Archive - Mar 2010

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.

• China's hidden debt to reach 96% of GDP, compared to the IMF's estimate of 22% (Bloomberg)
• Here come the idiots - Banks summoned to EU to discuss sovereign CDS market (Bloomberg)
• Upwardly biased ADP continues longstanding tradition of prior downward revisions (Bloomberg)
• US said to tell hedge funds to save euro records (Bloomberg, first reported on Zero Hedge)
• SEC supervisor surfed tranny porn to cope with stress [and self-loathing from working for an incompetent bureaucracy] (Dealbreaker, h/t plastic man)
• Europe's original sin (WSJ)
• Rumors of Ukraine's default to become certainty: Tymoshenko loses Ukraine vote, moves into opposition (Bloomberg)

• Asian stocks, currencies climb on Greece optimism; MSCI erases 2010 loss.
• Australia GDP growth accelerated to 0.9% last quarter - fastest pace in almost two years.
• Euro rises, Greek spreads narrow on new measures.
• February US auto sales better than expected despite snow, Toyota; Ford bests GM.
• FCC's new plan to propose $25B in new federal spending for high-speed Internet lines.
• Greece passes $6.6B more deficit cuts to avert fiscal 'catastrophe'.
• Oil hovers below $80 in Asia after mixed US inventory report suggests sluggish demand.
• AK Steel hikes prices of carbon steel products by $40 per ton.

From Dow Jones: Greek PM Says If EU Doesn't Help Greece It May Go To IMF. Also, this is the definition of a complete lack of leverage: Greek Cabinet Member: PM Says Greece Needs EU To Show Its Support Now, and that the Time for EU Help Has Arrived. And screw strikes - here comes the civil war:

• Greece to cut public sector salary benefits by 30%,
• Cuts wages across the board.
• Establish emergency tax of 1% for salaries over €100,000
• Freeze public sector hiring in 2010, and in 2011 one new job will be filled for every 5 retirements

And all this is followed by a cold water throwing Angela Merkel who just said that the Friday meeting will be purely on the "State of things" and no aid to Greece will be promised.

As always, pure anarchy - should be enough for some 1-2% worth in computerized S&P buying on a few hundred ES blocks.

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

The year 2009 was the year of reflation theories and bubble blowing. Theses of "Green Shoots", catching the bottom, and QE reigning supreme were the order of the day. Sure enough, asset prices (nearly all of them) went one direction, straight up. We all saw it coming, but guys like me who actually count the money and rely on the fundamentals didn't believe it was a sustainable gain. It wasn't a bull market, but a bear market rally. After nearly one year, the reflationists have had their hay day, or have they?

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

Daily snapshots of AUDCAD, EURJPY, EURUSD, USDJPY & USDCHF

The outlook for the economy is bleak, at best. The stimulus package should have been at least $1.2 trillion. Any major spending cuts will produce “Hoover” outcomes. An extreme form of “trickle down economics" quickly reached a dead end. The banks’ accounting loopholes were so imaginative that not only were shareholders and regulators deceived, senior management was clueless as well. The winner of the Nobel Prize in economics reveals how “information asymmetry,” led to the financial crisis. The repeal of Glass-Steagle was a disaster. No wonder Main Street feels cheated.

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