Archive - Dec 14, 2009

Developing story as highlights from George Papandreou's speech become available. Some notable snippets include his desire to cut deficits below 3% of GDP by 2013 (good luck), a cut in debt sovereign starting in 2012, and, most notably, a limitation on banker bonuses in the form a 90% bonus tax.

More headlines: Greek PM says will privatise companies not essential to the state, will proceed with state asset sales

Even with lots of worthless chatter coming out of the White House in the past 24 hours, one solitary fighter for "the common man" emerges in the form of Barney Frank. Whether this is due to the Congressman not getting a thick enough envelope endorsed and signed by the Big 5 banks, or not, we don't know yet. However, courtesy of our sources on the Hill, the latest development our of Washington is that Frank is trying to generate support for a Congressional bill that would allow only retail banks with a lending function to have Fed discount window access. While this is a brilliantly simple solution to see hedge funds, and for some reason Bank and Financial Holding Companies, like Goldman Sachs finally open up some retail depository branches, the response from Wall Street would be furious. Many banks still exist only courtesy of the last recourse short-term funding option that the discount window affords them. If the Big 18 are forced to lend, which is the prima facie reason for this bill, only to be able to fund their speculative gambling courtesy of zero percent cost of capital, then all bets will surely be off. Goldman without discount window access is the most ludicrous thing imaginable.

The Dubai government will also announce a reorganization law today which will be available to Dubai World's (DW) creditors if they cannot voluntarily agree on restructuring parameters. Again, this may imply that the government would like to limit further cash injections into DW and Nakheel (beyond the $10bn just announced). - JP Morgan

The only way to maintain the global ponzi bubble as insiders cash out in ever increasing droves has now become a wave of rolling bailouts not only in the US, but across the entire world. The latest little casualty that could: Austria's Hypo Group Alpe Adria, the country's fifth largest bank by assets, which was nationalilzed ealier in a €5.5 billion bailout package. But ignore that: Europe is long and strong, with no bank balance sheet assets writedowns, a flourishing export economy, a surging currency and unprecedented growth ahead of soon to be (non) bankrupt Eastern European and Baltic states. The sarcasm in the previous statement is certainly not lost on the Austrian National Bank which said that "the whole Austrian economy has been able to avert a massive threat at a critical moment in time." No further commentary needed. Ben Bernanke's Moral Hazard world tour soon coming to an insolvent bank near your cottage.

"Last week I was a participant in the Wall Street Journal's Future of Finance Initiative in England. WSJ has written a summary of the conference highlights, and missed some key points. Allow me to fill in the blanks." - Janet Tavakoli

"Below we highlight President Obama’s weekly address, in which he blames the big bad banks for luring borrowers into the myriad of products during the credit bubble, a bubble that in our view was promulgated by the nation’s policymakers.

When things go awry, however, it is very easy for those in Washington to point the fingers at somebody else. What did Congress, the SEC, the Fed, and the White House think in that 2002-07 bubble period except that excess credit was creating jobs; in turn, those jobs were creating prosperity and that prosperity led to votes. Now the borrowers, who signed contracts, and as adults should also be held accountable, are being treated as “victims” by politicians and the media." - David Rosenberg

RANsquawk 14th December US Morning Briefing - Stocks, Bonds, FX etc.

The big guns in LA are out swinging, with news emerging that Jeff Gundlach will get funding and a minority investment from of bond giant and other major TCW defector, Oaktree. Howard Marks' firm is now set to eat TCW's municipal lunch. And all the disciples of Robert Day had to do was promote the guy. Also, futures in the "Battle of the Attanasios"(Paul and Mark) just surged majorly in favor of the House creator.

Journalist thrown out of Copenhagen by UN security thugs, Dems to lift debt ceiling in game of currency Jenga, Sovereign debt crises emerging, Obama protects Bush torture lawyer Yoo, Afghan 'army' a bunch of pot-smoking teenagers, Chavez launches Telenovela.

It is good to see who is back in charge. Obama is patiently sitting in the conference room playing Brick Breaker on his Bbery. This probably means that private jets are finally back. Also, not a good endorsement of the Acela train.

"Executives from Goldman Sachs Group Inc. (GS), Morgan Stanley (MS) and Citigroup Inc. (C) are delayed as they try to make it to a meeting Monday with President Barack Obama at the White House, Fox Business Network reports. Flights for Goldman Chief Executive Lloyd Blankfein, Morgan Stanley CEI John Mack and Citigroup Chairman Richard Parsons are being delayed by fog."

Someone is making big bucks on the continuing Dubai story. I wonder who that might be.

David Paterson speaks on CNBC. Not good news for New York inhabitants, or NY CDS shorts. Or not... NY State CDS hit an all time wide of 357 bps in December. They are now around 140. Any escalation of NY's fiscal crisis may simply imply more and more taxpayer bailouts. Swaption time.

We start the outlook for the week outlining Gold and EURUSD. Gold exhibits a lot of divergence on the hourly chart and has seen almost down to the dollar the Elliott extension for the 5th leg of the bearish impulse from the highs at 1,113.2. We expect a retracement towards 1,165/1,170 which corresponds to the 50% retracement from the highs and a move back to the wave 4 of lower order. If that zone holds on the upside we expect the market will then dip to 1,070 which is the next key support on the downside. Similarly, EURUSD shows divergence on the hourly and 3-hour charts. In terms of sub-structure we cannot exclude a final push to 1.4565, but overall we think the market should bounce this week to retest the 50-day moving average resistance at 1.4880. The slope of the 50-dma is in the process of flattening, and the daily MACD is now negative. This could indicate a much deeper correction is in the works on the bigger picture. This remains our view. We would recommend selling a bounce in the 1.4880 area if we do get there.

As more and more of the broad public figures out what this thing called sovereign CDS is, the next logical question (especially for algos and correlation desks) is whether or not sovereign leveraged levels can be gamed, or is there any specific correlation that can be arbed as the dominos start to fall (not everyone has the luxury of printing limitless amount of the world's reserve currency). Below we present a chart correlating the CDS with the Debt to GDP ratios of various indicative countries. The chart excludes the outliers of Argentina, Venezuela and the Ukraine, which even though having less than 100% Debt-to-GDP are all trading 1000 bps and wider.

Is there a correlation here? You decide. The R2 is 0.5143, which probably means that algos will gradually start to flatline the correlation as more and more sovereign CDS-trading players emerge.

Today at 7pm, Greek Prime Minister George Papandreou will address “the economy, the productive model, the credibility of the state mechanism, the confidence of our European partners and, above all, the daily life and prospects of Greeks." The reason for this extraordinary measure (keep in mind this is Greece, not D.C., where the president provides hourly updates on the latest BLS releases) is the recent plunge in Greek stocks and government bonds, and culminating with several rating agencies either downgrading the country (Fitch) or putting it on downgrade review (S&P). Most recently, the yield on Greek 10 years hit 5.295% on concerns the country's fiscal deficit of 12.7% will makes its already extreme leverage even more unmanageable. And the biggest wildcard: the massive reliance of Greek banks on ECB repos backed by potentially soon to be much lass valuable government debt.