Oil prices dropped on Monday as traders reacted to an embarassment of riches. Because the economic news has been so good recently – so good that it has eclipsed the market’s recent, poor fundamentals – investors decided to take profits on Monday, out of fear that the Federal Reserve might indicate it is nearer to raising interest rates, soon. Most economists tend to feel that any interest rate hike would be awfully premature, but investors were discounting the probability/possibility on Monday and their conclusion was that the odds had increased on the Fed ramping up its hawkish language, even if no one really expects rates to be increased here and now.
“At this hearing, we will examine important policy questions that have arisen from the Greek debt crisis,” said Chairman Kanjorski. “Going forward, there could be important implications for the issuance of all government debt, especially when bankers act as casino operators by first helping governments to issue bonds and then facilitating bets against the failure of that debt. Some, particularly in Europe, have additionally raised questions about the accuracy of disclosures of government indebtedness and the transparency of credit default swaps on these obligations. This regrettable situation could also ultimately lead to real repercussions for the European Union and the global economy. I look forward to exploring each of these matters at this hearing. Congress, moreover, has pending legislation aimed at better regulating derivatives, including credit default swaps. As we work to finalize the Wall Street reform bill, this hearing will help us to determine whether we should do even more to shine a light on this dark corner of our financial markets.”
The Goldman "Conviction Buy" Criteria list: if XYZ drops out of upward channel, then dump. Enter Google. The Fast Momo Brigade just ordered an XXL dose of incontinence products: "We remove Google shares from the Americas Conviction Buy List due to recent underperformance following in-line 1Q results. We remain Buyrated given: (1) Shares are attractive at around 16X our 2011E EPS/FCF, (2) our forecast for multi-year mid-teens revenue and earnings growth, and (3) structural upside from global search penetration catching up to US/UK levels, and from Google moving toward Yahoo! in display share. Since adding Google to the Conviction Buy List on August 19, 2009, shares are up 23%, vs. the S&P 500 up 22%. Over the past year, Google shares are up 42%, vs. the S&P 500 up 43%."
The rush for money debasement around the world has escaped nobody's attention, and as a result the one undilutable commodity (unless everyone demands physical delivery at the same time) gold has seen investors around the world scramble to get their hands on the commodity, either in physical form or via ETFs. The World Gold Council has released its Q1 2010 update, according to which "Investors bought 5.6 net tonnes of gold via exchange traded funds (ETFs) in Q1 2010." This has brought the total amount of gold in monitored ETFs hit a new record of 1,768 tonnes ($63.4 billion worth of the shiny metal). Some more on the unquenchable demand for gold: "GFMS reports that the over-the-counter market saw a moderate increase in net demand during the first quarter. Meanwhile, previously existing long positions have generally continued to be very firmly held. Net long positions on gold futures contracts, a proxy for the more speculative investment, fell from the highs experienced in Q4 2009, but they remain high by historical standards." Despite the persistently high price of gold, and despite the strength of the dollar over the past quarter, demand for gold is not going away.
MBO (Buffet BO) next? Just headlines from Dow Jones right now.
UBS' Investment Research goes for broke (and not in a good bank/bad bank SNB bailed out way either) with its most recent Market Outlook: the bank which at this point is fighting tooth and nail to prevent client departures and deposit withdrawals is instead focusing on predicting the future, and the future rocks. To wit: "Over the past several months, economic activity and earnings results have come in better than expected. As a result, we are increasing our 2010 and 2011 S&P 500 operating EPS estimates to $90 and $100, respectively, from $83 and $92. 2010 EPS improvement should be driven by margin expansion and easy comps. 2011 should be more of a revenue story." Forget that a few months ago 2010 was supposed to be a "revenue story." And when the revenue story does not materialize in 2011, UBS will simple say 2099 may be finally the year in which CAT's revenues will be greater than its earnings. Yawn: the only thing that matters is whether or not Bernanke will keep ploughing on with negative real rates, and whether the PDs will continue the shell covert monetization games, thanks to which Bid To Covers on 1 Minute CMB Bills will soon hit infinity. The excess cash sure isn't going to come from Money Markets: at YTD rates of depletion, there should be no actual cash left in the system within 12 months.
Eleven indicted Somali pirates dropped a bombshell in a U.S. court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs. There was an audible gasp in court when the leader of the pirates announced, "We are doing God's work. We work for Lloyd Blankfein. We were functioning as investment bankers, only every day was casual Friday," the pirate said.
William K. Black, a regulator during the dark days of the Savings & Loan Crisis, gave the most sensible testimony about the financial crisis heard in Washington so far.* Fraud thrives and spreads in a regulatory free, highly paid, criminogenic environment. Cheaters prosper driving honesty out of the market. It's time to bring back Black and resolute regulators like him. Our proposed "financial reform" bill is a sham, and the health of our society and our economy is at stake.
Caterpillar had what was perceived as a blowout quarter even though its Q1 2010 earnings were well below Q1 2009. As Karl Denninger summarizes: "Machinery sales were down 1% from a year ago - but I thought a year ago was the depths of the recession and we have been recovering since? So how do we get a negative year-over-year comparison? Worse, in North America (that's here!) machinery sales were down 15% with dealer inventories half of year ago levels. That is, not only is heavy equipment not selling, dealers don't think it will be in the near future either. So how did we get big increases? Asia, up 40%. Yep, that matters, and it's what drove the results. Engine sales were even worse, off 28%, and even in Asia they were down, in that case 15%." Yet what everyone is focusing on is the projected future so bright, all the sell-side analysts (note, they are called "sell" side) gotta wear shades. One caveat: as CAT itself points out, the future will be so bright only if the Fed and foreign Central banks continue their monetary lunacy. The WSJ recaps the earnings call: "The company raised it outlook for 2010, though revenue declined on
continued weakness in developed economies, especially the U.S. and
Europe. It cited concerns about central banks withdrawing stimulus too
soon." So let's get this straight: the company's actual top line results were worse than a year ago (and after firing everyone, the firm was hard pressed not to report better EPS), and its entire bet on the future, which is what is causing its stock to spike, is purely a function of Ben Bernanke's mood on any given day, or what "Firm Directive" his GS masters may have slipped him that morning. That sounds like a brilliant investment thesis. We will buy two big earth excavators right now and a whole lot of CAT calls to go with that.
With half of Europe broke, and the IMF more than ready to disburse US taxpayer funding with the largesse of Tim Geithner (is $100 billion in increased IMF aid a TurboTax recognized tax deduction?), it is no surprise that the rescue aid recipients are lining up. First up after Greece is the Ukraine, which has announced it is seeking $20 billion from the IMF according to Deputy Prime Minister Serhiy Tigipko. As Business Week reports: “Having a program with the IMF will help us lower the price of future Eurobonds, because such a program gives investors more confidence,” Tigipko said. “It will also help sustain economic growth.” Looking at Greek record spreads and CDS levels, we can't help but wonder just how investor confidence is supposed to be buoyed by yet another bail out. And confirming that our own Alice in Wonderland capital markets have gone global, the reason why the Ukraine needs rescue financing is greater than anticipated growth. "Output may grow between 5 percent and 6 percent this year, compared with an earlier estimate of 3.7 percent, Tigipko said. The acceleration will be triggered by higher prices for Ukraine’s key exports such as metals and lower fuel prices, including Russian gas, he said."
With Greece Bankrupt, Moody's Is Fully Awake Now, Takes "Negative Rating Action" On Greek Covered BondsSubmitted by Tyler Durden on 04/26/2010 - 12:24
Moody's Investors Service has taken the following rating actions on covered bonds issued by Greek banks:
- Mortgage covered bonds issued by National Bank of Greece S.A. ("NBG"): Downgraded to Aa2 and placed on review for further downgrade; previously on 31 March 2010 downgraded to Aa1;
- Mortgage covered bonds issued by Alpha Bank S.A. ("Alpha"): Aa2 placed on review for possible downgrade; Previously on 31 March 2010 downgraded to Aa2;
- Mortgage covered bonds issued by EFG Eurobank Ergasias S.A. ("EFG Eurobank"): Aa2 placed on review for possible downgrade; previously on 31 March 2010 confirmed at Aa2.
Hellenic Air Force is conducting a go-slow strike, affecting exercise and routine flights ; the Ministry of Defense has issued a statement today. Payments of amounts owed to health service providers [6 billion euros of debt], public sector construction [1.2 billion], ICT [200 million] and media-advertising [100 million] have ceased, according to Kathimerini.
The just completed 3 Month Bill and 6 Month Bill auctions were interesting: the BTC on the 3 month came in at 4.69, a multi year high, and well above the 2010 average of 4.27%. Also the high rate has started leaking higher again, coming at 0.15%, compared to last week's 0.145%. Primary Dealers made sure there was no hiccup and they would be able to take down as much of the $24 billion auction as possible just so they can immediately turn around and repo the money, thus buying even more Whirlpool in large blocks, spooking the HFT algos in believing the stock is the next Google. After all - can't have a down Monday. It is verboten. Curiously the Direct take down surged to 19.2%, and almost surpassed the Indirect Take Down of 20.9%. The Direct (cough Bernanke cough) Bidders just refuse to go away. The 2009-2010 average on Directs is 7.81%, while that over the past 4 auctions is exactly double that 15.66%. Primary Dealers have taken down $51 billion of all 3 Month Bills so far in 2010.