Archive - Jul 22, 2010

"The current positives for investors include moderate valuations, rising corporate earnings and the likelihood we’re already in a recovery. On the other hand, I continue to feel consumers are too traumatized to resume spending strongly, and I see unpleasant and rarely contemplated long-term possibilities including those discussed above. In particular, conservatism, austerity and increased savings are good for economic units individually but bad for a stagnant overall economy. Bottom line: anyone who invests today in a pro-risk fashion out of belief in the recovery must be confident he’ll be agile enough to take profits before the long-term realities set in." - Howard Marks, Oaktree

• Every bankrupt bank prepares to pass the Stress Farce, latest one: Bank of Ireland, Allied Irish Said to Pass EU's Stress Tests (Bloomberg)
• The tax tsunami on the horizon (IBD)
• Merkel hails "robust" German recovery (FT)
• BOJ Official Voices Caution on Yen (WSJ)
• British economy set for triple whammy, admits Bank chief (Independent)
• IMF Sees Euro-Zone Debt Hobbling Growth (WSJ)
• Bernanke's Fed exit door now swings two ways (Bloomberg)
• EU Banks May Disclose Sovereign-Debt Holdings With Stress Tests (Bloomberg)

Markets in a Flash
• Markets in Asian countries had mixed sessions over night. China and Hong Kong rose while Japan fell.
• The Nikkie fell as the Japanese Yen gained hurting the countries exporters.
• European equity markets are trading higher after European economic data beats expectations.
• Commodities markets are looking strong today as European data is strong. Gold falls back further from $1200.
• The USD looks weaker today after investors sought safety in the currency yesterday after Bernanke’s comments.
• US equity futures are following to European lead and are pointing to a higher open.

And some were skeptical that bankrupt continents could not put up industrial numbers that beat every single expectation.... And if you thought these numbers are amazing, just wait until the next 5 Year Plan is implemented.

• Euro-Zone PMI Composite 56.7 higher than expected Consensus 55.5 Previous 56.
• Euro-Zone PMI Manufacturing 56.5 higher than expected Consensus 55.1 Previous 55.6.
• Euro-Zone PMI Services 56.0 higher than expected Consensus 55.0 Previous 55.5.
• Euro-Zone Industrial New Orders SA for May 3.80% m/m 22.70% y/y
  higher than expected Consensus -0.10% m/m 20.00% y/y Previous 0.60% m/m
  21.90% y/y (Revised from 0.90% m/m 22.10% y/y).
• Germany PMI Manufacturing 61.2 higher than expected Consensus 58.0 Previous 58.4.
• Germany PMI Services 57.3 higher than expected Consensus 54.5 Previous 54.8.
• France Business Confidence Indicator for July 98 higher than expected Consensus 94 Previous 96 (Revised from 95).
• France Own-Company Production Outlook for July -9 lower than expected Consensus -7 Previous -7.
• France Production Outlook Indicator for July -2 higher than expected Consensus -6 Previous -4.

etc.

And now, another cold shower for chasers of unemployment inflection points: last week's jobless claims came at 464k, worse than consensus of 445k, and an increase of 37k from a previously revised 427k (down from 429k). More notably, those collecting Emergency Unemployment Claims plunged by 404k in the week ended July 3 as over a million people have now lost their extended insurance premiums. Yet with futures completely ignoring this data, at this point the market is once again caught in a self-fulfilling momentum driven feeding frenzy in which bad news are ignored and one or two positive straws are latched on with vice like precision. In the meantime the 10Y at 2.90 is once again completely disconnected with the giddy reality that stocks are attempting to portray. With bonds pricing in full blown deflation, while stocks hanging on to inflationary hopes, one or the other will very soon have to be proven wrong.

Yields on Hungary 12 Month Bills surged in the just completed Bill auction, jumping to 5.75%, or by 32 bps, since the last auction two weeks. This is just tight of what Greece would likely have to pay for a comparable maturity. Investors were focused on this deal as it was the first issuance by the troubled country since the breakdown in IMF relations over the weekend, leaving the country in the liquidity cold and without a €25 billion lifeline. Surely, European investors are far more transfixed by backward looking industrial production numbers that served to feed the massive surge in Chinese imports over the past month (not to be repeated for a while), and totally ignoring the continuously deteriorating liquidity situation in their continent (Eur LIBOR just hit a fresh year high). And speaking of China, it was announced by the European Trade Commissioner (proudly at that), that China's SAFE had been accumulating bonds of bankrupt Greece and semi-bankrupt Spain, purchasing several hundred million in ECB-backstopped paper of the two countries. Just like SAFE ran home to its communist parents, asking for rescue capital after its US investments blew up in May, so this too will serve as a preamble to comparable self-punishment.

• Asian shares lower after U.S. losses; stronger yen hits Tokyo.
• Bank failures could be key to European Union's stress test success.
• Bernanke signalled that no moves were imminent to bolster the economic recovery.
• China shares rise for 4th day, led by real estate and metals.
• Dubai World to meet with its lenders to win approval for its $23.5B restructuring plan.
• Financial Overhaul is law, now comes battle over its rules.
• IMF calls for more ‘stress-test’ openness; unconvinced by stringency criteria.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 22/07/10

Actually, I did tell you last quarter (and 2 years ago) that not only is Goldman basically the world's largest, federally insured hedge fund (with trading influenced earnings volatility to prove it), but that most pundits have forgotten their balance sheet threatens solvency in times of high volatility and rapidly declining prices. 2008, anyone? Anyone???