For anyone who thought that Greece's double digit budget deficit as % of GDP (or is that triple digit? We don't know - remember all the numbers are false) was the actual cause for the need to bailout Greece, you are about to get a rude awakening: see, it was all the fault of six speculative US and UK hedge funds. Dow Jones reports that French Finance Minister Christine Lagarade has said that "six financial institutions have been singled out for speculating on Greek debt during the ongoing crisis." Heaven forbid such a thing as a somewhat efficient market exists, and Greek yields were merely an indication of the country's otherwise perfectly default status. Nah, surely it is all just speculation.
Yesterday we first pointed out the rotation at the top of foreign US debt holders, with China selling $34 billion in USTs (shifting to a longer duration exposure by selling Bills and buying Bonds) to a new total of $755 billion, and giving up the top US debt holder position to Japan, which with $769 billion in UST holdings regained the top spot for the first time since August 2008. Overall, total foreign debt holdings in 2009 increased by $538 billion, with two unexpected buyers emerging in the face of Japan and the UK, which combined accounted for 58% (or $314 billion) of all 2009 purchases. We say surprising, because it has been long publicized that both countries have their own internal funding issues to grapple with: Japan an uncontrollable deflation and a demographic shift, which would make JGB's a better buying proposition than chasing micro yield in the US, while the UK is engaged in its own version of Quantitative Easing. With the BOE taking on excess supply one wonders how the UK can spare the dime to purchase our own debt (of which we have plenty more to issue in the future)?
Spain's 15 year €5 billion 4.65% offering has priced at 99.831, as expected 85 bps over midswaps. The issue is rated Aaa/AA+.
Nobel-winning Columbia professor Robert Mundell, considered the "father of the euro" provides some biased views on his creation, and how it is impacted by Greece (spoiler alert: this will only make the EMU stronger). To be sure, he sees no risks of Greece spillover into the broader eurozone, and in fact is calling for the adoption of the euro by Britain. Probably not worth holding your breath on that one. What he does highlights is that Greece is not the powderkeg - Italy is. This is inline with Bank of America and others' warning that the biggest concern in the eurozone crisis is indeed the Boot. "I think it would be very difficult to bail Italy out. I think we have to make sure that whatever is being done to Greece, and possibly to Portugal and maybe Ireland has to also save Italy. Italy has got to be worried...Right now I think they should let the euro ever, for the next 10 years, rise above $1.40." We are confidence Bernanke and Shirakawa will miss that particular memo.
It appears as if the market declines of 2008 and early 2009 are being treated as nothing more than a bad dream, as if the investment industry has gone right back to business as usual. This extreme brevity of financial memory is breathtaking. Surely, we should attempt to look back and learn something from the mistakes that gave rise to the worst period in markets since the Great Depression. In an effort to engage in exactly this kind of learning experience, I have put together my list of the top ten lessons we seem to have failed to learn. So let’s dive in! - James Montier, GMO
- Greece loses EU voting power in blow to sovereignty (Telegraph)
- Goldman Sachs didn't disclose swap, investors "fooled" (Bloomberg)
- BofE rate setters voted 9-0 to halt QE (Telegraph)
- Deja vu: Dubai World said to present restructuring plan in March... 2010 or 2999? (Bloomberg)
- Walgreen to buy Duane Reade for $1 billion (Reuters)
- UK unemployment jumps to highest since 1987 (Bloomberg)
Spain €5 Billion 15 Year Notes To Price 85 bps Wide Of Benchmark Swap Rate, 12 bps Premium To Current 15 Year BondsSubmitted by Tyler Durden on 02/17/2010 - 09:26
The Spanish 15 year €5 year bonds whose auction all of Europe is watching closely, will price today at a 12 basis point premium to where existing 15 year bonds trade. The book has closed with €12 billion worth of orders. The sale was managed by BBVA, Credit Agricole, HSBC, Banco Santander and Soc Gen. Last week Portugal priced a 10 year issue at 20 bps over existing debt, and 140 bps over midswaps. The issue has since tightened by 17 basis points to 123.
Spain currently has an unemployment rate of nearly 20% and saw its GDP contract 0.1% in Q4, declining 3.1% in 2009.
- Asian stocks, currencies rally on improved earnings, global growth outlook.
- China cuts US Treasury holdings by most (-4.3%) in decade; Japan buys more debt.
- Hong Kong Exchange expects more IPOs from overseas to tap China investors.
- Japan's Service demand fell 0.9% in December, biggest slide in nine months.
- Oil trades above $77 after advancing as Euro strengthens against Dollar.
- Treasuries decline on speculation US Housing, Production rose last month.
- Treasury says new loans by 11 TARP banks rose 13% in December.
- U.K. unemployment claims jump to highest since 1997.
RANsquawk 17th February Morning Briefing - Stocks, Bonds, FX etc.
The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct. What began as a routine report before the Senate Finance Committee Tuesday ended with Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world's largest economy. "Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…" said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. "You know what? It doesn't matter. None of this—this so-called 'money'—really matters at all." "It's just an illusion," a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. "Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless."
The topic that generates by far the greatest disagreement in the investment community, just after whether we will have inflation or deflation, is whether gold is cheap or expensive. And as much as gold is a speculative commodity, it does have roots in fundamental supply and demand. A good source in demystifying the fundamentals in the gold industry, The World Gold Council, has released its summary analysis of investment trends, and market and economic influences in the gold market in Q4 of 2009.
ABC Consumer Comfort Index Drops Again As "88% Of Respondents Think Economy Is Still In A Recession"Submitted by Tyler Durden on 02/16/2010 - 20:04
The one index that just refused to correlate to the market, and the UMichigan Index, and the Confidence Board, was released today, and once again hit a 2010 low of -49. The index has been in a -48 to -49 range for the past five weeks. The primary reason for this week's drop was due to a 6 point decline in the personal finance component, from -6 to -12, the lowest reading since December 6, with not much change in the other two readings: National Economy and Buying Conditions. It is somewhat confounding that this index persistently "refuses" to go up with all the other self-reinforcing confidence indices out there.Maybe this is the reason: from the report "Eighty-eight percent think that the economy, despite what economists say to the contrary, is still in a recession."
Paulson & Co Dec. 31 2009 13-F Released, Major Additions To Citigroup And Suntrust, Six New Names In Top 20 HoldingsSubmitted by Tyler Durden on 02/16/2010 - 19:14
Paulson & Co's December 31, 2009 13-F was just released. The disclosure for the fund's equity long (shorts are not disclosed, neither are credit cash nor CDS and other holdings) reveals $19.8 billion in positions. The fund's top position continues to be GLD at a value of $3.4 billion (unchanged from September 30). Notable is the addition of 206.7 million shares to the fund's Citi position which is now worth approximately $1.7 billion. Other notable financial additions include SunTrust Bank, in which Paulson added 28.8 million shares, Wells Fargo, a new 17.5 million position worth $472.3 million, JPMorgan common, in which the fund added 5 million shares to 7 million for $291 million, as well as JPM Warrants worth $250 million (a new position). Other new positions in the top 20 include Comcast (44 million share), XTO Energy (10 million shares), IMS Health (18 million shares), and Pfizer (15.6 million shares). A primary reduced holding is the fund's exposure in Bank Of America - Common stock, which declined by 8.8 million shares to 151 million, or $2.27 billion. This was offset by the purchase of 13.8 million BAC "Units" worth $205 million.
A just-published study covering nearly 500,000 corporate results over 27 years found how companies “round up” their numbers to beat their estimates fractionally knowing that the fast-money momentum players will trade the stock price higher. On average, it only takes $31,000 in quarterly net income to beat estimates by a penny, which can be handled easily by a tweak to inventory valuation. The report also showed that companies that find ways to “round up” are also the ones with the highest propensity for re-statements in the future. Well worth a read and hopefully ends the nonsense that we see in the media and Wall Street reports over the extent to which financial results are meeting or beating pre-conceived EPS projections. - David Rosenberg
While I am not predicting an imminent market crash in China, the possibility of a major slowdown in China is increasing in my view. Yet commodity prices and stocks do not seem to be priced for this scenario. I feel a short emerging market exposure offers a good risk reward trade at present. An interesting counter view to the current enthusiasm for China is presented in an intriguing note written by Paul Krugman, written as far back as 1994 called "The Myth of Asia's Miracle". The note laid out a bearish view on the Tiger economies of the time, which proved to be correct. However, on China he noted that in 1994, the World Bank estimated that the Chinese economy was 40% the size of the US economy, and that if it continued on its current growth rate of 10%, it would overtake the US by 2010. Alas that forecast has proven to be wrong, and I suspect that current forecast of Chinese growth will also prove to be exaggerated. Given the amount of stimulus rolling off, I believe we will see a long term peak growth rate in the second quarter of this year, with growth slowing substantially after that. - Horseman Global