Archive - Feb 2010

RANsquawk 12th February Morning Briefing - Stocks, Bonds, FX etc.

The fates of many European countries are now inextricably tied by what appears to be a poorly conceived methodology of handling diverse political and economic entities under a single currency without a truly authoritarian governing body. Basically, it's the old American saying, "Too many Chiefs and not enough Indians". When I first started this series, a few pundits accused me of being sensationalist. It's funny how a few days can bring so many to your side of the table. Now it is becoming much clearer that this is more of a pan-European issue than a pan-Hellenic one.

The final part (III) of Econophile's analysis of the economy in 2010. Today, "The Consequences" -- deleveraging, inflation/deflation, recovery, and what to expect in 2010.

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I did three segment interviews
with TechTicker on Yahoo Finance: 

href="http://finance.yahoo.com/tech-ticker/vitaliy-katsenelson-reveals-%22the-...">Segment
1 – The Case for Pfizer and
Vodafone

href="http://finance.yahoo.com/tech-ticker/china-won%27t-crash-but-it%27s-time...">Segment
2 – China (My China
comments need slight clarification.  The Chinese slowdown will
have a significant impact on the Chinese economy and commodity-centered
economies, e.g., Russia; but I don’t believe it will tank the
world economy.)

href="http://finance.yahoo.com/tech-ticker/get-used-to-dow-10000-value-maven-p...">Segment
3 – href="http://finance.yahoo.com/tech-ticker/get-used-to-dow-10000-value-maven-p...">Get
Used to Dow 10,000

Bush, Cheney, Paulson, Geithner and others who ordered that these debts be incurred must be held personally liable for them. We the American people are not responsible to creditors - such as China, Saudi Arabia - who have knowingly financed these illegal and oppressive activities which have not benefited the American people, but solely the handful of corrupt politicians who authorized them ...

Come, let me walk you through the Canada Pension Plan Investment Board's latest quarterly results and show you why they caught the tail end of the monster beta wave. I warn you, I'm in a feisty mood, and don't mince my words...

Perhaps if the Bank of England, the US Treasury and the US Federal Reserve had not been surreptitiously suppressing the price of gold futures through their puppet bullion banks on Wall Street for decades, I would agree with George Soros that gold was the ultimate asset bubble. Had this been the case, gold’s price would be multiples of its current price given the low interest rate environment that exists worldwide. But since this is not the case, there currently is no greater asset bubble than the US dollar and US Treasury bonds.

While the topic du jour remains: "Just How Ugly Is The Sovereign Default Truth? How Self Delusions Prevent Recognition Of Reality" ... thought we'd mix it up a bit and take a daily & weekly look (8 charts) at everyone's favorite dead PIGS walking ~ Portugal, Italy, Greece & Spain

The U.S. consumes nearly three times the amount of oil that it produces domestically on a daily basis. How can this statistic get any worse, you might ask?

Imagine in 2010 the Obama administration persuades Congress to pass a budget that results in a reduction of domestic oil production by 10% - 20%, making the supply/demand imbalance even more lopsided. Foreign oil companies will gain a distinct advantage over American domestic operators as an unintended consequence of these proposals.

Sound farfetched? It’s closer to reality than you may think… If it comes to pass, it will likely be the biggest structural change in the U.S. domestic oil and gas industry in decades and have far-reaching implications for investors and for the entire country.

The Federal Reserve's balance remained at an all time high of $2.233 Trillion in assets, after a $3 billion increase in MBS and Agency purchases week over week. Securities held outright: $1,913 billion (an increase of $57 billion MoM, resulting from $52 billion increase in MBS and $5 billion in Agency Debt), or a $3 billion increase sequentially. The fed is now 95% complete with its purchases of MBS. Net borrowings: $127 billion. The monetary base increased by $50 billion in the past fortnight to $2.06 trillion. The ratio of total assets to Monetary Base remained constant at 1.08x, elevated from the historical ratio of 1.00x. Custody foreign holdings increased by $9.3 billion to $2,956 billion. A maturity profile of the Fed's assets indicates a skewed maturity distribution. Of a total of $2 trillion in dated assets, $132 billion mature in under 15 days, $226 billion in under 1 year, and $976 billion in under ten years.

For good reason the G-7 held their meeting last week in one of the remotest places on the planet. No protesters, no hordes of nasty press, just good fun doing useless things with their fellow co-conspirators.

The CME group announced that margins for metals futures contracts on the NYMEX and COMEX will rise beginning February 12 by approximately 25% across various classes. The initial margin for 100-ounce COMEX gold futures will increase to $6,747 from $5,403, while the maintenance margin will rise to $4,998 from $4,002. For 5000-ounce COMEX silver futures, initial margins will increaseslightly less: from $6,075 to $6,750 while the maintenance margin increases by $500 from $4,500 to $5,000. Margin increases will be largest for palladium, where initial margins will risefrom $2,363 to $3,713, coupled with a maintenance margin increase of $1,000 from $1,750 to $2,750. Additionally, as the full advisory indicates, the CME increase margins by various percentage for virtually all of its product groups.

Today's low volume once again brought about an aberrant market, in which a gust of buying late in the morning even as the euro was probing new lows, took the market to a new churn level, which resulted in a close at 2 standard deviations above the VWAP over the past two days. The gap can be seen on the accompanying chart. Should VWAPs reversion algos appear, the SPY will likely retrace the gain back to the computer model favored 1067 level.

Pimco's Michael Gomez, who recently shared the floor with Hugh Hendry, Marc Faber and Nassim Taleb, and who was likely the key voice in Pimco's recent decision to accumulate German Bunds, shares insights on the euro, Greece and new investment opportunities. Based on this Bloomberg TV interview, it is likely that PIMCO will soon be accumulating a variety of Polish and Brazilian sovereign bonds, as well as corporate bonds in Brazil, Mexico and Russia, with an emphasis on the first. With tens of billions in dry powder, PIMCO will likely have an increasingly risky EM exposure as it departs from its traditional MBS/UST portfolio.

Sergey Aleynikov, the former Goldman programmer, who was arrested by the FBI in July last year on virtually a day's notice after Goldman told the FBI the Russian had stolen secrets that could be used to manipulate markets, has just been indicted on charges he stole computer codes used for proprietary high-frequency trading programs. The specific charges include theft of trade secrets, transportation of stolen property in interstate and foreign commerce and unauthorized computer access. The charges carry a total jail time of 25 years.