Archive - Jun 2010

• Gold set for growing role as reserve asset (FT)
• Volcker rule under attack as lawmakers seeks loopholes (Bloomberg)
• Melbourne-based Sonray Capital collapsed at 11pm yesterday, freezing 3,000 clients (SMH)
• Yuan shift won't make stocks better buys, Mobius says (Bloomberg)
• Nato warns against McChrystal dismissal (FT)
• Blanche Lincoln intervenes for Arkansas bank (WSJ)
• Schumpeter 2.0 (American)
• You did a heckuva jov Mr Orszag (RCM)

Even as CDS spreads continue surging on solvency threats, FX markets seems comforted by the latest batch of drivel out of Moody's, which earlier reported that UK emergency budget is supportive of the country's AAA rating. GBP spikes immediately following the news, leading to a rise in all EUR pairs as well. Ironically all this isoccurring even as a new rumor of an imminent Fitch downgrade of France is making the rounds.

Ironically even with Greek CDS surging by 60 bps to 909 bps this morning, the biggest mover in percentage terms is not the bankrupt Mediterranean country but Europe's "stablest" one -  Germany, whose default risk has spiked by 9.19% according to MarkIt. Without splitting hairs, Europe is a sea of red this morning as the ugly specters of default and complete lack of credibility in the EU administration raise their ugly heads again.

Markit reporting that Greek Bund Spreads have suddenly exploded by 65 bps to 776, the highest since May 7, and inches away from the all time record of 900 bps, even as CDS blows out to over 900 bps. The reason quoted is that traders have cited forced index selling and the absence of central bank buying: have banks finally left Greece to dry? Or is it just that Greece is once again caught lying, pardon, having to issue a public retraction: apparently German Handelsblatt ran an interview with Greek finance minister George Papaconstantinou, in which the Greek was "misquoted."According to Market News: "Some of the headlines issued earlier Wednesday on the basis of an interview Greek Finance Minister Giorgos Papaconstantinou gave to German business daily Handelsblatt were based on an erroneous version of the interview placed by the paper on its website. Papaconstantinou did not say in the latest interview with Handelsblatt that Greece would get its deficit-to-GDP ratio below 3% by mid-2012; that and some other headlines were based on an older interview the paper accidentally published. In the actual interview, according to the print version of the newspaper, Papaconstantinou said, "Of course not," when asked if he expects his fiscally troubled country to go bankrupt." The credibility-deficient minister also noted: "The country will “absolutely” endure the crisis without
restructuring its debt, he vowed, since such a step “would exclude Greece for a long time from the financial markets." The punchline was the conclusion that Spain and Portugal are “in a much better position” than Greece. Which bring us to our next point - Portugal's 5 year auction which came in at 4.657%, almost a full percentage point worse compared to the last auction on May 26, which closed at an average yield of 3.70%. Portugal may be better, but at this rate of collapse it means absolutely nothing.

• 56% of 106 economists, analysts surveyed expect home prices to fall this year: Macromarkets LLC.
• Asian stocks fell Wednesday, with energy stocks among the biggest losers.
• Banks hit by £2B yearly levy in UK; France and Germany promise similar measures.
• Chinese steelmakers hit hard by govt saying it will scrap a tax rebate for exports.
• Oil firms, drill operators clash on who should pay for rigs idled by the recent offshore-drilling moratorium.
• Adobe Board grants authority to repurchase up to $1.6B in common stock by 2012.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 23/06/10

Yesterday's mega news on the CNY depegging, which went so far as to make headlines out of something as mundane as the PBoC yuan fixing, has now been fully priced in. And before we put the matter to rest, we would like to present two diametrically opposing opinions on this issue: one from Goldman's Sven Jari Stehn, which is full of contained optimism about the future of the world, and one from Gary Shilling, who in a Bberg TV interview, says that the Chinese decision could not have come at a worse time, and that it risks destabilizing the precarious global balance achieved at the cost of so many trillions in stimuli.

According to DTCC, BP net notional CDS has hit another weekly record, coming in at $1.794 billion on 2,590 contracts as of June 18. This is a change from past week's $1.677 billion net notional outstanding, and 2,072 contracts: an increase of $117 million in net notional derisking as an increasing number of bets on BP's bankruptcy are made. Another very popular name, Anadarko, came in at $1.630 billion net with 3,051 contracts: the exact same notional as the prior week (which however saw 2,877 contracts outstanding). In other words, even as traders derisked in BP, they were flat in Anadarko, implying that a short risk BP - long risk APC trade was not being actively put on in the past week, contrary to media reports of this being a prevalent pair trade. Instead speculators took on unhedged short risk exclusively in BP. Alternatively, we could see accelerated derisking in APC soon as the long risk leg of a possible BP-APC pair trade catches up with FV.

As the truth unfolds concerning the financial condition of the UK, those states in the Mediterranean south don't seem so bad now, do they???

Some of the more traffic challenged aggregators are going all aflutter with disclosure that the New Orleans judge who overturned Obama's impromptu decision to bar deepwater drilling held energy stocks as recently as 2008. As this was two years ago and took place in the gulf region, this seems like an earnest effort to create page views out of loud headlines, and nothing else. Static Chaos provides some additional sense on this issue. Not much to add here, suffice it to say, or rather ask: is it worse that a Judge may have owned under $15k in a potentially conflicted stock years ago, or that North Carolina Congressman Mel Watt, ardent supporter of all Fed endeavours, and a Representative who is currently under investigation for holding a fundraiser immediately after passing a materially watered down Fin Reg reform, not to mention prominent lobbyist of all sorts of banking interests (including those of home state based Bank of America) held and still holds between $15,001 and $50,000 of Bank of America stock (and between $1,001 and $15,000 in BB&T stock) according to his May 14, 2010 disclosure. This is a rhetorical question.

Politicians at the G20 be warned: hell hath no fury like a pensioner scorned.

Earlier today we noted that German Chancellor Angela Merkel ridiculed Geithner's declining influence ahead of the upcoming G-20 by not only openly ignoring his call to Keynesian arms, but saying that what he is doing is tantamount to long-term economic suicide: “If we don’t get onto a path of sustainable economic growth but have rather a growth bubble, then if the next crisis comes we won’t be able to pay for it." Well, as the joke goes, women once again demonstrate more testicular fortitude than their XY companions: shortly after this announcement, Rep. Cathy McMorris Rodgers (R-WA), who previously warned against the $100 billion U.S. burden to bail out Europe via the IMF, is now blasting Geithner's "Spend and Borrow" policies to be advocated at the G20 summit in a letter sent to the tax-challenged Keynesianite (enclosed), further saying that the "president is doubling down on the path to bankruptcy.”

The ink of the ruling against the offshore drilling moratorium is not even dry yet, the media is already jumping all over that Judge Martin Feldman is "greased with oil investments", says Mr. Christopher Helman, an Associate Editor of Forbes.

Where are we in the weak Euro-strong Dollar cycle?

Zero Hedge has been discussing the ongoing liquidity constriction around the world over the past month, focusing on Europe and China, where conditions range from icy to outright frozen. One country that has been largely ignored, is our very own USA, where despite the Fed's ongoing liquidity flood, the last few days have seen short-term secured funding in the form of Top Tier Commercial Paper once again jumping to near 2010 highs at 0.43% (see chart). This is in stark contrast with ultra short-dated Treasuries, where 30 Day Bills are just barely yielding 0.05% (and were as low as 0.02% a few days prior). Yet for all domestic jitters, it appears that the next source of an (il)liquidity crunch will once again come from Europe. As Barclays' Joseph Abate notes, there is one event is on the horizon which could send Libor rates as high as 50% higher. And that event will occur on July 1 - the 1 year anniversary of the ECB's Long-Term Refinancing Operation.