North American pork hit with bans on flu scare via Reuters

Below is the weekly chart of Lean Hogs. You need not listen to government statements and denials. The market price of Lean Hogs will tell the story. The swine flu is having ramifications on the market for Lean Hogs. The ramifications will be measured precisely by the price of Lean Hog futures. It looks to me as though Lean Hog futures will trade much lower. I will continue to monitor this situation.

Lean Hogs

This will also have ramifications for Feeder Cattle. Feeder Cattle looks like a safer short here. They have not sold off as much as Lean Hogs. Yet!

Feeder Cattle

Peace

Back at the office, my traders and I were discussing the bond market, specifically the Ten Year Treasury Note and it’s rate.

I don’t watch CNBC. One of my traders keeps an ear on it for me. He alerted me to the rumor Rick Santelli spoke of today: The Treasury would start to sell a 50 year bond. Rick Santelli is one of the only people on CNBC worth listening to. After all, who else on that channel has been in and around the trading pits since 1979?

In my post from April 22nd, I laid out my thesis on how the Ten year will be moved higher. I said that the FED would halt sales of the 30 year, exactly as they did in the year 2001. This action would then spike demand for the Ten Year. If US bonds are a safe haven, and you cannot buy 30 year US bonds, the safe haven becomes the Ten year.

Rick and I agree. The Ten Year goes higher. Rick thinks they’ll halt the 30 Year and offer a 50 year. I think this is possible. One thing that gives me pause is how embarrassing the UK’s offering of 40 year gilts (bonds) was in March. I don’t think it would look too good for the FED to offer a 50 year to a tepid response.

Whether they offer a 50 year or not, I don’t know. I do know that rates must go lower. Markets don’t move, they are moved. As the FED moves the Ten Year to new highs, the rate will move to new lows.

Below is a chart of the Ten year and the rate on the Ten Year. Notice the inverse movement. Notice the red line at the bottom. Rates will go below there. They have no choice. The mathematics are irrefutable.

Inverse

Peace

FBR: Bank of America needs $70 Billion via Zero Hedge

“How much capital does BAC need? The Wall Street Journal is reporting that BAC needs additional capital following the results of the government’s stress test. Using our 12% unemployment rate scenario from last week’s report (”Stress Testing Nine Banks—It’s All About Unemployment,” April 22, 2009), we estimate that BAC needs at least $60 billion to $70 billion in capital to maintain a TCE ratio above 3% at the end of 2010.”

Government to Expand Foreclosure Prevention Efforts via Washington Post

“The $75 billion housing plan pays lenders to help borrowers stay in their homes by modifying their mortgages to an affordable level. But, the plan as first announced two months ago applied only when the lender modified a borrower’s primary mortgage. Now, lenders will be eligible for payments when they modify the terms of a second mortgage, which can include a home equity line, or extinguish it all together.”

Eccentric Swede turned empty cans into gold via The Local

“And Tin-Can Curt used that investing know-how to turn the modest deposits he collected from returning empty cans into mutual funds worth more than 8 million kronor.”

Peace

A Glimmer of Hope. via The Economist

“The worst is over only in the narrowest sense that the pace of global decline has peaked.”

“Market spreads taking account of credit and liquidity risk had arguably become too compressed pre-August 2007, and are now wider than they should be longer-term. But it is not clear what the appropriate level should be.”

The One Trillion Commercial Real Estate Time Bomb. via Zero Hedge

“The second theme is the much more serious and less easily resolved issue of the negative equity deficiency on a per loan basis, which is not a systemic credit freeze problem, but an underwater investment problem.”

Raising Bill Gates. via The New York Times

“I’m at war with my parents over who is in control,” Bill Gates recalls telling the counselor.

The Treasury is soon to make a stunning announcement.

In my post from April 19th, Stormy Weather, I noted that the fed can drive rates lower by driving Treasuries higher.

This outlier move in Treasuries has been a central theme in these pages. Except for one thing. I never revealed the catalyst. What will be the catalyst? The Quantitative easing they announced in their 300 billion Treasury buy back plan has been shrugged at. To you, my readers, I will now reveal the catalyst.

Often when I explain what a catalyst will be, I do it by taking a page, out of our history.This article from November, 2001 from the New York times talks of what the Treasury Department was up to way back in 2001. History doesn’t repeat, but it often rhymes.

The Treasury Department’s decision to stop selling 30-year bonds could help push longer-term rates lower for reasons that have less to do with the economy than with the mechanics of the bond market. With no new 30-year bonds, more investors who want to own long-term bonds backed by the government will buy the Treasury’s 10-year note, which influences the interest rates on home mortgages. The added demand will push the price of the 10-year bond higher, and the yield, which moves in the opposite direction, lower. With the 10-year rate and related rates falling, mortgage rates will fall, too.

The Treasury Department will stop selling the 30 Year, which will push up demand for the Ten Year, driving rates lower. Is the strength in the housing index anticipating this? Driving mortgage rates even lower would allow a massive refi and write down cycle in residential mortgages. Just what the economy needs, to finally take flight again. Then what happens? They’ll do what they did then. Offer the 30 year for sale again. Same cycles, different players.

I wonder when they’ll announce it? During the market? After? Before? Who knows? Whenever they do, it will be a shock to everybody. Everybody but those who read me. Mr. Volatility.

Peace