Archive - Dec 7, 2009

One thing you might expect in the midst of a bank confidence crisis (aside from a spike in mattress sales) is a spike in currency demand.

As we speculated on Friday, whoever bought those 7,500 calls on inside information ahead of the NYB assumption of massive taxpayer subsidies in the form of the AmTrust's $2 billion "failed bank" consideration via the FDIC, is now much richer. And we demand a full investigation into who and why i) leaked this information and ii) profited from it. With the stock up 9%, any inactivity by Mary Schapiro is equivalent to her spitting in the face of anyone still caring about a free and fair market.

RANsquawk 7th December US Morning Briefing - Stocks, Bonds, FX etc.

Greece was placed on Creditwatch with Negative Implications by S&P, noting that the country's A- rating may be cut within 2 months. Greece CDS has widened by 11 bps to 194 on the news, and Greece now accounts for 19.7% of all SovX risk currently.

The sad state of affairs in gold land: the premium for the 1 ounce Gold Eagle coins has expanded from $59 to $99, Krugerrands are not available for sale in most places, and this most recent development just out of the US Mint: the one-tenth ounce American Eagle inventory at the mint has been depleted, almost instantaneously after the coin was made available for purchase. This occurred the day after the mint announced the release of fractional Eagle Gold Bullion Coins in one-half ounce, one-quarter ounce, and one-tenth ounce weights.

The focus of Rosie's morning note has to do with debunking the latest misconception pushed by Barron's, which in all honesty is merely paraphrasing one of Rosie's own successors at Merrill Lynch - David Bianco, whose most recent fluff piece "Harvesting the Truth" (presented below) was an insult to thinking homo sapiens worldwide. The particular item that Rosie has beef with is the Bianco allegation that the consumer is not really 70% of US GDP. Here is Rosie's rebuttal.

"The inflation outlook from the monetary and fiscal standpoint looks truly deflationary, yet some
believe that dollar weakness will reverse this circumstance and create inflation. This is unlikely.
First, our imports are about 13% of GDP, and even if the dollar were to halve in value, the price
of imported goods would not only have to compete with U.S. producers, but also their price
adjustment would have to offset the other 87% of factors included in the pricing indices. Second,
unlike the 1930s, a 50% decline in the dollar would be difficult to engineer. Fisher recommended
to Roosevelt that the U.S. should exit the gold standard, which he did in April of 1933. That was
a fixed exchange rate system, and within three months the dollar lost more than 30% against the
gold block countries and fell to 60% of its former value within the next five months. This spurred
our exports and provided some price inflation (2.9% per year, GDP deflator) for the next four
years. Then in 1937, the tax increases (the next policy mistake) reversed the positive growth rate
of the economy and drove price levels and economic activity downward again. However, even
with that small period of price increases the overall price level never recovered from the 25%
decline that occurred from 1929 to 1933, and thus deflation reigned. Today, the declining dollar
is a good thing in terms of our trade balance, but the modest change will be insufficient to offset
the negative forces of insufficient domestic demand." - Wasatch Funds

You would think that insiders would finally change their tune after almost a year of straight line gains in the market. Think again. The most recent insider trading data from finviz indicates that insider sellling outpaces buying by a ratio of 82! In the most recent data set, $11.6 million in stock was purchased by insiders, while a whopping $957 million was sold. And somehow pundits are still spinning this mass orchestrated sell into the bid by those in the know as a bull market.

In FX the story everybody is watching since Friday is the USD, and where will its strength stop, as it is bringing with it equity weakness in the face of a strong employment report and a sharp correction in the commodity space.

Gold takes a hit to the chin, Nobel 'Peace Prize' winner Obama escalates in Afghanistan, doctored jobs report causes mayhem in sentient AI, ECB to discuss potential Greece debt default, Yahoo threatens Cryptome over leaked surveillance document.

• Dubai government ring-fences key assets, stocks tumble, "while property stocks were all trading limit down" (abcnews)
• New pay skirmish at AIG: lots of threats, lots of "we want outs", lots of what have yous (WSJ)
• Vacant possessions: "85% of UK loans made in past five years are in breach of loan agreements" (FT)
• Treasury said to link Citigroup sale to TARP payback (Bloomberg)
• Top tick indicator: permabankruptcy candidate Clear Channel attempting to raise $2.5 billion (WSJ)
• Yemen teeters on brink of failure (LATimes, h/t steak)
• More details on Jeff Gundlach's sudden firing by TCW (WSJ)

• Asia currencies fall, led by Rupiah, on bets US rates to rise.
• China’s top leaders pledged to maintain a “moderately” loose monetary policy stance.
• European stock markets fell as the dollar jumped to a five week high against the euro.
• Nikkei hits 6-week high on weaker yen.
• Sales at US retailers probably rose as consumer spending fuelled economy.
• Treasury Dept to earn $146.5M from its auction of 12.7M Capital One Fincl warrants.

RANsquawk 7th December Morning Briefing - Stocks, Bonds, FX etc.

The magnifying glass has been wiped clean and is re-focused on the under-appreciated, sell side manipulated train wreck that is the commercial real estate space. Goldman has just upgraded the sector and is currently peddling CMBS to to clients who obviously don't believe a thing that I say. I am now provided a peak into a large CRE REIT, down to the property level and will follow up with a look into the CMBS that hold the mortgages behind these properties. Next up, Reggie vs. Goldman, a head to head CRE confrontation...

RANsquawk 7th December Morning Briefing - Stocks, Bonds, FX etc.