Archive - Feb 2010

Crude oil broke through the $80 a barrel ceiling repeatedly during the week but kept falling back as hedge funds placed big bets on the Euro’s decline. The fiscal drama in Greece held global markets hostage much of the week as worries about the impact of the Greek crisis on the euro outweighed comments from Federal Reserve chairman Ben Bernanke about continued low interest rates in the U.S., pushing the euro down against the dollar and damping crude prices. The euro recovered some ground on Friday amid new reports of European aid for Greece after falling to a nine-month low of $1.3440 on Thursday. Germany’s state-owned bank KfW may take part in a planned Greek bond offering next week, according to market reports.

I've been under the weather for the last few days. So last night I went to sleep early, around 11pm. Around 3:15am, I suddenly woke up, even though I usually sleep straight through until the dawn. There was no obvious reason to wake up at such an odd hour. Claire, my dog, was sound asleep. Out my window on the 15th floor of my building, all the buildings across from the Los Leones golf course were quiet. But I was wide awake. So finally, I decided to make the best of it—I got my laptop and surfed the net, wide awake, reading (of all things) about what the iPad might mean to newspaper publishing—when the earthquake hit. - Gonzalo Lira

The Economic Cycle Research Institute's Weekly Leading Index stood at 128.4 for the week ended Feb. 19, the lowest reading since November 13, 2009, suggesting growth will slow by mid-year. What does this imply for pensions that are very exposed to private markets?

"It's not something that is 10 years away. It affects the markets currently," he told the House Financial Services Committee. "It is possible that bond markets will become worried about the sustainability [of yearly deficits over $1 trillion], and we may find ourselves facing higher interest rates even today."

Despite expectations elsewhere that speculators may be unwind their Euro short exposure, the CFTC's Commitments of Traders report indicated that for the week ended February 23, futures only speculative shorts hit an absolute all time record of -71, 623, an increase in net short exposure of over 12k compared to the Feb 16 position of -59,422, a massive 20% week over week increase. Another observation: the fans of the JPY are declining materially, with net longs collapsing by 12,195 positions, to just above breakeven, at 1,717. The GBP was the second most hated currency in the past week, with a net positioning of -64,647, an increase in net shorts of 5,409 weekly. The only currencies, which saw net long positions were the AUD (+11,989 to 38,992 and the CAD 4,996 to 28,421), and, of course, the dollar, whose aggregate positioning in nominal terms increased by 20%: from $8.14 billion to $10.28 billion.

The US Treasury has issued its annual preliminary US Holdings report for June 2009. While the data for the June 30th period is obviously stale, what is notable is that the UST's estimates through December 2009, based on survey data, put China higher by about $140 billion compared to the previously disclosed number of $755 billion, at $894.9 billion. Alternatively, Japan which was consider the top holder of US Treasuries with $769 billion, saw its estimated holdings decline to $765.7 billion. This revision puts China back at the top with a commanding lead of nearly $140 billion.The revised Treasury report also indicates that as of June 30, the UK was the largest holder of US equities at $278 billion, Canada second at $242 billion, and the Caymans (i.e., hedge funds) third at $227 billion. Also, China was the largest combined holder of US securities of all kinds at nearly $1.5 trillion, with Japan and the UK second and third, respectively, at $1.27 trillion and $813 billion. It should still be pointed out that Chinese UST holdings have been declining since July 2009, when they peaked at $940 billion, while both Japan and the UK saw their biggest holdings at December 31, 2009.

Many moons ago, July 15, 2009 to be specific, Zero Hedge asked a rather simple question: why does Goldman need a Fed exemption for VaR calculations even though it is a Bank Holding Company. That question, and some others, prompted several members of congress, among which Alan Grayson and Ron Paul, to shortly thereafter pass our query on to Ben Bernanke. Today Ben Bernanke has responded. We present his response. We will share our commentary and views on this response shortly.

There's been plenty of speculation about what will happen to mortgage rates if and when the Federal Reserve wraps up the last of its planned purchases under the $1.25 trillion Mortgage-Backed Security (MBS) purchase program, first announced in November 2008. While there have been some suggestions that the Fed may extend and expand the program beyond the end of next month, nothing has been said officially. Assuming it ends on March 31st as planned, the laws of supply-and-demand would seem to indicate that the MBS market is headed for a heap of trouble. Why? The Fed has been the biggest buyer of residential mortgage-backed securities by far over the past year or so.

SocGen's Dylan Grice provides a gripping account of Germany's hyperinflationary episode, in which he charts the extended parallels between not just the precursor economy that lead to a 16,579,999% inflation in 1923 Weimar Germany, and modern day developed (and highly leveraged) countries, but between Germany's then central banker Rudolf von Havenstein, and the Greenspan-Bernanke duo. And while we know how "der Geld Marschall's" Weimar experiment ended, the future before the U.S., as a result of the Maestro's (both Senior and Junior) almost identical policy response is still open-ended. As the future of America is now exclusively in the hands of insidious economists, the following insight from Grice into the utility of economic models and decision-making should be sufficient to dash the hopes of any optimist for a favorable outcome.

Geithner has long been a yes-man to the powers-that-be, who ships pallets of money wherever he is told without question or any follow-up or tracking whatsoever. ..

With the dramatic emergence of intra-EU bickering between various "banana-eating countries" and "tax cheats", it is easy to lose sight of the forest for the banana trees. While it is subjective to say who owes whom what, one thing that is very objective, is whose money is critical to sustaining the European Union. And here there is no doubt: without Germany, the EU would not exist. The country, which receives €78 billion from the EU annually, pays out more than double that, or €164 billion, for a net impact of (€1,045) per capita. Surely the Germans would be just as happy to see this money retained by their economy instead of going to assorted hangers-on. And speaking of the latter, one of the biggest recipients, with a net benefit of €2,284 per person, is Greece, which pays just €15 billion a year to the EU but receives nearly triple, or €40 billion. We wonder just how Greece will plug that particular hole should the EU dissolve after the recent escalation in rhetoric threatens to royally piss off the Germans.

We have been warning for caution on EURUSD, as the market has been struggling to move lower and shows all the signs of bottoming. We have strong divergence on the 180-minute chart for the RSI, and on the daily, the second derivative of the MACD has turned, and the slow stochastic is diverging as well. The support area also coincides to the 61.8% retracement of the rally since last march and we have recently tested twice the support of the downtrend channel since the highs. We feel the market could well pull back to 1.4050 (50-dma) or even 1.4349 (200-dma). - Nic Lenoir, ICAP

Have we just crossed the historic Rubicon when a photoshopped classical statue is about to lead to a collapse in a monetary and customs union, and possibly something a tad more serious? Also, is the KFW bailout rumor too little too late? It appears the Greeks are two minutes away from saying "take you bailout and shove it." The reason: The Focus cover which shows a status of Venus de Milo flipping off the Greeks, who were characterized as the "cheats of the eurozone." After recent Greek media outbursts have recalled the Nazi wartime occupation of the country, as well as demands for WWII reparations, today's action by the Federation of Greek Consumers, calling for a boycott of products, made by "banana-eating" Germans, is a direct response to the airbrushed statue of Venus expressing the communal German sentiment. Oh, and that whole KfW rumor? Don't buy it: "[KfW bond purchasing] considerations have been presented because it's seen as the only way of avoiding accusations of...direct aid," the lawmaker said. But he stressed that no decisions have yet been taken. I.e., More posturing.

Bloomberg Headlines:

• Bank of America Considers Request to Halt Foreclosures for HAMP                                         
• FORECLOSURE HALT PERTAINS ONLY TO BANK-CONTROLLED LOANS                                         
• BOFA'S DESOER CONSIDERS FORECLOSURE REQUEST, SPOKESMAN SAYS                                                
• BOFA'S DESOER MET WITH HOUSING ADVOCATES SEEKING HAMP REVIEWS                                                  
• BOFA CONSIDERS REQUEST TO SUSPEND SOME HOME FORECLOSURES

A review of Bank of America's 4th Quarter Call Reports reveals obvious shift of Delinquency Liability to Taxpayers.