RANsquawk 19th February Morning Briefing - Stocks, Bonds, FX
William Black On Why "Recurrent Crises Will Get Bigger And More Disastrous" And Why All Talk Of Change By The Administration Is Just...Submitted by Tyler Durden on 02/18/2010 - 23:30
The ever insightful William Black sits down with PBS' Paul Solman to note that most of the too big to fail banks are currently insolvent, that mortgage fraud is pervasive and lender complicit, and that unlike in previous systemic crashes, not only person has been indicted for the trillions in mortgage fraud perpetrated. "At this stage we have zero convictions, we have zero indictments." But the most damning indictment from Black: that Congress managed to extort FASB to change their rules just so that the big banks would continue to appear healthy and solvent, even as unworthy execs made tens of billions in bonuses.
Federal Reserve Balance Sheet Update: Week Of February 18 - New Records In Total Assets And Excess ReservesSubmitted by Tyler Durden on 02/18/2010 - 23:02
The Federal Reserve's balance just hit another record high, at $2.29 trillion, jumping by a whopping $54 billion sequentially (the biggest weekly increase since mid-November). Securities held outright: $1,967 billion (an increase of $60.9 billion MoM, resulting from $56 billion increase in MBS and $5 nillion in Agency Debt), or a huge $53.6 billion increase sequentially. The fed is now 95% complete with its purchases of MBS, and 96% complete with purchases of Agencies. The Fed has completed $167.2 billion of its $175 billion agency debt purchase program through February 17. The Fed's MBS total is now $1.188 trillion, and by the end of the first quarter of 2010, the Fed will have purchased $1.25 trillion.
Guest Post: Libya Courting Oil & Gas Investors But Faces A Tough Sell Following Recent Government FiascosSubmitted by Tyler Durden on 02/18/2010 - 22:09
The Libyan government has been sounding off lately about boosting the profile of its oil and gas market, but it’s questionable whether international companies will ignore the government’s missteps in the industry - not to mention the recent lackluster energy finds - and keep injecting money into the North African country. The head of Libya’s National Oil Corp., Shokri Ghanem, has his eye on expanding gas exploration and production in a bid to raise exports to Europe, as well as privatizing oil refineries and the petrochemical sector, according to an interview he gave this month to the Oxford Business Group. Once an international outcast for its penchant for terrorism and weapons of mass destruction, Libya now wants foreigners to take a greater stake in the oil market and in turn encourage local firms to play a larger role as well.
Survival is the name of all games. Investing is a rather serious game with a twofold objective: 1) the portfolio must avoid extinction, and 2) the portfolio must increase in value. Because of the nature of the nature of the universe, these two objectives often come into collision. To survive, allocations must avoid, hedge or exploit unpredictable, often catastrophic events. To grow, capital must long risk to some degree. There are better ways to insure portfolios and limit risk than naked shorts and longing ATM puts. Given enough time, these are money losers. Worse, you get exposure to anti-meltups, before you profit from any meltdown. Presented are some extinction proof strategies for how to do it. Also are some implementation strategies I tried to work through.
In a letter to Edolphus Towns, Darrell Issa says: "it is imperative that the Committee obtain all information in the possession of the Federal Reserve Board of Governors and the Treasury Department related to the AIG bailout, including the decision to pay AIG's counterparties at par and subsequent efforts to prevent disclosure of information related to the payments. Senator Jim Bunning, who is familiar with documents in the possession of the Board of Governors, publicly stated that the Board of Governors is in possession of documents that show troubling details about Chairman Bernanke's role in the AIG bailout. As I wrote to you on January 26, 2010, my office has received information from a whistleblower that confirms Senator Bunning's public statements. We now know from several sources that both the Federal Reserve and the Treasury Department are in possession of documents that are essential to inform the Committee's investigation."
Fed Damage Control Courtesy Of Elizabeth Duke (Update: And Dennis "Have My Cake And Eat It Too" Lockhart)Submitted by Tyler Durden on 02/18/2010 - 19:31
Apparently what the Fed thought was sufficiently well "telegraphed" to the market, was "telegraphed" only to Goldman, and maybe a few others. Here is how the Fed is now doing some serious late day damage control before Asia opens, with backtracking courtesy of Fed Board member Elizabeth Duke.
DUKE: DON'T EXPECT THURS DECISN TO LEAD TO TIGHTER FIN CONDTNS
DUKE: DISC WINDOW CHANGES ONLY A REVERSAL OF SPREAD REDUCTN
DUKE: EXPECT BNKS TO USE PRIV SOURCES FOR NORML FUNDNG
DUKE: CONTINUE TO EXPECT NO LOSS ON CREDIT TO BEAR STEARNS, AIG
DUKE: IF HAD TO REDO, WOULD VOTE AGAIN TO MAKE LOAN TO AIG
David Rosenberg, and several other economists, as well as Steve Liesman, share their first perspectives on the sudden (yet oh so "telegraphed") discount rate hike. David can not be too happy as a tightening policy will likely not be very beneficial to a dated-Treasury long position. The question that everyone is grappling with: if this is a first step to "normalization", with every aspect of the market being abnormal, just how far will the Fed really go?
BOTTOM LINE: The Federal Reserve Board has voted to increase the discount rate by 1/4 percentage point, to 3/4%, effective tomorrow. It has also decided to shorten the typical maximum maturity for primary credit under this facility to overnight, from 28 days, effective March 18, increased the minimum bid rate on the Term Auction Facility to 1/2% from 1/4%, and confirmed plans to phase this facility out. In its announcement, the Board has stressed that all of these are normalizations of its discount liquidity facility and not to be taken as a sign of impending tightening in monetary policy more generally. - Goldman Sachs
And Some More Horrible News: Lipper FMI Reports $916 Million In High Yield Bond Outflows, Following $1 Billion Outflow In Prior WeekSubmitted by Tyler Durden on 02/18/2010 - 18:17
And just what HY investors did not want to hear after the Fed shocker: Lipper FMI just reported that High Yield bond funds saw $915.77 million in outflows for the week ended February 17, while bank loan mutual funds saw $160.9 million in inflows. Keep in mind last week was one of the largest outflows in HY in recent history at just under $1 billion. The high beta dumpage is officially on.
Fed Begins Tightening Process: Discount Rate Raised To 0.75% From 0.5%, Futures Plunge, Dollar Surges, Curve PancakesSubmitted by Tyler Durden on 02/18/2010 - 17:44
Will the Steepener/Carry Trade/Long Stock bandwagon please proceed calmly in single file through the exit of the burning theater. Tightening starts:
"The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19." - Federal Reserve
British Navy On Standby Over Falkland Oil Dispute, Gordon Brown Issues Explicit Warning To ArgentinaSubmitted by Tyler Durden on 02/18/2010 - 16:24
"Royal Navy warships were on standby on Thursday to protect commercial shipping to the Falkland Islands as Gordon Brown said Britain would take a robust stand against Argentine encroachment on the resource rich South Atlantic territory." One would guess that a war between Britain and Argentina is simply the latest thing that would bring the market to an uncontrolled, frenzied melt up (on give or take 3 shares). And while the US market responds to no external stimuli any more, this latest development reported by Telegraph, will likely not help the Gilt's recent concerns. "This is modern defence diplomacy in action," an MoD official said. "The warships are there to protect the UK interests in the South Atlantic. If the Argentines were interfere with the free movement of shipping on the high seas that would be illegal and we would make a decision to use our deterrence force."
God bless brave US-based hosting companies.
This website has been taken offline due to the sensitive nature of the
events that transpired in Texas this morning and in compliance with a
request from the FBI. If you want to see the original letter, please
see the archived version at thesmokinggun.com: http://www.thesmokinggun.com/archive/years/2010/0218102stack1.html
The chart left is not indicative of the widening in the sovereign credit of some backwater PIIGS country. It shows the rather substantial move higher in 10 year British Gilt yields over the past week. Are the bond vigilantes slowly but surely (and as very much expected) moving from the periphery, where all the low hanging fruit has been picked, to the core, where the acceleration is only just starting? To be sure, the Gilts are easy targets: with QE unaninmously voted out, and increasing budget deficit, there is little to like.