Archive - Apr 2010

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.

Surprises these days come from everywhere: one day we find that some of the wealthiest hedge fund managers are only so thanks to clever schemes involving the enabling of investment banks who have the biggest rolodex of "putzes," finding the last remaining "greater fools" available, another day we discover that a deal that Goldman had no qualms about, was passed on by what may well have been the last remaining ethical bank, Bear Stearns. Greg Zuckerman, as pointed out by Wall Street Manna, in his book "The Greatest Trade Ever" describes Paulson's meetings with Goldman, Bear and Deutsche to "ask if they could create CDOs that Paulson & Co. could essentially bet against. Ironically, it was Bear Stearns that rejected the offer: "[Bear Stearns trader Scott Eichel] worried that Paulson would want especially ugly mortgages for the CDOs, like a bettor asking a football owner to bench a star quarterback to improve the odds of his wager against the team ... he felt it would be improper." Eichel told Zuckerman, " 'It didn't pass our ethics standards; it was a reputation issue, and it didn't pass our moral compass." Sure enough, Goldman et al (allegedly) took down Bear shortly thereafter, and gave it away to Jamie Dimon for pennies on the dollar. In the world of Wall Street, where everyone tries to destroy the dumbest, those who play by some ethical historical rulebook all end up seeing a "run" on their liquidity sooner or later.

A former Goldmanite who failed to bail out the world and was called a Chump by Elijah Cummings, proceeded to chopped down trees for kindling and fight off bears in the backwoods, is now stuck peddling a second-tier equity product for a bond fund. The world sure is messed up.

Before the SEC announced the charges, Goldman seemed unstoppable. It seemed like even countless tons of water pressure or scores of invading armies could not touch Goldman.

Now, there is a crack ...

Even if the timing of the SEC's announcement was wholly political, tons of public pressure and hordes of lawyers are probably on their way.

Claims GS “controls the wind”

One of the most ludicrous claims over the past few days has been that the shady aspect of Goldman's mortgage unit operations began and ended with Fabrice Tourre, as per the SEC's complaint. The NYT's Louise Story has just disclosed the far too obvious: "By early 2007, Goldman’s mortgage unit had become a hive of intense activity. By then, the business had captured the attention of senior management. In addition to Mr. Blankfein, Gary D. Cohn, Goldman’s president, and David A. Viniar, the chief financial officer, visited the mortgage unit frequently, often for hours at a time." Louise presents a comprehensive analysis of the chronological shift in mood over US real estate among Goldman's ranks, in which it become obvious that the very heads of Goldman were instrumental in making the critical decision to part ways with Wall Street's optimistic groupthink, driven primarily by the input of Goldman salesmen who listened to hedge funds and advised the firm's executives and analysts (coupled with the input of Tourre and Egol) that some of the "smartest" money was turning bearish on real estate as early as 2006.

What's the possible impact of the volcano on global trade? That depends. It could be significant.

On April 13 we pointed out that Citi put on a long EURUSD recommendation with a 1.349 stop. The cynics in us were confident that this was merely a way for Citi to dump its EUR book.

[Citi] has just issued a long EURUSD call at 1.359. The call by technical
analyst Aron Gera, proposes a stop at 1.349. In other words it is now
Citi's turn to offload its EUR book. Gera's recommendation is based on
technical analysis, which, in the form of momentum chasing, is all that
seems to work these days. Aron thinks the EUR could surge to an 11-week
high, even as the GBPUSD could jump as high as 1.5966 alongside EUR
strength.

Mission accomplised. The euro is plunging (last at 1.346, just barely above the 1.345 option barrier) as Shanghai is dropping, Japan is not doing all that well, and half the world is lining up to sue Goldman Sachs. A surging dollar will do nothing to help a market that has just had its first reacquaintance with risk after three months (sorry Bernanke, even endless liquidity is not omnipotent). At least Citi managed to sucker in a couple of its best clients. Will these clients now sue Citi if they found out that Citi was, gasp, shorting the EUR against them?

While the significance of Friday's high volume reversal has yet to be determined, the set up has the making of a market top - the majority of investors are poorly positioned and the precipitating event (i.e., the government's charges against Goldman Sachs) was not foreseen.