Asset correlations are high, which is never a good sign for a market as psychotic as this one. Stock weakness translating into UST and dollarstrength almost tick for tick. Curiously, the 7 yr that saw such a vigorous reception yesterday is being sold off the heaviest on a duration adjusted basis. The Yen is surging with the traditional carry pairs dropping. Cable about to break 1.60, and the euro is now below 1.39: dollar just pushed back to highest levels since July.
Paulson Claims Guaranteeing Lehman Would Have Cost Fed Massive Losses; No Mention Of Massiver Losses Coming From GSEsSubmitted by Tyler Durden on 01/29/2010 - 12:22
The man on a book mission, who just incidentally destroyed America with his failed "bazooka threat" containment policy, is out with some new truly brilliant revelations, like for example that the consequences of Lehman's collapse were exacerbated due to the unanticipated actions of PriceWaterhouse Coopers, Lehman's receiver in the U.K., whose freezing of accounts is considered by Hank as the precipitating factor that nearly destroyed the money market system. Hank tops it off by saying that Lehman's $50 billion in impaired CRE loans posed a more substantial threat to the Federal Reserve than the $300+ billion in currently delinquent mortgages on the GSEs' books, which explains why he bailed out one and not the other.
Following the crowd, and going long the Brazilian Real while shorting the Yen has had some disastrous results for carry traders: starting off 2010 with a 9.2% loss is never a good thing to show your boss.
If anyone is confused why the market surged like a stung dog at 9:42 Eastern, don't be: that is the moment when the January Chicago PMI number, which came out at 61.5 (vs expectations of 57.2) compared to 58.7 in December (which of course was downward revised from 60), became available to paying subs. The mere, non-paying morts saw the number for the first at 9:45, when the bulk of the move higher was already completed. And just in case you think we forgot, here is a loving glance at the IOIA shennanigans happening behind the scenes. Guess who is the primary actor at precisely 9:42. Ah, the good ole' microgunning technique - gets 'em every time.
To: Lloyd Blankfein
Re: Winning the Public Relations War
Six months ago, with what I mistakenly took to be your tacit approval, I attempted to address ordinary Americans, almost as equals.
They envied and resented our firm; I sought merely to correct their misunderstandings about Goldman Sachs and send them on their way, so that they might more briskly resume their quest for gainful employment.
In hindsight, I misjudged their ability to see the reality of their situation, and of ours. At the time I accepted your strong suggestion that I never again try to speak directly to mortals -- or, as you referred to them, “The Morts.”
This is how the cold war will look like in the post-Lehman era (when all the debt risk is held on the public balance sheet): one country urging another to sell a third's bonds. According to Hank Paulson's soon to be released memoir, Russia had urged China to sell its GSE holdings in August 2008 "in a bid to force a bailout of the largest U.S. mortgage-finance companies." China refused... That time. Of course, what has transpired since is that China, through the Fed custodial account, has rotated a vast majority of its GSE holdings into Treasuries, in essence doing just what Pimco's Bill Gross has been doing since the beginning of 2009: offloading hundreds of billions of Fannie and Freddie bonds straight to the Federal Reserve. Alas, the Fed is 93% done with MBS QE... What happens when residual selling of bonds finally hits the public market, and the bottom falls out?
- Goldman not only monopolizes FICC, now has best (read fastest) equity desk; And this is why prop can never be seperated from flow at Goldman (Bloomberg)
- Conflicting Greek stories: EU has no Greek "plan B", Finance Chief pledges cuts (Bloomberg), EU reluctantly plans Greece bail out (FT)
- Funds flee Greece as Germany warns warns "fatal" eurozone crisis (Telegraph)
- Geithner's AIG bailout (The Nation)
- Fed chief on shaky footing after confirmation fight; Tough calls ahead on rates (WSJ)
- Stiglitz: Obama's banking proposals are a good first step (LA Times)
The increase in real GDP in the fourth quarter primarily reflected positive contributions from
private inventory investment, exports, and personal consumption expenditures (PCE). Imports, which
are a subtraction in the calculation of GDP, increased...
The acceleration in real GDP in the fourth quarter primarily reflected an acceleration in private
inventory investment, a deceleration in imports, and an upturn in nonresidential fixed investment that
were partly offset by decelerations in federal government spending and in PCE...
Current-dollar GDP -- the market value of the nation's output of goods and services -- increased
6.4 percent, or $221.3 billion, in the fourth quarter to a level of $14,463.4 billion. In the third quarter,
current-dollar GDP increased 2.6 percent, or $90.9 billion.
- Asian stock markets were trading sharply lower Friday after Wall Street's losses.
- Bernanke confirmed by Senate for second term as Fed Chairman in 70-30 vote.
- China's economic planning agency sees crude oil at average $80 a barrel this year.
- Euro trades at almost 9-mt low versus Yen on Greece's budget turmoil.
- European January inflation accelerates to fastest in 11 months
- India raises bank reserve rate by 75 bps, more than expected; Keeps key interest rates.
- Japan Consumer Prices fall 1.3% in December - the 10th monthly decline.
RANsquawk 29th January Morning Briefing - Stocks, Bonds, FX etc.
The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all. - David Reilly
Long-time readers know that I am keenly sensitive to lows set in the equity markets on
consumer confidence reports. In short, if the SP500 is above a significant Consumer Confidence report low
(some Consumer Confidence (CC) lows are more important than others, and this week’s CC low was quite
important as it came just prior to the confluence of several significant events following it), investor
confidence is greater than consumer confidence. If the SP500 is below a consumer confidence low, then
investor confidence is worse than consumer confidence. That in a nutshell explains why it is imperative
stock market traders pay close attention to the Jan 26 CC low was set at 1081-1086. Most important is 1086
pit session low (not the 1081 electronic low) which dovetails much better with the December low anchored
at 1085. - John Bougearel
A Greek bailout is rapidly becoming an extreme likelihood. The implication is that coupled with the newly emerging austerity measures in Portugal, Europe, but mostly Germany, will run out of options very quickly. On one hand Trichet and Merkel have stuck themselves in a corner with all the recent anti-moral hazard talk (and the question of whether Europe's strapped public sources can accumulate enough bailout capital in time is still open), and on the other, as Lehman so well demonstrated, a colossal event such as a eurozone member defaulting, would likely have the exact same unpredictable domino consequences that everyone has long been warning about. The silver lining - an imminent drop in the euro, and a boost to European exports. Perhaps this is the agenda all along - Greece will be the sacrificial lamb which will satisfy the bloodthirst of French and German unions, and prevent political landslides in all of Western Europe. And the kicker - they can't tell Bernanke and the U.S. they did not go along with the G-20 plan of keeping the euro artificially high: after all this will be spun as an "exogenous" event...Ironically, the bitter medicine for the rescue of both Spain, Portugal and the other PIIGS may just the transformation of PIIGS to PIIS.
Did a hedge gone wild account for nearly half of Wells Fargo's Q4 earnings? More importantly, when the economy turns sour, will the same "hedge" drag the company's net income down faster than a financial weapon of mass destruction obliterates lower Manhattan? An analysis of Wells Fargo's Mortgage Servicing Rights and associated "economic hedges" indicates that investors should be concerned by a flashing red light hidden deep within the bank's assets, and the associated loose accounting principles.
held outright: $1,913 billion (an increase of $67 billion MoM,
resulting from $64 billion increase in MBS and $3 billion in
Agency Debt), or a $7 billion increase sequentially.
borrowings: $165 billion. Number for the January 28th week has not been updated.
liquidity swaps, Maiden Lane and other assets: $196
billion. The CPFF program was was at $11.2 billion, another fresh all time low. FX liquidity swaps declined
by $1.075 billion to practically 0. Maiden Lane I
and Maiden Lane II were at $26.8 and $15.4
billion, while Maiden Lane III continues pretending it has value and came at $22.5 billion.