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Peter Tchir's  Instablog

Peter Tchir
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Peter started TF Market Advisors in 2011 as a platform to trade and provide market information. The trading strategies are macro, but the direction and value decisions are based on insights into the credit markets. The firm’s commentary has been gaining respect and Peter has become a recognized... More
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TF Market Advisors
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  • The T Report: Garbage In, Garbage Adjustments, Garbage Out

    It is hard to ignore the fact that this year is shaping up a lot like 2011 and 2010. I'm not a big fan of seasonal patterns, so what else could it be. Could it just be that all of our adjustments are a total mess?

     DecJanFebMar
    Unadjusted-207-2,668902811
    Final223275240120
    Difference4302,943-662-691

    I understand why we attempt to "seasonally" and otherwise adjust numbers. We crave smooth data. It makes charts look better. It puts a number into context, but what if the adjustments are just horribly wrong? The magnitude of the adjustments is large, so even a small mistake could have a huge impact.

    Did the plunge in the economy in the months following Lehman cause adjustments that consistently make the Dec-Feb period look better than it should. Did the rebound, which really started in March 2009 affect those adjustments so that they reduce the jobs by too much? We have gone through some violent shifts in the economy since at least 2008. Industries like homebuilding, which had a huge seasonal component, are far less important in today's economies. So much has gone on, and so much has changed, are the adjustments overwhelming the data and giving us bad reads? I have only picked on payroll, but I am becoming convinced that much of what we see as growth, followed by decline, is just bad data in the first place, further messed up by bad adjustments. We pretend like 50,000 difference in a month is meaningful (when even BLS says that is in their confidence error), when the data shows that probably anything within 250,000 of the real job growth would be a lucky guess.

    As you get ready for next week's deluge of data, it is worth keeping in mind. Expect bad data.

    One last rant, I find it interesting that every American has to basically fill in the same forms, in the same way for their taxes, and yet the half a dozen money center banks, thriving on Fed support, each report basically everything in their own way, making it very hard to compare bank to bank or quarter to quarter. Couldn't the SEC, Fed, OOC, or FDIC insist on a consistent summary format for reporting earnings?

    Markets are a little better on the back of German confidence. Those rallies rarely last.

    I would be shocked though if we don't get some commitment to commit out of the G20 and IMF this weekend, so although I think we will fade a little from here, we should see some strength into the European close as everyone gets ready for more "firewall" money. This meeting highlights the ascent of China and the decline of the U.S. as it is Chinese money "coming to the rescue".

    Credit is very quiet this morning. IG, MAIN, XOVER, and HY are virtually unchanged. High Yield bonds remain well bid, HYG and JNK remain strong, but HY18 continues to struggle. TIPS have continued to do very well in spite of how "transitory" inflation is.

     

     

    ETF/ClosingDailyWeeklyIndicated Premium/Fund
    IndexPriceChangeChangeYieldNAVDiscountSize (Mil)
    High Yield 
    HYG90.18-0.17%0.04%7.25%89.740.49%14,690
    JNK39.21-0.11%0.01%7.40%39.100.29%11,705
    HYLD49.65-0.05%-0.08%8.48%49.490.32%87
    SJNK29.94-0.03%0.03%1.93%29.790.51%57
    HY1894.880.00%     
    Investment Grade
    LQD116.210.08%0.76%4.10%115.590.54%20,348
    CSJ104.87-0.09%0.08%1.61%104.760.10%9,396
    IG1899.75-0.25     
    Broad Market
    AGG110.46-0.08%0.44%2.64%110.460.00%14,802
    LAG58.270.08%0.28%2.20%58.170.17%536
    BOND102.990.05%0.53%1.40%102.920.06%497
    Treasuries
    TLH131.480.30%1.48%2.53%131.57-0.07%447
    TLT117.050.11%2.07%2.97%117.29-0.20%2,915
    TIPS       
    TIP118.81-0.28%0.24%3.27%118.710.08%22,479
    WIP60.09-0.18%-0.54%0.00%59.840.42%1,298
    EM
    EMB113.200.01%0.26%4.73%112.620.52%4,460
    Munis       
    MUB109.850.51%1.27%2.95%109.260.54%2,878
    BAB29.470.01%0.09%5.11%29.420.16%893
    Euro CDS
    MAIN17146.502.012.66    
    XOVER17690.005.4919.44    

    Apr 20 8:30 AM | Link | Comment!
  • The T Report: The Check Is In The Mail And Other Lies

    Somehow my frustration level is high today. Just feels like we are being lied to, and no one wants to question the lies.

    Spanish auctions were a big "success". That was the story. It wasn't surprising at all since everyone knew how closely the auction was being scrutinized. What they forgot to manipulate is the post auction trading. Spanish CDS is back over 500, up from 490 earlier in the session. The Spanish 10 year bond, traded as tight 5.75% this morning, but is back over 5.9% and rising. So much for a "successful" auction.

    BAC and MS had "great" earnings. MS no longer includes DVA in its "continuing operations" headline number. It was a loss of $2 billion this quarter. With 2 billion shares outstanding, that would have wiped out the gain. What bothers me, is that in Q3, when it was a gain of $3 billion, it was part of continuing ops. Really? It is that easy to change what is part of ongoing business and what isn't. During this quarter they allegedly made $600 million from unwinding a trade with Italy. They were taking credit reserves against this trade, and were able to release it. Fair, but it should be categorized the same as DVA. This DVA categorization shift seems incredibly misleading and is the exact sort of thing I thought Sarbanes-Oxley was supposed to protect investors from. The quarter was okay, but this shift strikes me as very untrustworthy. On BAC, there is a $3.3 billion adjustment to Fair Value Obligations. Fair enough, but what are the obligations, and what is the adjustment? It seems that something that is size of the quarter's earnings should be disclosed more fully. I would like to know what it is, and it has to be hedge that tightened, because nothing much went materially wider this quarter. On other hand, the new issue bond side must have killed it, great quarter for bond issuance, is that sustainable?

    Jobless claims drop by 2,000. That was the headline. No mention at first that the prior week's already surprisingly bad number had been revised up to 588,000. That is why it improved, because last week's awful number was made awfuller (I know that's not a word, but too annoyed to care). This week's claims number was bad, missed expectations by a lot, and last week's is horrific, especially when compared to original expectations of a print in the 350's.

    We have some more data later today, but I remain bearish. Nothing that has happened so far today has been good, and the attempt to spin everything so positively is downright scary. EU officials are busy pumping up that market. The IMF is talking up a storm - hey, don't look at actual debt and cash flows, just stare at this nice beautiful firewall made up of promises.

    On a bright note, the HY bond market remains strong. HY CDS might be weak, but bonds remain strong and we are seeing renewed growth in shares outstanding in the HY ETF's. It feels to me that once again, "prudent" investors are hedging some risk with CDS, but rather than selling what is rich and well bid, they are shorting what is already cheap and well offered. Expect a reversion soon where either CDS rips tighter, or an otherwise calm bond market goes bidless until it catches up.

    CDS indices are weaker now. IG18 is out above 100 after trading better than 99. MAIN traded sub 140 earlier, and is back to 143.5.

    E-mail: tchir@tfmarketadvisors.com

    Twitter: @TFMkts

    Apr 19 9:20 AM | Link | Comment!
  • The T Report: T-Bill Day In Europe

    Stock futures have had another interesting overnight session. They hit a 4 day low, breaking 1,360 but once again failed to break 1,358 which seems to be a pretty strong resistance level. Stocks then managed to climb as high as 1,373 and are trading off a little now. So another large move and we haven't even seen the pre-opening economic releases. Volatility is back. The market feels good, but so far, it was not able to breach yesterday's highs, and the overnight low, was lower than the prior day. It doesn't seem healthy to me, and the primary drivers for the change in sentiment seem highly suspect.

    A wave of treasury bill auctions and German confidence sparked the turnaround. Sentiment numbers are never particularly convincing data points for me, in either direction. The market is happy that the EFSF, Belgium, Hellenic Republic, and Spain were all able to issue treasury bills. That is definitely good, as it indicates the continued availability of short term funding, but it isn't great news and shouldn't be surprising. European sovereign treasury bills seem to have their own set of rules, I still haven't found the specific rules, but my understanding is that they are protected in some way. Greece was able to (and did) issue bills throughout the entire crisis. Even while PSI was being negotiated and bonds were trading at 20% of face, they were able to issue bills with yields of about 4%. The bills were not part of PSI, and they continue to issue them at 4% while the new PSI bonds languish at 20% of par. If Greece could issue treasury bills and still had to crush bond holders and still can't make ends meet, why so much excitement over Spain's treasury bill issuance? It is marginal news at best.

    I am a little surprised that the market is reacting negatively to Goldman's news. On the surface earnings seemed good, and the stock is well off its March highs. I'm not complaining, it just seems weird, and seems to be another signal that all is not right with this market.

    Fixed Income ETF's were largely unchanged yesterday and although most are trading at a slight premium to NAV, nothing really jumps out as particularly rich. CDS indices are outperforming this morning, with Europe leading the way. I continue to thing HY18 offers value, but am not ready to commit to it yet as the auction led rally seems to simplistic to last. So far it doesn't look like there has been any new technical pressure unleashed on the market from all the "whale" stories. I continue to look for that, and if it occurs, it is likely to be bad for IG9 and good for HY17 and HY18.

     

     

    ETF/ClosingDailyWeeklyIndicated Premium/Fund
    IndexPriceChangeChangeYieldNAVDiscountSize (Mil)
    High Yield 
    HYG89.990.14%0.75%7.27%89.390.68%14,344
    JNK39.130.06%0.30%7.42%38.950.46%11,599
    HYLD49.700.21%0.04%8.47%49.400.60%87
    SJNK29.900.12%0.05%1.94%29.710.64%57
    HY1895.250.38%     
    Investment Grade
    LQD116.000.00%0.41%4.11%115.440.48%20,196
    CSJ104.96-0.03%0.01%1.61%104.740.21%9,394
    IG1899.50-2.00     
    Broad Market
    AGG110.380.02%0.27%2.64%110.380.00%14,791
    LAG58.240.04%0.31%2.20%58.130.18%315
    BOND102.870.12%0.61%1.40%102.810.06%425
    Treasuries
    TLH131.09-0.06%1.01%2.54%131.27-0.14%433
    TLT116.67-0.17%1.12%2.98%117.16-0.42%2,963
    TIPS       
    TIP119.00-0.07%1.08%3.26%118.880.10%22,432
    WIP60.440.16%0.44%0.00%59.900.90%1,306
    EM
    EMB112.920.02%0.42%4.74%112.220.62%4,426
    Munis       
    MUB108.85-0.05%0.17%2.98%109.02-0.15%2,852
    BAB29.40-0.03%-0.07%5.12%29.43-0.11%888
    Euro CDS
    MAIN17140.50-3.33-5.92    
    XOVER17668.00-11.11-27.50    

    E-mail: tchir@tfmarketadvisors.com

    Twitter: @TFMkts

    Apr 17 8:34 AM | Link | Comment!
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