Archive - Apr 2010

RANsquawk Market Wrap Up Video - 22/04/10

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 22/04/10

Who would have thought triple digit forward P/Es were expensive? The company reported an operating income guidance for Q2 of $220-$320 versus expectations of $332. Guess not everybody is rushing to learn to read good. Time to start handing out free Kindles to Greeks so they can finally download books that define "austerity."

Well, dumb money is clearly at work today. With Greece basically on the brink of default, Spain, Portugal, Italy are begging to follow suit before people start realizing that disbanding the Eurozone might be inevitable. At the same time GDP would be still solidly negative if it were not for inventory rebuilding and government spending, and our entire financial industry (representing 20% of the earnings of the S&P and access to credit it generated has been the engine of growth for the past 30 years) is being exposed in the media as a fraud and threatened to be dismantled or at least turned into a shadow of its current self. No wonder then that last week the Nasdaq made highs in 21-day RSI that were not seen since December 1999. A 2.3% retracement is clearly the buying opportunity of a lifetime, especially since we are only up 82% since last March. Maybe I missed the part where growth prospects are booming when schools on the West coast only have money to be open 4 days a week. - Nic Lenoir of ICAP

Europe is closed, and Greek bankruptcy is out of mind (FTSE at a one month low is victory for the bulls) so risk is on, as seen by the parabolic intraday rise in the EURJPY: The only trade now is to short the Yen and buy everything else, until Europe opens again and Greek yields hit double digits. In the meantime let's sneak a RMBS securitization deal in the form of the Redwood Trust, the first securitization since early 2008: there is no stopping the bubble.

Today is proof that the Algo/Igor/Robo computer trading programs have run amok. While Wall St. engages in bear raids against foreign countries, panicked algos are triggering wild squeezes everywhere, causing lots of head scratching among the pundits trying to explain these insane moves. Proof that the worse the Greece situation gets, the retail stocks simply go up faster.

"For those that are in big business and think they have made a great move by joining forces with the state I suggest you go back and read your history. You never will possess the ultimate power, you will be seduced into thinking you do and then when the time is right government can eliminate you and your fortune with the stroke of a pen. Power is granted to you by this authority when you engage in this unholy union and it can be taken away on whim and your wealth confiscated. Selling out freedom and your fellow citizens for some extra money or government contracts will come back to haunt you. Your legacy to the United States will be as Max Keiser has called it, a neo-feudalistic, gulag casino economy that has already begun." - Mike Krieger

The Good: The president had strong language for backing real derivative reforms.

The Bad: Vague language about the "Volcker rule" will not stop Too Big To Fail; but a plan like this (or even one like this) for breaking up the current mega-banks and limiting their liabilities will.

The Missing: NONE of this matters while our cops still work for the crooks.

Dylan Ratigan

The biggest bankruptcy in American history has also become the biggest fee bonanza free for all for the dozens of legal and financial advisors who are assisting with the orderly liquidation of Dick Fuld's former firm. Total fees paid out to all related partied now adds up to $741.6 million. Note - this is not for a reorganization: this is a pure liquidation. Of this, chief liquidator firm Alvarez & Marsal has pocketed an unprecedented $262 million. Bloomberg quotes George Fisher of Capital Guardian: "What a travesty. They’ve taken nearly three- quarters of a billion dollars out of a company that’s bankrupt, and nobody cares." Too bad the US government will never allow any other firm to file for either Chapter 11 or 7 as this may put a dent in the administration's plan to confuse everyone that the greatest Ponzi market/economy of all time is based on anything but a constant low-volume meltup in the markets. So obviously restructuring specialists will milk all they can from the one remnant of the biggest market collapse until its emergence into... fully liquidated status. Talk about value added.

Well, that spares some wholesale problems for individual countries to pursue action against Goldman. The EU's Rehn, who earlier catalyzed the upmove in the market by saying what the EU has been saying for week, i.e., that Europe can provide aid to Greece if Greece requests it (no seriously, the same headline repeated 1,000,000 times will push the market green every single time). But his latest is that the "EU is investigating use of CDO's and other derivatives." We are confident that all cash strapped countries, which are so because they ended up blowing money by bailing out their banks who gorged on CDOs (yes, if you are a European country, the sucker on the table is you), will suddenly find more reasons to go after Goldman. If nothing else, it will make Tuesday's congressional hearing a more watched event than the superbowl. To that end, we have inquired about a 30 second advertising spot with C-SPAN.

After France, Spain and Italy were the main net notional movers in the prior week, the fear about the Eurozone continues, only this time spreading increasingly to the core. While the Italy move of over half a billion in net notional increase is not surprising, as many perceive the nation as the next weakest link after Greece and Portugal, the German spike is a little surprising, although less so when one considers the failed 30 year Bund auction yesterday. Other countries that fill out the list of top 10 deriskers in the prior week include Brazil, Russia, Japan, Kazakhstan, Greece (yup, they're back), and the UK, which made the 10th spot, as CDS traders finally focus on arguably the most troubled "developed" country in Europe.

Long-term subsidies, like the Fed holding who-knows-what to maturity, equals soviet communism, as every hooligan knows. Short-term subsidies transfer credit risk, and they leverage parasitic behavior. Positive valuations assigned by shareholders to equities arise solely from anticipation of value transfer from firm debt-holders or resource transfers from US taxpayers. Debt-holder get a piece of this action too if governments overpay for “toxic” assets backing up their claims. But “everybody” receives more than fair value for their investments.

Here comes protectionism: South Carolina Senator Lindsey Graham has told reporters that he has 80 or 90 votes of support in the Senate (guaranteed passage) if his Bill to stop Chinese currency "manipulation" were to ever get to the Senator floor. Graham must be getting some serious voter push to get this passed asap: "I understand why the administration is reluctant to push China, but unfortunately we're running out of time. This will be the year." With the delay in the official US Treasury's stance on the Chinese manipulation stance set to expire soon, Geithner must decide if the fall out from an escalation in trade war at the highest level is worth the offsetting legislation that now seems set to pass should he chicken out once again. The end result, of course, will be the same not matter what: tariffs, duties, subsidies, and generally protectionism. How the collapse of trade helps boost the great export-oriented US boom is beyond our meager analytical skills.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 22/04/10

Interest rate derivatives certainly help many individual businesses control and hedge their costs.

But when a bunch of individuals all attempt to reduce their risks at the same time in the same way, it can increase the risk to the overall system.