Archive - Mar 25, 2010

Overnight the dollar weakened materially across all major pairs. Over the past hour, the dollar has surged, going back to virtually unchanged against the euro despite Greek rumors reaching a crescendo. In the meantime, stock correlations have once again broken down, with FX vol leading to no trends whatsoever in the broader equity market, causing increasing headaches for momentum traders.

"A good friend, and long-time reader, was kind enough to pass along these thoughts yesterday. Basically, the stars are starting to align for something really big to happen...Bottom line: Stronger U.S. dollar. Rising bond yields. Lower commodity prices. Slower growth. And the stock market is flirting at post-crisis highs. Bond yields are rising temporarily and this will very likely prove to be a good buying opportunity; however, over the near-term, higher yield activity may well persist and the question is how the equity market is going to handle this backup in market rates. Recall that the 10-year yield had a March to June 2007 spike of 90bps before the rate and credit collapse took hold in the back half of 2007! Could it be that history is rhyming again? The March-June period has been seasonally weak for the Treasury market in five of the past six years." - David Rosenberg

The ECB is finally realizing that Greece will be a major issue for years if not decades to come. Which is why Jean-Claude Trichet finally put the debate of whether his bank will accept BBB- rated collateral beyond 2010 to rest. The answer is yes. This also takes out Moody's ridiculous A2 Greek rating out of the equation: finally Moody's can vote with its conscience. "It is the intention of the ECB's Governing Council to keep the minimum credit threshold in the collateral framework at investment grade level (BBB-) beyond the end of 2010. In parallel, we would introduce, as of January 2011, a graded haircut schedule, which will continue to adequately protect the Eurosystem." Considering how well the Eurosystem has been protected to date, we can't wait to see just how well this experiment will play out.

"In sum, in response to severe threats to our economy, the Federal Reserve created a series of special lending facilities to stabilize the financial system and encourage the resumption of private credit flows to American families and businesses. As market conditions and the economic outlook have improved, these programs have been terminated or are being phased out. The Federal Reserve also promoted economic recovery through sharp reductions in its target for the federal funds rate and through large-scale purchases of securities. The economy continues to require the support of accommodative monetary policies. However, we have been working to ensure that we have the tools to reverse, at the appropriate time, the currently very high degree of monetary stimulus. We have full confidence that, when the time comes, we will be ready to do so." Ben Bernanke. Too bad the Chairman will not add that time will not come until the US finally implodes.

So far the commingling between financial and political forces has passed without many glitches both domestically and globally. This is starting to change. We read in Newser that the "Indonesian's parliament called for a criminal investigation into a $715 million government bank bailout." In addition to Indonesia president Suslio Bambang Yudhoyono, others implicated include Vice President Boediono, a former central bank governor who goes by a single name, and Finance Minister Sri Mulayani Indrawati. Something tells us that the miraculous market recovery in Indonesia has not proceeded quite as effortlessly as the one in the US. Which also explains why the Fed and its cohorts are so set on reflating the market as they are well aware of the opportunity cost. Once the market takes the inevitable leg lower, we expect that the general public hatred against the multi trillion bailout of the US financial system may finally yield comparable criminal prosecution in America as well.

“The Board has worked diligently over the past two years to forge the best possible outcome for Ambac and its various stakeholders. In light of OCI’s determination to take some sort of rehabilitative action with respect to Ambac Assurance, the Board has determined, after thoughtful and careful consideration, that compliance with the direction of OCI to establish the segregated account of Ambac Assurance and to consent to the terms of the proposed settlement agreement of our CDO of ABS portfolio is the best alternative available. The actions taken today, together with the proposed settlement if effected, commute substantially all of our CDO of ABS exposure at a substantial discount to the expected present value of potential claims. While certain structured finance asset classes and other credits have been segregated for rehabilitation, virtually the entire insured municipal portfolio remains outside the rehabilitation proceedings. The Ambac Board and management team are committed to continuing to work hard to manage our resources effectively in the service of all constituents.” - Michael Callen, Chairman of the Board of Directors

Eclectica February performance and position update. Hugh still likes them cancer sticks.

• Jonathan Weil: John Mack's short story was too dumb to fail (Bloomberg)
• Oops - RBS CDS surge on rumor of debt restructuring - yet another bankruptcy-cum-bailout for the Greek bond-laden third-tier repository of toxic assets? (Bloomberg)
• As expected, the entire manipulated, short-squeeze based market run up was merely for the benefit of the government selling its Citi stake (Reuters)
• Dubai bail out #2 (Bloomberg)
• Jobless claims still materially over 400,000 6 months after the "end" of the recession (Bloomberg)
• As Zero Hedge first reported, Social Security to see payout exceed pay-in this year (NYT)
• David Tepper probed by the SEC (WSJ)
• Cramer explains why he was wrong once again (CNBC)

From Goldman's Erik Nielsen: "According to the Reuters story below, Merkel said this morning as a government declaration in front of the German parliament (ahead of the EU summit) that help to Greece would only come as the very last resort, and that it (bilateral help) would come ONLY in combination with the IMF. Whether this was formally agreed yesterday by the Euro-zone heads of state remains uncertainly, but I think it is very likely. If so, its just a matter of rubber stamping it in the full EU summit today, since none of the non-Eurozone EU members would object to the IMF being involved" and this "It is not clear when Greece will formally approach the IMF, but it might happen within weeks, and very likely during the next few months. I think negotiations – when they get under way – will focus on a program of about EUR20bn over 18 months. Stay tuned."

RANsquawk 25th March Morning Briefing - Stocks, Bonds, FX etc.

• Asian shares mostly lower; but exporters hold Tokyo up.
• China won't succumb to foreign pressure on revaluation of Yuan, Zhong says.
• Dubai supports Dubai World’s debt restructuring with $9.5B of funds
• European try to find solution to Greek debt crisis as euro slides, Portugal downgraded.
• Germany asserts European clout to impose IMF role in EU rescue of Greece.
• IMF could demand stricter path out of Greece's economic crisis than EU.
• Oil hovers below $81 in Asia after US crude inventories increase.

RANsquawk 25th March Morning Briefing - Stocks, Bonds, FX etc.

Here's a link to the CFTC's webcast regarding position limits in the gold and silver futures markets taking place on March 25, 2010, 9AM EST. Anyone interested in restoring integrity to the global monetary system should be interested in these hearings.

In February of this year, Cryptome.org, a site run for the last fifteen years by Architect John Young had its PayPal account closed and in the process over $5,000 in donations confiscated.  Cryptome has made a name for itself over the years by publishing "documents for publication that are prohibited by governments worldwide, in particular material on freedom of expression, privacy, cryptology, dual-use technologies, national security, intelligence, and secret governance -- open, secret and classified documents -- but not limited to those."