Archive - Apr 2010

RANsquawk 12th April Morning Briefing - Stocks, Bonds, FX etc.

As long as man has lived, man has always been keen to commit grand acts of deception on his fellow man. Joseph Goebbels, Hitler's Propaganda Minister said, "The bigger the lie, the more it will be believed." The theory of global warming caused by carbon emissions is likely to be another one of these great lies. But the greatest big lie of all, in my opinion, is our global monetary system and the suppression of gold and silver prices that aid and abet this lie.

RANsquawk 12th April Morning Briefing - Stocks, Bonds, FX etc.

Russia and China have also formed alliance to help each other increase their clout in global affairs. Underneath the geopolitical and trade pacts, this newly elevated Sino-Russian alliance seems to also suggest the beginning of an economic paradigm shift for both countries.

Enter the announced Greek Bailout that doesn't bailout! Greece's problems are much, much deeper than the mainstream press is revealing. Let's walk through the latest bailout propaganda then step through a few facts that should embarrass anyone even considering buying those Greek bonds.

With an initial bailout of Greece 'out of the way', many market pundits will proudly proclaim the bear market slain. An initial pop monday morning will likely stoke fears of "missing the next leg up." Friday's end-of-day buying surge into the close raises the odds that the market begins the week with strength, but the real test will come when the S&P 500 cash (INX) tests 1,200 and the DJIA (INDU) 11,000. The US Dollar (DXY) plotted a daily FNH (failed new high) this past Thursday at 81.91 before rolling over. Barring a 3-day reversal pattern back up above 81.6, Uncle Buck will likely digest his gains into mid-May after having rallied for four months straight. Ten explicit stock trade setups for GNW, LNC, PFG, RDC, IBB, EMR, HST, AONE, SKYW & APWR.

Iceland, Dubai, Greece ... Portugal ... JAPAN?

First, the gold manipulation story that Zero Hedge and select others have been beating a drum over for months, had finally made inroads into the broader public, first via the Huffington Post, and earlier today via the NY Post. It has also gone global thanks to the Melbourne Herald Sun, the largest newspaper in Australia, whose column by John Beveridge "More bull than bullion" is reproduced below, courtesy of the GATA. Most importantly, Zero Hedge will soon disclose some very stirring details on the manipulated gold market courtesy of yet another whistleblower, and add a new twist in the greatest precious meals fraud saga of all time. Stay tuned.

The just released minutes from the March 16-17 policy-setting meeting by the Bank Of Japan indicate that dissension to global ZIRP, and its mutant step brother, Galactic Moral Hazard (we can't wait for Goldman to LBO Uranus, with $1 of taxpayer equity and a 0.001% perpetual PIK loan from the Federal Reserve), is growing: the vote to double the BOJ's 0.1% interest lending facility to Y20 trillion saw a final tally of 5 to 2, with two opposing. It is no surprise that as time goes by, ever more rational people will emerge at most central banks, and join such vigilantes as Tom Hoenig in expressing that extremely rare CB quality - unbribed common sense. Yet what is more notable in the last sentence is that Japan just increased the amount of funds to be injected to cover 3 month cash needs among commercial banks, and not only that but that the BOJ will also double the frequency of the new operation from once to twice per week. In summary: the fiscal tragedy discussed earlier by Koo is starting to once demonstrate the powerlessness of monetary policy when you are dealing with a defunct state. Yes America, this is coming here too. Here's why - the reason for all of this newfound excess monetary flooding: "To encourage a decline in longer-term interest rates." Because that is just what Japan need - more deflation.

Goldman's take on the bailout: "Sure it is concessional, so we’ll probably see some interesting court cases if the loan gets disbursed." Look for the lawsuits in Germany to start flying at 9 am. We expect these to derail any prompt disbursement of capital especially once Greece throws in the towel and recognizes what everyone knows is the sad reality of its default condition. We expect this to make Tuesday's Bill issuance problematic and has resolved very little for any future Bond issuance at acceptable rates.

When wealth and power become too concentrated, capitalism becomes virtually indistinguishable from socialism or fascism.

Here is what happens when you green light Moral Hazard - in less than two hours after the videoconference in which the EMU announced €30 billion in aid for Greece, a Greek senior official has already come up and said that they were only kidding about needing just €40 or so billion (with the IMF's 10). The full amount will actually be double that, or €80 billion, for the three year period. Look for Portugal, Spain, Ireland, Bulgaria, Hungary, Latvia, and Lithuania to come knocking in the next 45 minutes.

Someone please explain to us how these two paragraphs do not directly contradict each other?

“In order to set incentives for Greece to return to market financing, Euro area Members States loans will be granted onnon-concessional interest rates.

and

“The pricing formula used by the IMF is an appropriate benchmark for setting Euro area Members States bilateral loan conditions, albeit with some adjustments. Variable-rate loans will be based on 3-month Euribor. Fixed-rate loans will be based upon the rates corresponding to Euribor swap rates for the relevant maturities. A charge of 300 basis points will be applied. A further 100 basis points are charged for amounts outstanding for more than 3 years. In conformity with IMF charges, a one-off service fee of maximum 50 basis points will be charged to cover operational costs.

Nomura's Richard Koo, whose work we have previously discussed extensively on Zero Hedge, is out and about presenting the case for unbridled deficit spending as usual. Amusingly, the big question according to Koo is "why are we not seeing more bubbles." Well, when oil hits $90 on Monday, coupled with 20% underemployment, hopefully the market will answer Mr. Koo's question. Also, Dow at 36,000 in 200 days should pretty much put an end to that debate. Some more practical observations: demand for loans is below zero (which is not news to anyone) i.e., demand for fund is still contracting even with zero interest rates. As always, Koo parlays this in a parallel with Japan, and how nothing has really worked for over 10 years. His key observation - if companies don't want to borrow when rates are zero, they should just return their equity capital to shareholders.

From European debt wars to another war that's part of my personal struggle. On Saturday, CTV's W5 followed up on a controversial MS treatment that is turning the MS community upside down. Frustrated MS patients aren't waiting for proof that it works. If you know someone who suffers from this debilitating disease, please take the time to read this comment carefully and pass the information along. I also discuss some interesting findings on vitamin D that you should all be made aware of.