Archive - Feb 17, 2010

The dollar just closed yesterday's gap. And here we were hoping that Dubai, er, Greece, and all that stuff was contained. Now that the (record) weak hands got shaken out of their euro shorts, it's time to back the truck up. And time to focus on that other STUPID member, Italy, where storm clouds have so far not been gathering. Then again, with Moody's just downgrading Greek banks' hybrid securities ratings, something tells us the Boot has just bought itself an additional temporary reprieve.

Goldman's distinctly feminine A. Joseph Cohen is out with the latest prognostication. Punxsutawney Abbey must have not seen her shadow yet again, resulting in a call for 6 more decades of Dow at 36,000, or in this case S&P hitting 1,300 by the end of the year. The fact that blind monkey, with a penchant for dart (and/or feces) throwing have had a more successful track record than AJC is irrelevant, yet disturbing . To wit: On a CNBC appearance in March 2008, she predicted S&P 500 at 1550 by end 2008, In an August 10, 2007 appearance on CNBC the Oracle of nothing predicted the S&P 500 would rally to 1,600 by December; In December 2007 A. Joseph predicted the S&P 500 index would reach 1,675 in 2008 (the S&P 500 traded to less than half, or 741.02, in November 2008).

For anyone who thought that Greece's double digit budget deficit as % of GDP (or is that triple digit? We don't know - remember all the numbers are false) was the actual cause for the need to bailout Greece, you are about to get a rude awakening: see, it was all the fault of six speculative US and UK hedge funds. Dow Jones reports that French Finance Minister Christine Lagarade has said that "six financial institutions have been singled out for speculating on Greek debt during the ongoing crisis." Heaven forbid such a thing as a somewhat efficient market exists, and Greek yields were merely an indication of the country's otherwise perfectly default status. Nah, surely it is all just speculation.

RANsquawk 17th February US Morning Briefing - Stocks, Bonds, FX etc.

Yesterday we first pointed out the rotation at the top of foreign US debt holders, with China selling $34 billion in USTs (shifting to a longer duration exposure by selling Bills and buying Bonds) to a new total of $755 billion, and giving up the top US debt holder position to Japan, which with $769 billion in UST holdings regained the top spot for the first time since August 2008. Overall, total foreign debt holdings in 2009 increased by $538 billion, with two unexpected buyers emerging in the face of Japan and the UK, which combined accounted for 58% (or $314 billion) of all 2009 purchases. We say surprising, because it has been long publicized that both countries have their own internal funding issues to grapple with: Japan an uncontrollable deflation and a demographic shift, which would make JGB's a better buying proposition than chasing micro yield in the US, while the UK is engaged in its own version of Quantitative Easing. With the BOE taking on excess supply one wonders how the UK can spare the dime to purchase our own debt (of which we have plenty more to issue in the future)?

Spain's 15 year €5 billion 4.65% offering has priced at 99.831, as expected 85 bps over midswaps. The issue is rated Aaa/AA+.

I thought the folks at ZH who could not attend last month's talk by yours truly sponsored by the Columbia University Center for Financial Engineering & NYU Courrant Institute of Mathematical Sciences would like to listen to the audio file. The link below downloads an 8MB WAV file, so don't try to listen on your PDA/cell phone.

Nobel-winning Columbia professor Robert Mundell, considered the "father of the euro" provides some biased views on his creation, and how it is impacted by Greece (spoiler alert: this will only make the EMU stronger). To be sure, he sees no risks of Greece spillover into the broader eurozone, and in fact is calling for the adoption of the euro by Britain. Probably not worth holding your breath on that one. What he does highlights is that Greece is not the powderkeg - Italy is. This is inline with Bank of America and others' warning that the biggest concern in the eurozone crisis is indeed the Boot. "I think it would be very difficult to bail Italy out. I think we have to make sure that whatever is being done to Greece, and possibly to Portugal and maybe Ireland has to also save Italy. Italy has got to be worried...Right now I think they should let the euro ever, for the next 10 years, rise above $1.40." We are confidence Bernanke and Shirakawa will miss that particular memo.

It appears as if the market declines of 2008 and early 2009 are being treated as nothing more than a bad dream, as if the investment industry has gone right back to business as usual. This extreme brevity of financial memory is breathtaking. Surely, we should attempt to look back and learn something from the mistakes that gave rise to the worst period in markets since the Great Depression. In an effort to engage in exactly this kind of learning experience, I have put together my list of the top ten lessons we seem to have failed to learn. So let’s dive in! - James Montier, GMO

• Greece loses EU voting power in blow to sovereignty (Telegraph)
• Goldman Sachs didn't disclose swap, investors "fooled" (Bloomberg)
• BofE rate setters voted 9-0 to halt QE (Telegraph)
• Deja vu: Dubai World said to present restructuring plan in March... 2010 or 2999? (Bloomberg)
• Walgreen to buy Duane Reade for $1 billion (Reuters)
• UK unemployment jumps to highest since 1987 (Bloomberg)

The Spanish 15 year €5 year bonds whose auction all of Europe is watching closely, will price today at a 12 basis point premium to where existing 15 year bonds trade. The book has closed with €12 billion worth of orders. The sale was managed by BBVA, Credit Agricole, HSBC, Banco Santander and Soc Gen. Last week Portugal priced a 10 year issue at 20 bps over existing debt, and 140 bps over midswaps. The issue has since tightened by 17 basis points to 123.

Spain currently has an unemployment rate of nearly 20% and saw its GDP contract 0.1% in Q4, declining 3.1% in 2009.

• Asian stocks, currencies rally on improved earnings, global growth outlook.
• China cuts US Treasury holdings by most (-4.3%) in decade; Japan buys more debt.
• Hong Kong Exchange expects more IPOs from overseas to tap China investors.
• Japan's Service demand fell 0.9% in December, biggest slide in nine months.
• Oil trades above $77 after advancing as Euro strengthens against Dollar.
• Treasuries decline on speculation US Housing, Production rose last month.
• Treasury says new loans by 11 TARP banks rose 13% in December.
• U.K. unemployment claims jump to highest since 1997.

RANsquawk 17th February Morning Briefing - Stocks, Bonds, FX etc.

To be fair, this article could just as easily have been called “Waking a Zombie World”. While various people and governments point to the USA as the bad actor in this mess, in fact it has taken dozens of nations to form this conga line to hell and the rest of the world is far from blameless. Nor is America the sole residence of the world’s zombie population.

RANsquawk 17th February Morning Briefing - Stocks, Bonds, FX etc.