Archive - Oct 2010

• We hope SocGen accepts checks: Kerviel gets three years, told to repay $6.8 billion (Bloomberg)... does that mean Bernanke, one day, will be told to repay $23 trillion?
• Another predicition by Zero Hedge coming true - wifebeating Judge Peck will soon be forced to undo Lehman bankruptcy sale (Bloomberg)
• Soros Op Ed: America needs stimulus not virtue (FT)
• It's October. Is it time for a stock market crash? (Fortune)
• Art Laffer: The Bill Gates Income Tax  (WSJ)
• Bernanke Says Fiscal Limits Can Improve Federal Budget Path (Bloomberg)
• The Federal Reserve is selling paper gold and buying physical gold (Financial Sense)
• See what happens when you don't kill your currency fast enough - Europe Services, Manufacturing Cool as Retail Sales Decline (Bloomberg)
• Is 'Stupid' Replacing 'Silly' Good for Stocks? (RCM)

As Zero Hedge speculated yesterday, as a conclusion to its two-day meeting the BOJ has decided to aggressively engage in competitive devaluation of the Yen (for the n^th time in a row). Specifically, Shirakawa's impotent henchmen cut interest rates and pledged to keep rates at zero until prices are seen stable in what Reuters cited was "a surprise move showing its concern that a strong yen and slowing growth are undermining a fragile economic recovery." Luckily this move was not at all surprising to ZH readers. And, as we further expected, "the central bank also decided to set up, as a temporary measure, a 35 trillion yen ($419 billion) pool of funds to buy or accept as collateral assets such as government bonds, commercial paper and asset-backed securities." And to those who think Bernanke will allow Japan to engage in QE1002 without the US doing a little dollar debauchery of its own, we have some California real estate with just modestly fake title deeds to sell. Of course, none of this matter on a relative basis, as it will be followed merely by more devaluations elsewhere, but on an absolute basis it merely sent gold to a fresh all time high over $1,327. We hope that even gold's staunchest critics start seeing the pattern at this point...

A light day, with only the ISM nonmanufacturing index this morning and the weekly confidence survey later in the afternoon….

• Europe, Japan economies slowing, lower inflation likely: Pimco.
• Yen weakens on speculation Japan will intervene to curb currency's gains.
• AIG is said to seek up to $14.9B in Asia unit's IPO.
• AK Steel hikes electrical steel products prices by $350 per ton.
• Amazon likely to announce a deal to buy Spanish Internet retailer BuyVip for $96.5M.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 05/10/10

This daily report is designed to help traders find opportunities to trade against this group. The premise is very simple we are looking for 66% of retail traders to be trading either long or short a currency pair, we then look for opportunities to fade (trade against) this group. For example if 72.99% of traders are long the USD/CHF we look for opportunities to short that pair.

As hot as they’ve been, emerging markets are only just getting started. By 2018 the combined GDP of the BRIC’s, Brazil (EWZ), Russia (RSX), India (PIN), and China (FXI), will match that of the US. China to maintain a virile 8% annual growth rate for eight more years, while the US plods along at an arthritic 2% rate. How the “BRIC” almost became the “RIC”. Jim Chanos, you may be right about a China crash, but you’re early by a decade! (EWZ), (RSX), (PIN), (FXI)

The recent data do not point to a recovery. Factory orders are declining and inventory is building up. This is not what Bernanke and the Team Obama expected to happen. The economy has been stagnating further and now we are just waiting for stagnation and inflation.

“Secondary buyouts are almost of bubble of their own,” said Jon Moulton, who helped start the funds that grew into CVC Capital Partners Ltd. and Permira Advisers LLP, two of Europe’s biggest private equity firms. “If firms keep selling assets to one another, how real are their prices? how real are their returns?”

The Massive Mortgage Mess as we affectionately call it seems to be getting new names with each passing day - the latest one is, quite appropriately, RoboSigning Scandal (funny how after the stock market, "robotic" technology will soon becoming equated with the biggest mortgage scam in history). During today's Kudlow segment, CNBC's Diana Ollick who is by and far the company's best (and only) investigative reporter, confirms various so far unfounded rumors, that the government is planning to institute a 90 day foreclosure moratorium as it deals with the realization of just how big and pervasive the mortgage problem is, and even worse, will soon be. It is so bad that even a typically ebullient Larry Kudlow is forced to note that this is the "housing equivalent of the credit financial meltdown" and that "this is going to go on for ever." The biggest issue that is now developing, as we noted last week, is the fact that title insurers (firms such as Fidelity National, First American, Stewart Info and Old Republic) are refusing to insure mortgages in foreclosure or otherwise, uncertain as to who actually owns the title. And for all those who believe this will merely keep prices artificially high, we have very bad news - the problem with the title insurers walking away on fears of lawsuits is that no lender will be willing to write a mortgage without title insurance, meaning that suddenly the up-front component of home purchases will either necessarily have to surge, or home prices will have to plunge by a like amount, as there is simply not enough equity (read money) to cover the resulting debt deficiency. Alas, this mess is just starting, and as people realize how bad it is, it very well may lead to a total collapse in the housing market.

A quick glance at the USDJPY chart shows that something is afoot in the land of the rising sun. Following an earlier report from Bloomberg, that the BOJ may lose its independence (kinda like our own Fed) after 20 years of feeble QE have proven to be unsuccessful, BOJ governor Shirakawa must know the end (for quasi-prudent monetary policy) is in sight: "Your Party, an opposition group, plans to submit a bill in the Diet session running through December that would give the government a greater role in BOJ policymaking. Ichiro Ozawa, a former challenger to Prime Minister Naoto Kan whose calls for currency intervention and enlarged fiscal stimulus have been adopted by Kan, made a similar proposal last month." Which means that the BOJ's balance sheet, which has been relatively flat when compared to peer central banks, especially since FX interventions will likely be sterilized, is about to explode and the JPY will plunge once the carry traders reorient themselves to shorting the original carry currency of choice. Indeed, Reuters cites a Nikkei report that now that the BOJ two-day meeting is winding down, may announce yet another case of asset-backed security purchases. If that happens look for the recent dollar strength to persist, as Yen poundage becomes the mangaporn choice du jour.

Over the past few weeks the broad stock market has seemingly grown increasingly more bullish. Market pundits, traders, and even high profile money managers are stating publicly that the easy trade over the next few years will simply be being long high quality stocks. While time may prove these managers wise, it is likely a bit early to be that bullish. As a trader, our job is to create profits consistently regardless of price action. The best traders are masters of blocking out the noise and emotion, and letting various forms of data guide their decision making. At this point in time the bulls have the bears pushed against key resistance at the SPX 1150 area. However, the bears have their eyes set on the 1130 level and from there the key SPX 1040 support area. If the S&P 500 breaks out over the 1150 area with strong volume we could move higher to test recent highs; however, if the 1040 area were to give way to the bears the bullish parade would end. At this point in time, it is too early to tell which side is going to win this battle. The monthly chart of SPX tells the entire story.

David Kostin's recent track record leaves something to be desired: his most recent pair of thematic trade recommendations (Buy High Dividend stocks, Sell S&P; and Buy High Sharpe Ratio/Sell S&P) has not only underperformed the market, but has generated a negative absolute return. Which is not to say he has been wrong: in fact his latest recommended pairings were the most sensible he has suggested in a while. Yet the market does not care for rational choices, and either rewards high beta names in droves, or punishes them, while everything else languishes, in a zero alpha environment, coupled with low or no beta for the non risk-on sector. Yet that was September, and September is now over. What will happen in October? As Kostin suggests in the preface of his exhaustive monthly chartbook, "The fate of market rally depends on October data; 3Q earnings season: trick or treat?" With mid-term elections three days after Helloween, there may just be far too much money for the former to be even an option.

Sick of listening to the dime a dozen "experts" on CNBC every 5 minutes (with no apparent regard for their reputation - just roll the dice) discussing how the US economy will improve in Q4, after a drop in Q3? Too bad none of them can ever formulate even half a logical or sensible sentence to explain just what it is in the next 2 months and 26 days that will make this miraculous transformation happen, when with every passing day the economy gets worse and worse. In fact, can someone please explain to these soon to be unemployed individuals that the only reason stocks are up is because of QE2, which is happening only because the economy is in dire need of even more negative real interest rates, which is the functional equivalent of what buying securities achieves. It is no wonder we can't remember any of their names: they all blur in a gangrenous cloud of lies and stupidity. We can't say the same for David Rosenberg, who has so far been spot on in his predictions on the economy (the market will catch up sooner or later). The Canadian strategist was on Tom Keene's show earlier, in what always becomes an informative and insightful interview. Rosenberg's soundbite from this particular show: "I think fourth quarter [GDP] can be flat to negative, as almost all the GDP growth in Q3 was from auto-production." Yet to keep it from being one-sided, Keene brings on a bull to attempt to diffuse Rosie's permaunrosyness, in this case John Ryding of RDQ Economics. And yes, John fails.

As circulated by a very prominent prime broker, the following names (and several others) might show up on buy-in lists tomorrow: NOK and KLAC, but most notably SPY and IWM. As a reminder these kinds of broad index ETF buy-ins occurred in March and April 2009 when the market surged higher day after day without a care in the world. Couple this with tomorrow being a POMO day, focusing on the belly-heavy portion of the curve (9/30/2016 – 8/15/2020), and we have a feeling red is not in the cards for stocks.