Archive - Jan 28, 2010

While Tim Geithner may hope the AIG situation is now dead and buried, it is likely anything but, with the recently launched investigation into disclosure fraud by the SIGTARP, and the relentless efforts by Darrell Issa to metaphorically crucify the tax-challenged treasury secretary currently ongoing. As these noble pursuits continue, we ask two simple questions.

The past week has seen a material break from the long-term support ever since the March lows. After peaking a short week ago, the market has found it impossible to rally on even the "great news" of earnings beats and on what is supposed to be a Bernanke reconfirmation today (should this "given" not transpire, or if even a vote delay is proposed, we hope everyone has an assortment of puts to hedge the fall). The more relevant question from a short-term trading exposure is whether the buying programs that emerge on every low-volume lull after a major selloff will be capable to sustain the increasingly shaky upward trajectory.

After several weeks of driftless correlation between stocks and the DXY, stocks are once again correlating almost perfectly with the critical EUR-JPY pair. Due to the acute impact on the DXY via the EUR-JPY, this is the easiest way to push around the DXY levels. Furthermore, the correlation return could be indicative that the JPY is once again the carry currency of choice. Couple this with a weakness in the short-end of the UST curve, and one can speculate that carry traders are quietly repurchashing dollar shorts and selling Bill positions, meaning that the Yen will likely be seeing rather substantial weakness in the coming weeks.

The Chinese economy must be getting out of control, because the Chinese government is doing the unthinkable: It is desperately trying to put the brakes on the economy. When you pump a stimulus package that represents 14% of GDP through a fire hose into an economy, which was already on shaky bubble foundation, in a very short time you’ll have some serious unintended consequences -- you’ll get super bubbles.

Once again, the presumably mysterious direct bidders take down well above their historical average.

• Yields 3.127% vs. Exp. 3.153%
• Bid To Cover 2.85 vs. Avg. 2.73 (Prev. 2.72)
• Indirects 51.1% vs. Avg. 57.94% (Prev. 44.83%)
• Indirect bid to cover 1.31
• Allotted at high 36.66%
• Indirect take down 51%
• Direct take down 11.8%

The Bernanke debate in the senate has started. Readers can watch it live on CSPAN. The latest Bernanke tally is as follows.

A mere three hours before the Bernanke cloture vote, America just got permission to hit 100% Debt/GDP. Thank Senate Democrats who just approved an amendment increasing the US debt ceiling by $1.9 trillion. The 60/40 vote was across party lines and only successful because Republican Sen.-elect Scott Brown has yet to be seated.

Of particular note is the difference between some readers perception of the Suntrust results and mine. If you take a close look at the results, you will see credit performance and asset quality is still deteriorating. The perception of a reprieve or moderation is potentially misleading due to the fact that Suntrust (like most other large banks) is actively shrinking their loan portfolio and transferring bad assets from one category to another.

To the credit of the CEO, he actually appears to tell it like it is and does not appear to be on a marketing binge to sugarcoat reality.

Not good for Europe: all the posturing about how Greece will never, ever be bailed out was just destroyed courtesy of a few words out of place by the IMF. IMF Managing Director John Lipsky just noted that the International Monetary Fund is ready to help Greece "in any way necessary." The quote comes from a Bloomberg TV interview conducted earlier.Perhaps that is why Greek CDS just hit another all time wide at 410 (+35). And joining the foot in the mouth crew is ECB president Trichet who said that "Debt on both sides of the Atlantic are unsustainable." So should we now assume that even Central Bankers admit we are headed for a brick wall at 120 mph?

The Nobel laureate points out the obvious: with the stimulus coming to an end and states facing major shortfall, the president's actions are a "big move in the right direction but not enough." Stiglitz calls for more intervention, and the real question is how to spend the money: says critical rate of return on public investments to have lower long-term national debt is only 6%. Therefore must direct money on technology, infrastructure, education. Yet by plowing money into banks, the return was zero (if not negative). "When putting banks on welfare, there were no condition like -they out to lend." Another observation: banks which borrow at zero rates, "look around the world where to invest and put their money abroad- they create bubbles in emerging markets, earning the angst and anger of people in those countries as the same time as they earn the angst and anger of people in the US."

Lastly, to the question if the president is being too populist with his approach, Stiglitz responds with a resounding no.

Stale quotes are impacting the validity of the DJIA per the NYSE. In as much as quotes are correct in realtime, the DOW reflects those properly.

More change you can believe in. Hopefully the NYSE can get their house in order in advance.

StandardStandard & Poor's Ratings Services no longer classifies the United Kingdom (AAA/Negative/A-1+) among the most stable and low-risk banking systems globally due to our view of the country's weak economic environment, the reputational damage we believe has been experienced by the banking industry, and what we see as the high dependence on state-support programs of a significant proportion of the industry.

12:12 pm update: NYSE gives all clear

12:10 pm update: Openbook trades reported fine, not crossing

11:47 am update: Openbook server being rebooted

11:38 am update: Quote from NYSE Call "BAC, JNJ, F, British Airways - they are all fucked"

11:16 am update: DOW index number is incorrect per the NYSE due to wrong input quotes

11:07 am update: Reinstating A thru H has not cured random quote dissemination.

11:06 am update: Quotes in the alphabetic symbol range A through HZZ for NYSE & NYSE Amex cash markets are being removed from the National Best Bid and Offer in the Consolidated Quote System (CQS). Standby for updates.

Update: NYSE rebooting servers, going through process of pulling national quotes.

RANsquawk 28th January US Morning Briefing - Stocks, Bonds, FX etc.