Thursday, February 28, 2013

FW: You want answers?

-----Original Message-----
From: DAVID ZERVOS (JEFFERIES & CO., INC) [mailto:dzervos2@bloomberg.net]
Sent: Thursday, February 28, 2013 9:49 AM
To: John Broussard
Subject: You want answers?

As our beloved colonel/chairman took the stand this week, nerves in the market were frayed. News of Italian election chaos and the sequester were splashed across the screens. Spoos had been pounded, the Yen was rallying and you could hear the screams of pain from levered traders across the globe (many of whom sent me agitated bloomberg messages).

Markets needed some soothing words from the man who sits on that wall and guards us against deflation. Markets needed their fix. Not more QE per se, but a statement from our chief dealer that the pain medication will be there for a good long while. And like clockwork, he delivered. He sat on that chair both as a military leader and a psychologist. He soothed our nerves. He told us it was going to be ok - he had our backs. The meds are working he said - just look at housing and stock prices. And don't worry about when I take you off the meds - ill do it slowly, I have a plan, trust me I'm your colonel, and your doctor.

And as we all heard the joyous message that the meds will continue in ample supply, and that our doctor has the tools to wean us off them when the time comes, we went back out to the markets and bought every dip in sight - spoos, nikkei, estoxx...bring em on! We went back to that wonderful cocktail party with the luxury of not knowing what our colonel knows. After all we cannot handle the truth.

Of course we always have to worry when he takes the stand. It could be that some punk Congressman (aka Kaffee) forces him to admit he ordered a code red. Forces him to say - "look, I'm just printing dollars, killing savers, bailing out debtors, redistributing wealth and debasing our currency. Yes, I admit it, I ordered the code red on the USD". But Corker, Duffy and Hensarling are no Kaffee. Their questions were pedestrian, no match for our colonel who shot them down with sniper like precision. It was a performance to remember from Ben. And the markets celebrated!! Spoos and blues 4EVA baby!! Good luck trading.

Upcoming travel schedule:

Mar 5 Boston
Mar 25 Milwaukee
Mar 26-27 Chicago
Apr 8-10 Atlanta
Apr 24-26 Puerto Rico
Apr 29-May 1 LA
May 8-10 Bermuda

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Wednesday, February 27, 2013

Dow Jones 73 points away from all time high

Dow Jones 73 points away from all time high

 

Description

Ticker

Last

CHANGE

% Chg Today

Pct Chg 1Yr

 

 

 

 

 

 

STOCK MARKETS

 

 

 

 

 

Dow Jones Industrial Average

INDU Index

14091.210

191.0800

1.3747

8.5261

S&P 500 Index

SPX Index

1518.330

21.3900

1.4289

11.0277

NASDAQ Composite Index

CCMP Index

3175.401

45.7540

1.4620

7.0391

Russell 3000 Index

RAY Index

903.980

13.2300

1.4853

11.1401

Russell 2000 Index (Small)

RTY Index

913.000

12.9500

1.4388

10.4166

S&P 400 Mid Cap Index

MID Index

1105.850

17.7000

1.6266

12.2326

S&P 600 Small Cap Index

SML Index

466.570

-2.3100

-0.4900

9.6866

TREASURIES

% Yield

 

 

 

 

3 Month Treasury

0.1065

 

-0.0050

-4.5455

 

6 Month Treasury

0.1319

 

-0.0050

-3.8462

 

2 Year Treasury

0.2422

100.016

0.0000

0.0000

 

5 Year Treasury

0.7787

99.867

0.0156

0.0156

 

10 Year Treasury

1.9014

100.898

-0.1797

-0.1778

 

30 Year Treasury

3.1064

100.406

-0.5000

-0.4955

 

ENERGY

 

 

 

 

 

Crude Oil, Brent Index

Brent Crude

111.990

-0.7200

-0.6388

-3.3489

Crude Oil, Louisiana Lt. Sweet

LA Lt Sweet

113.000

-0.3300

-0.2912

-9.7900

Natural Gas, Henry Hub Index

Nat Gas

3.421

-0.0350

-1.0127

-3.6891

PRECIOUS METALS

 

 

 

 

 

Spot Gold $/oz

GOLD

1595.300

-18.5500

-1.1494

-9.7314

Spot Silver $/oz

SILVER

28.945

-0.4550

-1.5476

-18.2197

CURRENCIES

 

 

 

 

 

Euro

EUR Curncy

1.314

0.0074

0.5666

-1.9631

Japanese Yen

JPY Curncy

92.210

0.2300

0.2501

-12.6003

British Pound

GBP Curncy

1.516

0.0032

0.2116

-4.2214

Swiss Franc

CHF Curncy

0.931

-0.0011

-0.1181

-3.3634

Canadian Dollar

CAD Curncy

1.023

-0.0031

-0.3021

-2.3556

Chinese Yuan

CNY Curncy

6.227

-0.0029

-0.0465

1.1980

FOREIGN INDICIES

 

 

 

 

 

FTSE 100 INDEX

UK

6325.880

55.4400

0.8841

6.9365

CAC 40 INDEX

FRANCE

3691.490

69.5700

1.9208

7.2655

DAX INDEX

GERMANY

7675.830

78.7200

1.0362

12.0625

NIKKEI 225 INDEX

JAPAN

11253.970

-144.8400

-1.2707

15.7430

HANG SENG INDEX

HONG KONG

22577.010

57.3200

0.2545

4.1371

 

Tuesday, February 26, 2013

It's The Economy Stupid: David Zervos

You can read all of this if you are really into economics. I did, but I am paid to do that.

However Zervos did pen this gem: "...if you are going to run with bulls, you will occasionally have to take a horn in rear!"

And this one: "And if you don't seize these opportunities you will be left behind hugging your trash can in the kitchen like Charlie Sheen"

And here are some definitions to help you:
LTRO: The European Central Bank's long-term refinancing operation
Spoos: S&P 500 futures
USDJPY: U.S. dollar and Japanese yen currency pair. AKA "the gopher".


John Broussard
Assistant State Treasurer
Chief Investment Officer
State of Louisiana
Department of the Treasury
Ph: 225-342-0013


-----Original Message-----
From: DAVID ZERVOS (JEFFERIES & CO., INC) [mailto:dzervos2@bloomberg.net]
Sent: Tuesday, February 26, 2013 10:18 AM
To: John Broussard
Subject: The important stuff and the fluff

The markets continue to be driven in the short term by a lot of noise. People are focusing on the UK downgrade, Italian elections, Cypriot bailouts, LTRO paydowns, the US sequester and Charlie Sheen's twitter pictures during the Oscars. All of these "focal points" have about the same long term relevance for financial asset prices - nil!

In the end, there are only three primary drivers of asset prices globally - Ben, Mario and their new buddy Haruhiko - the rest is fluff! This does not mean that USDJPY cannot airpocket 2 figures on a lazy New York afternoon; or that spoos can't drop 25 points on European political uncertainty and heated fiscal policy banter from DC. Grinding rallies and sharp sell-offs are the basic ingredients of a bull market. And if you are going to run with bulls, you will occasionally have to take a horn in rear! That's why we always carry a little first aid kit with us full of blue eurodollars. They always ease pain from the inevitable piercings.

But as we move forward on this path to a reflationary recovery, it is critical to maintain a view of the forest for the trees. Central banks are diluting the value of fiat currency. And more physical cash will chase the same set of real assets. This in turn will drive asset prices higher and generate our much discussed reflation trade! Whether the Italians elect a comedian/criminal as their PM, the Cypriots haircut some Russian oligarchs or there is 8 billion less per month spent on a handfull of bloated US government programs does not matter. All of these "focal points" are about as important as what was going through Charlie Sheen's head while he was hugging trash can in his kitchen.

Ben is on a mission, Mario will do whatever it takes and Haruhiko is the guy who called for a 3 percent inflation back in 2002. So what should we look forward to? Well, Ben is on center stage today in front of Congress to give us his usual dovish quack. Unemployment is too high, inflation risks are contained, the Fed has the tools, and the Fed will use the tools to deliver a reflationary outcome. And importantly, the costs of a larger balance sheet do NOT exceed the benefits. He has delivered this unwavering message for over 4 years now, why would he change? And Mario already did his heavy lifting after the last ECB meeting with a warning on Euro currency strength and downside risks. The Euro has in turn obeyed with a little help from Silvio and Beppe. Finally, we have Hirohaku. All indications are that this staunch critic of past restrictive BoJ policies is about to join the printing party. I really enjoyed Jon Hilsenrath's piece on this subject on Monday's journal - http://online.wsj.com/article/SB10001424127887323699704578323950460067178.html?KEYWORDS=Hilsenrath - especially because it referenced our last piece on growth wars.

The G3 central banks are all engaged in the same policy. They are using their domestic portfolio balance channels (aka printing presses) to reflate risk assets. They are of course risking significant future inflationary pressures, but that's an issue for another day. These two facts are all you need to know. To get caught up in Italian politics, Cypriot haircuts, UK downgrades or US fiscal policy is missing the big picture.

I know that many folks have to focus on minute by minute pnl swings. It's just the way our business has evolved. In a way its a shame that so many investors spend their entire day deciding whether to cut, add or sit on some levered position! Cut, add, sit...cut, add, sit....ugh! A money manager for a very large pocket of unlevered assets once said to me - "the day I worry about the pnl on one of my trades over the next 3 months is the day I leave this business". Unfortunately, the market is not dominated by folks with that luxury. Thus, most traders will have to go read some god awful mumble on Italian coalition formation, the house of deputies, the upper house.....yadda, yadda, yadda. Whenever I try to read that stuff it reminds of 1994-1996 with Berlusconi, Prodi, D'Alema and Dini. We bounced around from right, to left, to independent with a crisis at every turn. Italian markets swooned while the bull market in US risk assets ripped!! Some things never change.

In the end, I'm going to keep my eye on the long run prize and stay focused on the important drivers. The large money manager has the right approach. The day to day is noise. The big picture is amazingly clear. Of course it will not be a one way ticket to reflationary paradise without a few bumps on the road. But don't be confused by the occasional setback. These are normal. These are opportunities. And if you don't seize these opportunities you will be left behind hugging your trash can in the kitchen like Charlie Sheen. Good luck trading.

It's The Economy Stupid: Housing Rise

Home Prices in 20 U.S. Cities Increase by Most Since 2006

 

Home prices in 20 U.S. cities rose in the 12 months to December by the most in more than six years, a sign the housing-market recovery is strengthening.

 

The S&P/Case-Shiller index of property values increased 6.8 percent from December 2011, the biggest year-to-year gain since July 2006, after advancing 5.4 percent in November, a report showed today in New York. The median projection of 30 economists surveyed by Bloomberg called for a 6.6 percent advance. Nineteen of 20 cities showed gains.

    

Near record-low borrowing costs and gains in employment are fueling demand and boosting property values as the number of houses on the market drops and foreclosures ease. The improvement is shoring up household net worth and confidence, which may underpin consumer spending even as an increase in the payroll tax reduces take-home pay.

    

Affordable borrowing costs are attracting buyers with adequate credit. The average rate on a 30-year fixed mortgage was at 3.56 percent in the week ended Feb. 21, close to the 3.31 percent in November that was the lowest in data going back to 1972.

 

Friday, February 22, 2013

It's The Economy Stupid: Uncertainty at the Fed

Bill Gross’ Tweets

 

Gross: Bond Vigilantes are no more. Central bankers are the masters of the universe but the question is: Are they vigilant?

 

Gross: Fed will never sell what they now own but will stop buying more @ some point. Question is when? Growth dependent. We est. Jan 2014.

 

Gross: Fed minutes: “Many” participnts concerned abt furthr asset purchases. 85bln/month appears 2 be @ risk later in 2013 if economy improves

 

Well, to this market participant it is clear to me that there is a wider divergence of opinions (dissent?) amongst the Fed’s members.  Gross is just stating what bond managers have been saying for some time.  The Fed selling what they own now is going to be a problem, they are not likely to be able to pull that off without disrupting the market. So the Fed will probably have to hold the great majority of what they own for some time.  The more likely path is that they simply stop buying more bonds and sell what the bonds they own over time.  So they will likely sell trillions of dollars in bonds over time.  That has longer term negative connotations for bond market values, and favors more risky assets such as stocks.

 

There is a bond holder (The Fed) who owns TRILLIONS of dollars in bonds that you know they are going to sell at some point in the future.  That is not good for bond values.  DO NOT bet against The Fed. 

 

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

Thursday, February 21, 2013

It's The Economy Stupid: CPI & Jobless Claims

 

Economic Event

Period

Economic Survey

Actual Reported

Original Prior

Revised Prior

Consumer Price Index MoM

JAN

0.1%

0.0%

0.0%

 

CPI Ex Food & Energy MoM

JAN

0.2%

0.3%

0.1%

 

Consumer Price Index YoY

JAN

1.6%

1.6%

1.7%

 

CPI Ex Food & Energy YoY

JAN

1.8%

1.9%

1.9%

 

Consumer Price Index NSA

JAN

231.938

232.108

231.475

231.526

CPI Core Index SA

JAN

230.300

230.280

229.601

 

Initial Jobless Claims

FEB 16

355K

362K

341K

342K

Continuing Claims

FEB 9

3150K

3148K

3114K

3137K

 

Okay, my first impression is:  No Big Deal

Why you ask?

CPI is still under 2% (no inflationary pressure)

Initial Jobless Claims are still running around 350K per week, Continuing Claims still running around 3150K  (no great job growth)

 

So, nothing has really changed. 

 

We are still stuck in neutral.  With a zero interest rate policy.  We really are starting to look like Japan.

 

 

 

 

 

Wednesday, February 20, 2013

It's The Economy Stupid: Housing, Building, Producing

Economic Event

Period

Economic Survey

Actual Reported

Original Prior

Revised Prior

Housing Starts

JAN

920K

890K

954K

973K

Housing Starts MoM%

JAN

-3.6%

-8.5%

12.1%

15.7%

Building Permits

JAN

920K

925K

903K

909K

Building Permits MoM%

JAN

1.2%

1.8%

0.3%

1.0%

Producer Price Index MoM

JAN

0.3%

0.2%

-0.2%

-0.3%

PPI Ex Food & Energy MoM

JAN

0.2%

0.2%

0.1%

 

Producer Price Index YoY

JAN

1.5%

1.4%

1.3%

 

PPI Ex Food & Energy YoY

JAN

1.7%

1.8%

2.0%

 

 

Housing Starts Weaker

Building Permits Stronger

Producer Prices Higher

 

Any questions?