Archive - Apr 26, 2010

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 26/04/10

Hellenic Air Force is conducting a go-slow strike, affecting exercise and routine flights ; the Ministry of Defense has issued a statement today. Payments of amounts owed to health service providers [6 billion euros of debt], public sector construction [1.2 billion], ICT [200 million] and media-advertising [100 million] have ceased, according to Kathimerini.

The just completed 3 Month Bill and 6 Month Bill auctions were interesting: the BTC on the 3 month came in at 4.69, a multi year high, and well above the 2010 average of 4.27%. Also the high rate has started leaking higher again, coming at 0.15%, compared to last week's 0.145%. Primary Dealers made sure there was no hiccup and they would be able to take down as much of the $24 billion auction as possible just so they can immediately turn around and repo the money, thus buying even more Whirlpool in large blocks, spooking the HFT algos in believing the stock is the next Google. After all - can't have a down Monday. It is verboten. Curiously the Direct take down surged to 19.2%, and almost surpassed the Indirect Take Down of 20.9%. The Direct (cough Bernanke cough) Bidders just refuse to go away. The 2009-2010 average on Directs is 7.81%, while that over the past 4 auctions is exactly double that 15.66%. Primary Dealers have taken down $51 billion of all 3 Month Bills so far in 2010.

Today's FX action is pretty simple: EUR poundage as the european currency is doing hard to prevent the 1.32 stops. On the funding side, EURJPY continues to provide the fumes needed to gun the market to new highs. The dollar continues being the conduit. Without the carry, the money to ramp markets higher. However, with the just completed T-Bill auction, look for PDs to have another $50 billion in cash from repoes, and blast market higher. After all Europe is about to close, and it is a Monday (19 out of 20 positive closes coming).

The full blown curve inversion that is taking the PIIGS by storm is slowly coming to a TBTF near you. As the chart below shows, the 5s/10s in CDS curves for the most prominent banks are now inverted, while the bulk of them are flat at best. Should the ongoing pounding in GS stock continue, look for flatness to slowly creep to the 4, 3, 2 and 1 Year marks.

Here comes the next witchhunt: The Atlantic, citing two Deutsche Bank traders, reports that the German bank is guilty of an identical transgression that Goldman (and to a much lesser extent, John Paulson) is in hot water for currently: i.e., DB arranged a deal for IKB designed by JP. Look for DB's stock to drop as expectations for a Wells Notice hit fever pitch. The reason one has not come yet is because, as we reported this weekend, Robert Khuzami has recused himself from investigating Deutsche due to his long tenure there as a lawyer (presumably supervising CDO issuance). The reason one most likely is in the making, is that, as we also reported, Greg Lippmann, or the head Deutsche CDO trader mysteriously departed last week. Look for much more weakness in fins over the next few days.

The Abacus deal stunk. But there were other deals that were even worse. This train wreck for investors could have been avoided. Instead, everyone just closed their eyes.

The latest very much provocative letter from former Goldmanite and current AQRite, Cliff Asness. "All derivative contracts are side bets. They serve a useful economic purpose and our base case should be to let free people who want to make contracts with each other do so. The reviled Goldman transactions did not cause, or even inflate, the real estate bubble, it just made one financial institutional (Paulson) a bigger winner, and another a bigger loser. It was a bet each wanted to make, and was by definition considered a fair one by each party at the time. How do we know this? Easy, it was voluntary. Now government wants to rewrite history and say that this type of fair bet caused all our problems, and they’ll never bother us again if we just give them much more power, again. Do you believe them?"

Traders were a bit puzzled by how the markets responded to Greece’s requesting the implementation of the proposed aid package. Prior to the request, Greek debt was in full panic mode. Yields on Greek bonds spiked to over 12% and appeared ready to explode. After the request, Greek bonds rallied enough to bring the yield to just under 10%. That was understandable since a potential package might insure that you would actually get your money back. What was confusing was the bounce in the Euro and the resultant rally in stocks, oil and gold. That reaction seemed to imply that the rescue package was “a given”. Yet there were no details on what kind of austerity program Greece would implement in exchange for an aid package. Lacking clear austerity, it is hard to believe Germany would put up any funds. To do so would put the German government at risk of failing. (It is a coalition government.) Conversely, a strict austerity program would certainly bring social unrest to the streets of Athens. That, in turn, might likely bring down the Greek government. So, traders were puzzled by the pundit response that the request equaled a solution. The devil is in the details. - Art Cashin

Last week's number one soundbite on CNBC was the increase from the all time bottom in new home sales. What they did not focus on was the reason for this. Here it is, courtesy of David Rosenberg.

No, you are not looking at Portugal or Greek CDS. BofA starting to rumble too: CDS hits 163.

Merkel's 1pm GMT speech disclosed that Greece can pretty much surrender all hope of funding prior to Germany's May 9 elections. The chancellor said that not only must Greece show it can return to a sustainable budget path, but that further savings measures are needed. Sell that to the Greek people who, courtesy of paradropped Kindles, have had a chance to finally figure out what Austerity 1.0 means. They can look up version 2.0 at their leisure. Lastly, Merkel said she "feels an obligation toward stability of EUR." Look for the EUR to sell off on this latest political non-news.

"This is not the sovereign crisis you are looking for."

"This is not the sovereign crisis we are looking for."

"Buy shares of Goldman Sachs which is innocent of being a market monopolist."

"We will buy shares of Goldman Sachs which is innocent of being a market monopolist."

"Move along"

"Move along, move along"

Treasury announces plan to sell 1.5 billion Citigroup (C) shares "in an orderly fashion" ... [1] Treasury press release, [2] C weekly chart, [3] C 30-minute chart, [4] BKX weekly chart

Today is my birthday so I decided to post my last comment again because I think it is important you all read it carefully as it was not given proper consideration by ZH administrators. I apologize for this but we need to discuss these issues in detail and I would appreciate your feedback. Thank you.