Archive - Jun 22, 2010

A sudden drop in the EUR takes stocks down. No immediate catalyst, and the Schapiro-Gensler cabal sure hasn't said anything to make the market nervous. Which means it is a charting astrology and technicals: the 200 DMA in the SPY has been breached, leading to a 5th consecutive onslaught at the DMA in the much more critical ES. Should this break, watch out below.

Watch the highly conflicted trading industry representatives, and the highly corrupt regulators try to convince each other that the May 6th events were totally unique, will never happen again, why there is no need to change anything, and why the joke of that is single stock circuit breakers (another reactive not proactive "solution") is all that is needed to return investor confidence. We wish them all the best as they continue to buy and sell stocks from each other, now that everyone else is out of the market permanently. Readers can watch the "Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues Meeting" here. (click here if stream does not show up).

All this bickering and ongoing pissing contests are getting just a little confusing. So now Obama appeals, as Gibbs just announced, and appellate court overturns the overturned decision, only to capture even more of the rig workers' wrath? Drillers now all over the place, and for some reason BP is up, as if the firm will be doing fresh drilling in the GoM any time soon. And somehow this news is causing the EUR to spike, (luckily temporarily), just to demonstrate how every asset class now correlates with everything else and any reason, whatever reason, is good enough to cause a move in interconnected markets. Sigh. From the judge's language: "plaintiffs have established..likelihood.. showing..Administration acted arbitrarily and capriciously. Plaintiffs assert..they have suffered and will continue to suffer..irreparable harm..Court agrees." (via Platts)

The $40 billion 2 Year closed at a high yield of 0.738%, about 2 bps inside of expectations of 0.751%. The traditional bizarro day Bid To Cover came in at the second highest in history, or 3.45, lower only to the 3.63 from October of 2009. Not surprisingly, Direct Bidders once again carried the auction, taking down 21.3%, which also was just short of the second highest ever, compared to the 26.14% that the UK based "funds" took down in October of last year. The median yield came in at 0.72% and the low was 0.647%. 70.18% was allotted at the high. Primary Dealer hit ratio was 16.58%, one of the lowest ever as PDs continue to launder the Fed's dirty monetization scheme via prior auction repo cash. All in all, the farce will continue until it can't.

House Democrat leader Steny Hoyer will today announce that the US will not pass a budget in 2010 as “It isn’t possible to debate and pass a realistic, long-term budget until we’ve considered the bipartisan commission’s deficit-reduction plan, which is expected in December." Yet "the House has never failed to pass an annual budget resolution since the current budget rules were put into place in 1974." The real reason of course is that the budget would indicate new and unprecedented trillions in deficits, which would wreak havoc on Democrat chances to contain their upcoming mid-term election loss to just "landslide" status, instead of what is increasingly shaping up as being more in the "apocalyptic" category. Those whose memory spans longer than 24 hours, will recall that Peter Orszag resigned yesterday. Something tells us these two events may be correlated. In the meantime, we are now convinced that realizing the hopelessness of its political situation, the administration and the Fed will now create the most ridiculous, unprecedented, destructive and historic market melt up in history to preserve any chances of demonstrating just how "effective" their market manipulation, pardon, economic resurgence efforts are. If you are short, be ready to have all your shares forcibly called in over the next 4 months. At least the humor of the situation is not lost on one person: House Republican leader John Boehner has taken out a page on his website to lampoon the tragicomedy that US economic and fiscal reality has become.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 22/06/10

Regions Bank looks fairly weak with a negative Net Operating Income figure in 5 of the last 6 quarters. That said, they do have some good things going for them.

So early in the morning, Bloomberg runs a story, "Sales of Existing Homes in U.S. Probably Climbed on Tax Credit". A few hours later, the housing report comes out and Bloomberg then runs "Existing Home Sales in U.S. Unexpectedly Fell to 5.66 Million Rate in May". Hmmm! BoomBustBlog readers saw this coming way back in March with "It’s Official: The US Housing Downturn Has Resumed in Earnest". Thus far, we've been right on the money. Hey Bloomberg editors, I'm available if you need me...

Der Spiegel conducts a stunning interview with Norway's foreign minister Jonas Gahr Støre, in which the Scandinavian official rips the G-20 (which is meeting this weekend in Toronto), in a manner far more vicious than any of the tens of thousands of protesters could hope to ever do. Støre essentially compares the Group of Twenty to the most cataclysmic event in the history of mankind: calling it "the "greatest setback" for the international community since World War II." Any other day, this would result in a diplomatic gaffe, and the expulsions of various ambassadors. Today, with the entire world agreeing with the Norwegian, except those, of course, in attendance in Toronto, nobody bats an eyelid. One of the smartest countries in Europe (having refused to join the utter disaster that is the European Union... twice) once again proves its wit, when its minister "questions the legitimacy" of the G-20, stating "We no longer live in the 19th century, a time when the major powers met and redrew the map of the world. No one needs a new Congress of Vienna." Ah, but we do, as otherwise the spoils from the greatest generational wealth transfer would go equally and ratably to all, instead of being concentrated in the greedy hands of those who have already stolen so much, they have no place to put the loot. Which is why the G7, G8, G20, etc. will continue to exist as the world's most potent parasite until there is nothing left to steal anymore.

The transatlantic smackdown is getting vicious, as Angela Merkel makes a point to demonstrate her refusal to follow Obama's policies before a business audience in Berlin. As Bloomberg reports, "Chancellor Angela Merkel championed German export strength as “the right thing” for her country, spurning President Barack Obama’s call to boost private spending as both leaders  prepare for Group of 20 talks. Merkel, addressing a business audience in Berlin today, said she told Obama in a phone call that  cutting government debt is “absolutely important for us,” exposing a second point of contention ahead of the June 26-27 G-20 summit in Canada." It appears Germany's chancellor is actually prudently thinking ahead after realizing that the recent bailout of Europe has massively angered potential voters, cost her parliamentary majority, and absent damage control, her career would come to a premature end. If that means openly mocking the pinnacle of Keynesian insanity these days, Washington D.C., so be it. It is strange that our own president has yet not realized his own political career will be very short unless he follows in Merkel's footsteps. Instead, he and the Fed will melt the market up to unprecedented highs in the months leading to the mid-term elections in hopes that this will presumably indicte just how strong the US economy is, even as fresh new millions in the GoM find themselves unemployed courtesy of some salt water content in the oily gulf. Perhaps Orszag is much smarter than people give him credit for: surely his pitchfork avoidance skills will come in very handy when the tide finally turns.

The Moody's/REAL Commercial Property Price index posted a slight gain in April, after two sequential drops, coming in at a 1.7% increase for the month. As Moody's notes: "This price increase follows two consecutive months of slight price declines. The index currently lies at 113.10 and has fallen 16.4% in the past year. Prices have remained choppy since the low of 107.98 that was recorded in October 2009. Since that low, prices have rebounded 4.7%. The peak of the index occurred in October 2007 and prices are currently 41.1% below the peak." Alas, in light of the ongoing collapse in real estate, it is a little difficult to take Moody's announcement with anything less than a smirk, wink and a knowing nod.

Not sure how this is news, but apparently it is impacting spreads currently. S&P officials are heard saying that they are evaluating the UK (-1 to 77.5 bps) rating in light of the emergency budget, that Spain (+26 to 244) needs additional measures to meet fiscal targets, and that France (+3 to 80.75) has very high deficits. This will certainly not help once again surging European cash and CDS spreads. And does anyone remember Greece? As the chart below shows, its various spreads to all other European sovereigns are blowing out. Risk off in Europe, as the EURCHF just hits a new all time low of 1.3590.

May existing home sales plunged far below expectations, coming in at an annualized -2.2% rate, compared to consensus of 6.0%, and a revised 8% in April. This is the second worst monthly drop in history, and shows just how very wrong economists are, and how they will all have to revise their outlooks lower, for all macro indicators including GDP. The plunge occurred even despite near record low 30 year mortgage rates: the Freddie 30-year, conventional, fixed-rate mortgage fell to 4.89 percent in May from 5.10 percent in April; the rate was 4.86 percent in May 2009. The push forward effect of the administration's various subsidies is now over and a double dip is likely now inevitable unless yet another stimulus plan is implemented. There is nothing quite like the administration finding a scapegoat du jour: first it was snow in winter, then hot weather in the spring, now it is the oil spill: "Florida and Louisiana, also impacted by the oil spill, have the highest percentage of homes that require flood insurance."

A visit to the worst commercial real estate disaster in human history. Why it is cheaper to spend a weekend in Sin City than it is to stay home.
An 80% occupancy rate, only because 20% of those rooms have been mothballed and taken off the market. Thanks for the great weekend, Kirk!

As the enormity of the GoM debacle slowly seeps like a tarball into the always somewhat addled brains of the sellside community, the rolling downgrade wave of the oil services and equipment sector is attaining tsunami status. Today's first enlightened soul is Citi's Robin Shoemaker who has obliterated the price targets of virtually all companies in his coverage universe: after the action, the names still barely standing are BHI, CAM, DO, DRC, ESV, FTI, HAL, HERO, HP, NBR, NE, NOV, PDE, PTEN, RDC, RIG, SII, SLB and WFT. Throw in some 74+ mph winds, and things will soon get much, much worse.