Archive - Nov 22, 2010

The Federal Reserve has been manipulating the economy for the last 20 years through the “wealth effect.” When the wealth effect gets given back, plus interest, the markets crash. The Fed is now using quantitative easing to trick us into buying one overpriced asset, stocks, because the alternative, bonds, is even more overpriced. Long term US trend growth is only 2% a year. We’re going to have another crash. The recent moves in American stocks have been purely speculative. While the S&P 500 went up 20%, the junky part went up 120%. Cash is the only hiding place.

Now that RINO is the stuff of Chinese fraud folklore, many turn their attention to those who allowed this abortion to happen in the first place: namely the company's accountant, Frazer Frost, LLP ("FF"). We have tried to get some more information on the recently incepted accounting company, unfortunately, when we click on the website's link requiring more information on the "auditor" we get the following "under construction" blank page. The little we could glean, from RINO's 10-K, is the following information: "Moore, Stephens Wurth Frazer and Torbet, LLP (“MSWFT”), located at 135 South State College Blvd., Suite 300, Brea, CA 92821 was approved by our audit committee and board of directors to be our new independent accountant. Effective on January 1, 2010, certain partners of MSWFT and Frost, PLLC (“Frost”) formed Frazer Frost, LLP, which became the Company’s new independent accounting firm.)" Following the abysmal lack of audit controls at RINO, we will leave it to the Federal authorities to determine whether FF is just another Arthur Anderson in the making. However, in our attempt to protect readers from what could be a Chinese-focused Enron fallout, we present the 26 public tickers all audited by FF. It is no surprise that among the company's clients is a preponderance of Chinese companies (many of which have used the recent Chinese IPO bubble to list on various American exchanges). While we caution readers to do their own due diligence, it is probably safe to assume that a short basked of the following 26 names will generate outsized alpha over the next few months: a very rare outcome in a market determined exclusively by levered beta strategies.

Presented without comment.

This is certainly true of most classic movies, and it applies quite well to shock and awe emergency/extraordinary economic or monetary policies. Indeed it has so far been true of QE 2.0, and we are finding out for now this could also be true of PIIGS bailout. Part of the reaction is completely natural. Bailing out Greece was a first within the EU and perceived as a sign of dedication to fighting the crisis by European institutions it squeezed out weak shorts and profit takers in PIIGS bonds. However the second time around the surprise effect is lost, and if anything it raises the questions as to how many countries really bailed out, is austerity working (Ireland was one of the first to adopt measures), and how many can Europe reasonably bail out before the euro currency's existence is put in question and the richer countries simply throw in the towel on helping their poorer neighbors in an attempt to save themselves. As of now it appears the worries are dominating euphoria. - Nic Lenoir

Headlines flashing that according to RTE, Sinn Fein protesters are now trying to enter Irish government buildings. As always, someone please keep an eye out on Waddell and Reed. It's one of those days. And with stub quotes now eliminated, limit buy orders at $0.00 will be honored.

Paul Volcker's public loss of control of the Federal Reserve Board in 1987, combined with President Reagan's unwillingness to publicly back him, ultimately led to Volcker's resignation that same year. Kevin Warsh's Wall Street Journal op-ed wasn't just coincidence, and it presumably signals rising discontent within the Fed that will eventially reveal itself in votes against Bernanke. Volcker's loss of control led to his resignation, and Bernanke's similar problems probably point to his.

• More new reserve currency rumblings: China's Finance Ministry to Sell $1.2 Billion of Yuan Bonds in Hong Kong (Bloomberg)
• Q+A: How will Ireland's bailout work? (Reuters)
• Evans-Pritchard: Portugal next as EMU's Máquina Infernal keeps ticking (Telegraph)
• Kevin Hassett on why he signed the open letter to Bernanke (Bloomberg)
• S&P Shifts Outlook on NZ's Foreign Currency Rating To Negative (WSJ)
• Hong Kong Property Sales Slide 83% as Higher Tax Deters Weekend Homebuyers (Bloomberg)
• Bill Gross was right (look Ma, no FOMC minutes): Pessimistic Fed to slash growth forecasts (FT)
• U.S. security rethinking airline screening: Pistole (Reuters)
• US Banks Face $100bn Basel III Shortfall (FT)

The past week has been a traumatic one for the Irish electorate. People feel misled and betrayed. We have now reached a point where the Irish people need political certainty to take them beyond the coming two months. So, we believe it is time to fix a date for a general election in the second half of January 2011.

Exactly was we predicted in the beginning of the year, Ireland is the 2nd Euro nation that didn't need a bailout to get bailed out! Now that some may start taking this seriously, I go through a quick history of how we got to this point and prep for an intense analysis of how the contagion will unfold, how ugly the haircuts (that nobody needs, of course) will get, and who may be the next domino to fall.

Although since Ireland is now also wider on the day, it is not really contagion. It is more failed bailout. And the EURUSD is now below Friday close. The market now believes the Irish bailout has failed.

Earlier today Moody's finally woke up from its slumber, threatening it would do a "multi-notch downgrade, albeit one that would leave the country still with an investment grade rating", which the people who have made a business model of being behind the curve said is now the most likely outcome of the review of Ireland's sovereign credit rating. Moody's (which rates Ireland Aa2 and has the country on review for downgrade) said that an aid package from the European Union and the International Monetary Fund would shift the burden of supporting Ireland's banks onto the Irish sovereign, and would therefore be "a credit negative for Ireland." Apparently bankruptcy is not covered under the "credit negatives" for Ireland. And while what Moody's does or thinks is completely irrelevant, what the Irish Green party (whose prior opinion we presented in a very distinct clip last night) has announced it will quit the Irish government in January, leaving PM Brian Cowen without a majority in the government, and leaving the door open for elections, and thus a complete undoing of the bailout. Looks like yesterday's announcement will be the shortest rescue in history. CDS is already seeing that, as Irish CDS was last seen lifting offers of 520 and wider, after a 507 close on Friday. And Futures already following the action. It will be another busy day for Brian Sack.

• China’s stocks fell, after policy makers increased the amount of money that banks must set aside to fight inflation.
• Euro, Asian stocks rise after Ireland seeks bank bailout; Bond risk drops.
• Europe agrees €80-€90B Irish aid.
• Greece's govt is losing hope of getting additional time to pay back a $150B loan.
• Ireland faces 'outsized' problem, seeks EU, IMF bailout.
• Thailand's GDP grew 6.7% in Q3 - slowest pace in three quarters.
• UK govt to launch review of environmental regulation of North Sea oil, gas rigs in Jan.
• US banks face $100B Basel III shortfall; bulk of equity capital problems at Big Six.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 22/11/10

Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this offers very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs.