Archive - Feb 2, 2010

With every Tom, Dick and Harry convinced they can take on Goldman's Jim O'Neill and come up with a wittier, edgier, Gen Y/Z BRIC equivalent, Zero Hedge has decided to join the fray. We present the STUPIDs: Spain, Turkey, UK, Portgual, Italy and Dubai. We admit that while the BRICs and some the other more ridiculous sounding acronyms we have seen out there recently are a gauge into various countries' pent up "growth" potential, the STUPID index is merely a countdown to the inevitable sovereign debt implsion that so far has been postponed due to cash printers working on overdrive 24/7. And to make it simple for the armchair acronym specialists, since the index is in CDS, the chart will go up... but not on the pervasive permabullish sentiment.

Gee, channel break out... on negative trendline volume. Where have we seen this algo driven market before? Yawn. Wake us up when one SPY VWAP order can move the market 10%.

The latest out of the Richmond Fed is a joke of a paper that while analyzing the possibility that the entire stock market and dollar carry trade is one zero cost of capital-funded bubble, skips over this possibility and instead goes on to analyze the "factors that could contribute to a fundamentals-based explanation for the recent rally in certain risky asset markets." Spoiler alert: No bubble - it's all based in sound reality.

Now that every trigger happy, red-bull OD'ing HiFTer is keenly following every lockbox in possession of Greek bureaucrats to see how many billions more in debt will "suddenly" appear out of thin air, many have forgotten about that "other" sovereign bailout - Dubai. The reason: Dubai World, which was supposed to present a restructuring offer for $22 billion in debt in a meeting with lenders in December, never did. January wasn't any different. February, by the early looks of it, will also be a dud. So as the world grinds along and creditors have no clue what the hell is going on in Dubai, and increasingly so in Greece, everyone has their fingers crossed that not only will there be no default anywhere, but that anyone who dares to mention just what a great big castle in the air the entire sovereign debt arena has become, funded by overt and covert cash transfers by the Federal Reserve, will be (in)voluntarily swept under the rug.

It is no secret that SocGen's Dylan Grice has not been a big fan of the Japanese economy, or stock market for that matter. We have highlighted his perspectives on the island nation in the past, and his concerns about a likely demographic-induced funding crunch have been picked up by the likes of Hayman Capital's Kyle Bass. So when Grice comes out with constructive suggestions on how to play Japanese relative value, especially if it is based on liquidation value considerations, one would do well to listen.

It appears not even one day can pass without some new and improved indication of Greece's economic collapse. The latest comes from website Kathimerini.gr which discloses that the recently appointed "Committee on the Reliability Of Statistics" has uncovered $40 billion of previously hidden debt (one wonders when America will get a comparable commission: no question we are in dire need of one).

Watch Tim Geithner's testimony before the Senate Finance Committee on the President's amusing 2011 budget live and commercial free, here. It is time someone asks why the GSEs continue getting the Federal Budget exemption.

We hope, although it is very unlikely, Senator Bunning somehow makes a guest appearance with some very directed questions.

The January data for the Johnson Redbook retail index is out, missing the MNI consensus for both YoY change, which was at 1.0%, compared to a 1.2% consensus, while month over month Redbook was down 1.5% compared to december, on expectations of a 1.2% drop.

RANsquawk 2nd February US Morning Briefing - Stocks, Bonds, FX etc.

In recent days, a spate of announcements on infrastructure deals have hit the wires. Cash strapped governments are increasingly looking to pensions to fund long-term infrastructure projects...and many are heeding the call.

• Tom Hoenig for Treasury (Simon Johnson)
• Moral hazard prompts TCW and AllianceBernstein to buy bank sub debt (Bloomberg)
• The dollar-alternative trade continues: commodities rise as AUD drops on no OZ hike (Bloomberg)
• A scoop of double dip (Barrons)
• iTraxx Fin widest to iTraxx Europe since Lehman (Bloomberg)
• Philippine bond sale fails for second time this year (Bloomberg)

Interest rates have to soar to unimaginable levels to attract recalcitrant investors, or the plunge in spending sends us into a postponed Great Depression II.
There will be no Prince Charming riding in on a white horse this time. Back out the Fed as the buyer of last resort, and where are we? The $3.8 trillion budget Obama budget isn’t encouraging me to back off from this ledge. Be a peach and bring me some MRE’s, a five gallon bottle of water, and a case of 9 mm ammo, will you?

RANsquawk 2nd February US Morning Briefing - Stocks, Bonds, FX etc.

Volcker is correct in that banks conflicts of interests need to be
stemmed. One would not have to worry about over regulation if one does
not attempt to regulate every single act or attempt to guess what might
go wrong. What needs to be done is to use regulation to dis-incentivize
banks from engaging in activities that engender systemic risks and/or
harm clients. By putting everybody on the same side of the table, you
don't have to worry about outsmarting the private sector.

A knowledgeable reader, who is currently a sell side analyst, questioned
me about using book value to value Goldman and investment banks in
general. He proposed using a formula that entails revenues as well due
to the fact that the main concern during the crisis was breakup value
while revenue visibility is clearer now that the crisis is over. While the crisis may be over, the root causes of the crisis have went nowhere, and the counter party risk concentration is actually much worse than before. In addition, not only is it political suicide to attempt to bailout another bank, I think it is poor economic policy as well. Combining these two assertions, it is not clear that we will not see anymore bank failures. The probability of such has dropped considerably though.