Archive - Feb 9, 2010

It appears that this time China's posturing is for real. Following up on our earlier post that Chinese military officials want to "punish" America by selling Treasuries, Asia Times Online is reporting that an explicit directive by the Chinese government has notified reserve managers to sell all risky US assets, including asset backed and corporates, and just hold on to explicitly guaranteed Treasuries and Agency debt. And from following TIC data we know that China's enthusiasm for MBS/Agencies over the past year has been matched solely by that of one Bill Gross.

Having lost a Motion to Dismiss the plaintiff’s case based on a lack of standing, and also under a failure to state a claim, as well as subsequently losing a motion to obtain a certificate of appealability for an interlocutory appeal, Mr. Geithner now faces the possibility of a deposition as well as discovery in a case that perhaps was seen as a big “nothingburger”, until just a few weeks ago.

This is the first report of a series of 3 reports on the state of the economy as we enter 2010. Part II will appear Wednesday, and Part III will be posted on Thursday. Econophile, as usual, has a different take.

Who's up and who's down in the hedge fund world, courtesy of HSBC. Owl Creek, Harbinger, Marathon and Third Point doing good. Bill Ackman's Pershing Square, not so much.

Not that there is too much to get excited about. The only possible positive outcome of a bailout other than immediate rescue for the shareholders of a bankrupt entity is a possible restructuration, change in management, etc.. If the bailee goes right back to his original business model (selling bad cars or making bad loans) then surely nobody gains in the long run. In the case of a sovereign entity like Greece the real question is: what will the bailout change other than temporary relief to capital markets? I am tempted to say nothing but that would not be constructive. Still though everyone knows it will be very difficult for Greece to deliver fiscal austerity, and unless the world economy picks up dramatically (China is peaking and due for a rough landing, demand still not back anywhere close to highs) Greece will have to find sources of growth internally while the government cuts its budget. This is also because as long as Greece is in the Eurozone, they are not competitive to export anything unless the EURUSD gets much weaker. A weak Euro down the road with a possible desintegration of the eurozone will be the end result no matter what further developments take place in the meantime. - Nic Lenoir

Now that some sort of Greek bailout is imminent, most likely in asset guarantee form, it is high time to evaluate the full impact of Europe's decision to jettison monetary prudence at the expense of patching a crumbling fiscal dam holding back trillions in bad investment decision cockroaches, accumulated over the years. Relying on a presentation by ML's Jeffrey Rosenberg, we observe that by providing loan guarantees to the periphery, the core (Germany/France/Benelux) may have well destabilized the core problem for the Eurozone, namely a whopping €1.6 trillion (that's in euro) in total 2010 financing needs, a number which consists of €400 billion in 2010 bond maturities, €700 billion in rolling short term debt and €530 billion in combined 2010 fiscal deficits. Germany has just taken an acute liquidity crisis in the periphery, and courtesy of action we already saw earlier in Bund rates, has sown the seeds for a funding crisis of none other than the very heart of the Eurozone.

Ongoing currency volatility spurred on by various utterances and retractions from Eurozone officials is wreaking havoc on the "Watch The Money Roll In" forex gamers. And stock investors, sniffing out a squeeze, have resumed the "Dash For Trash" trade, buying whatever stocks were beaten down the most.

The Treasury has released the most recent UST Auction Allotment by Investment Class data for recent Treasury auctions. In January and February of a total $207 billion in Coupons auctioned, foreign and international investors acquired $58 billion (28% of total), dealers and brokers took down $104 billion (51%), depository institutions purchased just $3.2 billion, investment funds acquired $35 billion (16.8%) and individuals took down a mere $1 billion. In Bills, there was a total of $286 billion in Bills issued in January, of which foreigners purchased $47 billion (16.4%), dealers and brokers bought $145 billion (50.7%), investment funds bought another $43 billion (15.2%), and individuals were responsible for just $10 billion in Bills. Notable is the nearly double relative interest that foreigners have for Coupons than to Bills, as a result of persistently low interest rates.

A story of some folks who stumbled and why. This story could be Greece or Spain in a year or two.

And you were worried about Iran. China's People Liberation Army has come out and openly said that the nuclear option, i.e., selling US Treasuries, is now on the table and should be exercised as "punishment" for U.S.' arms sales to Taiwan. China undoubtedly realizes that this is a prime example of sado-masochism as the resultant plunge in Treasuries that would follow would hurt the US certainly, but also have a "mild to quite mild" impact on China's $700 (and likely much greater) UST holdings. Game theory 101 just got interesting.

Zero Hedge Information Technologists, Nuclear Isotope Transportation, Lockpicking & Costume Shop Amalgamated, Local 5134-1 has announced a go-slow strike effective immediately. Zero Hedge IT workers will don "Che" t-shirts and randomly unplug Cat-5 cables from the main Zero Hedge servers during high server load in protest of Germany's refusal to provide the data center with additional server hardware and cover the $23 billion in unfunded pension liabilities accrued during Larry Summers' tenure as Chief Investment Officer for ZHITNITLCSAERS. Readers can expect to experience sporadic outages to service generally lasting no more than 30-45 seconds.

Or maybe this Greek-Hun bond battle and the unquenchable lust Zero Hedge readers have for more... more... MORE... has simply spiked traffic to such insane levels that we keep hitting our throttling limits.

Welcome to 1984, where outright propaganda and lies bombard you from current and prior administration officials each and every day. Here is the latest insanity straight from the horse's mouth (no pun intended).

This latest on Greece, this time from Dow Jones. Why is Obama speaking about windmills as the future of global moral hazard, Larry Summers edition, is being decided in Berlin? From DJ: "Finance Ministry spokesman Michael Offer said EU members wanted to develop further recapitalization measures that calm the markets."

Crazy pill time. More disinformation as we get it. Is Germany merely probing to see the market reaction to leaks? If the Bund collapses can they just call the whole thing off?

• Yields 1.377% vs. Exp. 1.36%
• Bid To Cover 2.83 vs. Avg. 3.01 (Prev. 2.98)
• Indirects 51.2% vs. Avg. 54.12% (Prev. 38.09%)
• Indirect Bid To Cover lower at 1.16
• Allotted at high 26.75%
• Direct take down 10.07%
• Indirect take down 51.18%