Archive - Nov 24, 2010

• Asia stocks continue retreat on Korea clash; shelling adds to uncertainty.
• China orders crackdown on commodity speculators in widening anti-inflation campaign.
• Euro drops to 2-month low against US dollar amid concerns.
• Fed considered long-term rate target in secret; Numerical inflation objective also discussed.
• Fed officials disagreed on benefits of $600B stimulus, FOMC minutes show.
• Fed trims 2011 outlook on growth, jobs : FOMC Minutes.
• Ireland credit rating cut two levels to A by S&P as bank bailout adds debt.

With bond spreads in Europe refusing to slow down for the Thanksgiving holiday (unlike the US, Europe will be open through the end of the week), and both Portuguese and Spanish spreads jumping to fresh records, with Spain nearly approaching the bailout threshold of 5%, it appears that the market has now pretty much skipped Portugal whose insolvency is a given, and has commenced the "pack of wolves" thing on Madrid. Expect to hear many accusations that CDS traders, and their naked shorting, is the spawn of satan any minute now, and for CDS trading limits to be imposed imminently (not to mention LCH hiking Portuguese and Spanish margins as early as today), even though as we have demonstrated repeatedly in the past, it is all cash bond sellers who are driving the price down. Nonetheless, it is a fact that "price action is now self-reinforcing" - what this means for Spain and for Europe is explained by Goldman's Francesco Garzarelli. Note that this is only a small part of the story. As Zero Hedge discussed first in early July, a far biggest systemic threat is what is happening (or rather, not happening) in the mortgage space, where just like in the US, Spanish Cajas continue to misrepresent the "phantom" bad debt on a national level, however unlike the US and the nationalized GSEs, there is no sovereign backstop to a nation full of delinquent mortgages. Back then the Stress Test farce brushed this biggest risk under the rug. Now that reality is back, this topic will soon come back with a vengeance.

The Mortgage Bankers Association’s index of mortgage applications is reported to have risen 2.1% in the week ended November 19. At this writing, we have no further details. Market wise, there will be no POMO today.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 24/11/10

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U.S. stocks dropped more than one percent on Tuesday with two Korea's exchanging fire adding to the already worrisome Irish debt crisis in Europe. Europe's debt crisis has mostly been factored in, so the new development in Korea is what really jolted the market.

The market is limping in to Thanksgiving like Kenny Easterday with a broken wrist thanks to the European Union being on shakier ground than Gabourey Sidibe on a tight rope, North Korea dropping bombs on South Korea after South Korea's TSA apparently tried to touch Kim Jong-ils junk, and the Fed...

The prospect of major hedge funds and mutual funds getting redemption notices makes traders on Wall Street very nervous. This is the type of stuff that makes me nervous too because you don't know how it's going to play out. It might turn out to be nothing, and blow over, or it might snowball and wreak havoc in financial markets.