Archive - Feb 2010

• Greece bail out cost: $441 billion (Bloomberg)
• Dollar rally drives euro near nine month lows as metals retreat (Bloomberg)
• Greece or California: who would you rather be? (LA Times)
• Germany's Merkel she's got the whole euro in her hands (BusinessWeek)
• States must fill $1 trillion pension gap (NPR)
• Bernanke chooses to exit through the eye of a needle (Green Faucet)
• Weil: BofA's new settlement with SEC smells even worse (Bloomberg)

• Asian stocks drop, Yen rises on Greece, concern Fed may withdraw stimulus.
• Bank of Japan leaves policy unchanged, resisting pressure to ease further.
• Fed sets goal of 'eventual' exit from housing finance to protect autonomy.
• Gold declines for second day on IMF's plans for open-market bullion sales.
• Leading Economic Index in US probably increased for 10th straight month.
• Michigan state public retirement funds is $50B short
• Oil falls below $77 as US distillate supplies rise

RANsquawk 18th February Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 18th February Morning Briefing - Stocks, Bonds, FX etc.

5 charts of S&P 500 Futures (ES E-mini) ... [1] Kase Bar 3 Point Range ... [2] Kase Bar 8 Point Range ... [3] Daily, 610 Simple Moving Average (SMA) ... [4] Monthly, Simple Moving Averages (SMA) ... [5] Monthly, Exponential Moving Averages (EMA)

The recently announced IMF sale of 191.3 tonnes of their gold reserves, though it caused an immediate sharp knee-jerk reaction in gold futures markets, will have a negligible effect on the long-term price of gold. There will come a time when the prices for real physical gold and real physical silver completely sever the already tenuous umbilical cord they maintain to the suppressed prices of gold and silver established by the agent bullion banks of the US Federal Reserve and the Bank of England in futures markets.

According to Jack Mintz, the Canadian pension crisis is all a myth. Tell it to Nortel's disabled that are still fighting for their pensions and benefits, and like many other disabled Canadians are caught in the disability poverty trap.

Frequent readers are aware that in the past month, Zero Hedge has speculated on both the direction of Chinese UST holdings as well as the identity of the direct bidders. Our thesis, presented over a month ago, was that Chinese accounts, operating as UK-based direct-bidders, are perpetuating a form of covert easing, by buying treasuries which never hit the TIC account as a Chinese counterparty and thus remain under the radar, being relegated to UK purchases for all official purposes (whose holdings have spiked in 2009). To be sure, this theory was met with some skepticism within the Zero Hedge community. The just released TIC data, which highlighted the biggest monthly drop in Chinese holdings in years (and biggest UK holdings surge), provides yet another piece of the puzzle, has increasingly led experts to concede that something is off about Treasury holding patterns. (No such ambiguity exists when it comes to MBS: everyone is hitting the Fed's bid there).

Confused by recent proclamations by Hoenig, Plosser, and other unnamed Fed members, who want an end to QE? Even more confused that this could actually happen? Andrew Smithers, former head of SG Warburg asset management before starting Smithers & Co., may have some iconoclastic insight into this development, which at its core is fundamentally deflationary, and a stark refutation to everything the Fed (presumably) stands for. A paradox? Smithers breaks the "Econ 101" mold in this fascinating interview with Kate Welling. The most provocative perspective: Smithers goes against the grain of every economic textbook which says the only way to inflate debt away (deleverage) is by, well, inflation. Instead, what Smithers suggests is a slow, gradual process of deflation, in which incremental cash flow is converted into equity, and pushes debt out. Indeed, this is precisely what we have been seeing especially in the REIT sector where numerous names, courtesy of BofA, have raised equity on the basis of imaginary valuations, which may just become a self-fulfilling prophecy if enough people buy into them, and by throwing cash at these companies, allow them to lower their debt-to-capitalization ratios. Then again, with another half a trillion in equity needed for the REIT sector to fund itself out of a mid-term funding crisis, that's purely a pipe dream. However the bigger picture of the Smithers perspective is that this deflationary approach is exactly what the Fed may be engaged in. By distracting the increasingly more vocal inflation hawks, who anticipate that inflation is and always will be the driving motive of the Chairman, Bernanke could very well be pursuing just the opposite: a slow-bleeding deflationary trend.

The 3-min. bar traders are now getting roundhouse kicked daily by the gyrations in the Euro, periodic utterances from various Fed Heads, and Mr. Blankfein's ability to vaporize both puts and calls by reversing course with various "Risk On" or "Risk Off" chants.

The IMF just announced it would resume selling the balance of its preapproved for sale gold, of which 191.3 tons remains. The sales would be in a phased manner over time to avoid disrupting the gold markets. This is not major news as this is inline with the IMF's September 2009 announcement to sell 403.3 metric tons of gold. As is well known the IMF has already sold 212 metric tons. Nonetheless, gold is selling off after hours. Full press release attached.

After pretty much two weeks waiting since what we thought was the last meaningful turn in risk appetite (towards risk appetite), I think the markets have reached a possibly key pivot area. I will start with commodities where the pivot is the clearest on the day. Copper has retraced 61.8% of the recent sell off, and posted a quite nasty indecision candle on the day. If we gap lower tomorrow and close below 319 this would be a major evening star. Also note that today's pivot also corresponds to the level at which copper broke through the support of the bullish channel in place since March 2009. Gold similarly has hit an intermediate resistance at 1,120/1,125. As long as we do not post a daily close above that level there is risk to retest at least 1,074 before having a shot at further upside, and if we venture below 1,060 then we are headed for 980/1,008 which is the massive support zone (if broken this invalidates further upside for the medium term). - Nic Lenoir

With the threat of sovereign default and contagion now pervasive within the Eurozone periphery, it is relevant to quantify the relative exposure of various banking centers' assets as a percentage of host countries' total GDP. The reason for this is that in Europe for many countries a sovereign default would not have as great an impact, as a risk-flaring contagion impacting these countries' primary financial entities, whose assets account in some cases for multiples of host GDP. For example in Switzerland, the assets of the top two banks, UBS and Credit Suisse, alone account for nearly 600% of the country's GDP. And while Switzerland is relatively isolated from the budget and deficit crises in the PIIGS and STUPIDs, other countries such as Italy, Belgium and ultimately France, Germany and the UK, are much more exposed.

No need to even comment any more.

Why gridlock is good for investors. The government claims that because Washington D.C. was practically shut down by Snowmageddon we taxpayers were losing $100 million per day from lost productivity of federal employees. Then Evan Bayh announced he will not run for re-election as senator from Indiana because the lack of bipartisanship between Democrats and Republicans resulted in legislative gridlock ("the peoples' work is not getting done").