Archive - Jan 2010

• Asian shares were mixed, with tech stocks gaining after solid earnings from Intel.
• China charged US with “backsliding” toward protectionism; warns on Google.
• Chinese equity funds had a third week of outflows as the central bank tightened lending.
• Foreign Direct Investment in China more than doubles to $12.1B in Dec as economy recovers.
• Jobless Claims in US increased 11,000 last week to 444,000.
• Mortgage rates mostly fell in the past week, 30-yr fixed-rate mortgages back toward 5%.

This paper considers the potential liquidity risks related to interoperability ~ the issue at the center of the current multi-jurisdictional regulatory review that has temporarily suspended progress toward increased competition in equity clearing. It discusses several options regulators and CCPs could consider to mitigate the systemic risks that could be triggered from liquidity risks in multi-CCP links, and also presents options to minimise the credit risk to CCPs arising from the failure of an inter-operating CCP.

RANsquawk 15th January Morning Briefing - Stocks, Bonds, FX etc.

Pray tell, how can anyone in their right mind trust the economic reporting of company that says it is running 13 cylinders of an 8 cylinder engine leading the world to economic recovery when they overtly, and without denial, censor free speech and publicly outlaw research and even Internet searches on government activities?

The grave unemployment situation not only undermines the economic health and recovery hopes, but is also acting as a major source of financial strain on the Fed's books. It is observed that the Fed has been taking in huge deficits on its books because of UI programs. The total UI withdrawals on Fed books in 2009 were $139 billion against deposits of just $31 billion received from states for unemployment. While the withdrawals in 2009 have increased by 320% when compared with withdrawals in 2007, the deposits have declined by 6.6%. The deficit has increased to nearly $107 billion from nearly no deficit, two years ago.

Are bond markets signaling the start of the Great Transition? Will inflationists or deflationists get the last laugh?

The Big Bonus story is coming out and boy is it going to stink. D.C. has done it's best to put lipstick on this pig. A talking down to the bank bosses and a 'see through' tax. That strategy is not going work.

Recently China has once again attained prominent status among the investment community, where while the majority still adheres to the old, permabullish view that Chinese risks are contained, increasingly more fund managers are convinced that the Beijing-based central-planned economy is due for a major pullback. One such one investor, as we pointed out previously, is Jim Chanos, whose exemplary track record means his opinion should never be ignored. Somehow we doubt Chanos is much insulted by Jim Rogers' derogatory remarks of his understanding of the China situation. He who laughs last...

We present critical observations by Corriente Advisors which incorporate all the salient ideas of Chanos, Edwards, Grice and other such skeptics into a fluid narrative which is a must read for all fascinated by the topic of China.

The EUR/AUD has been an important forex cross in the realm of risk and liquidity. Could a potential reversal be at hand, signaling the inevitable return to risk aversion and liquidity chasing?

Spreads were broadly wider in the US as all the indices deteriorated. IG trades 13bps tight (rich) to its 50d moving average, which is a Z-Score of -1.4s.d. At 80bps, IG has closed tighter on only 6 days in the last year. The last five days have seen IG flat to its 50d moving average. Indices generally outperformed intrinsics with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but widened the skew, ExHVOL outperformed but narrowed the skew, HY outperformed but narrowed the skew. 17.6% of names in IG moved more than their historical vol would imply as higher vol names outperformed lower vol names by 2.07% to 3.37%. IG's vol is around 4.38% per 1 day period, which leaves 96 names higher vol and 29 lower vol than the index.

The United States of America, in global strategic terms, is tumbling down a series of misadventures, declining in a “step of sighs” through frustrating economic and military endeavors as it discovers that its superpower structures and massive capital wealth are insufficient to cope with a transformed world.

This transformed world was created by the very superpower capabilities and massive wealth of the West. Even the People’s Republic of China (PRC) is beginning to recognize that massive financial holdings are inadequate to address all challenges to national survival and well-being.

"[A]t a centerpiece of the president's reform proposals is to give the government the tools to unwind, dismember, break up, sell these institutions without the taxpayer being put in the position of having to absorb their losses. That's one of the most important reasons why we have to get reform in place. We had no choice at the time other than to do this. And I'm, personally, very confident it was the right thing to do, and we did it in the best way possible for the American people." - Tim Geithner

Total Federal Reserve balance sheet assets for the week of January 13 hit a new all time record high of $2,226 billion ($37 billion higher compared to the prior month, and a $11 billion increase sequentially).

Laurie Goodman of Amherst Securities and formerly of UBS, has come out with a damning report, which estimates that the total losses at Fannie and Freddie could be as high as a mindblowing $448 billion. Keep in mind that so far the government has injected $112 billion into the nationalized entities. Yet if this estimate is correct, another $336 billion will have to be funneled from taxpayers. This money will have to come from new debt issuance and is certain to add to the multi trillion budget deficit. Also, putting the banker tax in perspective, the number is nearly three time greater than the $120 billion expected to be collected over a period of many years, and causing so little ruckus on Wall Street and so much posturing by the President.

It appears the Bernanke, Geithner, LLP has the Perpetual Motion Machine working perfectly at the moment. Bank shares grinding up, gold and oil prices capped and collared, and bond prices spiking immediately prior to each of the giant auctions. And don't forget the constant and continuous breakout parade in various stocks. All happening admidst a deepening recession.