TBTF October 29, 2010 - Just ask the lonely

Too Big to Flail

October 29, 2010

‘Just ask the lonely, When you feel that need, To make it all alone, Remember no one is thinking of, Going alone, Just ask the lonely…’ (Four Tops – 1965).

Today it became clear that the FED is not thinking of ‘going alone’, so they asked their Primary Dealers just how much QE2 they expect, what they think the impact will be on yields in the next six months. According to Merrill’s Harley Bassman ‘Four dealers are predicting a $1 trillion+ buy program with a smattering of $900 billion and $600 billion votes tossed in’. I guess it could always be worse, since no dealer went as high as $2 trillion or $4 trillion. The ultimate question is: Is the FED trying to communicate something, or are they really lost and don’t they have any clue themselves as to how big the amount of their “wonder medicine” should be and what impact it will have on rates. Let’s face it, nobody knows, not even the almighty POMO-front-running Primary Dealers of this world.

On the markets it seems as if everyone has gone on an extended summer holiday. Volumes have decreased dramatically the last few months and what most hoped were the summer doldrums have now turned into autumn laziness. I’m sitting here writing this blog, listening to good old Chris Botti blowing on his trumpet, feeling all lazy-rainy-Sunday-morning-y, just like I feel most days at the office. Staring at my intraday charts which flat line 30 minutes into the trading session, reminiscing about the days when volatility was accompanied by volume, when volatility was still there. At the beginning of September we would all say: wait until Labor day has come and gone, then volume will be back, then came Yom Kippur, G20 meetings, jobless data, housing starts, but volume never returned, so now we sit and wait until the Mid-Term elections and QE2 but let’s not forget Santa Claus is making an appearance at the end of December, perhaps he will bring some volume with him from the North Pole, maybe if we all write a letter

To: Santa Claus

Address: North Pole

From: Trader Dutchie

Dear Santa,

I know you have given me lots of presents in the past, almost everything I ever asked. You have always been so generous, even when I asked so much, and I forgive you for that one time when you did not get me that Silver Ferrari California, even though I still find your ‘my sleigh isn’t big enough’ excuse a little lame.

This year I write to you to ask for something non-material, something that I lost. It’s one of my favorite things and I have tried to find it all year long, but no matter how hard I look, I can’t seem to locate it anywhere. I am worried it got scared away by credit-bubbles bursting left and right. That it got thrown out to the curb together with my beloved ‘leverage’ or, and this is my worst fear, that the big bad boys from down the block, the HFT’s, have chased it away with their relentless manipulation. Maybe uncle Ben is keeping it locked down in his basement, you know how he gets when he starts to ramble about deflation and QE2, nothing sensible comes out and he locks the house for months on end. I even thought it might have gotten tired from being around me all those years, I thought it might have found another friend. But no matter who I talk to, they all say the same: NO, we haven’t seen it either.

Dear Santa, please, can you find my ‘volume’ for me, I promise to treat it like a friend, to nurture it as well as I can, to love it and never leave it. Please Santa, without it I feel so lost.

Trader Dutchie

The markets, being in the pre-event holding pattern as they are, were little changed. The risk trade seemed to be on again, even though jobless claims came in better than expected. The survey by the FED about possible QE2, seemed to strengthen the belief the FED won’t do anything to upset the markets next Wednesday and give them exactly what they are expecting. So the $ dropped against the Euro and the YEN, Gold and commodities were higher as were bonds and the equity markets were quiet.

Dow -0.11% SP500 +0.11% Nasdaq +0.16% EUR$ 1.392 WTI $82.15 Gold $1344

Consumer Services and Healthcare were the biggest gainers +0.5%, while Industrials lost a mere 0.33% to end the day as the biggest losers.

Today we have Advanced Q3 GDP (2% exp) and the Chicago Purchasing Managers Index (58 exp) as well as the final University of Michigan Confidence reading (68 exp) on the roll in the US, while in Europe we look at German Retail Sales for September (+0.5% exp) and EuroZone CPI for October (+1.8% exp).

Mid-term elections 5 days away, QE2 6 days!

Happy Hunting & Let’s Be Careful out there!!!