The “Great Rotation” from bonds to stocks is well underway. It
happened faster than anyone could have predicted, but the exodus from
bond funds has been eye opening, almost more eye-opening than the
reduction of wealth that has occurred between May and July in both U.S.
bond funds and credit funds.
…
The Collateral Shortage Is Back, With A Twist
http://www.zerohedge.com/news/2013-07-08/collateral-shortage-back-twist
FDIC to Tighten Screws on Banks, Require 5% Leverage
http://www.cnbc.com/id/100870726
Wall Street Bumps Up Fed Taper Forecast…will start to taper a month earlier than originally estimated
http://www.cnbc.com/id/100867048
…
Even greater temptations exist in small-cap stocks, with the iShares Russell 2000 Index ETF IWM -0.02% up
15% year to date, but with that added temptation comes even more risk.
Multiple expansions are happening as a result of the Great Rotation, and
that could continue for a short while longer, but it will not last for
very long, and that is where the risk exists.
Investors that transition
during this Great Rotation will probably have their heads handed to
them because not only will they have experienced major losses in their
bond-fund holdings, but they may be transitioning to the stock market at
what are relative highs, pressing multiples to bubble-like levels. If
this bubble results in a decline like others have, it will hurt those
Great Rotation investors hardest.
Our current outlook is to expect upward pressure on the stock
market, with the occasional buying frenzy, until the rotation ends, but
once the rotation starts to wane, which could happen within as soon as a
week or two, the market will turn down on a dime and fall aggressively.
There are long opportunities now, and there will be shorting
opportunities soon, but this is not a buy-and-hold market.
http://www.marketwatch.com/story/the-great-rotation-has-begun-2013-07-08?dist=afterbellThe Collateral Shortage Is Back, With A Twist
The last time the Treasury market saw a 2 year high surge in fails to deliver (approaching $130 billion), about a month ago,
there was a furious shortage of Treasury collateral represented by a
surge in “specialness” of 10 Year paper, which traded around the -3%
fails penalty rate in repo indicative of collateral “desperation.” This
followed the hammering that the 10 year and especially the belly
experienced, leading to a shorting scramble, and leading to the near
record special rates. Then, following last month’s 10 year 912828VB3
reopening, things normalized, as the Primary Dealers were allocated some
$7.7 billion in 10 Year paper to satisfy margining requests.
Today, as per the latest ICAP data, the collateral shortage is back
on, with the 10 Year moving from -0.10% in repo yesterday to 0.85% ahead
of Wednesday’s second re-re-opening of 912828VB3. But what is more
curious is the repo shift, because while the On The Run shortage was to
be expected with the 10 Year getting pounded to 2.75% on Friday, it was
the 3 Year that saw a plunge in repo, with the repo rate soaring from
-0.13% to -1.45%: ostensibly the widest it has been in our records
database.
In other words, the collateral shortage just ahead of the 3 and 10
Year auctions is back and while the shortage of the 10Y OTR is somewhat
more manageable than last month, it is the 3 Year, or the short-end,
that is now in very short inventory supply.
http://www.zerohedge.com/news/2013-07-08/collateral-shortage-back-twist
FDIC to Tighten Screws on Banks, Require 5% Leverage
http://www.cnbc.com/id/100870726
Wall Street Bumps Up Fed Taper Forecast…will start to taper a month earlier than originally estimated
http://www.cnbc.com/id/100867048