Archive - May 20, 2010

The move in the EUR has just hit ridiculous levels, with the nearly 300 pip intraday move comparable only to the EURCHF surge seen yesterday after quadruple SNB intervention. And frazzled US quants, having no clue what to do, decide to once again turn on the EUR signals pushing the market higher, with a 10% chance of a green close. Make no mistake - this is reciprocal liquidation, where morning margin calls in all other pairs were met by EURUSD covering of shorts,exacerbated massively by what is now almost certain ECB (not SNB) intervention. The negative here is that Germany will look at the Eur response and pitch its naked short ban to all other European countries, which will now gladly accept the proposal, myopically hoping for another 1-2 bp move in the EURUSD. We believe there may well be an announcement of a Europe-wide naked short covering ban this weekend, coupled with the imposition of a transaction tax.

They key to recovery is debt: there is still too much of it. The Obama Administration's attempts to reinflate the housing market is causing massive distortions in that market and the data proves it. There is so much government manipulation of the housing market that much of the old risk still exists and they are creating new risks that are damaging the economy's ability to recover. Are you ready for a "bust-bust" cycle?

It should come as no surprise that the short-term funding markets for European banks are getting increasingly problematic. Unfortunately for the ECB, which can intervene with a 6-12 hour time horizon to prop up the euro, there is nothing it can do to limit the bleed in Libor. Confirming this, Libor simply refuses to slow down its constant creep higher, causing increasing pain to all those who have sold the Ted spread and Libor-OIS, both of which are back to September 2009 levels. Yet while a surging Libor in itself is a troubling phenomenon, what is even scarier is looking at the offers provided by constituent banks to the Britsh Bankers Association, which compiles the data and provides an ex-outlier quartile adjusted Libor rate. The dispersion between the top and bottom bank in today's EUR LIBOR panel was a whopping 33% today, begging the question of just how healthy the upside panel outliers are.

The long-debated topic of whether the ECB intervenes on behalf of the euro can now be put to rest. 120 pip move in a minute is not a short cover. It is, and always has been, forced central bank intervention. Bernanke is so happy Trichet is doing his work for him for the time being. Be very wary of buying stocks on this intervention, as Central Bank involvement now at best leads to a 12 hour temporary "fix" to the market that Bernanke et al want to sustain.

Total panic in the market. PPT now out protecting the critical 1,070 level in ES. As the chart below shows, if the 1,070 level in ES is taken out, watch out for a repeat of the flash crash.

Unconfirmed: RBS back up now. No idea what caused the black out, but likely a liquidity run.

In case you needed confirmation of the wipe out you are seeing on your monitors, here comes Bill Gross. Just headlines for now via Reuters:

• GROSS: FINANCIAL MARKETS EXHIBITING "MINI RELAPSE" OF FLIGHT TO LIQUIDITY
• GROSS: HEDGE FUNDS AND OTHER LEVERAGED POSITIONS NOW LIQUIDATING TO PRESERVE CAPITAL

So you mean Prime Brokers allowing 5x leverage for 130/30s was actually a bad idea?

Mexico next? Maybe.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 20/05/10

It may take a while, but the fictitious valuations of CRE REITs will eventually come to reflect what is actually going on in the actual physical real estate world. It may be like matter meets anti-matter, investment banking secondary offering meets bricks and mortar reality. After all, the antics in Germany and greater Europe are not doing anything to actually help the debt markets.
I think I feel another "I told'ja so" coming on...

We received this in our tipline:

I don’t know if this is appropriate for your tip line or if it’s even “news” but TD Ameritrade online access is “down.”  It seems to be the whole system…

Supposedly a technical issue with no forecast for when it will come back up.  They also don’t have a system to automatically notify customers of such issues –or their resolution.

Phone support’s advise agreed that I “should just keep hammering on it.”

In addition to the obvious rant about this status, it’s still another vote for why you should never keep all your assets at any one broker.

We have been unable to confirm it as we get automatically disconnected from TD Ameritrade's new customer contact number: 800-454-9272. If any readers are experiencing the same issues, please advise. If TD is indeed down, we wonder how long before all the other retail brokers follow suit.

Regular readers will know Zero Hedge's fascination with Hugh Hendry, who so far has been spot on in his predictions on this business cycle and bear market rally. Here is his most recent May 2010 letter, in which topics are critical as China and hyperinflation/deflation are deconstructed in a way that only the former Goldman/Odey partner can. Must read.

We are trying to procure the report, reported by RanSquawk. If true, Europe's contagion is set to go global, and the JGBs are about to find out what a reversion to the one way tightening path for decades means. Also should stop the JPY appreciation dead in its tracks, and refocus the debt vigilantes on that final bastion of Keynesiansm, the United States.

It is time for Bloomberg to update its analysis from yesterday on how many billions in dollars Goldman's clients have lost listening to the hedge fund's research call. After earlier apologizing for their EURUSD call, here comes the JBWere guys (the firm's down under subsidiary), saying the time for the downgrade of the AUD is nigh.

10:30 05/20 GERMANY FINMIN: NEED RULES FOR ORDERLY INSOLVENCY OF EMU STATS
10:30 05/20 GERMANY FINMIN: CAN'T HAVE EU AID PACKAGE EACH TIME

What's that? We are to expect more "orderly insolvencies" without EU bailouts? What kind of Keynesian travesty is this? But at least the road is clear for Portugal, Spain and Italy CDS to go points up front shortly.