Archive - Jan 26, 2010

We can't tell you because ... er ... it will hurt national security, yeah, that's it ...

RANsquawk 26th January US Morning Briefing - Stocks, Bonds, FX etc.

Economicz does not get any more simplified than this.

A Hill aide has indicated that Hank Paulson has accepted the invitation, and will be present for tomorrow's grilling, keeping his old buddy Tim-O Tax company. We still have to hear if the last straggler, Goldman's Stephen Friedman, will also join the patriarchs of the wealth transfer plan under oath.

"Equities tend to do well when real rates are rising, but there are risks that it could be different this time if higher yields are driven by an inflation scare and/or heightened fiscal concerns. 'Start of tightening' remains our dominant theme of the year, and we continue to expect a consolidation in equities associated with the start of tightening. Market volatility around the start of Asian tightening and announcement of more onerous financial regulations confirms our long held view that the start of tightening could be many things other than the first Fed hike. With the general willingness of authorities to move away from crisis mode in recent weeks, we believe the tightening phase has now started and will intensify, and we expect positive payrolls will lead to a change in Fed language and the start of excess liquidity withdrawal in the next few months. We see 6% downside to MSCI Europe in the next 12 months and recommend selling into strength." - Teun Draaisma, Morgan Stanley

"Once private demand has become self-sustained, the sequencing of exit from accommodative monetary and fiscal policy should be guided by a variety of considerations, including whether: high fiscal deficits and debt are raising concerns about sustainability and sovereign risk—which is the primary consideration in many countries; low interest rates might be contributing to asset price bubbles; the exchange rate is under pressure to appreciate or depreciate as well as its position relative to medium-term fundamentals; and how quickly monetary or fiscal policy can be adjusted to changes in domestic demand." - IMF

After the double dip in now home sales and NAHB confidence, the unadjusted double dip in housing prices is following suit. Today's November Case-Shiller data showed that after having recorded several sequential increases in prices, November's -0.2% decline is substantiating the October -0.1% decline. The decline on a YoY basis was -5.3%. On a seasonally adjusted basis, the Composite 20 also indicated a moderation, as the sequential rate of increase declined from 0.3% to 0.2% in November, and indicated the same YoY decline as the unadjusted data of -5.3%.

• IMF World Economic Outlook revises 2010 world GDP to +3.9% from prior estimate of +3.1%, world revenue growth revised ro 2.4% from 1.5% (Link to come)
• Fink or Blankfein: who is lying: "BlackRock indicated that Goldman Sachs might be willing to
  accept less money than it was entitled to under its AIG
  contracts because the bank hadn’t received all of the collateral
  it requested. Goldman Sachs’s van Praag said the firm was never open to
  anything less than full repayment and that it never indicated
  otherwise to BlackRock." (Bloomberg)
• AIG bail out investigations launched (BBC)
• It is time for Ben Bernanke to resign (Real Clear Markets)
• Goldman parachute awaits Geithner to ease fall (Bloomberg)
• Goldman Sachs, in cross hairs, mulls options (Reuters)

"The ratings on Japan could fall by one notch if economic data remain weak and measures to boost medium-term growth are not forthcoming, given the country's high government debt burden and its weak demographic profile. Standard & Poor's will be looking for signs of government policy toward fiscal consolidation in the update of its medium-term fiscal plan, due to be released in the first half of 2010. Additional policy initiatives may also be revealed after the upper house elections in July. If on the other hand we conclude that government policies, either on the fiscal side or structural reform side, will moderate the government's debt trajectory, the ratings could stabilize at the current levels." S&P

• Asian stocks fall as China tightening concerns deepen; Yen, Dollar advance.
• Bank of Japan holds interest rate steady to fight deflation as Yen rises.
• China stocks drop a third day as loan outlook weighs on banks, developers.
• Chinese banks may see addln increase in their reserve ratios take effect today: media.
• Existing-home sales plunged in December by 16.7% - raising fresh concerns.
• Fed officials consider adopting interest on reserves as new benchmark rate.
• Obama to propose a 3-yr freeze on $447B in discretionary federal spending.
• S. Korean economic growth eases to 0.2%, slowest pace in three quarters.

I have decided to release a significant amount of opinion on Wells to the public, and have created an extended version of the report for subscribers with geo-specific charge-off estimates stemming from the FDIC/NY Fed model that we have created in house. A rather comprehensive piece of work. It appears that much of the sell side community is much, much more optimistic on the prospect of Wells than I am. It must be the Warren Buffet investment...

RANsquawk 26th January Morning Briefing - Stocks, Bonds, FX etc.

Is it time to offer a human sacrifice to atone for the financial crisis? You don’t give an arsonist a medal for putting out the fire. How the smartest kid from rural Dillon, South Carolina saved the world. When do we find out how smart Bernanke really is? Nothing less than the fate of the free world depends on the answer.

Excess injected marginal dollar liquidity has propped up risk assets (and consequently bank balance sheets) and bank capital bases, both domestically and abroad. 92.5% of the liquidity injected from quantitative easing (version 1.0) has been deployed already, leaving under $125B of remaining injections. With a secular credit downturn as the macro backdrop to these reflationary measures, the USD demand resurgence via deleveraging and debt deflation, as well as the much-needed capital inflows into dollar-denominated debt after a declining dollar and risk aversion has led to 30-yr wide 2s20s, what is the downside risk in all assets besides USD and USD debt?

One of Canada's largest pension funds, the Caisse de dépôt et placement du Québec, is refocusing its priorities as it tries to come back from an underwhelming investment performance...