Archive - Mar 2010

As the euro is plunging (and dollar by implication surging) with gold yet again flat and looking like it may turn positive for the day, gold denominated in euros just hit another all time record of €827.

About a year and a half ago I warned that HSBC would be facing
increasing and unanticipated (I was a contrarian on the China bubble)
losses/slowdown in Asia, as well as increasing losses on bad debt in the US. I
believe I was one of the very few who threw this caution out there.

Last week in the FT the deputy governor of the PBOC was quoted as saying that his biggest fear for markets in 2010 was the risks to the $ carry trade, which China estimated was worth $1.5 trillion, dwarfing the yen carry trade at its height. Indeed, he's right to be worried, especially, as I believe, the lynchpin of the carry trade is now the Fed's balance sheet, which they are actively discussing shrinking.

The DXY just hit a 9 month high at 81.20. The euro tumble is accelerating and was at 1.3468 last. In fact, total chaos in pairs land. Equities now completely dislocating from the EURJPY signal: Japanese biotechs expected to to hostile bids for all US stocks imminently.

According to the ISM "Economic activity in the manufacturing sector expanded in February for the seventh consecutive month, and the overall economy grew for the 10th consecutive month." Too bad none of this China-driven production is making one iota of impact on the broader unemployment rate. Still, as ISM came in over 50 we are supposed to rejoice as it indicates economic expansion. Notably, the inventory direction as designated by the ISM is one of contraction. What happens if China ever turns off the liquidity spigot is unclear, but we have seen what programs that take from the futures to today do to subsequent demand. Look for a comparable inflection point in the ISM when consistent Chinese GDP "growth "of 12% starts being perceived as just a tad kooky.

Is normalization coming back to the stock market? A quick glance at the Goldman daily trading net revenues in Q4 demonstrates that the easy money for the firm may have been already made. While in Q3, Goldman reported just one days of losses in 65 total trading days, as well as 36 days of $100MM+ profits, in Q4 the distribution looks much more normal (if still massively skewed toward profitability). In Q4 the firm announced it lost between $25 and $50 million once, lost under $25 million for 7 days, but most notably made over $100 million on "just" 15 days, a 58% decline from Q3. The Q4 $100MM+ trading days represent just 11% of all 2009 $100MM+ trading days. And here is an observation for you distributions fans: in 2009, Goldman made over $100MM on 131 out of 263 trading days, or 50%. It lost over $100MM on 0 out of 263 trading days, or 0%.

"The Federal Reserve and the country owe a tremendous debt of gratitude to Don Kohn for his invaluable contributions over 40 years of public service. Most recently, he brought his deep knowledge, experience, and wisdom to bear in helping to coordinate the Federal Reserve's response to the economic and financial crisis. In addition, Don helped lead the stress tests of major financial institutions; he directed the Board's ongoing efforts to increase the transparency of the Federal Reserve; and he has been leading an international effort within the Bank for International Settlements to help central banks focus on key issues and responses to the crisis. On a personal note, I would like to express my deep appreciation for Don's friendship and counsel during some very difficult times. He will be greatly missed." - Ben Bernanke

First trading day of the month has a mild bullish bias (new money in IRA’s, pensions, etc.). Overnight, there are, yet again, rumors of a Greek rescue package. That has boosted the Euro and softened the dollar. The Pavlovian response is firmer prices for stock futures, oil, and gold. If there is a deal, and details follow, stocks could benefit further. If the deal disappears, stocks could suffer.

It appears all it takes these days to get invited for some free ouzo and a little sirtaki is to issue a note that one's minions are about to downgrade Greece. This is precisely what has happened to analysts from S&P, which last week announced it was looking at notching Greece closer to junk status (currently BBB+). Market News, quoting Greek officials who apparently have a rumor retention span of about 2 seconds before they blast anything and everything to their entire rolodex, reports that "a team from ratings agency Standard & Poors is on its way to Athens for talks Tuesday with government officials about the country's economy and ongoing efforts to reduce its public sector budget deficit." Not too surprisingly, S&P had no comment by how much it would upgrade Greece following this gift reception ceremony.

Shaking hands with the government was a brilliant strategy in 2009 when it was assumed that governments had an infinite capacity to leverage themselves. But what if they didn’t? What if, as Carmen Reinhart and Kenneth Rogoff have pointed out in their book, “This Time is Different,” our modern era was similar to history over the past several centuries when financial crises led to sovereign defaults or at least uncomfortable economic growth environments where real GDP was subpar based on onerous debt levels – sovereign and private market alike. What if – to put it simply – you couldn’t get out of a debt crisis by creating more debt? - Bill Gross

RANsquawk 1st March US Morning Briefing - Stocks, Bonds, FX etc.

• Evans-Pritchard: Don't go wobbly on us now, Mr. Bernanke (Telegraph)
• Euro drops, pounds plummets below $1.48 for first time since May (Bloomberg)
• Greece now, U.K. next as Scots ready for pound plunge (Bloomberg)
• Summarizing eurozone's derivative deals, at least those known to date (XE.com)
• Alphaville's 72 hour delayed breaking news on Weimar hyperinflation: about par for the comfortably oxygenated FT blog (FTA, and Zero Hedge)
• RBS paid £1.3 billion to bankers on profit of £1.0 billion in 2009 (Telegraph)

• Buffett sees US housing recovery by 2011, prices below 'bubble' levels.
• Car makers on Tuesday are expected to report disappointing U.S. sales for February, mainly due to snowstorms.
• China's manufacturing growth slows in Feb, PMI falls from 55.6 in Jan to 52.0.
• Copper rises most in 11 months as Chile earthquake cuts power, halts mines.
• Crude near $80 a barrel after 9.3% monthly rise.
• Europe demands Greece cut budget deficit as Bloc crafts $34B rescue.
• Greece loses Kokusai as investors demand 7% on bonds.

RANsquawk 1st March Morning Briefing - Stocks, Bonds, FX etc.

Brace yourself. Nothing is going to happen. A portfolio manager’s worst nightmare, and a trader’s dream come true. Selling out of-the-money-strangles, last year’s suicide trade, could be this year’s steady earner. The VIX will continue to bleed to lower levels. Hiding out in the currency crosses. (SPX), (FCX), (VIX), (USO), (GLD), (TBT), (TBF)