"In Friday’s Comments, we wrote that the napkins suggested support in the S&P was “way down around 1058/1063”. The sharp opening selloff took the S&P to an intra-day low of 1062.97 before they circled the wagons. For today, we’ll stick with the 1058/1063 support. Resistance looks like 1083/1088 and then 1093/1097. The dominance of the dollar was so evident that I was stunned from time to time to see brokers getting calls from trading desks inquiring “what turned the market?” Talk about not seeing the forest for the trees. The Dow closed two-thirds off the lows. That allowed the first up week in the last five. Not quite a resounding victory for the bulls, but a welcome respite at least." - Art Cashin
A quick preliminary read of the Simon proposal to acquire GGP for $10 billion, via Bank of America, indicates a cap rate of 8% "assuming growth of 3.5% on top of the annualized NOI stream." The offer values GGP at $9/share, including $3 for the land business. As readers will recall there has been a difference in opinions between Hovde and Ackman on GGP's value, the first of which gets an "implied equity value of $5.73 per share at a 7.5% cap rate and negative $5.03 per share at an 8.5% cap rate which after incorporating the conversion of the unsecured debt into equity at price of $6 per share, the implied equity value is $5.94 per share at a 7.5% cap rate and $3.62 per share at an 8.5% cap rate," while Ackman is a tad more ambitious: "based on cash NOI (not adjusted for lease termination fees, tenant allowances, maintenance capital expenditure) for LTM ending Sep 2009, Ackman values GGP at $23.7, $32.0 and $41.6 per share at cap rate of 7.21%, 6.71% and 6.21%, respectively." Seems like Hovde is just a little bit closer in his valuation (assuming no overbid). The OCC supports the Simon offer as they get taken out at par.
Move Over China: Beijing Sells Whopping $34.2 Billion Treasuries In December As Japan Becomes Largest Official Holder Of US DebtSubmitted by Tyler Durden on 02/16/2010 - 10:29
Gradually we are getting confirmation that Chinese "posturing" about offloading US debt is all too real. The most recent TIC data confirmed the Treasury's greatest nightmare: China is now dumping US bonds. In December China sold $34.2 billion of debt ($38.8 billion in Bills sold offset by $4.6 billion in Bonds purchased), lowering its total holdings $755.4 billion, the lowest since February 2009, and for the first time in many years relinquishing the top US debt holder spot to Japan, which bought $11.5 billion (mostly in Bonds, selling $1.4 billion Bills) bringing its total to $768.8 billion. Also, very oddly, the surge in UK holding continues, providing yet another clue as to the identity if the "direct bidder" - as we first assumed, these are merely UK centers transacting primarily on behalf of China as well as hedge funds, which are accumulating US debt under the radar. UK holdings increased from $230.7 billion to $302.5 billion in December: a stunning $70 billion increase in a two month span. Yet, with the identity of the UK-based buyers a secret, it really could be anyone... Anyone with very deep pockets.
- Russian President Medveded recommends to Papandreou that Greece seek aid from IMF and WB (Kathimerini, h/t Paul)
- Are Goldman and Paulson partnering to profit from the downfall of an entire country/continent? (LittleSis)
- Weigh in on the FDIC proposal on executive pay (HuffPo, h/t David)
- Otmar Issing, former ECB executive and current Goldman Sachs advisor: Europe cannot afford to rescue Greece (FT) and Simon Johnson's take down (Baseline Scenario)
- Bazooka time: Henry Paulson thinks he is qualified to give advice on how to regulate banks (NYT)
- Spain has fingers crossed as it comes on deck with 15 year bond sale (Bloomberg)
- Asian stocks, copper, Aussie Dollar rise as earnings boost confidence in recovery.
- Australia and China committed to starting negotiations on an “open skies” accord.
- Bank of Japan may refrain from easing credit even as deflation intensifies.
- Possible European debt crisis is seen pushing US Dollar to its highest point in 9 months.
- EU finance ministers are uniting to oppose Pres. Obama’s Banking overhaul.
- Indian inflation accelerated to 8.56% in January, up from 7.31% in December and 4.95% a year ago.
- Japan stays ahead of China as world's second-biggest economy as 4Q GDP strong.
RANsquawk 16th February Morning Briefing - Stocks, Bonds, FX etc.
It appears that earlier rumors of a Dubai World proposal to creditors for a 60% repayment been have just that, rumors. And unfounded at that. Debtwire reports that in reality nothing has been proposed, and nothing has been discussed.
We are having some temporary trouble translating the following statement by BOJ's Governor Masaaki Shirakawa "We are serious about ending deflation. It will take time and
it's not something the BOJ alone can achieve. But we will be
doing all we can." We are confident that there has to be some context here, rendered into logical argument by Richard Koo, as otherwise all those thousands of pages of powerpoint slides, filled with Nomura-produced charts demonstrating that sooner or later Japan will pull out of the quicksand, just a few more quadrillion of yen stimuli, mix and boil, will have been for naught. Alternatively, thousands of Zero Hedge posts will not have been for naught if and when Fed Chairman Bernanke utters some variation on a theme by Shirakawa.
Spreads in Europe widened today amid low volumes as the US, parts of Asia, and some of the Greeks took the day off. Breadth was notably negative at almost three wideners to every tightener financials underperformed non-financials on average, and the continued flattening in Financials curves is increasingly pricing in traumatic times ahead in the short-term. Sovereign risk moves were generally small today in CDS-land with bond spreads underperforming CDS in all the major European nations. Dubai staggered back to its wides (widest since MAR09) as investors snarled at the 40% haircut being offered. SovX widened less than 2bps (with ITRX FINLs underperforming) as France, Portugal, Norway, Sweden, and Holland managed small tightenings (helping SovX intrinsics compress marginally and narrow the skew). Dubai was the worst performer of the day followed by Latvia, Qatar, Ireland, Turkey, and Ukraine.
Guest Post: The Jobs Plan We’d Get If Leading Growth Economists And Innovation Scholars Weren’t Being Volckerized — Part 2Submitted by Tyler Durden on 02/15/2010 - 20:14
Part 1 makes a case that an ideal way to catalyze job creation in the U.S. is to subsidize American consumers and producers of customized
education, and American operators of associated online markets. Part 1 concludes by speculating about the reasons that said subsidies are
absent from all talk of "jobs stimulus." From part 1: "A guess? In two words? Banks, children."
16:58 02/15 EU JUNCKER: WON'T SPECULATE ON INSTRUMENTS TO HELP GREECE
16:59 02/15 EU JUNCKER: NOT WISE TO PUBLICLY DISCUSS SPECIFIC AID TO GREECE
17:01 02/15 EU JUNCKER: GREECE WILL NOT BE LEFT TO MERCY OF MARKETS
16:46 02/15 EU JUNCKER: WE WILL RETURN TO THE GREECE TOPIC IN MID-MARCH
16:42 02/15 EU JUNCKER: GREECE NEW MEASURES ON MAR 16 IF RISKS MATERIALIZE
16:40 02/15 EU JUNCKER: GREECE SHALL ANNOUNCE ADDITIONAL MEASURES MARCH 16
17:01 02/15 EU JUNCKER: WE ARE DOING ALL WE CAN ON GREECE
16:47 02/15 EU JUNCKER: IT IS UP TO GREECE TO CUT ITS BUDGET DEFICIT
and the ever ready:
16:47 02/15 EU JUNCKER: EUROZONE STANDS READY TO ACT IF GREECE NEEDS
Uhm, they need it bud. Like yesterday.
Translation: "Translation: "that whole "bail out" thing... we were keeeeeding. Oh, but don't short Greece. That's not cool. You see we all have our collective head up our collective behind and we think it will all sort itself out if we just keep on doing nothing."
The media world is aflutter with recent revelations that Goldman may have facilitated Greece in creating an SPV that "rebalanced" budget payments via an interest rate swap arrangement, which the NYT describes as "a currency trade rather than a loan, [which] helped Athens meet Europe’s deficit rules while continuing to spend beyond its means." For those curious to get a much more detailed perspective on the mechanics of not just this, but a comparable Goldman-facilitated transaction, we suggest the following article in Risk Magazine, which focuses on a similar prior deal completed over six years ago. Yet we are fairly confident that all this barrage of information is merely a Houdini distraction act: the prospectus of the February 2009 securitization deal clearly delineates the mechanics of the deal; it was full public knowledge. Of course, a Europe gripped by sudden chaos due to their aggressive and quick "bail out" response with no regard for public backlash, is now taking full advantage of this recent "discovery" to make it seem that Greece and Goldman were hiding even more information: Bloomberg reports that "Greece was ordered by European Union regulators to disclose details of currency swaps it may have used to deal with the debts that threaten to swamp its economy." Germany's CDU has gone one step further and claims that the "Goldman deal broke the spirit of Euro rules." Alas, this is nothing but more scapegoating while Europe tries to find its bearings and, if possible, back out of the bail out while finding more pretexts to throw Greece out of the euro zone entirely. If it takes a Goldman smear campaign, so be it.
However, where the rub truly lies, and where things for Greece may get very hairy fairly quick, is in the interplay between the rating agencies and the rating of the Goldman underwritten swap agreement securitization SPV known better as Titlos PLC. As one recalls, it was precisely the rating agencies that were the proximal catalyst that started the collateral call cascade that ultimately resulted in AIG's failure and subsequent bailout (ignoring for a moment the pent up toxicity on AIG's books: both AIG then, and Greece now, are in deplorable shape: the question is what will bring it all to the surface). So here are some recent facts: On December 23, 2009, Moody's downgraded Titlos, following the prior day's downgrade of Greece itself from A1 to A2 with a negative outlook. Fact: last week Moody's said it could further downgrade Greece to Baa1. Fact: the Titlos PLC rating mirrors that of Greece itself. Fact: according to Moody's "Framework for De-Linking Hedge Counterparty Risks from Global Structured Finance Cashflow Transactions Moody's Methodology" a counterparty can enter into a hedge transaction with an SPV and continue to participate in that transaction without collateralizing its obligations so long as it maintains a long-term senior unsecured rating of at least A2. When (not if) Titlos is downgraded again, and its rating drops below the A2 collateralization threshold, look for AIG's margin call driven liquidity crisis escalation from the fall of 2008 to spread to Greece. And that's not all. The Titlos SPV itself may be null and void should the rating of the National Bank of Greece, as the Hedge Provider, drop below a "relevant rating" as defined in the hedge agreement. Should Greece then be forced, at Titlos' option, to unwind the swap agreement, and be forced to cash out to the tune of €5.4 billion (net of the 107.54 issuance price), look for all hell to break loose.
This is where Jim Cramer (and every sell side analyst) comes out and tells us all this is just the market exaggerating stuff and what not. Oh, and gold being up 1% as a fiat currency alternative is completely irrelevant to anything.
In other, actually relevant, news, the Greek Finance Minister is providing the usual share of cheerful Monday morning headlines. As Emperor Palpatine would say, the chaos in Europe is now complete.
08:13 02/15 GREECE FIN MIN: WE ARE IN A TERRIBLE MESS
08:24 02/15 GREECE FIN MIN: GREECE IS BEING PUSHED TOWARDS THE EDGE
- More bad news for Goldman - Greek Probe Uncovers ‘Long-Term Damage’ From Swaps Agreements (Bloomberg)
- Goldman goes rogue - special European audit to follow (Baseline Scenario)
- Europe's finance ministers face pressure over Greece (Bloomberg, BankingNews.gr)
- Looming problem of local debt in China - $1.6 trillion and rising (Chinese Politics, h/t Bruce)
- Mark Pittman remembrance: Battle over the bailout (NYT)
- Charges in web video bring unusual rebuttal from FDIC (NYT)
- Charlie Gasparino leaving CNBC for Fox Business News (TVNewser)