Archive - Mar 3, 2010

Heck of a job, guys ...

The only thing worse than a no news day, is a day like today, when every piece of news/rumor contradicts the prior one. An hour ago Moody's was praising new Greek initiatives to increase the retirement age to 100, decrease wages by 100% and mortgage the Acropolis. This was promptly followed up by the just released announcement, in which Moody's said it has put five Greek banks, most notably among them the National Bank of Greece (which as we first disclosed is still ashamed of disclosing the Titlos prospectus on its website). Should the NBG's, which currently has an A2 sub debt rating, be notched lower, we expect some interesting collateral calls to occur in the very near future (see our analysis on the Titlos SPV situation). Of course, we are not sure how an independent downgrade of the NBG would occur without Greece itself being downgraded in tandem. Which fits perfectly with the ever increasing confused chatter emanating out of all parties doing whatever they can to bail out Greece, without actually bailing it out.

Presented without comment. Courtesy of lucasvpraag

Thank god smart people still have the temerity of existing in this world. Jim Chanos is, for better or worse, one of them. In this short but sweet Bloomberg TV Interview, he tells the retaaards from Europe just where they can shove it. "Hedge funds are being demonized once again for the failings of governments and regulators everywhere. We've seen this happen in subprime, we've seen this happen in the banking crisis, we are now seeing it happen in the currency and sovereign debt crisis. Hedge funds are being attacked as causation. They're the symptom and not the cause of the problem."

The dollar’s status as the world's preferred reserve currency has come into question amid a ballooning budget deficit that keeps the U.S. dependent on foreign financing. It is now a matter of "when" rather than "if" the Chinese yuan will replace the U.S. dollar as the global reserve currency.

With governments fueling "La Terreur" towards all things financial, it's hardly surprising that market players are running scared after talk of market clampdowns and restrictions. However, before we panic and cut all our positions it's important to understand what's motivating governments. What are their true objectives and what lasting impact can they have on markets? Once we understand this can we place our bets more securely and objectively.

Petros Christodoulou, most famous for having worked previously at Goldman, and now incidentally the head of the Greek Public Debt Management Agency, has told Market News that while he has no comment on the timing or tenor of the new issue (we venture to assume the timing will be in the next two weeks, as after that Greece be bankrupt for real), he is willing to wait and "allow the market time to digest" the announcement of today's austerity measures. (And if these don't work, the next round will promise Greek workers will pay the government for the privilege of having a job.) Of course, the implementation of these measures is subject to a mass rioting contingency, so while the verbal diarrhea out of everyone who is axed in the viable Greece trade continues, actual actions will be few and far between.

Medivation shares are not doing too hot: apparently if your core Alzheimer's drug (developed in collaboration with Pfizer) ends up being a failure, your stock drops by almost 70%. Pity, because that drug may have been useful to everyone else buying the broader stock market with the hope they won't eventually suffer the same fate. Yet what is notable is that this information, which hit Business Wire at 7:30 am Eastern, was apparently good enough for someone to make a huge bet on a stock plunge just before the market closed yesterday, at 3:59pm to be specific, and to make almost $21 million on inside information. The net result: a profit of just under $21 million in 1 minute of open market activity. Even Goldman can barely make that much money at that speed.

The following just released video from the Cleveland Fed, in which the Fed explains the workings of the Fed, does not need much commentary, suffice to say that it likely came to you courtesy of the production and direction talents of Goldman's PR group. It appears the video is supposed to be some form of user friendly PR approach created by the same people that gave you Enron. Alas, some of the biggest roles of the Fed are sadly unaccounted for. We leave it up to you, dear readers, to uncover just what these are but here are some suggestions: buying everything in perpetuity, keeping Goldman solvent in perpetuity, keeping the Fed's shady dealings with other Central banks and primary dealers hidden from the public's eye in perpetuity, keeping fed funds rate at (or below?) zero or below in perpetuity, etc, you get the picture.

Goldman's chief Euro strategist Erik Nielsen is out with another note, this time one of praise and wild-eyed adoration for the increasing desperation in Greek polemics (note, not actions: those tend to be more of the semi-violent police clashing, people striking variety). Well, duh, of course Greece will promise it will take out a second-lien on the Parthenon (and a first on the Acropolis): the country will be out of money in two weeks for Pete's sake! Aside from the pandering desire to be next in line as lead underwriter on the next Greek multi-billion swap (and receive fees, millions of dollars in juicy fees), Nielsen does provide a good narrative that ties in the Greek bail out, and the recent anger against CDS "Speculators" who will at the end of the day be the validation for why Europe will have "no choice" but to bail out Greece, as it is solely through their vile scheming that GGBs are trading so much lower compared to where they should be trading. Because taking a cue straight from the US market, none of this bankruptcy stuff is relevant at all when dealing with capital markets.

Rumors of Papandreou's resignation as Greek prime minister have been swirling all morning, and adding to the swirling a la carte buffet of false news coming out of Athens. However, as of now, that particular rumor is being refuted: the Prime Minister's spokeswoman has just announced that "the PM has definitely not resigned." We give him until the earlier of the two: i) the new 10 Year GGB come to market with an 8 handle, ii) crippling strike causes Greek foreign trade to drop by 120% (net of pervasive tax "efficiencies" within the Greek nation).

A vigilant reader points out that the biggest threat to markets these days is not moral hazard, which has been embraced by everyone and their grandmothers. It is that pesky "Amoral" version that is now raising eyebrows. To wit:

Put in a sentence.

------------(insert financial institution) exersised a great deal of amoral hazard when they collaborated with other funds to hasten the fall of __________ (pick a company or country) by shorting __________ (stock/cds/currency).

Because there surely would be no moral hazard be if there was no amoral hazard in the first place. Can we get rid of those pesky (efficient) markets altogether and just call for the Central Committee, aka the Fed, to run things with everyone's blessings? After all, they do so already.

Enacting a credible bankruptcy process to solve the too-big-to-fail problem, clarifying the Fed's umbrella supervision and financial stability roles, and enhancing market discipline are steps we must take to lower the probability of a future crisis. We could simplify the entire financial regulatory legislative initiative by focusing on these three key elements. We do not need huge new bureaucracies, or a complete restructuring of our regulatory agencies. - Charles Plosser

The foreign exchange markets were quite volatile Tuesday. Around 4:00 a.m. (EST), the dollar (DXY) was roaring higher. By 7:30 a.m. it was down on the day, allowing stocks, oil and gold to open higher. For much of the day, those assets fluctuated in reaction to the Euro’s strength (or lack thereof). The dollar relationship blurred, ever so slightly, perhaps due to the extreme weakness showing up in the British Pound. It was not currency that caused the late fade in the Dow. That seemed to be a case of fatigue. We wrote that the bulls needed a close in the S&P above 1120. While it did hit 1123 intra-day, the late day fade took the S&P back below the target. That left open the question of a possible retest of the January highs. The bulls may need to regroup if they wish to try again. - Art Cashin

RANsquawk 3rd March US Morning Briefing - Stocks, Bonds, FX etc.