Archive - Jan 2010

RANsquawk 4th January US Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 4th January Morning Briefing - Stocks, Bonds, FX etc.

Inside Beltwayistan, a number of Bushevik oil patch zombies still roam the recession-blasted landscape mindlessly chanting their Caspian mantra, "Happiness is multiple pipelines" - with the caveat that they flow westwards and bypass both Russia and Iran. They've now added a new word to their vocabulary, "Nabucco," and worse, have bitten a number of Obama administration officials and visiting European politicians, who have joined their shuffling ranks.

US Troops accused of executing children, can't photograph Xmas lights in Orwell's Britain, Soros suggests gold-backed SDR collateral wealth transfer, Ireland goes cashless to harvest souls, UK State can invade homes for eco-friendliness, Pakistani volleyball explodes into 2010.

The implications of a looming “W.” The risk of economic Armageddon is still out there. Please pass the Xanax.

• Martin Whitman to relinquish Third Avenue Chief Investment slot. (End of an era) [reuters]
• Greece prepares fiscal plan for EU.  (Write "I will not forge GDP numbers" 200 times first) [bbc news]
• Burj Dubai occupancy may reach 75 percent this year.  (And Dubai's GDP growth may reach 75 percent too).  [bloomberg]
• Bernanke: "Low rates didn't inflate housing bubble." (Alan: "Check is in the mail Ben!") [bloomberg]

Bernanke gave us an insight into his thinking this weekend. If you think he is going to get tough this year with monetary policy you can forget it. The Carry Trade is alive and well folks....

"For interest rate exposure, or duration, we are currently cutting back in the U.S. and U.K. because, as mentioned before, supply and demand dynamics are likely to be negatively affected as borrowing rises and central bank buying declines...With corporate bonds, we are becoming a bit more cautious than we have been. In the third and fourth quarters of 2009, we believed the massive narrowing of spreads we saw in the second quarter wouldn’t go much further. We weren’t necessarily selling credit on any scale, but we’d reduced buying....In agency MBS, we are underweight, having reduced our exposure as the Fed’s buying programs have dramatically tightened spreads...we are underweight TIPS versus the benchmark, reflecting our view that risks are currently weighted toward a disinflationary environment." Paul McCulley

Ben Bernanke delivered a speech yesterday that could mark a turning point in the Fed's views on and handling of potential asset bubbles. Despite Helicopter Ben's usual attempts to blame everyone else but the Fed for the housing bubble, at the very end of the talk Bernanke actually suggested that the Fed would consider using monetary policy to combat asset bubbles. What a start to 2010.

Could be ...

Though certainly a kind of libertarian streak exists here at Zero Hedge we try not to make a habit of covering purely civil liberties issues on what is, after all, at its core a financial publication. Sometimes, however, events relevant to online publications with a contrarian (or, if you prefer, anti-authoritarian) bent expose such profound incompetence and overreaching on the part of the powers that be that we simply would be remiss not to review them here.

When it comes to the asset side of the Federal Reserve's balance sheet, there are no secrets: with the winddown of the bulk of the Fed's emergency liquidity programs by February 1, the majority of the Fed's current $2.2 trillion in assets will continue being outright-held securities. And even as the emergency programs sunset, the quasi-permanent, QE remnants will be here to stay. What we know for certain is that the current $1.8 trillion in Treasuries and MBS will rise to at least $2.2 trillion, as the balance of QE round 1 is exhausted. Will this purchasing of outright securities end there? Hardly. As the Fed is the only market for MBS, and as the MBS market can not allow a dramatic rise in 30 year mortgage rates, which is precisely what will happen if the buyer of first resort disappears, we fully expect some form of QE to show up and grab the baton where QE 1.0 ends. In fact just today, Fed economist Wayne Passmore, under the aegis of Atlanta Fed president Dennis Lockhart, stated during the annual American Economic Association meeting that GSE ABS should have an outright explicit guarantee by the Federal Reserve. Forget about QE then - this would be an onboarding of over $6 trillion in various assets of dubious worth, which currently exist in the limbo of semi-Fed guaranteed securities, yet which have an implicit guarantee. Of course, should the broader Fed listen to young master Passmore, look for John Williams' expectation of hyperinflation as soon as 2010 to be very promptly met. The danger of the Fed's next unpredictable step is so great that it is even causing insomnia for none other than BlackRock big man Larry Fink, who asks rhetorically "Are they going to kill the housing market?" Well Larry, unless the Wall Street lobby hustles, and the Fed isn't forced to print another cool trillion under the guise of Mutual Assured Destruction, they very well might.

So now that we (don't) know about the assets, what about that much less discussed topic: the Fed's liabilities?

Jordan Kotick at Barclays Capital shared technical charts tale of some possible market corrections in Q1 or Q2 of 2010.

Will 2010 be a year of Black Swans or Black Sloths? You be the judge...

A Carnegie Deli-sized smattering of news stories from a long weekend that reflects the dominant theme within collective social mood: angst.