Archive - Mar 2010

• Bank of England sees 'grounds for optimism' on Britain's recovery as risks diminish.
• China's interest-rate gap driving pressure for Yuan gains, regulator says.
• German industrial output rises 0.6% in Jan , despite 14.3% fall in construction activity.
• Gold is “unlikely” to be China’s primary investment to diversify its reserve hldgs: regulator.
• Taiwan's February exports rose 32.6%, suggesting strong economic growth.
• Yen strengthens as exporters bring home profits; most Asian stocks slide.

RANsquawk 9th March Morning Briefing - Stocks, Bonds, FX etc.

Nations cannot sweep the credit bust problems under the sovereign rug and expect them to go away. At best, we are simply Transmogrifying one systemic risk for another. Thus, even if we succeed in curing the threat of financial contagion, all we have done is issued in a new threat of economic contagion...

RANsquawk 9th March Morning Briefing - Stocks, Bonds, FX etc.

China's local government to international bank, "Of course we'll stand behind that 30 billion Yuan loan your giving to our investment arm. It's government guaranteed!.... (a year or two after the deal closes...)

Syke, we were just kidding! :-)

Large cap multinational equities are the cheapest they have ever been. An exclusive interview with Barton Biggs of mega hedge fund Traxis Partners. A stronger than expected economy will take S&P 500 earnings to $90/share. Asia is the place to be. A mammoth bubble may be developing in China, but it is at least 3-5 years off. India has yet to experience its big growth spurt. Buy South Korea, Taiwan, Thailand, Turkey, and short Brazil. (OEF), (MSFT), (INTC), (CSCO), (ORCL), (FXI), (PIN), (EWY), (THD), (EWT), (EWH), (TUR), (PLND), (RSX), (EWZ), (USO).

First China comes through on its threat of disposing US securities, now Europe is rapidly isolating Wall Street from participating in European sovereign bond offerings. The Guardian reports that "for the first time in five years, no big US investment bank appears among the top nine sovereign bond bookrunners in Europe, according to Dealogic data compiled for the Guardian." Curiously, just the one bank which has recently found itself out of favor with domestic investors, Morgan Stanley, has a notable presence in Euro sovereign league tables (at number 10). The biggest loser - the dynamic duo of vampire squid and Fed Jr. " Goldman Sachs doesn't make the table. Goldman made it to number five last year and in 2006, and number eight in 2007, the data shows. JP Morgan was in the top ten last year and in 2007 and 2006 but doesn't appear this year." European leaders are funny - first they use Goldman for everything; now that they have been caught red-handed, they avoid Goldman like the plague.

And while the lost corp fin revenue stream is likely not huge (for now), should domestic issuers follow in Europe's footsteps, it may get a little tricky. We wonder when the Huffington Post will start a "move your money" campaign for capital raisers: urge companies to go to small and boutique banks instead of the bulge bracket behemoths... When dying from a thousand cuts, each little one counts.

U.S. regulators are encouraging public pension funds that control more than $2 trillion to inject capital directly into the banking system by buying failed lenders, Bloomberg said, citing people briefed on the matter. Is this the next huge financial blunder? Sure looks that way...

High-Low range comparison, Fibo time cycles & volume analysis charts of the S&P 500, ES & SPY. A bottom-line market outlook for prop traders, portfolio managers, market makers & individual investors. At day's end, if you are still trying to chase the Jones' performance off March '09 lows, what the hell else is keeping you invested in this Russian roulette equity crap-shoot? Please, please don't "invest" like Buffett, but do heed the gist of his approach to selectivity (shared in 1999), which essentially posits that ...

What's up at CISCO?

The ongoing troubles at the GSEs are no secret: it is public knowledge that Fannie had a 5.38% delinquency rate at December, while Freddie just passed the 4% threshold in January; both continue to rise rapidly each month. The fact that the mortgage-bond spread has just hit a record tight is merely an ongoing artifact of the Fed's endless meddling in the mortgage market, with the sole purpose of keeping rates artificially low, and preventing banks from being forced to take massive writedowns on their entire loan book. This is all well known. What, however, seems to have escaped public attention is what the impact of these delinquencies is on the one largest holder of Mortgage Backed Securities, the Federal Reserve. What also seems to have escaped the public is that the Fed is now the world's largest bank, with total assets near $2.3 trillion. We provide a weekly update of the Fed's balance sheet and while we briefly note the liability side, our, and everyone else's, attention, is traditionally focused on the asset side. Yet a more detailed look at the liability side reveals something very troubling, specifically that the Fed's capital, i.e. equity buffer, which as of most recently was $53.3 billion (a comparable metric for plain vanilla banks is their equity buffer, or Tier 1 Capital, or however the FASB wants to define it on any given day when it is covering up massive capital shortfalls) is in fact negligible and could well be substantially negative, if the Fed were to account for the rapidly rising level of delinquencies in its one largest asset holdings: the $1.027 trillion in settled MBS. And while there is no possibility of a run on the Fed, the reality is that the Fed now likely runs with a negative real capital balance, meaning that the US Federal Reserve is now essentially insolvent.

Today's letter by John Hussman is as insightful as ever, yet what caught our eye is one of the most lyrical and gorgeous Crucifixions ever performed of Wall Street's favorite mouthpiece, CNBC, and specifically,its most vocal anchor: one James Cramer. "In reflecting on why the past 15 years have been so riddled by irresponsible speculation, it is impossible to ignore the rise over that same period of widely-viewed financial programming that is equally riddled with cartoonish content that encourages short-term thinking and speculation (buy-buy-buy! sell-sell-sell! boo-yah!)...To watch a half hour of CNBC today is like watching an old episode of Gomer Pyle ("Well, surprise, surprise, surprise!")"

"We may have to sacrifice just two more jobs to get millions back for Americans."

When the time comes to tighten monetary policy, the Federal Reserve will be embarking on a tightening cycle like no other in its history. First, this tightening cycle will have two policy dimensions, in that the FOMC will have to decide on the path of its asset holdings in addition to the path of the short-term interest rate. Second, we will be using tools to drain reserves that are new and that will have to be implemented on a scale that the Fed has never before tried. And third, we will be operating in a framework of interest on reserves that has not been fully tested in U.S. markets. - Brian Sack, Executive Vice President and Undisputed Head of the Fed's Markets Group, Rumored Head of Mythical Plunge Protection Team.