Archive - May 2010

The Moody’s/REAL All Property Type Aggregate Index measured a 0.5% price decline in March, marking a second month of falling values after a slight rebound reported earlier this year. The index now stands at 111.16, down 24.9% from a year ago and 40.5% from two years ago. Prices peaked in October 2007, and at their lowest point thus far in the downturn (October 2009) they had fallen 43.7%. As of the end of March, commercial property prices are down 42.1% from the peak.

One supposes it is at least tangentially possible that Angela Merkel intended as some self-effacing, second derivative of Samuel Johnson homage her instant declaration of war on "speculators." Indeed, if "Patriotism is the last refuge of a scoundrel," a pogrom against short sellers must surely be the last refuge of newly emasculated monetary authority. Proponents of post-modern deconstructionist theory who train their disintegrators on Merkel must, however, somehow reconcile the facts that, though Merkel has indeed been most publicly emasculated, most recently by an actor impersonating a fist-pounding Hungarian purporting to be the leader of France (and how exactly did Lance Henriksen manage to become the President of France anyhow, now that we are on the subject?), the EU hasn't been anything like an "authority" in some time. Seriously, if France and Greece can emasculate you, exactly what manner of prowess can you really be said to have possessed in the first place?

When viewed through the lens of a common street hustler, the global central banking system reveals itself to be just that: a hustle. Learn the hustle and you have a chance at profit. Ignore it, and you will lose.

Zero Hedge has long claimed that Greece will be forced to default, with the only question being how this will be structured by Europe in a way to not allow the evil speculators to make buck on this process. Today, Greece shot itslef in the foot a little after announcing its latest debt number, which makes any expectations of climbing out of its Keynesian hole even more laughable. As Market News reports, "Greece's general government debt rose to E310.3 billion in 1Q from E298.5 billion at the end of last year, according to data released Wednesday by the General Logistics Office of the Finance Ministry." That austerity sure is doing miracles already. But it doesn't matter: it appears that Germany has already made its mind to let Greece drown. As Neil Hume at Alphaville reports, "Big IB to clients: "they have it all planned: they are going to sink the ship (greece). Merkel is now drafting law for orderly insolvencies, but they don't want anyone to make money out of it, hence the ban."" If this is true, it 's curtains for Europe. Shorting the Euro at this point is like shorting Lehman: you may see savage short covering squeezes but the end result is well known.

Fundamentally I am not on board in the sense that banning short selling is usually the kiss good bye. Maybe Germany could consult with Iceland to discuss closing the market for 3 or 4 days to take a break, it's a real confidence builder. Sarcasms aside, there are a lot of rumors going around of ECB intervention in the FX market to defend the Euro and and Europe-wide ban of short-selling. Both in my opinion are negatives for the long term but could lead to a short-term covering of shorts in carry trades and equities. - Nic Lenoir, ICAP

Now that central banks are the key players in FX markets, be prepared to see such 150 pip moves all the time: the EURCHF just went parabolic as the Swiss Bank once again resets the pair. At 500x leverage, we hope you were rich before this kind of intervention... because you won't be after. Also, the reason for this mornings 8 handle move in futures is the rumor that the ECB may come out with comparable EUR intervention shortly. The ECB is vehemently denying such speculation.

• Martin Wolf: Eurozone plays "beggar my neighbor" (FT)
• Specter loses senate race, Rand Paul driven by Tea Party (Bloomberg)
• Riots, fires spread across Bangkok as army forces protesters to surrender (Bloomberg), fire set to stock exchange (WSJ)
• Yes, please keep throwing away your money by buying Apollo's IPOs (Bloomberg)
• Roubini says US may soon face bond vigilantes (Bloomberg)
• More on Goldman's Timberwolf CDO: settlement talks between Basis fund and Goldman heat up (Reuters)
• Doomsayers beware, a bright future beckons (NYT)

• Asian, European stocks, commodities fall; Treasuries rise after Germany bans short selling.
• Consumer prices in US may show inflation contained as economy recovers.
• Germany to ban naked short-selling on certain financial stocks, soverign bonds.
• Hedge Funds bet Europe's $1 trillion rescue package won't cure debt crisis.
• Private Equity-backed US IPOs leave buyers with worst returns in decade.
• US Regulators proposed new curbs to tame volatility; circuit breakers for every stock.

Zero Hedge has long discussed the strange phenomenon whereby Goldman recommends a trade only to unwind it shortly, after institutional clients who have been naive enough to follow it, end up losing millions, sometimes in a period as short as a few days. The observation there being that the only way Goldman scores something like a perfect 63 out of 63 quarter is by literally raping its clients, along the lines of what Goldman is currently facing civil and criminal probes for allegedly doing in the CDO space. And while our rant has been public for quite some time, yesterday was the first time the Bloomberg also decided to join the fray.

You heard my warnings about the "best of breed", "incomparable on the Street" (and all of the other groupie talk, worshiping phrases thrown at this company) Goldman pillaging clients and of their excessive overvaluation for over two years in BoomBustBlog, yet now the mainstream media is starting to catch on as Goldman's stock plummets (down over $5 yesterday and over 20% for the month, with more to go). I wonder when they will get around to the other investment banks and FIRE sector companies that I warned about. Let's reminisce...

RANsquawk 19th May Morning Briefing Stocks, Bonds, FX

CDS update

Futures charts + open thread

If there was any doubt about where futures will open tomorrow, the following article from the Telegraph should assuage all doubts: "Traders greeted the move by BaFin, the German regulator, with a mixture of anger and astonishment. One bond trader said he expected Wednesday's trading session to be one of the most volatile in living memory: "It will be complete chaos, I really don't know what the Germans think they are doing.""Without the two-way flow the German market is likely to become utterly dysfunctional," said one London-based bond trader. "Nobody ever thought they'd do this in a million years and it raises the long-term question of who is now going to want to buy their debt."

BaFin banned naked short sales and unsecured CDS on government bonds in the euro zone. The Federal Financial Supervisory Authority (BaFin) on Tuesday naked short sales of debt securities by euro zone countries, which are admitted to trading on a domestic exchange in the regulated market, temporarily prohibited. it has also temporarily banned so-called credit default swaps (CDS), where the reference obligation is a liability, at least one country of the euro area and they do not serve to hedge risks (unsecured CDS). (translated from German)