Archive - Apr 2010

And here we were thinking that a $2 billion successful Bills auction, (not really) backstopped by everyone and the kitchen sink would sound the all clear on the country with the 16% budget deficit. Alas, with the 10 Year still at 350 bps over Bunds nothing at all has changed for Greece. And here comes Deutsche Bank, which has billions at risk among the PIIGS, saying Greece will very likely be forced to protect its creditors asap, or within the next month, whatever comes first if it has no market access. Alas, as real Greek bonds are still trading just south of 7%, this pretty much means the market doesn't care about the country's long-term prospects, which in our books is equivalent to "absent market access" to anything more than oilve oil and Ouzo. And the cherry on top: several European governments will be forced to have a parliament vote to approve the bail out. It appears the market still has not figured this virtually certain collapse trigger to the rescue package. When it does, the end game for Greece will truly be there.

Obama's plan to spur US exports sure is starting with a bang. After reporting a $40 billion trade deficit in January, the US once again was a net importer (no surprise there) to the tune of $39.7 billion. This is worse than the $38.5 billion consensus. Both import and export prices increased by 0.7% (with an import price consensus of +1.0%). The largest deficit increase was in the consumer goods category, which increased by a sizzling 3.1% as everyone is stockpiling Kindles and iPads for that moment when the irresistible force of the US budget deficit finally meets the immovable object of reality (which lately has been quite movable). The next question: with China now also a net importer, and joining such illustrious peers as the US and EU, just who is exporting?

Here are the key observations on the number via Goldman, which now anticipates the need for a GDP estimate reduction as a result. That's ok, we are sure the administration will promote legislation to the GDP equation that will make net imports actually a GDP positive.

The NFIB Small Business Optimism index came in at 86.8, a decline from the March's read. As the NFIB itself confirms: "The persistence of index readings below 90 is unprecedented in survey history. “The March reading is very low and headed in the wrong direction,” said Bill Dunkelberg, NFIB chief economist. “Something isn’t sitting well with small business owners. Poor sales and uncertainty continue to overwhelm any other good news about the economy.” Main Street America's optimism is at an 8 month low, ignoring completely any sense of optimism the algo, Fed and momo rally may be attempting to generate. "The index has posted 18 consecutive monthly readings below 90. In March, nine of the 10 Index components fell or were unchanged from February’s not-so-great readings." As for credit condition: "Regular NFIB borrowers (35 percent accessing capital markets at least once a quarter) continued to report difficulties in arranging credit. A net 15 percent reported loans harder to get than in their last attempt, up three points from February. However, 89 percent of the owners reported all their credit needs met or they did not want to borrow." Even Goldman Sachs is unable to spin this information in a favorable light.

• Propaganda: Tim Geithner Op-Ed in WaPo - How to prevent the next financial crisis (WaPo) - start by voting me out of office
• The bank bailouts created the crisis (RCM)
• More surprising revalations about Lehman book-cooking which the SEC has and will ignore - Lehman channeled risks through alter ego firm (NYT)
• Hu tells Obama: China to make its own call on yuan (Reuters)
• JPMorgan profit may show decline on consumer lending (Bloomberg)
• UK market may face turmoil as overnight-count campaign fails (Bloomberg)
• Small business confidence hits 8 month low as mirage economic imporvements (i.e. DJIA) have no bearing with reality (Bloomberg)

Greg Peters, and other strategists from Morgan Stanley are out warning anyone who will listen that what is going on in the economy is a fool's rush (we would add predicated by momos who know nothing about reading financial statements but everything about dollowing a trend) and that MS' core advise to clients is to "sell into strength." Here is how Morgan Stanley differs from the consensus. Also discussed are returns before and after the EPS season, and how to hedge surging implied asset correlations.

Greece is giddy about not only placing 3 and 6 month Bills, but also upsizing the issues from €600 to €780 million. Well, when the yield involved is more than double that of just 3 months ago, and an all time records, and the country has the full backing of the EMU, and the IMF just created a $550 billion new bailout credit facility to make sure nobody ever fails, we are shocked it took yields of 4.55% and 4.85% to get these done. To be sure, without the bailout of Germany et al, Greece would have been paying 7% on both, meaning the 2% differential is now implicitly (for now) borne by German and American taxpayers - that amounts to $42 million. Next up: let's see if Greece can price something beyond the immediate near-term horizon, especially past the guaranteed 3 year point.

• Asia stocks, metals decline as Alcoa sales miss estimates; Yen strengthens.
• China may float Yuan by June 30, avoid one-off revaluation, Bloomberg survey.
• China's biggest banks face $70B capital shortfall, ICBC's Yang says.
• Global IT spending expected to rise 5.3% in 2010 - Gartner.
• Hu says China to follow own path on Yuan as Obama pushes for 'market' rate.
• Profits for big banks dimmed by home-equity loan loss seen at $30B
• World oil demand to hit record high this year

RANsquawk 13th April Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 13th April Morning Briefing - Stocks, Bonds, FX etc.

Yes, we need no bananas ...

The NBER said Monday that it's too soon to call the recession over, although many of its members think it is. Is it over? Is there a flaw in their analysis?

And all the pundits thought that the IMF would be on the hook for just €10 billion... The IMF has just announced that it is expanding its New Arrangement to Borrow (NAB) multilateral facility from its existing $50 billion by a whopping $500 billion (SDR333.5 billion), to $550 billion. The current lending participant group of 26 entities will be increased by 13 new members all of whom will contribute token amount of capital to the NAB. The one country most on the hook in the new and revised NAB - the United States of America, will provide over $105 billion in total commitments, or 20% of the total facility. The US is currently on the hook for just $10 billion, meaning its participation in global bail outs just increased by $95 billion. And the bulk of these bailouts will certainly be located across the Atlantic. What is most troublesome is the massive expansion of the NAR. If the IMF believes that over half a trillion in short-term funding is needed imminently, is all hell about to break loose.

Now that healthcare "reform|takeover" has passed, Obama is rightfully shifting his attention on tax "reform|takeover" for the very simple reason that America is getting bankrupter by the day. We take this opportunity to disclose the massive pain that lies in store for those who are currently benefiting the most from the endless stock market rally, of course assuming the president keeps his #1 campaign promise (which is a vast assumption). As the charts below demonstrate, American society is currently stratified beyond repair. In this vein, the Tax Policy Center calculates, that for a return to economic normalcy, or deficits at a "mere" 2% of GDP, households earnings more than $200/250k would see their tax rates going up to a stunning 91%. If the economic underperformance target is reduced to more palatable deficits at 3% of GDP, then the top earners would be hit with "only" 77% taxes.

Critics accuse the Canadian government of denying pension woes, and stalling on pension reform. But there are vested interests among all Canadian MPs to maintain the status quo as they line up to hit their pension jackpot.

We were too late to set up Zero Hedge world headquarters in Bicknell, Indiana.