Archive - May 2010

Some comprehensive market insights from and on the mostly forgotten I in BRIC.

Just guessing what happens next.

Many market participants expect the European Central Bank to renew its 1Y LTOR liquidity operation maturing in June to calm the markets. However I would argue at this point that while it will help liquidity, it won't solve all the problems. Europe has allowed the situation to deteriorate so badly that right now short of printing money and buying local sovereign debt, the ECB won't really provide much of a fix to the crisis. Whether it is desired or they should cut their losses and disband the Euro is another topic of conversation. Since an entire generation of European politicians view the Eurozone as their baby they are unlikely to give up that quickly. By the same token Weber who is simply a raging maniac and Trichet (he did run a bank into the ground already, can he do it with a central bank???) are VERY VERY reluctant to the idea of quantitative easing. We should therefore expect more drama until they finally pull the trigger. The markets are geared up for some announcements tomorrow: let's see if European politicians have learned the lessons of bailout voted down in Congress or the refusal to bail Lehman against market expectations. - Nic Lenoir

Alan Grayson storms back to the stage by asking just why is Tim Geithner, who has the biggest conflict of interest when it comes to Fed matters, even be allowed to have an opinion on Fed transparency issues. In today's ABC Top Line, Alan noted, “when Tim Geithner says that he doesn't want to see the Fed audited, what he's really saying is he doesn't want to see Tim Geithner audited,” Grayson said. “He was the head of the New York Fed for years and years. This audit would apply to him. And the actions he took -- which he can now take in secret and, when this bill passes, will no longer be secret -- we'll be able to see and understand the decisions that he made that among other things put huge amounts of bailout money into the hands of private interests.” Grayson added: “It's one of the biggest conflicts of interest I've ever seen.” Keep in mind that this is the same Fed that when it took over Bear via ML1 said it would have no losses on the collateral it assumed, only to see its Red Roof Inn holdings be foreclosed upon last week as Zero Hedge first discussed. How the Fed's opacity is still a topic of discussion simply does not compute. And that Obama is doing all he can to prevent the Fed transparency initiatives by Paul and Grayson from passing at this point certainly means that should the Fed's dirty laundry be made public that the administration would certainly collapse in a smoldering heap of 0% approval.

L: Doug, I'm in Belarus this week, a pit stop to help
some of my students with their various business ideas. I'm struggling
with my Russian, but getting along. And that has me thinking about
Russia's role on the global economic stage. I know this is something
you've given some thought to… What do you think? Is Putin out to take
over the world? What do investors need to keep in mind?

Doug: Well, the first thing to keep in mind is that
any time you're talking about a large group of people, I think it's
about 150 million in Russia's case, it's hard to generalize. Russia
makes headlines, being one of the BRIC countries (Brazil, Russia,
India, China), which are "emerging" economies seen as a sort of wave of
the future. But I have to say that Russia doesn't really belong in this
group. We may lose some Russian readers by my saying this, but while
Russia has a lot of resources and should have a bright future, I don't
think it will.

• Final step towards bilateral loans and IMF stand-by agreement taken
• The aid package limits the near-term liquidity risk and buys more time
• But the long-term issue of debt sustainability (i.e., solvency) remains
• Debt restructuring unlikely in the near term, but possible longer term
• Financial market reaction to the package will determine whether it works
• Key factors are additional austerity measures the IMF/EU are asking for
• Near-term event risk: last political or legal hurdles
• Contagion: Focus back on other peripheral countries (Portugal, Spain)
• Portugal may be too small to matter; Spain would raise capacity issues.
• Periphery needs to act now, in our view, and propose additional austerity measures

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 05/05/10

Looks as if the dollar bears and bond bears finally threw in the towel after suffering from horrific losses, but the dip buying mo-mo monkeys arrived en masse like a swarm of locusts, hoping to capitalize on another huge run in equities.

From a reader: In the last week I have been hearing things from pals regarding funding crises in money markets and among banks, both within europe and across us/europe (fits with Fed relaunching EU swap lines). Attached chart will scare you guys.  This is a little more subtle but look at the second chart, the one on the right... EU libor vs repo is widening (pink line) in last 2 days, and also dollar libor is rising faster than euribor (decline in blue line in right chart), ie dollars are harder to come by vs euros in the eu interbank market.  expected.  but most strikingly, the spread between 3m and o/n repo in europe is skyrocketing (yellow line), which means it is getting harder to secure funding on a 3 month basis using ECB collateral vs going to the window overnight.  bad bad bad.  means players are less inclined to lend collateralized money out at 3mths.  We are watching an insolvency crisis become a liquidity crisis in real-time. 

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

Like clockwork: Europe closes, volume flattens, and the market rips. With Greece's revolution now "certainly" resolved even as European markets closed at the lows (someone forgot to tell the Greek people who have now locked down the country in a persistent striking state), nobody can bother the US algos, who only look at themselves as a referential point, and at low volume as reinforcement. And with the US algos out of the barn, the carry traders resume, the AUD now back to 0.91 and the EURUSD back to 1.2900. Credit is ignoring the mini melt up as both IG and HY are wider for the day (+4 and +25 bps, respectively). But at least Getco and SigmaX's no-volume algos can give the impression that all is well with the world, even as Greece and now Portugal are shut out from the funding markets, and the IMF and the ECB's credibility is blown to smithereens. The astrophysicists in charge of the US capital markets are unperturbed.

There’s a surfeit of instructionals on the secret to investing, ranging from Investing for Dummies to The Intelligent Investor. My bookshelves at home are full of them, and I’ve learned or at least absorbed something from many. Experience is a great teacher, but the foundation of civilization, and too investing, is also dependent upon the capsulization of the experiences of others and that is where books have played a formative part in my own career. Still, there’s never been a book called “Common Sense for Dummies,” which would be required reading in my investment class if either existed. That’s an oxymoron to begin with, though, which points to the obvious – that common sense cannot be taught. It’s like sex appeal – you either have it or you don’t, although both are subject to relative judgments of the observer. What is commonsensical to one investor may seem ludicrous to someone else. And even in cases where history has validated the irrationality of one investment idea or another – the subprime frenzy being perhaps the most recent – there are questions of timing. Michael Lewis’s book The Big Short is not only a tale of the validation of common sense, but of its delicate shelf life. Most of Lewis’s heroes were almost all closed out by their own clients before their logic blossomed and their profits multiplied. - Bill Gross

The Rating Outlook revision to Negative incorporates recent legal developments and ongoing regulatory challenges that could adversely impact Goldman's reputation and revenue generating capacity. Goldman's franchise and market position are potentially vulnerable to scrutiny by stakeholders, and like peers, may be affected by the industry's regulatory evolution.

We are shocked the "Red Alert" is happening a full day after the exchange allowed the biggest selloff in many months to occur.

Update: here is where readers can dial in to hear about the NYSE meltdown first hand

Bridge Line- 888-669-2803

Access # - 7956260

Ealier today Jim Rickards of Omnis, formerly LTCM's GC, was on CNBC and was subjected to some "probing" questions by Joe Kernan in which the anchor asks Rickards if he is a "conspiracy theorist" for his recent insights into the potential investigation of JP Morgan's market rigging behavior by the DOJ. Rickards replies that he isn't, and follows it up with some gold price target observations based on "8th grade math": the former LTCM man sees gold going up by at least 10 times, and hitting $5,000 rather easily. We wonder if to CNBC there is any uglier word than "conspiracy theory" even when the "theory" is backed 100% by facts.