Archive - Jun 2010

Volume up - sell, volume down- buy. Rinse, repeat. RoboTrader 3000 is back from Robo Hampton. At least doing the return trip to the closest latency arbitrage/front running NYSE collocation facility on the Long Island fiberoptic network is so much more fun than driving.

Friday's usage of the ECB's overnight deposit facility hit an all time high of €350.9 billion, an increase of €50 billion from the day before, as the panic among Europe's banks exploded on Hungary statement it was about to fail. And even with Hungary now rapidly backtracking, apparently all new to this currency confidence manipulation thing, the rating agencies have now woken up, and as we all know, hell hath no fury like a rating agency scorned that it is a few decades behind the curve (speaking of which, when will Moody's finally hire a replacement to its recently departed global head of sovereign research?). As Reuters reports, Moody's analyst Dietmar Hornung said Monday: "The statements are a credit negative because they bring renewed attention to Hungary's high public and external debts, which, by threatening to drive up interest rates and push down the exchange rate, endanger Hungary's economic recovery." Fitch and S&P followed suit: "David Heslam, director of Fitch Ratings' emerging Europe sovereigns, said the comments would not affect Hungary's funding options but ultimately played into a "key ratings driver" -- its fiscal path. "We are concerned about the fiscal outlook post-elections... Given the high level of debt, there is little room for policy slippage." Standard & Poor's, which has Hungary's ratings at BBB- with a stable outlook, said in a statement: "We will review the government's report on public finances and the government's action plan before we would comment further."

With even Jim O'Neill giving up on China and the BRICs, Goldman will milk every last drop out of the rapidly deliquifying country. Case in point: Goldman upgrades recent dog Amazon from mere mort Buy to Conviction Buy, upping its price target, completely contrary to the price action, from $180 to $190. The premise being after a few hundred million Americans bought electronic books, only to remember they hate reading, the same will happen in China: We expect Amazon’s China business to help accelerate its global customer growth rates through 2010."

A week ago Mr. BRIC O'Neill was making fun of the "grizzlies"... now, he is making fun of himself. Is humility really possible at Goldman staffers, or is this just part of the whole reverse psychology trap? Here are, stunningly, ten reasons why one should be, gasp, bearish on the market, from one of the biggest permabulls in the world.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 07/06/10

And you thought Goldman had it bad in the US. The FT reports: "Many people believe Goldman Sachs, which goes around the Chinese market slurping gold and sucking silver, may have, using all kinds of deals, created even bigger losses for Chinese companies and investors than it did with its fraudulent actions in the US,” read the opening lines of an article in the China Youth Daily, a state-owned daily newspaper, last week." Matt Taibbi - you have met your match, and the outcome is picturesque indeed - a vampire squid that slurps and sucks its way to every loose ounce of gold and silver. But fear not, all those millions of ounces in GLD are perfectly safe and sound.

Even as most investors are focusing on Europe, Libor, Euribor, Ted Spreads, the ECB, etc, many have noticed that over the past 10 days China's seven-day interbank rates have doubled from 1.8% to 3.2%. Is this latest episode of liquidity turmoil indicative that the PBoC is becoming less successful at communicating an "all clear" to the domestic (and international) markets? Or are there more troubling undercurrents in the sea of (previously) excess Chinese liquidity?

Adding to the already tense and riskoffish environment heading into Monday, is the news from Reuters that North Korea's parliament will hold a "rare second annual session on Monday." While the reason for the extra session is unknown, "analysts said the North could use the extra session of the Supreme People's Assembly to make a major announcement on personnel changes or power succession, or to issue a hardline response to sanctions imposed by the South over the ship sinking." With China still pending in its firm response toward the recent North Korean provocation, will this be the enablement signal that allows Pyongyang to test just how much further it can push the international community? The quandary of dealing with Korea was best recapped by Robert Gates, who was earlier quoted by Yonhap: "As long as the regime doesn't care about what the outside world thinks
of it, as long as it doesn't care about the well-being of its people,
there is not a lot you can do about it, to be quite frank, unless you
are willing at some point to use military force. And nobody wants to do that." The main problem with Gates' argument is that in attempting to explain the behaviour of an irrational actor he assumes North Korea will come to the rational conclusion. The world may know within 24 hours if he is in fact wrong.

When it comes to matters of currencies I don't trust anyone, especially politicians.

On one hand you have the EURUSD telling you things are horrible and getting worse, on the other you have Goldman's Erik Nielsen. Here is the latest hilarious confirmation that Goldman managing directors are just plain clueless when the ponzi pulls a Madoff: "I don’t get the FX market these days. While I understand the technical and position-based arguments for the FX levels, on fundamentals, I don’t know why the Euro has remained overvalued for so long. That said, the triggers for moves are amazing: On Thursday, markets basically ignored the man with the world’s single biggest portfolio, Chinese central bank governor Zhou Xiaochuan, when he expressed full trust in Europe’s ability to deal with its debt crisis, while going into a virtual panic sending EUR/USD below 1.20 for the first time since March 2006 when the wire services botched the simple job of translating French PM Fillon’s statement on the FX. But here is the most fundamental of questions: How can one be bearish on both the Euro and on Euro-zone growth? Beats me – I assume you know which camp I am in."

All is not quiet on the Eastern and soon to be Western front: freefall in the Yen, Dollar and Aussie crosses. Complete global wipeout for the carry traders. Where is Paulson's bazooka when you really need it. It's ok though, Bernanke has things under control - in fact he is meeting to discuss raising the discount rate tomorrow.

By now everyone is aware that the G20 meeting failed to come to a consensus vis-a-vis strategic rescue approaches on the global bailout, with Tim Geithner pushing for uber-Keynesianism, while a far more prudent Europe saying enough to record deficits, and in essence potentially putting the end to the avalanche of endless bailouts and the Bernanke Uber-Put. At least such is the case until tomorrow when Europe's bureaucrats wake up and see a EURUSD at a level that rounds down to 1.10. The reason: Der Spiegel reports that Germany's high court is considering blocking Germany's participation in the European rescue package, a development which if it were to come to pass, would send the euro plunging to parity not with the dollar but with zero.

Copper and crude oil are both base essentials heavily reliant upon by economies globally for everyday usage, with no meaningful substitution options. Gold, on the other hand, is not as essential to keep the everyday world running seamlessly, and could conceivably be substituted by other commodities with a change in global monetary standard or people’s perception. From that perspective, I think there are a few recent trends pertaining to crude and copper that are being misinterpreted.

The mirage of economic recovery conjured up by our political leaders and a credulous news media dimmed and flickered in the harsh light of reality on Friday, when grim employment figures for May sent stocks into one of their steepest dives of the year. We would caution bears against becoming overly confident, however, since there are several technical factors coming into alignment that augur a potentially sharp reversal in the broad averages and some important trading vehicles that we track.

One of the most recurring and troubling topics on Zero Hedge is the imminent US Debt to GDP parity: even as the US economy is starting to roll over from a temporary sugar high into a double dip, the hangover effect of $2.1 trillion in debt incurred since March 2009 will linger for a long, long time. Total US debt is currently just under $13.1 trillion, and is rising at a rate of about $150-200 billion per month, meaning that US GDP of about $14.4 trillion will soon hit parity with the Federal debt, likely in under one year. Luckily, this critical topic is starting to get far more greater prominence: Bloomberg's chart of the day focuses precisely on this issue. Garfield Reynolds and Wes Goodman note: "President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle." We hope the president will finally address this untenable collision course during one of his daily TV appearances in the upcoming weeks, instead of ruminating on last week's terrific(ally bad) NFP report.