2010 is not proving to be an auspicious start for the Paulson & Co. multi-billionaire (or any other hedge fund manager for that matter). Bloomberg has disclosed that John Paulson's recently launched gold fund has dropped 14% in January. Hopefully massive long exposure in Bank of America stock (anecdotally, and somewhat imprudently, unhedged with CDS) has made up for the disappointing beginning.
All the posturing that the US would never repeat the UK's "collosal mistake" of levying banker taxes, is about to be unwound. Senate Democrats Barbara Boxer and James Webb have proposed a 50% tax on bonuses of more than $400,000 in all financial firms having received TARP assistance (yes, that includes Goldman). Look for the market to plunge now as Wall Street fires a warning shot against this proposal from ever seeing the light of day.
In another indication of the spreading politically correct insanity gripping virtually everyone and everything, Barclays has now informed its analysts they are forbidden to use the ever so eloquent PIIGS acronym. In an article retitled Swing Acronym Ordered Out Of Barclays (we like the original title "At Barclays Capital, Piigs Won't Fly" much better), Bloomberg notes that Barclays executive Valerie Monchi has "told analysts yesterday not to use the acronym for Portugal, Italy, Ireland, Greece and Spain in notes to clients." That may be all good and fine, which is why we would like to point as that even as PIIGS may be grounded, STUPIDs are still flying and are now 3 wider to 226 bps.
Assuming some massive UUP March call position is not being rolled, today was the second biggest volume day in UUP March Calls ($23 strike) ever. We believe this is not a roll as the trade did not have the pre-negotiated look of a usual roll, which does not move the actual price of the option itself materially. The March $23 strikes have been trading in a wide range opening just north of $0.70 and last traded $0.79/0.80. This is a major bet on future dollar strength. And, by implication, a leveraged bet on major market downside.
I went for a 5km run at the club I recently joined (I aim to lose 30 pounds ASAP just to get back to being fat again, and the 30 pounds after that will finally take me back to my college days). Fast Money came on the tube and it was almost laughable to see them all grappling for the reasons why the selloff occurred. China here. Greece there. No, sorry. Remember Bob Farrell’s eleventh rule: “it’s the news that makes the market; not the other way around.” - David Rosenberg
So much for a FDIC-like entity (with a limitless Treasury line of credit mind you) being set up in Europe. The ECB's board member Juergen Stark flatly rejected the idea of setting up a monetary fund to bail out troubled EMU member states. I think we all know who these are. "I take exception to the consideration [being given] to granting additional means, even under strict conditions, for an instrument that is not necessary," Stark told German public radio Deutsche Welle. "And it is also not compatible with the rules on which we agreed at the start of the currency union," he stressed.
Why Blaming CDS For The Sovereign Risk Flare Is Idiotic, And Why Gold Is Now A Global Fiat-Currency AlternativeSubmitted by Tyler Durden on 02/05/2010 - 12:51
The ever so handsome Tim Backshall of Credit Derivatives Research explains to all rabid anti-CDSites why CDS is the last thing one has to worry about in the spreading sovereign crisis, and why looking at 10% budget deficits (just like Lehman's $50 billion underwater balance sheet was responsible for the firm's bankruptcy, instead of unfounded speculation that naked shorting was the cause) may be the actual reason why half of Europe will soon have to be bailed out. CDS are merely instruments to express a view. And if Joe Cassano found a job somewhere where he is the party responsible for selling tens of billions in gross sovereign notional, then so be it. That said, bailing out the seller of Greek, or any other nation's, protection will hopefully not become an issue all too soon. Alas, the rumor that this seller may be Goldman Sachs (that BS about Greek banks selling Greek CDS causes 5 minute bouts of hypoxia-inducing guffawing in every CDS trader in the business) may mean that one year from now, when AIG is long forgotten (and defunct), we will be discussing why the Fed bailed out Goldman's Greek exposure at 100 cents on the dollar. Lastly, another point by Backshall - don't sell your gold. Should a full blown fiat contagion take hold, the dollar may go higher, but gold, which can not be printed in the mad dash to prop up the Titanic in its final minutes, will surely not go lower.
The Minneapolis Fed has launched a useful charting service which analyzes not only the Great Recession, which allegedly has ended (must be news to the 1.8 million...and growing...newly uncovered unemployed, but we'll take the NBER's word for it) but the even Greater Recovery that we have presumably been in for the past 6 months or so. At least those Fed critters have a twisted sense of humor. In order to quantify just how funny they are, the Min Fed provides the following preamble "The 2007-2009 recession is widely thought to have ended sometime last summer. How bad was this recession, and how quickly is the economy recovering? How does this recession and recovery compare to previous cycles?"How indeed? Here are the charts which just a cursory perusal will lead the peruser to wonder what on earth the administration is smoking. Recovery indeed.
The G7 meeting this weekend at Iqualit will be busy (one assumes the need for tear gas 10 miles south of true north will be somewhat moderated). Even busier if the so far uncorroborated rumor we have received turns out to be true.
Portugal's 9.3% budget deficit is about to get a whole lot worse. A proposed Law of Regional Finances, which was approved yesterday by a parliamentary committee, which would increase funds sent to Portugal's Madeira and Azores regions by €50 million, and keep rising until it hits €86 million by 2013, was just ratified into law by the Portuguese parliament. This is precisely what the Finance Minister had been dreading.
Brazil's BES Investimento Pulls Bond Deal On"Market Conditions", Company Is Local Unit Of Portuguese BankSubmitted by Tyler Durden on 02/05/2010 - 10:49
This week showed just how jittery the IPO sentiment was, with so many IPOs pulled on "market conditions" even including perpetual cash cows such as porn sites. Now the weakness in the market is shifting to bonds. The latest casualty is Brazil's BES Investimento bank which has postponed a $350 million bond on "market conditions." We are not so sure if the reason is with "market conditions" or whether the true reason has to do with BES being a local unit of Portugues bank Banco Espirito Santo S/A. We anticipate any corporate entities that have a relation with an increasing number of European countries will soon become locked out from the capital markets.
Just flashing headlines for now:
SCHAPIRO:IN COMING WKS,WILL PROPOSE SHRT SELLING RESTRICTIONS
SCHAPIRO:REPEATS CONSIDERING MORE MEASURES ON MONEY MKT FNDS
SCHAPIRO:REPEATS STAFF TO EXAMINE MERITS OF FLOATING NAV
The dead cat bounce in the most shorted names is taking some of the recent peripheral high fliers tighter, at the expense of increased widening at the "risk-free" core. We expect much more of this risk transfer from the zone of perceived risk to the heart of Europein the weeks/months to come. Some key levels: HY 600, IG 101, SovX 110., Greece 415, Portugal 225, UK 99.50
NFP -20,000, Consensus +15,000, Non-Seasonally Adjusted Unemployment Rate (U3 And U6) Surges To Record 10.6% And 18%Submitted by Tyler Durden on 02/05/2010 - 10:09
The January NFP number came in at -20,000, a mere 5k away from Goldman's -25,000 estimate. Consensus was for +15,000. December, as all prior months, saw an expected major downward revision to -150,000 from -85,000. The January Birth/Death adjustment was for -427K from +25K in December. Despite a deterioration in every metric, the unemployment rate dropped from 10.% to 9.7%, even with a consensus at 10.0%. A glitch in the excel model is further corroborated when one considers that the civilian labor force participation rate actually rose in January from 64.6 to 64.7. Yet a number that avoids some of the constant fudging by the BLS, the Non-Seasonally Adjusted number, hit a new recent record: instead of 9.7%, this number was 10.6%, a 0.9% increase from December! The same can be seen in the U-6 data. NSA U-6 is now at a record 18%, even as the seasonally adjusted number declined to 16.5%.
We have speculated that the Federal Reserve or the U.S. Treasury could be allowing a "buyer" to accumulate stock index futures to boost stock prices. Perhaps the "buyer" has stopped buying. We know that the S&P 500 has dropped 6.6% since the close on January 20, the day before President Obama announced a plan to restrict proprietary trading by banks. Moreover, the S&P 500 fell on seven of those 11 trading days.