Overnight the dollar weakened materially across all major pairs. Over the past hour, the dollar has surged, going back to virtually unchanged against the euro despite Greek rumors reaching a crescendo. In the meantime, stock correlations have once again broken down, with FX vol leading to no trends whatsoever in the broader equity market, causing increasing headaches for momentum traders.
"A good friend, and long-time reader, was kind enough to pass along these thoughts yesterday. Basically, the stars are starting to align for something really big to happen...Bottom line: Stronger U.S. dollar. Rising bond yields. Lower commodity prices. Slower growth. And the stock market is flirting at post-crisis highs. Bond yields are rising temporarily and this will very likely prove to be a good buying opportunity; however, over the near-term, higher yield activity may well persist and the question is how the equity market is going to handle this backup in market rates. Recall that the 10-year yield had a March to June 2007 spike of 90bps before the rate and credit collapse took hold in the back half of 2007! Could it be that history is rhyming again? The March-June period has been seasonally weak for the Treasury market in five of the past six years." - David Rosenberg
The ECB is finally realizing that Greece will be a major issue for years if not decades to come. Which is why Jean-Claude Trichet finally put the debate of whether his bank will accept BBB- rated collateral beyond 2010 to rest. The answer is yes. This also takes out Moody's ridiculous A2 Greek rating out of the equation: finally Moody's can vote with its conscience. "It is the intention of the ECB's Governing Council to keep the minimum credit threshold in the collateral framework at investment grade level (BBB-) beyond the end of 2010. In parallel, we would introduce, as of January 2011, a graded haircut schedule, which will continue to adequately protect the Eurosystem." Considering how well the Eurosystem has been protected to date, we can't wait to see just how well this experiment will play out.
"In sum, in response to severe threats to our economy, the Federal Reserve created a series of special lending facilities to stabilize the financial system and encourage the resumption of private credit flows to American families and businesses. As market conditions and the economic outlook have improved, these programs have been terminated or are being phased out. The Federal Reserve also promoted economic recovery through sharp reductions in its target for the federal funds rate and through large-scale purchases of securities. The economy continues to require the support of accommodative monetary policies. However, we have been working to ensure that we have the tools to reverse, at the appropriate time, the currently very high degree of monetary stimulus. We have full confidence that, when the time comes, we will be ready to do so." Ben Bernanke. Too bad the Chairman will not add that time will not come until the US finally implodes.
In Harbinger Of Things To Come, Indonesian Parliament Begins Criminal Investigation Into Bank BailoutsSubmitted by Tyler Durden on 03/25/2010 - 09:47
So far the commingling between financial and political forces has passed without many glitches both domestically and globally. This is starting to change. We read in Newser that the "Indonesian's parliament called for a criminal investigation into a $715 million government bank bailout." In addition to Indonesia president Suslio Bambang Yudhoyono, others implicated include Vice President Boediono, a former central bank governor who goes by a single name, and Finance Minister Sri Mulayani Indrawati. Something tells us that the miraculous market recovery in Indonesia has not proceeded quite as effortlessly as the one in the US. Which also explains why the Fed and its cohorts are so set on reflating the market as they are well aware of the opportunity cost. Once the market takes the inevitable leg lower, we expect that the general public hatred against the multi trillion bailout of the US financial system may finally yield comparable criminal prosecution in America as well.
Ambac Slumps As Company May Seek Bankruptcy Protection, Enters "Rehabilitation" Of Segregated AccountSubmitted by Tyler Durden on 03/25/2010 - 09:22
“The Board has worked diligently over the past two years to forge the best possible outcome for Ambac and its various stakeholders. In light of OCI’s determination to take some sort of rehabilitative action with respect to Ambac Assurance, the Board has determined, after thoughtful and careful consideration, that compliance with the direction of OCI to establish the segregated account of Ambac Assurance and to consent to the terms of the proposed settlement agreement of our CDO of ABS portfolio is the best alternative available. The actions taken today, together with the proposed settlement if effected, commute substantially all of our CDO of ABS exposure at a substantial discount to the expected present value of potential claims. While certain structured finance asset classes and other credits have been segregated for rehabilitation, virtually the entire insured municipal portfolio remains outside the rehabilitation proceedings. The Ambac Board and management team are committed to continuing to work hard to manage our resources effectively in the service of all constituents.” - Michael Callen, Chairman of the Board of Directors
- Jonathan Weil: John Mack's short story was too dumb to fail (Bloomberg)
- Oops - RBS CDS surge on rumor of debt restructuring - yet another bankruptcy-cum-bailout for the Greek bond-laden third-tier repository of toxic assets? (Bloomberg)
- As expected, the entire manipulated, short-squeeze based market run up was merely for the benefit of the government selling its Citi stake (Reuters)
- Dubai bail out #2 (Bloomberg)
- Jobless claims still materially over 400,000 6 months after the "end" of the recession (Bloomberg)
- As Zero Hedge first reported, Social Security to see payout exceed pay-in this year (NYT)
- David Tepper probed by the SEC (WSJ)
- Cramer explains why he was wrong once again (CNBC)
Goodbye European Monetary Union, Hello Uncle Sam Bail Out: Greece Cost To IMF (And Pro Rata US Taxpayers) - $27 BillionSubmitted by Tyler Durden on 03/25/2010 - 08:32
From Goldman's Erik Nielsen: "According to the Reuters story below, Merkel said this morning as a government declaration in front of the German parliament (ahead of the EU summit) that help to Greece would only come as the very last resort, and that it (bilateral help) would come ONLY in combination with the IMF. Whether this was formally agreed yesterday by the Euro-zone heads of state remains uncertainly, but I think it is very likely. If so, its just a matter of rubber stamping it in the full EU summit today, since none of the non-Eurozone EU members would object to the IMF being involved" and this "It is not clear when Greece will formally approach the IMF, but it might happen within weeks, and very likely during the next few months. I think negotiations – when they get under way – will focus on a program of about EUR20bn over 18 months. Stay tuned."
RANsquawk 25th March Morning Briefing - Stocks, Bonds, FX etc.
- Asian shares mostly lower; but exporters hold Tokyo up.
- China won't succumb to foreign pressure on revaluation of Yuan, Zhong says.
- Dubai supports Dubai World’s debt restructuring with $9.5B of funds
- European try to find solution to Greek debt crisis as euro slides, Portugal downgraded.
- Germany asserts European clout to impose IMF role in EU rescue of Greece.
- IMF could demand stricter path out of Greece's economic crisis than EU.
- Oil hovers below $81 in Asia after US crude inventories increase.
The following presentation from November 2009 highlights the top 15 institutional investors that matter more than anyone to Morgan Stanley: essentially the execution and head PM guys who throw MS orders of $100 million and above (all the way to $1 billion and higher). Among the companies listed are BlackRock, Capital Group, Fidelity, Gartmore, GIC, Norges Bank, Wellington, Eton Park, Jabre Capital, James Caird, Meditor, Moore, Och Ziff, and, of course, Paulson. As for the trader envy (as in my G-V is bigger than your Dassault), here are some names to remember Greg Bennett, Nigel Bolton, Philippe Jabre, John Paulson (duh), Greg Coffey and Julian Rifat. Oh wait, did we say Julian Rifat, the same guy that just got busted in the biggest UK insider trading scandal? Hmm: looks like Morgan Stanley sure has an eye for talent. We can't wait to see the metal detectors at Morgan Stanley's Christmas party, as clients demand a bug-free environment. Also, if you didn't make the list - don't despair. Just make sure you front run about $10 billion worth of orders in 2010 and you are golden.
A maritime boundary dispute between Ghana and Côte d’Ivoire that erupted this month casts doubt on future international oil claims near the contested area and raises questions about the reaction of foreign investors to the uncertainty. Earlier this month, Côte d’Ivoire appealed to the United Nations to delineate its offshore border with Ghana, a bid seen as controversial since Russia’s Lukoil discovered oil reserves only days before off Ghana’s coast. Ghana’s Jubilee field will also begin operations later this year and give the country commercial oil-producer status.
Slightly less than two weeks ago we initiated a long EUR/$ trade recommendation on the basis of three factors. First we anticipated a notable improvement of cyclical growth news in the Eurozone, second we highlighted the continued USD negative BBoP flows and finally, we assumed that the Greece risk premium in the Euro would stabilise and decline. While broadly correct on the cyclical news, where the latest round of European business surveys point to strong momentum, we have clearly underestimated the impact on the EUR from the European sovereign crisis and perhaps also from the broader macro adjustment that it portends. The latest developments suggest the building consensus among Eurozone members is becoming increasingly difficult. These political headwinds currently matter far more for the Euro than the cyclical factors. - Goldman Sachs