Archive - Dec 2009

Latest data out of the BLS is in tune with the most recent miraculous reading of national unemployment, a number which as highlighted allows more ways to be gamed than not. In any case, for those who believe BLS data, here are the most improved states (those farmers must sure be hiring ahead of the winter season): Louisiana: from 7.4% to 6.7%, Nebraska: from 4.9% to 4.5%, Kansas: from 6.8% to 6.3%, Connecticut: 8.8% to 8.2%, and Kentucky: 11.2% to 10.6%.

Yesterday CCU surprised the bond world by upsizing its $750 million bond offering, which Zero Hedge highlighted previously as an indication of the top-tick exuberance in the bond market, to $2.5 billion. And according to preliminary rumors it may very well have been the top, with Thomson Reuters' IFR service saying that "counsel for certain lenders has delivered a letter asserting that the transaction and the UOP was an event of default under the CCU Credit Agreement." This is not good for CCU, which had hoped it had sufficiently placated dissident bondholders when it dramatically changed the use of proceeds of the upsized transaction.

RANsquawk 18th December US Morning Briefing - Stocks, Bonds, FX

Cramer recommends Citi and in the same paragraph says "Look, I have no idea really how Citigroup is doing." At least he is honest. And just as minor mathematical point: a 100% loss from $3.15 is the same as a 100% loss from 3,150,000.

Was it a mere two weeks ago that the dollar was at the year's lows? This is what a (moderate) squeeze looks like: a 135.8% annualized move. Last time the DXY was here was on September 8. And yet stocks are still confusing a higher dollar with strength. Look for a snapback.

Views on upcoming, yet unannounced testimonies from Blankfein, Dimon et al from Janet Tavakoli, as well as the maddening inefficiency and government when it comes to all things financial. And some stern condemnations: "Credit derivatives have been criticized for information asymmetry, so why not criticize how these committees operate? I am happy to publicly state that they are rigged."

As one so vividly remembers, probably the key catalyst that set off the chain of events last fall following the collapse of Lehman were the closed loop (and much delayed) downgrades of AIG, which in a span of hours went from AAA to much lower, thus springing various collateral requirements which the company could not satisfy, and in turn forcing even more downgrades, until ultimately it became clear that the firm (like most others on Wall Street) is merely a lot of hot air and unjustified valuations. Ironically, the rating agencies, and more specifically Moody's, could once again be the catalyst for the much anticipated collapse of the European house of cards, which as all now know, has Greece as its weakest link. The threat: a Greek downgrade by Moody's from its current rating of A1 to anything with a B handle would make the country's sovereign debt ineligible for ECB collateral in 2011, sparking a sovereign liquidity crisis. Recall that both Fitch and S&P recently downgraded Greece to BBB+, implying that the fate of Greece, and specifically its ability to access cheap and quick capital via the ECB, could be cut off on the whim of the rating agency that Warren Buffett himself can't stop selling enough of.

On September 2 Goldman upgraded Textron to Conviction Buy ($23 PT) and provided the following catalysts as key items to keep an eye on:

A
year ago, each of Textron’s businesses were going the wrong way:
Corporate profits and the Industrial economy were rolling over, which
had negative implications for Cessna and Industrial, Financials were
facing severe challenges which had negative implications for TFC, and a
leadership change was about to take place in Washington with negative
implications for Defense and therefore Bell and Systems. Today,
we see the exact opposite occurring.

Unfortunately for Goldman's pie in the sky/conviction buy thesis what we really are seeing today is the opposite of the opposite, which comes to us via the following press release from Textron:

The company has
been in discussions with a large customer concerning the cancellation of
about $1.1 billion of jets it had on order with Cessna.

• Skies darken for Ben Bernanke nomination (Politico)
• Discord behind TARP payment (WSJ)
• UK public sector net borrowing hits record high in November (BBC)
• The Great stabilization: The recession was less calamitous than many feared. Its aftermath will be more dangerous than many expect (Economist)
• Bank of England official says crisis shows U.K. bank exodus may be no bad thing (Bloomberg)
• Obama loses lending lever as Citigroup, Wells Fargo repay TARP (Bloomberg)

RANsquawk 18th December Morning Briefing - Stocks, Bonds, FX etc.

• Asian stocks fall on concern banks will need to raise more equity.
• Bank of Japan keeps its benchmark interest rate at 0.1% in unanimous vote.
• Dollar rises, stocks fall worldwide as Greek downgrade fans safety demand.
• European Union approved a 6 percent increase in spending next year.
• German Business confidence probably rose to the highest since July 2008.
• Initial Jobless Claims in US unexpectedly increased to 480,000 last week.
• Japan central bank says it won't tolerate deflation; holds key interest rate at 0.1 percent.
• Japan shares down as banks retreat on prospect of more stringent capital requirements

At least a few MDs at Morgan Stanley DO read my blog, but it is obvious that the guys in the real estate division don't. Early in 2008 I named Morgan Stanley the "The Riskiest Bank on the Street". The following is one of the reasons why.

In Whitehorse on Thursday, Canada’s finance ministers met to discuss the future of Canada’s pension system. No agreements are expected on how to enhance Canadians’ retirement savings. A pension summit is expected to take place later this year, but the public already knows what it wants: to retire with dignity.

Could the next black/green/dark gray swan be so obvious that it has avoided everyone? Well, except for the deputy governor of the Bank of China, who just gave the world a startling reminder of economics 101, when he said that it is "getting harder for governments to buy United States Treasuries because the US's shrinking current-account gap is reducing the supply of dollars overseas." Oops.