longer the term the greater the discount required.

So based on the above you'll receive interest payments of $38 every year and on maturity you will be handed your $1000 back.

However lets say you hold it for 2 years at which point rates for similar term bonds have risen to say 6.9%.

At this point the same $1000 would purchase a bond that pays $69 every year or $31 more than the bond purchased 2 years earlier.

So to work out how much you need to discount your bill by to sell it you need to multiply the difference ($31) by the years remaining on your bond, 28. So that's 28 x $31 = $868 which is the discount you'd need to apply to your bond to sell it.

$1000 - $868 = $132. Yep you've read that right, your original $1000 has turned into $132 in the space of two years just because rates moved upwards. You might need to re-read that sentence again slowly to take it all in.

So unless you expect either massive deflation and/or a protracted period of really low interest rates you should steer well clear of US treasury bonds at these ridiculously low yields, let someone else pick them up, then buy them from those suckers for a song in a few years time.

Is the Mortgage Bond Market broken?

Today I came across a story by Jim Willie CB, Editor of the “HAT TRICK LETTER” in which he pointed to this story by Caroline Salas and Jody Shenn that appeared on Bloomberg.com August 2, 2010.


The essence of the story here is that for the week ended 21 July, 2010 Wall Street was unable to complete an unprecedented amount of trades in the Mortgage bond market. $1.34 Trillion worth of trades were unable to be completed that week by comparison to a weekly average of $150 billion, that's almost 10 times the weekly average. 


The implications of this are many and varied, but rather than me repeat what has already been said by Jim in his story and also the Bloomberg story I've provided links at the bottom of this post so you can check them out for yourself.


It's also worth noting that the total Mortgage bond market is said to be worth $5.2 trillion, so that said, $1.34 Trillion would amount to over 25% of the entire Mortgage bond market.


Mind blowing really, that in essence 25% of the entire Mortgage bond market was sold as naked short sales that week. With behaviour like this in the markets, you have to wonder how long before all confidence in markets is shot.


You can read Jim Willie's story in full here and Caroline Salas and Jody Shenn's story on Bloomberg here. 

US Treasury Auctions

It's a busy week for auctions this week and going on past history we may well see the markets take a bit of a hit to encourage the fleeing to bonds.

It's just a theory of mine, but I've noticed over the past couple of weeks that just prior to US Treasury Auctions, news is released that seems to give the markets jitters causing people sell stocks and flock to buy US treasuries just as they are being auctioned. Kind of handy really if you want to firm the demand for bonds and drop the yield to effectively get your hands on the money at a cheaper rate.

I could be wrong, but I'm going to have a punt here and guess that we will see a few days of losses on the markets this week as there are quite a few auctions.

This weeks auction dates.

92 and 182 day bills - 9th August

28 day bills - 10th August 

3 year notes - 10th August
10 year notes -  11th August
30 year bonds - 12th August