Archive - Jun 10, 2010

The downgrade reflects the region's sharp budgetary deterioration in the last two years. As a result, we presume that the region's tax-supported debt, which includes public sector debt, will reach about 170% of operating revenues at year-end 2010, well above the 'AA-' median of comparable European peers. The downgrade is also due to the recessionary economic environment, which has been more acute than for most of its Spanish and, particularly, European peers. - S&P

Yesterday, we wrote: "Full blown capitulation from the Goldman FX (strategic not tactical)
team: the firm goes from a $1.35 target on EURUSD to $1.15. Score one
more golden star for Goldman-Client relations. On the other hand,
Thomas Stolper is officially advising clients to sell their euros to
Goldman. There is no clearer signal to buy the beaten down currency." This was at a EURUSD of 1.1950. Sure enough, just over 12 hours later, the EURUSD hit 1.2133 (and dragging the little computerized gimmick known as the stock market with it). Goldman's "prognostication" track record is starting to challenge that of the head seer Bernanke himself. At least doing the opposite of what Goldman advises its clients continues to yield a 100% win percentage.

Straight from the pits. Call it a cool half a billion used to ramp up the market.

A few weeks ago Zero Hedge offered a modest critique of Jeffrey Sachs after his disastrous performance in a round table debate with Hugh Hendry and Gillian Tett, in which the Columbia professor came out sounding as clueless as a first year economics major. It now appears that Mr. Sachs may be attempting to atone for his myopia memorialized by the BBC, in the following FT Op-Ed in which he unabashedly lashes out at Keynesianism. In it we read: "Mainstream Keynesian economics is facing its last hurrah. The global fiscal stimulus championed last year by the Obama administration is coming undone, repudiated by the same Group of 20 that endorsed it last year. Now, against a backdrop of a widening sovereign debt crisis, we need to abandon short-term thinking in favour of the long-term investments needed for sustained recovery." Such words of caution from a man who as recently as two weeks ago was encouraging precisely the very steps he is now purporting to be against. Nonetheless, we greet with open arms this most recent act of contrition by yet another economist who leaves the warm innards of the corpse of the economic false religion, and finally sees the light. Welcome Jeffrey.

Let Europe's monetization continue indefinitely! Surely this will do miracles for the EUR once Goldman is done buying all its clients are selling to it today. Other soundbites from his conference earlier below: pick the odd lie(s) out:

• Decision on 3 Month operations was unanimous
• EUR is a very credible currency and has an exception track record [no comment here]
• Q1 growth was "not buoyant, Q2 to be more so"
• Bond programme is designed to ensure effective monetary transmission mechanism
• Says non-standard measures are temporary in nature
• Welcomes recent decision to set up stability facility
• Welcomes steps by governments to do extra fiscal consolidation

What's wrong with this picture? The bank that is widely seen as the biggest manipulator of commodity prices and allegedly has the single biggest precious metal short exposure on the futures market, is out with a note today that recommend the following to its clients:"It’s difficult to buy gold after its strength and close to record highs. However, we feel it’s more difficult not to have a gold position in these highly uncertain times. Even at these levels we’d encourage investors who haven’t yet entered the gold sector to open a starter position." So JPM telling clients to go nuts in gold? This can only mean that either the bank is looking to start unwinding its gold shorts, or is preparing for the biggest crackdown on gold's record price in history. JPM also notes: "We’ve lifted the weighted average gold price we use for target price estimates by $52.50/oz to $1,192.50/oz." Furthermore the bank now sees a 25% (we wonder just how they quantified this) chance that gold will hit $1,500. If JPM is halfway as competent as Goldman at doing the opposite of what it recommends (yesterday's downgrade by the squid of the EURUSD comes to mind), this can only mean that gold is likely about to getannihilated.

Yesterday’s sales pitch by Ben Bernanke went over well at first for market bulls. Stocks rallied and gold sold off. But the day did not close on such an optimistic note for equities. Gold however, lost more ground as the markets closed and we think a short term market top may have been put in. There has been some chatter about Ben’s sidestepping a question or two about the yellow metal’s divergence form the bond market’s inflation expectations. We took note as well. What we also noted was the Fed Chairman’s comparison of gold to other commodities. We think that his premise is false. Yes, gold is a commodity, but it is not an industrial one. Gold has currency properties and in times of mistrust it behaves as such. Do the math.

Apparently after losing Blackrock tens of billions through the firm's holdings of BP and various drillers, Bob Dolls has not only not been fired, but according to RanSquawk was heard somewhere (indicatively, not even CNBC wants to listen to his gibberish any more), saying that stocks are "pretty cheap." Good - he can buy up all the 330 million shares that the Bank of Norway is rumored to be selling. If Bob thinks stocks are pretty cheap here, we hope he has enough dry powder to LBO the entire market when the S&P is trading at 300 or lower.

Isn't it funny how some of your biggest home runs are from positions that nearly EVERYBODY says will never work? GS was one of the most contrarian of contrarian moves and proves once again that math, truly forensic research and an objective perspective will continuously best the crowd following, “Goldman is too connected” huffing, “This is the best company on the Street” touting, Buffet position worshiping, momo chasing, “I just do what everybody else in the industry does” crowd.

• Asian shares were modestly higher with resource stocks leading, but for China.
• Bank of Korea keeps rate at record low 2 percent amid strong recovery.
• Bernanke: US recovery on track despite European crisis, high unemployment.
• Brazil central bank lifts rate to 10.25%, meeting expectations.
• China posted a trade surplus for a second straight month in May on higher export growth.
• Euro climbs to $1.2039 on Bernanke remarks, raising hopes in global economy.
• EU's Internet chief warns states against choosing proprietary software as standards.

Goldman economist Alec Phillips explains why just as the census has been artificially adding NFP jobs to this point, beginning in June its impact will be one of actually subtracting jobs from the NFP. This means that in the president's next NFP endorsing press release, he will, for once, focus on the pro forma impact of the census, and as NFP is now expected to swing wildly lower in June, presumably as a function of the Census program peaking in May. No matter what, at this point nobody is willing to stick their neck out and discuss the lack of improvement in private sector hiring.

The shadow consolidation of Spain's insolvent financial sector continues: El Pais reports that a brand new "cold fusion" of Caja Madrid and Bancaja will result in the largest savings bank in Spain. "The operation, which must be approved by the directors of the entities would have the approval of the Bank of Spain, which gave impetus to the recent decision by Caja Madrid to form a an SIP (Institutional Protection System) with the following "cajas": Canary Island, Rioja, Avila, Segovia and Laietana." All this process does is to dilute bad assets, as well as shareholder equity, in those places where it still exists. On the other hand, all Spain is doing is consolidating its bank system and instead of having a variety of smaller banks, it will end up with 5-10 TBTFs, whose eventual failure will have a far more adverse impact on the economy than if the country were to let the smaller entities fail when they become insolvent.

JPM JPMCC 2010-C1 CMBS offering more sound than originally thought.

Today's little snapback in the EURUSD may be more of a kneejerk reaction to Goldman's updated PT on the EURUSD from 1.35 to 1.15 (the whole market now knows to fade every Goldman call from initiation), than are a response to fundamentals. These, unfortunately, continue to deteriorate. ECB deposit facility usage has hit a fresh new all time record of €369 billion, an increase of €4.5 billion overnight. The scramble to put away euros continues.

As expected. Overnight deposit rate at 0.2% and marginal lending rate at 1.75%. EURUSD at 1.2044/5 and EURJPY at 109.80/1 early in the day.