Archive - Mar 16, 2010

RANsquawk 16th March US Afternoon Briefing - Stocks, Bonds, FX etc.

Looks like this is going to get done.

SCHUMER: CHINA FX'ONE OF THE CAUSES' OF GLOBAL RECESSION
SCHUMER: CHINA CONTINUES TO 'GAME THE SYS' ON CURRENCY
SCHUMER: CHINA FX'HAMPERING'GLOBAL ECONOMIC RECOVERY
SCHUMER: 'GROWING CONSENSUS'ON CAP HILL RE CHINA FX MANIPULATION
SCHUMER: WILL TRY TO ADD CHINA FX BILL TO'MUST PASS' LEG

We are now taking bets what China's re-re-retaliation to this next step will be.

Today's $31 billion 4 week auction produced another record. The indirect take down was a disappointing, and all time low, 13.2%, compared to a YTD average of 28.5%, while directs surged once again, hitting a new record high take down of 21.7%, with average YTD take down of 9.6%. The indirect hit ratio was 82.8%, with Indirect tenders to bid only $4.9 billion, with a $4.1 billion award. Most notably, for the first time in what appears history, the Direct take down was greater than the Indirects. At this point it is meritless to speculate who the directs are which now control nearly a third of every auction. Otherwise, the Bid To Cover was 3.79, down from 3.90 previously, and the lowest BTC Year To Date. This was accentuated by the High Rate of 0.135%, which was the highest since August of 2009. In a nutshell, the market is starting to look at tightening as a real threat. Next stop: flattening.

Just reading between the headlines:

ROMER: STATE,LOCAL BUDGETS TO REMAIN 'VERY VERY BAD'
GEITHNER: V.STRONG CASE FOR ASSISTING STATES ON SIGNIF SCALE
GEITHNER: NEED REFORMS FOR STRONGER ECONOMY IN THE FUTURE
GEITHNER: NEED TO CONTINUE TO REINFORCE ECONOMIC EXPANSION

And on the threat of a US downgrade Geithner adds: "There is no way that's going to happen," he replied. "There's not a chance that's going to happen to this country."

Ultimately, as my colleague Dylan Grice writes, I think we head back to double-digit inflation rates as governments opt to default. I certainly again expect to see CPI inflation above 25% in the UK and indeed in most developed nations in my lifetime ? I have happy memories of the three-day week and doing my homework by candlelight. In the near term, however, the deflationary quicksand will suck us ever lower until we suffocate. A key driver for underlying inflation remains unit labour costs. While unit labour costs decline at an unprecedented rate, they are sucking us inevitably into a Fisherian, debt-deflation spiral. Only then will we see how far policymakers are willing to go to debauch the currency. Last year saw them cross the Rubicon. Monetisation is now the policy lever of first resort.

- Albert Edwards, Soc Gen

In case you were wondering what just sent the market and commodities higher, and killed the dollar, look no further: S&P just released a note confirming Greece at BBB+, and removing the country from CreditWatch negative, presumably a major euro positive, a major dollar negative, and today's nitrous boost to stocks... Here is the forest for the trees: the market is again dependent on the moronic filth spewed forth by rating agencies. As to what turbo austerity will do to Greek GDP, ah, who cares. S&P will cross that bridge when Greek GDP plummets 10%.

One of the more vocal economic skeptics (as pertains to the developed world at least, China not so much), CLSA's Chris Wood, chimes in with his latest weekly observations on the economy, which are not for the faint of heart, in the latest edition of GREED and fear. Digging in.

Is It A Bluff Or Is It Battle Preparation? – Several blogs have picked up on reports that the U.S. may be transferring “bunker-buster bombs” to a base in the Indian Ocean. Here’s a part of a story in the Sunday Herald of Scotland:
Hundreds of powerful US “bunker-buster” bombs are being shipped from California to the British island of Diego Garcia in the Indian Ocean in preparation for a possible attack on Iran. - Art Cashin

Daily charts of EURUSD, USDJPY, USDCHF, GBPUSD, AUDUSD, USDCAD, NZDUSD & USDSGD

One can only marvel at how the U.S. market managed to bounce back in the last hour of trade yesterday — the intraday move in the Dow exceeded 70 points. Yet, once again, volume faltered on the major exchanges. This remains one weird market, and reminds us of the story of the pig farmer — one sells a pig to the other for a dollar only to then have it sold back to him for $1.25 and then sold back to the other farmer for $1.75 and so on and so forth. It’s two pig farmers selling the same pig back and forth and driving the price higher in the interim — until of course, the price dynamics shift into reverse. It’s a great story (courtesy of Doug Behnfield at UBS) and probably apropos to what we are seeing today in this low-volume rally but still impressive comeback from the January lows. - David Rosenberg

Just a headline from Reuters for now:

U.S. SENATE BILL TO BE UNVEILED TUESDAY THREATENS STIFF PENALTIES ON CHINA IF IT DOES NOT REVALUE ITS CURRENCY-CONGRESSIONAL AIDES

We are confident China gets Reuters too.

I’ve seen too much about the “trade everyone should be into”—shorting Treasuries. Let’s break this trade down.

• The economics of the trade is poor
• Even though the Fed is jonesin’ for inflation, there is a bet against the Fed embedded in it on some convoluted level
• It is an extremely crowded trade

The short treasury trade has features that make it a bell-weather for the multi-layered screwdness in which the world finds itself.
On the surface it looks pretty appealing. What with a commitment to being irresponsible on the part of the Fed, and global economic recovery on the other hand. It's a long position on rational economic policy, right?

• Fed may seek to avoid lower inflation as officials debate exit (Bloomberg)
• RenTec (and here) finally in the spotlight (WSJ)
• Just a month late, NYT gets on the case of massive looming HY maturities (NYT), discussed previously here and here
• Rich Chinese communist channel U.S. tea party in tax debate (Bloomberg)
• Shhh... don't call it HFT and maybe the SEC won't look (Themis Trading)
• Five lies about the American economy (Reason)

• Asia stocks rise on speculation Bank of Japan will ease policy.
• Builders in Feb probably broke ground on the fewest U.S. homes since October.
• China plans to keep its foreign trade policies, including the yuan exchange rate, stable.
• China, Japan reduce holdings of US Treasury debt as global demand wanes.
• China plans to keep its foreign trade policies, including the yuan exchange rate, stable.
• Continental Airlines Inc. will start charging for food for economy-class

RANsquawk 16th March Morning Briefing - Stocks, Bonds, FX etc.