Archive - Nov 2010

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.

O COUNTRY, writhing in thy chains of debt--

With fierce, wild efforts to be free,--

Not seeing that with every strain--

The Ponzi globalists close firmer over thee...

Tonight's stunning financial piece de resistance comes from Wyatt Emerich of The Cleveland Current. In what is sure to inspire some serious ire among all those who once believed Ronald Reagan that it was the USSR that was the "Evil Empire", Emmerich analyzes disposable income and economic benefits among several key income classes and comes to the stunning (and verifiable) conclusion that "a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year." And that excludes benefits from Supplemental Security Income disability checks. America is now a country which punishes those middle-class people who not only try to work hard, but avoid scamming the system. Not surprisingly, it is not only the richest and most audacious thieves that prosper - it is also the penny scammers at the very bottom of the economic ladder that rip off the middle class each and every day, courtesy of the world's most generous entitlement system. Perhaps if Reagan were alive today, he would wish to modify the object of his once legendary remark.

A year ago Irish Green Party politician Paul Nicholas Gogarty told Irish Labor Party TD "With all due respect, in the most unparliamentary language; Fuck you, Deputy Stagg, fuck you!... We Are Screwed As A Country Because Of The Wrongdoing Of Others." It took a year for Gogarty to be proven correct. Now that the "others" have been identified as virtually every UK and German bank, not to mention every insolvent financial institution in the world, and of course, the Fed's banking buddies, one wonders: just how will Ireland respond? Also, when will America finally see one of its pathetic excuses for representatives finally do the right thing and actually speak the truth. InTrade over/under: never. 

Earlier tonight, Ireland applied for conditional funding assistance and will therefore be the first Eurozone sovereign accessing the EU-IMF support framework instituted in May. The latest European Economics Analyst provides background. There are still several uncertainties surrounding the deal, including the government’s political support (a by-election is due this Thursday), and negotiations on the banks. The yield spread between 5-yr Irish government bonds and their German counterparts has fallen by around 100bp from the 600bp highs reached on 11 November. At this point, we see scope only for a further 50bp tightening. That said, we think that this represents an important step towards a resolution of EMU sovereign woes, and a gradual relaxation of the risk premium that has built up in Italy and Spain, and in Eastern Europe. - Goldman Sachs