Thursday, August 11, 2011

That cute ATM on the corner

Initial jobless claims fell to an eight week low indicating that jobs are still being created and this was taken by the markets to indicate that the world isn’t ending. At least it must have tickled the fancy of a computer algorithm somewhere, 70 percent of trading is now done by super computers looking for pennies to make in a mille-second. This is why you see the wild swings up and down as there are hundreds of programs running and nobody knows what sets them off but this is why you see the huge trading volumes.

Rumors are that the big zombie banks will be kept going by the Federal Reserve and that Bank of America is going to get rid of its bad mortgage problem. BoA stock rebounded as well as the other big banks which led the 500 point Dow run up. Somewhere a mainframe keeps buying bank stocks because it’s dating the ATM on the corner and wants to impress her. If computers were smart they’d get out of stocks then put their money into spare parts and portable generators.

Gold futures fell dramatically after CME Group Inc, more commonly known as Comex, the world’s largest futures market, raised margin requirements to buy gold contracts by 22%. If you want to buy a 100-ounce contract to gamble with then you’ll need to ante up a minimum of  $7,425 in cash, up from $6,075. You also need enough assets to cover the difference of $180,000/100 oz. The dealers will accept a variety of collateral, T-Bills are considered good collateral as they are rated AAA, oh, wait…. Still they’re better than securitized sub-prime debt.

A stampede by investors into Treasurys yesterday (Wednesday) helped the U.S. government borrow at record low rates for the second day straight paying only 2.14% on 10-year notes on sales of $24 billion. This followed Tuesday’s Treasury auction of $32 billion in three-year notes at a record low of 0.50 percent Tuesday.

Things didn’t go as well at today’s refunding auction (turning over existing debt) of $16 billion in 30 year bonds. While the yield of 3.750% is the second lowest in the bond’s history there wasn‘t much demand. The big-bank primary dealers who underwrite the offering for Treasuries were forced to buy 68 per cent of the bonds offered which is the most in nearly three years. Institutional bidders such as pension funds, insurers and foreign governments took a pass as the price isn’t projected to show a significant return over projected inflation.

The pundits are cackling that bond interest is too low and that nobody should buy long term debt. They need to put money into something so the auctions of 90 day T-bills go briskly at almost zero interest. The taxpayer comes out like a bandit this way and it would be a perfect time to do some big infrastructure stimulus projects since they could be done for “free”. The return from increased tax revenue over the long term would pay the principle and avoid that “miracle” of compound interest that so fascinated George W. Bush. GWB found anything shiny to be fascinating and that silver spoon he had in his mouth at birth was very, very shiny as it was all in Treasurys.

Mittens Romney had a rough day in Iowa as he doesn’t do well with spontaneous questions and had intended to skip Iowa entirely, Rick Perry has changed this calculation. The State Fair crowd didn’t take well to his insistence that benefits must be cut as taxes can’t be raised on “people”. In response to what Mitt thought was a clever rhetorical question of “Who are you going to tax?”.  Hecklers suggested taxing corporations and Mitt responded that “corporations are people too”. This begat more heckling and they pointed out that the corporate profits go into “your (Romney’s) pockets” and no applause from his supporters.