Archive - Apr 19, 2010

Politico has released the Voice Mail that Lloyd's blasted to all employees on Sunday night. In it we read that Lloyd still thinks his firm has a reputation, let along one which must be defended. The most amusing part is where the CEO tells workers to "maintain the level of focus
on our clients" - we assume this means using Goldman's extensive idiot-rolodex, calling up the dumbest of the dumb money and using GS' "brand and reputation" in selling them whatever the most recent version of toxic crap that the smarter money du jour wants to short via Goldman and its second to none flow and prop desk.

With everyone expecting that China will now not be branded a currency manipulator once the delayed Treasury assessment is released in 3 weeks, new developments out of China indicate that the country was merely blowing smoke up the administration in its recent visit to Beijing, by promising the CNY would shortly be gradually revalued. Reuters reports that "Zhao Jinping, the deputy head of foreign trade research with the
Development Research Center (DRC), a think-tank under China's cabinet,
said Beijing was not comfortable enough right now to let the yuan rise
because its export sector had not fully recovered." So much for JPY strength due to a CNY reval. Now the JPY will be strong only because the endless carry trade may be unwinding for other Volcanic/Goldmanic reasons. Also, this certainly looks bad for Obama, as his foreign policy is increasingly perceived as a whole lot of bark and no bite: if Jinping speaks for the broader Chinese establishment (and in China nothing happens by accident) it will be evident that the president is simply incapable of bending our largest creditor to our will... as tends to happen when leverage (literal and metaphoric) is involved.

Recently, David Fiderer posted an informative piece entitled, “Goldman's Blueprint for Dumping Toxic Assets: How These CDOs Were Designed to Fail” in which he outlines certain mathematical points related to Goldman's wholesale creation of toxic CDOs. While these numbers are solid, in the sense that hindsight has shown them to be reckless given what we know now, they omit to consider the full hazard made possible by unchecked groupthink pervading the community of those who want to believe. It is my contention that the mathematics of these CDOs is not necessarily suspect, as he asserted in his piece, when one views those models through the clouded eyes of the real estate optimist, circa 2002-2007. Given the defective assumptions concerning the housing market, made while the boom was in full swing, by those unflinching optimists who wanted to believe, the numbers were not only no cause for alarm, but also, mistakenly showed a certain strength to the toxic pools reflected in the intense demand for these assets by those bullish on housing. The moral of this story is that, while blaming borrowers or greedy investment bankers is easy, and wholly appropriate in many cases, anyone who bought into the delusions of the boom, whether they be a bond investor or a lowly mortgage broker, must also blame themselves for accepting as fact the underlying assumptions which permitted these CDOs to be constructed with little regard towards the real risk of high default rates. For those who failed to see the wreck off in the distance, an introspective mea culpa is required prior to rightfully grabbing their torches and pitchforks in pursuit of the other, more willing culprits.

Goldman Sachs would never condone one of its employees misleading anyone, certainly not investors, counterparties or clients. We take our responsibilities as a financial intermediary very seriously and believe that integrity is at the heart of everything that we do. Were there ever to emerge credible evidence that such behavior indeed occurred here, we would be the first to condemn it and to take all appropriate actions. - Goldman Sachs

"Despite the contortions of the pundits, it looked (from the playing field) like the selloff was 75% Greece and, maybe, 25% Goldman. The selling was quite broad. Nearly 80% of the stocks that traded closed down. The added problem for the bulls was the increased volume brought on by the option expiration. That made Friday a clear distribution day in the key indices.
Traders headed for the ritual marination wondering what the next step in the Greece situation would be. Reports were that the ECB and IMF might be in Athens as early as Monday. It sparked the bulk of post close conversation." - Art Cashin

The ground is now literally shaking around Iceland's Mt. Katla. If that blows, look for Bund spreads to promptly catch up with Greek ones.

EuroControl reports that of 28,000 European flights expected on Monday, just 8-9,000 will actually take off: 70% cancellations for third day in a row, five days of major air traffic disruptions. At what point will this impact Obama's bold New Export Economy plan?

The crisis everyone forgot just got worse than ever. And now that European and IMF rescuers are unable to get to Greece by air courtesy of Iceland's floating fiberglass factory, Greek 3 year just hit an all time record wide spread of 652 bps, even as the 10 Year is trading a 470 bps to Bunds or a 7.8% yield. Sorry G-Pap, no more guns or fire extinguishers.

And some more views on Iceland: "What if it spreads to the “big one”? Historically, eruptions of Eyjafjallajökull have often preceded eruptions by the bigger Mount Katla because there apparently are “eruptions channels” between the two. Katla’s last eruption was in 1918. Environmentalists believe that an eruption by Katla could lead to the melting of glaciers and flooding in Iceland as well as greater and more dense clouds down over Europe causing a negative impact on several sectors, particularly agriculture. The Geological office of the U.S. Interior Department says that “ash fall can have serious detrimental effects on agricultural crops and livestock depending mainly on ash thickness, the type and growing condition of a crop."

• Thomas Hoenig op-ed: Keep the Fed on Main Street (NYT)
• Internal Goldman inquiry found Fab Fab to be in the clear, probably will not fire the Frenchman, as the SEC's probe commenced in August 2008 (FT)
• Weil: Goldman's Abacus spin dodges the big question (Bloomberg)
• Lowenstein: Goldman's staged explosion deserves apology (Bloomberg)
• Schroeder: Buffet rented good name to Goldman too cheap (Bloomberg)
• Radioshack sale rumors getting more aggressive, someone really needs to dump their position: Shack sale talk heats as CEO eyes pay'Day' (NYPost)
• Citi, with a meaningless market cap, beats meaningless estimates on lower writedowns as FASB 157 is a long lost memory and mark to myth is the norm (Bloomberg)

• Asian stocks fall the most in two months on Goldman Sachs probe.
• China’s currency appreciation may help it to overtake Japan.
• China told banks to stop loans for third-home purchases in cities.
• EU and IMF to discuss new austerity steps.
• European shares lower, airline shares fall.
• Home sales, goods orders probably rose, showing US recovery sustainable.
• SEC, after Goldman, to investigate other firms that may have mislead investors.

RANsquawk 19th April European Morning Briefing - Stocks, Bonds, FX

RANsquawk 19th April Morning Briefing - Stocks, Bonds, FX etc.