Archive - May 2010

Albert Edwards is back to discussing the now conventionally accepted schism between the European core and its periphery, which he now sees as having passed the point of no return: "My own view of developments, for what it is worth, is that any ?help? given to Greece merely delays the inevitable break-up of the eurozone." What is more troubling is his insight into the psychology of Europeans, which unlike apathetic Japanese or US citizens, actually know when to say enough, and how to manifest their displeasure: "Unlike Japan or the US, Europe has an unfortunate tendency towards civil unrest when subjected to extreme economic pain. Consigning the PIGS to a prolonged period of deflation is most likely to impose too severe a test on these nations. And the political "consensus" within the PIGS to remain in the eurozone could falter in the face of another of Europe's unfortunate tendencies - the emergence of small extreme parties to take advantage of any unrest. My own view is that there is little "help" that can be offered by the other eurozone nations other than temporary confidence-giving "sticking plasters" before the ultimate denouement: the break-up of the eurozone." We are not sure if the emergency of another Hitler for Gen Z is more concerning than the imminent end of the euro, so we'll leave it at that for now. However, for immediate trading purposes, daytraders may want to take warning in the following A.E. words of caution: "Investors should therefore be far more wary of buying on the dip this time."

The US Treasury has announced the issuance of $78 billion in new coupons in the second week of May, of which $30.9 billion will go to paying down maturing notes, and $47.1 billion will be new cash. The issuance amount of the 3 and 10 Years are $2 and $1 billion less than recent February issuance. The Treasury has also announced "that other nominal coupon offerings may come down as well in coming month." With tax withholdings nowhere near to where they need to be, we are largely skeptical of this announcement, and we expect that Bills issuance will have to ramp up to provide the needed cash balance. Also notable is that the UST will commence to raise far more money in the TIPS market, as it hopes that investors will buy into the whole doctored CPI: Beginning in July, 10-year TIPS will move to an every other month cycle, with two new issues (in July and January) each to be reopened twice.

• $38 billion in 3 Year Notes May 11
• $24 billion in 10 Year Notes May 12
• $16 billion in 30 Year Notes May 13

And an as yet undetermined amount in 3 and 6 month bills, likely another $50 billion total.

At last check the ES was just at 1,160 after briefly dropping lower. The primary factor for the market drop is the complete panic that is gripping Europe. And here we were one month ago with supposedly intelligent people saying get Greece off the front-page because it is now "boring" news. When Greece restructures its debt in a few weeks, the euro hits parity, European banks are forced to recognize $150 billion in GGB losses, Portugal, Spain and Italy CDS are all at 400, major re/insurance companies are facing liquidity crunches, our insistence on keeping Greece front and center may prove to have been the correct one after all.

The prophetic STUPID sovereign index (Spain, Turkey, UK, Portugal, Italy, Dubai) is now at 250 bps, having surged by over 50 bps in a few days. At this rate we may soon take out the 370 bps all time record high last seen when the world was ending in March 2009. Alas, with the IMF and the ECB's total failure to prevent contagion, this is more than a distinct possibility.

The Euro is in free fall. And Goldman Sachs is not helping, as the firm reiterates it has a core short position on EURUSD. Alas, Goldman's 1.2880 support level was just taken out. Watch out below.

The bond market in Greece and Portugal is now rumored to now be shut down for the day due to total chaos, not to mention potential imminent revolution in Athens. We expect the US to "decouple."

Today's rating action reflects the recent deterioration of Portugal's public finances as well as the economy's long-term growth challenges. "The review for possible downgrade will consider a repositioning of Portugal's ratings to reflect the potentially lasting deterioration in the government's debt metrics," says Anthony Thomas, Vice President-Senior Analyst in Moody's Sovereign Risk Group. "In the context of a small and slow-growing economy, such debt metrics may no longer be consistent with a Aa2 rating."

The weakening of Portugal's public finance position reflects the failure of successive administrations to consistently limit government budget deficits since Portugal joined the eurozone at its inception. "More recently, however, the government's has reiterated its objective to achieve or even surpass the deficit reduction targets published in its latest Stability and Growth Programme," says Mr. Thomas. "The well-structured debt profile means that refinancing risks are modest."

For those without access to CNN or BBC, you can watch the attempted storming of the Greek parliament live at this webcast. After confrontations got heated earlier with tear gas hot potatoes being thrown between citizens and riot police, things have moderated somewhat now, although riot police has still completely encircled the parliament building. Full link here. In the meantime, we are seeing confirmed reports that 3 people have died after a firebomb went off at a Marfin bank branch.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 05/05/10

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 05/05/10

The chances of the Euro contagion being contained are quite slim, and the Spanish government is saying it is "madness" that they will be needing a bailout. While they may not be needing a bailout now, it is far from "madness" to speculate on such matters. After all, it is the Spanish government itself that set itself up for such speculation by using pie in the sky numbers to justify their claims of having things under control. Once their projections are seen for what they really are, we shall see what "madness" truly entails...

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Why audit the Fed? Let me count the ways ...

Regulations are going to get tougher, inspections more rigorous, and taxes higher. Raising the production cost of what is already the world’s most expensive oil. Watch out for the new $10 billion liability cap. The offshore industry’s dirty little secret. Cap & Trade, once DOA, has been reborn. The only certainty is more expensive gas at the pump.

Is there Eurozone warfare going on right now? William Engdahl thinks so, and what he has to say might surprise you.