Archive - Mar 2010

Somehow we don't think that the evil hedge funds that were excluded from participating in Greece's most recent round of issuance are spending their nights weeping over this snub. The 6.25% bonds maturing in 2020, which priced at 98.942 are now trading at their lows of 98.36, with a corresponding yield of almost 6.5%, compared to the issuance yield of 6.35%. Due to the perception of yield "stickiness" in the eyes of investors, and as any new issuance will likely have to contend with the stigmata of resulting in underwater status within a few weeks of the break, we fully expect the next round cash coupon to be about 6.5%. Unfortunately, even as Greece does all it can to prevent over 10% of its GDP being paid out to foreign lenders in the form of bond interest, it will have no choice but to price the next bond issue in the mid 6% range, making its economic predicament increasingly more dire. And the worst thing is Greece is running out of both time and options, a ticking time bomb very much appreciated by savvy bond investors who can tell the underwriters during interest inquiry that anything below a 6.5% yield is a non-starter.

Presented is the full text of speech by ECB head Jean-Claude Trichet before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels. While the speech itself has nothing new to say, further entrenching the bubble mentality of the Bernanke Put, some of the comments by JCT in the Q&A are rather relevant, namely that the ECB will once again look at the "collateral issue" of government bonds. Just in case Moody's grows a conscience, here is how the ECB will deal with it: "The European Central Bank does not expect Greek government bonds to be downgraded again, but if they are it might have to reconsider its plan to revert back to pre-crisis collateral rules at the end of this year." This is amusing because earlier today Alphaville posted a research note by UniCredit which shows just how increasingly impaired by "rubbish" the collateral provided by European banks to the ECB has become. This is inline with extended disclosures provided on Zero Hedge about how our own Fed has recently allowed total crap to be lent against in both its discount window and the Primary Dealer Credit Facility. Another amusing soundbite: "High government bond spreads don't justify emergency loans." Oh, so the CDS speculators won't be summarily executed after all, even despite all the disclosure by BaFin and everyone else that CDS speculators had no impact whatsoever on blowing up bond spreads? What an anticlimactic development.

We are on our third EU sovereign state review, and thus far everyone has lied, (scratch that) stretched the truth about the prospective path of their economies out of excessive debt situation. Once you see a pattern of, ahem,,, creativity in forging so called "austerity" plans, how long before the markets simply discount the over-indebted EU as a whole.

The trader turned economist turned philosopher has just released a brand new post script chapter to his blockbuster "Fooled By Randomness" - Chapter 1. A First Lesson in the Epistemology of Fat Tony: the Grand
Demarcation Between Sucker and NonSucker, with the following subheader: No use for Nero –Tony is not the elephant – On the difference between sucker and nonsucker – Introduction to social epistemology – The bigger the mistake, the better – Reading for 9,000 years --Don’t buy a coffee machine – Beware the gorilla – Is epistemology the sucker-nonsucker problem? An entertaining read after a quick casual perusal, with the emphasis on the distinction between market-trend followers (i.e., those the "suckers" that all get slaughtered eventually) and the few who do not succumb to this distinction (and instead hope they can hit the sell button and find a buyer at exactly the same time as everyone else is selling - good luck).

RANsquawk 22nd March US Afternoon Briefing - Stocks, Bonds, FX etc.

Everyone's favorite openly interventionist central bank (no, not the Fed: Bernanke is all about covert market manipulation) the SNB is about to pull the mother of all Swiss Franc dumps, as the CHF has just hit an all time high against the euro. And when that happens, the one currency that everyone loves to forget is about to get some seismic shocks. Also Mr. Bigglesworth (aka Ben Bernanke) gets upset, and tress die. It is perfectly logical that Soros-lites all over the world are currently loading up on cheap CHF straddles in anticipation of a UK 1990's redux. The race to the currency bottom is now in the second lap.

Say goodbye to China's "export economy" paradigm. In a stunning development for trade hawks, and pretty much anyone who follows the biggest liquidity bubble in history, China Daily has announced China is about to announce a record trade deficit (yes, not surplus, deficit) for March. This makes the whole CNY undervaluation debate pretty much moot, as even China now moves into the ranks of net importers. From China's official daily newspaper: "The country will probably see a "record
trade deficit" in March thanks to surging imports" and "will "fight
back" if Washington labels China a currency manipulator." Perhaps this finally explains where all the excess liquidity has gone: with China now not exporting to the US consumer, it has instead refocused on its own "middle" class. This means that Chinese administrators are much more focused on maintaining a stable economy, and will be much more concerned about economic overheating, which goes in line with the recent indications of material liquidity tightening out of Beijing. Market News reports that the actual deficit will come in at $8 billion for March, the first deficit since April 2004, when the gap was $2.26 billion. Maybe Albert Edwards will just have the last laugh with his iconoclastic prediction of a CNY devaluation.

It was just yesterday that we touched again on the topic of whether or not excess refunds are boosting consumer appetites for gadgets and other China imported items, keeping retail sales artificially high. It turns out that not only were we right in our assumptions, which in light of collapsing tax withholdings seemed to be counterintuitive, but that the White House is actually proud of this most recent non-recurring (which means it will stay with the US in perpetuity or US Chapter 7, whichever comes first) Keynesian travesty. The administration announced that as part of the stimulus package (what iteration are we on: 20? 100?) the average tax refund has increased by 10% or $260. Once again, seeing that tax withholdings are plummeting, this seems like the dumbest thing the Treasury can do. Which is precisely why it will continue doing it until America goes broke.

Some not very euro friendly headlines emerging:

10:35 03/22 EU JUNCKER: AT LEAST 2 MEMBER STATES OPPOSE LOAN GUARANTEES
10:36 03/22 EU JUNCKER: I AM NOT IN FAVOUR OF IMF AID TO GREECE
10:19 03/22 EU JUNCKER: IMBALANCES WITHIN EMU STARTING TO CREATE PROBLEMS
10:27 03/22 EU JUNCKER: GREEK STEPS SHOULD HAVE IMPRESSED MARKETS
10:31 03/22 EU JUNCKER: I DON'T THINK HELP FOR GREECE WILL BE NEEDED
10:34 03/22 EU JUNCKER: NOT NECESSARY FOR EU LEADERS TO AGREE HELP THIS WEEK
10:32 03/22 EU JUNCKER: MUST BE PREPARED TO ENSURE STABILITY OF EUROZONE
10:37 03/22 EU JUNCKER; CAN FORESEE TWO-PRONGED AID, FROM IMF AND EUROZONE

David Rosenberg points out two important observations that go to the heart of what has been propping up the market for so long - cheap, abundant liquidity. As Rosie shows, both Money Of Zero Maturity (MZM) and M2 have now officially rolled over: "The liquidity backdrop is becoming less alluring — MZM has declined YoY for the first time in 15 years and the trend in M2 is down to a mere 1.5% from 10% when the bear market rally began in March 2009." And while Rosenberg is cautious in saying that equities are "overvalued by more than 20% on a normalized Shiller P/E ratio basis" the real stunner emerges when one considers just how mispriced the market is based on a combination of Q ratio and the CAPE index. According to economist Andrew Smithers, equities are about 50% rich currently, which should beat least a little concerning to all the electronic mountain of worry climbers.

Just in case anyone needed confirmation that the DOL data is just a little, how should we say it, cooked, here comes Gallup with their March 15 undermployment number, which just hit a 2010, and series, high of 20%. This is obviously worse compared to both the beginning of the year (19.5%) and February (19.8%). Unlike the Dept of Labor's arcane voodoo which lately is based more on executive confidential memos and snowfall observations, Gallup's underemployment measure is based on more than 20,000 phone interviews collected over a 30-day period and reported daily. Furthermore "Gallup's results are not seasonally adjusted and tend to be a precursor of government reports by approximately two weeks." We wonder if the abnormally hot March weather will used as an excuse for a deterioraiton in the most recent NFP numbers.

Risk aversion in euro is back big time. Not just is the euro getting whacked as fundamentals and technicals finally overtake the endless rumor mill, but increasingly desperate rhetoric out of Greece is making it seem inevitable that we could finally see the preparations for the landmark Santorini Sotheby's auction. Adding olive oil to the fire is Greek deputy Prime Minister Theodoros Pangalos, who is now playing Russian Roulette with a fully loaded gun and confusing it for poker, this time saying that it has been Germany's secret agenda to see Greece fail all along (not all that naive - we have been saying it for months). Alas, saying out loud what everybody knows is always a horrible move - just consider the US debt/GDP ratio of 140% which nobody wants to talk about. Quoting T-Pan: "As long as southern Europe is under fire, the euro is being shaken and falling and the conditions under which they (Germany) can win massive exports to the third world, to the rest of the world, are improving. I am quite worried that if a decision is not taken quickly ... then the euro will make no sense and if the euro fails this will take us many decades backwards in terms of European integration." Oh, and don't look now but the Bund just hit an all time high. At least real estate prices in America's richest city Newport Beach will hit another record as a result.

Gold is back on support here. On the 60-minute chart we are right on the neckline og a H&S pattern, and we see and the daily chart that despite a slight excess, we are roughly holding the support of the bullish channel. If we break here we should go down to test 1,090/1,075 which is the key support here below. Failure to hold that support would indicate we will go down to test 990/1,110 which the the key medium tem support, a break of which would send us down to 750. - Nic Lenoir

As we expected last night, the $1.35 EURUSD stop level that was advocated by Goldman, was just breached. Note the major sucking sound lower as all support was taken out. Watch out below as more rumors of Greece getting thrown to the lions emerge all week.

• Tim Geithner to be grilled in Congress (along with Dick Fuld of course) over Lehman examiner report (FT)
• Lloyd Blankfein's son, Jonathan Blankfein, made $155,000 last year at Goldman Sachs(Dealbook)
• Greek Spread to Bunds wider by 25 bps, 10 year at widest since February 23, Greek stocks down 3.5%, as Greece misinformation rollercoaster starts yet another week (Bloomberg)
• Moment of truth for Europe's common currency (Der Spiegel) - nothing too new, a few pretty charts much discussed previously on ZH
• We should not be saved from our own stupidity (FT)
• Buffett bonds yielding less than Obama's (Bloomberg)