Archive - Jun 2010

There has been some ridiculous moves in overnight FX: as the chart below shows, those trading the CHF have had to consume several times the RDA of Dramamine to stay on this particular ride. The whopping move was due to comments out of the SNB that the bank is "preparing for an exit." The bank softened its intervention language, noting that "deflationary" risks have largely disappeared (see note from Goldman below on full SNB implications). Ironically, this was the least of the night's highlights. As pointed out last night, the EURUSD was initially dropping on comments that the ECB will continue devaluing the EUR by buying bonds (and potentially commercial paper) until the situationstabilizes. But then Tim Geithner's idiocy v2 kicked in as all of a sudden everyone in Europe started touting the ridiculous straw-man that are Stress Tests: France's minister of economics noted that the "sooner banks publish results the better." And as we saw domestically a year ago, there is nothing more honest than the administration imposed stress tests (especially accompanied by a complete suspension of accounting rules). Hilariously, the vice chairman of one of the most insolvent companies in the world, the infamous STD, or Banco Santander, said he was convinced the stress tests will show the "extraordinary strength of Spain's banks." You just can't make this up. Then Germany also touted what a great thing stress tests would be. Somehow all this doctored propaganda managed to raise the EURUSD by over 150 pips, bringing the pair to almost 1.24. Lastly, Spain's horrendous auction, where the 30 Year closed at 5.908% compared to 4.758% previously, even with the ECB directly involved, was supposed to be seen as good news. All in all, EURUSD should be testing 1.22 support. Instead it is back to 1.24 resistance. Well played, Tim Geithner.

• Asian shares were solidly higher Wednesday after Wall Street rallied Tuesday.
• China boosts holdings of US Treasury debt by $5 billion.
• Euro zone May inflation confirmed at 1.6 pct y/y.
• France may raise retirement age from 60 to 62 in 2018.
• Obama says oil spill shows US must cut oil 'addiction’.
• OECD recommends Dutch workers stay on the job longer, accept less when they retire.
• Russia preparing to buy Canadian, Australian dollars to diversify reserves.
• Yen trades near 1-week low on improving global economic outlook.
• Best Buy Co.'s Q1 profit rose a disappointing 1.3% to $155M despite 6.9% rise in revs.
• Brazilian meatpacker Marfrig to acquire distributor Keystone Foods for $1.26B.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 17/06/10

With all of the brouhaha over BP and the oil spill, how many analysts and investors truly took the time to calculate the probability of actual insolvency. It is clear that the liabilities from the spill has been understated and underestimated multiple times. Here is an empirical, objective analysis of where BP, and by default, APC stands in terms of the potential for bankruptcy.

Open Letter to the US DOJ: In response to your open investigation regarding the suppression of silver prices in the COMEX futures markets by JP Morgan, we believe that two PM ETFs, the SLV, of which JP Morgan serves as custodian, and the GLD, of which HSBC serves as custodian, firmly deserve a thorough investigation as well.

Raising the retirement age from 60 to 62 isn't exactly what I consider major reform. But this is France, and you know what they say, Vive la Différence!

The EURJPY, and its immediate computerized secondary derivative, the general market, its taking a nosedive. The reason, as HuffPo's Ryan Grim reports, is that the Senate has now accepted an expanded Fed audit. As usual, we will believe it when we see the full list of banks bailed out by the Fed, the collateral they pledged, the cash they received, the amount of bonus paid out, the Fed credit facilities involved, the total taxpayer money lost and never to be recovered, etc. Which is why we don't buy it for a bit, and we are fairly confident that Chris Dodd is blatantly misrepresenting reality, when he tells the House panel that "the Senate will accept an expanded Federal Reserve audit proposal from the House as part of Wall Street conference committee deliberations."

According to Barron's, Simmons is shorting at least 8,000 BP shares thus putting in question a possible "conflict of interest" when he went on numerous interviews making outrageous comments regarding BP and the Gulf oil spill.

Ok, this is getting scary: first, Cramer bashes the entire market yesterday, saying it is a stupid, rapacious, capricious and a bunch of other words we would butcher absent spellcheckurrrr. Then, the CNBC frontman goes out on a full blown tirade against High Frequency Trading, against ongoing flash crashes (melt downs and ups) in names such as the ones we discussed earlier like Diebold and Washington Post, against the whole concept that the market is sane and stable, and lastly, Cramer agrees with us that the only senator worth listening to is Ted Kaufman, who also happens to be a guest on this particular Cramer show. Are we now mainstream or is Cramer too much of a fan? Is it time to switch our motto to "on a long enough timeline we all succeed and prosper courtesy of a neverending Keynesian ponzi pyramid." Is this the market bottom? Being on the same side of the trade as Cramer is...never good.

I give this one less than a month.

These are the kinds of stories that just make one's blood boil: the WaPo reports that the Office of Congressional Ethics (find the 10 oxymorons) is investigating either allegedly violently corrupt congressmen who held fundraisers within 48 hours of the House vote on Wall Street reform. This is not only pathetic, this is stupidity on a gargantuan scale: America deserves its manifest despotism for allowing such cretins to be voted in. And who leads this particular parade of 8 dunces? Why our old friend, North Carolina Democrat, Mel Watt, whom we have written extensively about before, specifically in his capacity of Fed advocate #1, who repeatedly tried to kill the Paul-Grayson bill to audit the fed (we refuse to capitalize this institution any longer). For previous stories on Watt's BofA/Wachovia/American Express/ABA-facilitated escapades, read here and here. And just in case the purpose of the probe was not quite clear to our less than cynical readers, here is the WaPo explaining why these are 8 Congressmen who have hopefully just waved all their chances to reelection goodbye, and hopefully will find a job at their Wall Street-based sponsors: "The probe is focused on whether the timing of accepting the campaign checks created an unacceptable appearance of a conflict, according to sources familiar with the investigation and letters sent by the OCE to lobbyists requesting information. The OCE's spokesman declined to comment for this article, citing the ongoing nature of the investigation."

Stress in the Spanish banking system is nothing new but with DS-K swooping in this week from the IMF, and the oh-so-trustworthy Stress-Tests due to be announced, anxiety was running high as Spain sovereign risk broke back above 250bps and BBVA and Santander struggled wider and flattened (CEE sovereigns also floundered today). Of course, far more importantly, World Cup favorites Spain lost their first round football match to the Swiss 1-0 (shame I hear you all cry).

I hope that this response will dispel some of the myths and misinformation surrounding hyperinflation, Gold and our paper money system...

The oil complex started Wednesday under selling pressure. Weak housing starts, retreating equities and a declining euro all sent oil prices lower in trading overnight and early Wednesday morning. By the end of the day, though, prices had recovered.
Home construction in the US dropped steeply in May, with housing starts down 10%, which was well beyond the expectations for a decline of a little more than 5%. Housing starts fell to 593,000 with the expiration of tax credits, and new permits were lower. Single-family housing starts fell by 17.2% to an annualized rate of 468,000, the lowest rate seen in 17 years. This follows on the heels of a sharp decline in the confidence index reported by the National Association of Home Builders. This helped establish the lows for the day yesterday, and equities and oil prices scratched their way back. - Cameron Hanover

A quick observation for those who care to see just how disconnected from rality the market is at these levels, comes courtesy of Smithers & Co., which has updated its CAPE (Cyclically Adjusted PE) and Tobin q chart. Briefly, as of June 10, the S&P was 46% overvalued based on CAPE and 50% overvalued based on q. Incidentally, this makes perfect sense: when the FNM and FRE churnamathons advised their HFT sponsors they would no longer be able to play hot potato with these two bankrupt stocks, they immediately dropped by 50% as soon as the HFT brigade exited stage left. It is not a stretch to see how the computerized trading brigade has made a comparable valuation anomaly with the broader market. Shut down HFT, and next thing you know the market will drop to its fair value: somewhere 50% lower.