Fed Announces Expansion Of Reverse Repo Program, Adds Money Market Funds To List Of Eligible CounterpartiesSubmitted by Tyler Durden on 03/08/2010 - 11:13
Over the weekend we posted a very critical paper by the Minneapolis Fed discussing the potential weakness with the various liquidity extraction mechanisms (in the absence of a Fed Funds rate hike). Today, the Fed goes one step further, after noting increasing pressure by its own members to commence a tightening policy, and has announced the expansion of its reverse repo program with Primary Dealers, by adding additional counterparties.And guess who the first expansion wave focuses on - why Money Market mutual funds of course. Let's just do all we can to drain the money market system asap, shall we.
Uri Dadush Of The Carnegie Endowment: "It Is Virtually Inevitable That Greece Will Default Or Need A Bailout"Submitted by Tyler Durden on 03/08/2010 - 10:55
Some amusing headlines appearing elsewhere today, proclaiming the Greek crisis is over. Hardly: Uri Dadush of the Carnegie Endowment, and formerly of the World Bank says that "it is virtually inevitable that Greece will either default or need a bailout of some sort." Dadush, who a week ago wrote a provocative op-ed in the FT titled "End this inflation fundamentalism", in which he noted that "what happens in Greece will not stay in Greece" also says that "over and beyond the Greek bailout we have to do some thinking about our approach to overall fiscal and monetary approach in Europe." What? Visiting Ben Bernanke every 6 months is no longer sufficient? Oh wait, when everyone is undergoing austerity measures (now coming to Portugal, soon Italy, UK, Germany, Japan, and, lastly the, US), just who is it that will importeveryone else's exports? Why China of course. But hold on, isn't China a net exporter? Oh who cares about facts...The market's mind is already made up. Uri's conclusion will make Hugh Hendry proud: "I think under any circumstance we are going to see a significantly lower euro. I think we are going to see slower growth in Europe over several years, and I think there is a serious risk that the eurozone will implode unless there is a sea-change in the way fiscal and monetary policies are conducted."
The announcement by Fitch that CMBS delinquencies rose by another 29 bps to a new high of 6.29% is no surprise to anyone who has been following RealPoint's remittance/CMBS reports. Yet it is good to get independent confirmation that there is no respite in CMBS land. And with TALF for existing and new loans expiring on March 31 and June 31 respectively, without ever really taking of, this sector of the market is sure to face increasing pressure, especially when coupled with the certain increase in MBS rates once the last $30 billion or so in QE is purchased. The most recent culprit for deterioration: maturities of 5 year loans from the 2005 vintage as the refi market is still practically dead: "Approximately 30% of the newly delinquent loans were from 2005 transactions. In fact, the four largest newly delinquent loans (ranging in size from $65 million to $112 million) are from this vintage. Three of these four loans are past their 2010 maturity dates and are, therefore, categorized as non-performing matured loans."
"At some point the bubble will burst. Hopefully for ALL our sakes its sooner rather than later. The longer we are forced to wait, the bigger the bubble will be and the more horribly damaging the bursting process will be. And if we are forced to wait and the bubble gets anywhere like the one that went pop in late 2007 I have ZERO idea who will credibly be able to bail us all out the next time round. Certainly not OUR governments." - Bob Janjuah
- Here comes the EMF (Telegraph)
- "On the edge" banks facing writedowns after FDIC loan auctions (Bloomberg)
- From Greece back to Dubai - Dubai World to seek loan delay in talks, banker says (Bloomberg)
- Eurozone faces two-class future after Greece (Reuters)
- Finding FINRA's failures (Barron's)
- Why a restructuring of the PIIGS will require a restructuring of Germany (Brown Brothers)
- Asian share markets were higher Monday with the Nikkei up 1.4% as exporters gained.
- China pledged to keep prices stable this year, to rein in lending and manage consequences.
- China to nullify local governments' loan guarantees as credit risk grows.
- Fed is battling to keep Congress from cutting its supervisory power.
- India plans to accelerate sales of state assets to about one a month.
- Sarkozy says Europe ready to help Greece fund debt, fend off speculators.
- Oil prices rose to near $82 a barrel Monday in Asia.
RANsquawk 8th March Morning Briefing - Stocks, Bonds, FX etc.
Yawn, more "imminent warfare" out of North Korea. As the Kospi is up over 1%, South Korea is either engrossed by Ben Stiller's make up or giving this news the proper attention it deserves. The news comes from Xinhua via Dow Jones.
Bill Lockyer Goes Direct To Retail Investors With The "Terrific" Opportunity To Front Run Institutional Investors In Cali BondsSubmitted by Tyler Durden on 03/07/2010 - 22:28
After recently pulling a $2 billion bond issue due to an internal Snafu (and, as the rumor goes, due to a material lack of institutional demand), California has been advertising (and, ironically, using Google contextual ads on Zero Hedge for just that purpose, possibly running on this very page) the very same bond issue, direct to retail investors, and making it seems like retail is getting a great deal by getting on the same (deserted) floor as institutions, and even frontrunning the major institutional investors (which incidentally would not touch these bonds with a 12 foot pole). While we sympathize with Bill Lockyer's problem of being the Treasurer of a default state, we are not very sure that going direct to retail is the best option (or, all that legal either). If anything, it underscores just how horrendous the fiscal situation in California is, and how anyone buying into this bond issue should be prepared that the next round just may not find enough greater fools to extend the perpetual refi Ponzi (forget about repayment at maturity).
Love him or hate him (and based on some recent appearances, notably side by side Hugh Hendry, he hasn't left much room for amorous intentions), Joe Stiglitz once again takes center stage, this time in this appearance at the Commenwealth Club, in which he discusses various things (among which are his grading of Obama, which compared to Dubya' administration, he gives an A+, and since this is roughly in line with where the rating agencies rate the US, it should raise all sorts of red flags). One of the key topics of discussion is his claim that efficient markets are a myth, and that Adam Smith's "invisible hand" appears as such because it was never truly there. Joe's bashing of economists with their hollow goal-seeked theories is one thing we can certainly agree with, and as to the market being propped by visible hands and other means, well, that is beyond the scope of this post (unless Chairman Shalom decides to grace the comment stream with his presence).
Jim O'Neill's Weekend Just Got Really Bad, As China Prepares To Nullify Local Government Loan GuaranteesSubmitted by Tyler Durden on 03/07/2010 - 15:31
The horrible news hits just keep on coming for Goldman's Jim O'Neill. First the BRIC acronym creator (soon to be largely forgotten when confronted with much more awesome comparables as CRAP and STUPID, the latter of which has already been subsumed for general consumption by CNBC) is rumored to be getting the boot from Goldman due to his involvement in the Red Knights group which is seeking to acquire the Red Devils (aka Manchester United), and now China just announced it is about to pull the rug out of the entire lending concept when it announces it is nullifying loan guarantees by all local governments. Just to put this in perspective, the impact of this is akin to what Obama did to Chrysler's secured lenders, multiplied by about one Fed dollop of MBS holdings (i.e., trillion), with debtors not even getting the courtesy Steve Rattner K-Y reacharound. The total potential impact: $3.5 trillion smackers. And some large, recently bailed out bank, has been seen as claiming the CNY is about to get revalued. HA HA HA. Oh, and goodbye BRICs.
Looks like Tom Hoenig's dissension at the recent FOMC vote is starting to generate some serious traction. A paper just released by V.V. Chari of the Minneapolis Fed, "Thoughts on the Federal Reserve's exit strategy" goes so far as blasting the Fed for demonstrating Goldman Sachs-like "hubris" courtesy of the persistent lowest common denominator resolution to every crisis, namely Bernanke's redux of MLK "I have a dream" speech for the 21st century, in the Chairman's "we have a printing press" thesis. "...The Fed differs from private firms and emerging markets in that it can “create” money to finance its debts. And indeed, that ability may well lead to hubris on the part of policymakers—similar to that seen among financial managers in the current crisis who were clearly overconfident in their ability to obtain financing. Regardless of such self- assurance on the part of policymakers, if market participants lose confidence in the Fed’s ability to obtain funds from lenders, the Fed would have to pay very high interest rates to obtain short-term debt. A self-fulfilling, high-inflation equilibrium in which expectations that the Fed will pursue lax monetary policy because banks demand a high-inflation premium will lead banks to demand that high-inflation premium." - Minneapolis Fed
Curiously, Zero Hedge just received the following email from the Greek Embassy. Little did we realize that our fringe, breathless ramblings were considered necessary and sufficient to merit official government listserv inclusion.
Periodically we update readers on Goldman's conviction buy/sell list. Following up on our observations from yesterday in which the market melt-up is now taken for granted, we highlight the latest universe of 69 companies which comprise the most updated Goldman conviction list, of which 54 are buys and 20%, or 14, are sells. The empirical evidence seems to suggest that shorting the Buys and buying the Sells tends to generate the highest alpha over the next 6-12 months.
Now that the market is fully back to its usual melt-up gimmicks, when fundamentals do not matter in the least, and the only potential stock drivers are technicals, which for the market dominating algos typically reduce to such simplistic signals as stock price momentum (and reversion) and short interest as a % of share float, we present our summary of the worst of the worst. The following 40 companies are those names (among the Russell 2000) that have underperformed the market either by a little or a lot, now that the S&P is flat for the year, and which still carry a substantial short interest as a % of the total float (with a 20% of float short minimum). As the charts below demonstrate, one would be hard pressed to find worse companies out there (for pure equity stock pickers; credit analysts would be looking at a completely different set of fundamentals, but as we have repeatedly said fundamentals don't matter in this market, except the market maker number 1's Z.1, H.4.1 and H.3 statements). Which, thanks to bizarro logic, means that a portfolio constructed of these 40 companies will most certainly outperform the broader market by a large percentage. Brownie points if you pick out those companies in this list which have a Neutral or Sell rating by Goldman Sachs - you can bet your bottom FRN that Goldman's prop desk is currently accumulating that particular POS in anticipation of a honestly formulated upgrade by Goldman's sell side time, and the ensuing massive short squeeze rip.