Archive - Aug 2010

The Administrative Office of the U.S. Courts reports that personal bankruptcy filings for the year ended June 30, 2010 surged to a five year high, hitting 1.57 million, a 20% increase from the prior year. Furthermore, in the period between April and June, there were 422,061 bankruptcy filings, a 9% increase from the 388,148 in the previous quarter, and up 11% from 381,073 a year earlier. As Reuters highlights, quarterly filings surpassed 400,000 for the first
time since a record 667,431 bankruptcies were begun in the fourth
quarter of 2005, when Congress overhauled federal bankruptcy laws and
made it harder for people and businesses to file. Yet while that was an administrative adjustment to bankruptcy law, this time it is all organic, and an indication of the ongoing incapability of America's politicians to fix the economic collapse. Indicatively, Nevada had the highest rate of filings on a per
capita basis in the last year, with 11.74 per 1,000 people, while Alaska
had the fewest, with just 1.58 per 1,000. The states with the most bankruptcies were California (241,975), Florida (107,373), Illinois (80,801), Georgia (77,809), and Ohio (72,924). A full split of all bankruptcies by state and by filing type is presented below.

The Fed is back buying Treasuries. Yesterday's pop in equities was a nice resh reminder of what happens when the Fed pumps liquidity into the system. I added a chart of the 10Y US Treasury future because it is too funny to be ignored: the market rallies ahead of the Fed buying... and then dips, so the Fed not only injects liquidity in the system supporting a doomed market with your tax dollars, but it also splashes primary dealers in the process. The gift will keep on giving. I am working on digging up the hourly price action for the 24H before and after the POMO days of 2009 in order to isolate the patterns for equities and Treasury futures and also try to measure the impact of the maturity being purchased on the curve. More to come on this when I have a chance to finish the study! Remember tomorrow is a POMO day so don't expect Treasuries to lose their bid, and then expect tomorrow to see today's gains washed away as dealers cash in. After all can you blame them: would you sell today if I told you a multi-billion buyer is guaranteed tomorrow? I didn't think so... - Nic Lenoir

• The end of Germany export miracle confirmed? Germany Current Account (Euro) for June -1943MM Previous 250MM
• Mortgage Applications Rise 13% As Refinancings Soar (Bond Buyer)
• Siegel and Schwartz: The Great American Bond Bubble (WSJ)
• China Doubles Korea Bond Holdings as Asia Switches From Dollar (Bloomberg)
• China Asks Banks to Study Mortgage Loan Defaults, 21stReports (Business Week)
• China Drains Obama Stimulus Meant for U.S. Economy: Andy Xie (Bloomberg)
• Ukraine set to halve grain exports (FT)
• Geithner Sees U.S. Role in Mortgage Market (WSJ)
• Mortgage Market Knocked By 'Mega-Refi' Talk (WSJ)
• Bill Gross: Refinance Wave Could Lift Home Prices (WSJ)
• Chavez signs law barring Venezuela brokers from fx, govt debt (Reuters)

• Asia stocks rise for fourth day, bond risk drops on US output; Yen gains.
• China doubles Korean bond holdings as Central Bank switches from US debt.
• Germany's Q2 GDP growth unlikely to continue : ZEW survey.
• US govt will likely continue to play a role in guaranteeing mortgages: Geithner.
• Vietnam devalues currency by 2.1% to boost exports as stocks approach bear market.
• Wholesale costs in the U.S. increased in July - first time in four months.
• Vestas Wind Sys swings to Q2 loss of €119M, as revs fall fell 17%. Cuts 2010 outlook.

Economic Calendar: Data on Crude Inventories to be released today.

After last week 2 European banks announced they are using $430 million in a Liquidity Providing 7 Day USD operation, better known as suckling on the Fed's FX swap line, today's the ECB confirmed that one bank had bid on the facility, effectively withdrawing $35 million. The operation came at a rate of 1.19%, higher than last week's 1.18%. It is unclear if the lone bidder is one of the two banks that used the swap facility in the prior week. All this confirms is that the liquidity situation among European banks is certainly not getting better, as financial institutions continue to be squeezed for both dollars and euros, even as the 3 Month Euribor spot had receded slightly in the past week, in direct correlation with the EURUSD fixing.

The British pound jumped 50 pips earlier after the BOE decided to keep rates unchanged at 0.5% and not increase the level of QE from the current 200 billion pounds. In a situation that mirrors our own, the bank's board saw one member,  Andrew Sentance, voting for a rate hike, with 8 others deciding to keep rates at the current 0.5%. Sentance pushed for an increase in the rate to 0.75 percent on concerns that inflation expectations may become dislodged. And in a somewhat analogous loosening-tightening dynamic to that of the US, even as many had expected the BOE to actually loosen some more by raising the amount of QE, the bank kept QE total at the existing level, without adding on a Lite, 2.0 of some other silly designator. The reason is that unlike in the US with its doctored core CPI metric, the UK is already experiencing inflation over 3%. As BusinessWeek notes: "Annual consumer-price gains exceeded the 3 percent ceiling in July,
requiring King yesterday to send a public letter of explanation to
finance minister George Osborne on how he plans to control the cost of
living. King argued that inflation has been driven higher by “temporary”
factors and reiterated the central bank’s readiness to change policy in
either direction." It appears that for the time being, the US is all alone, and well in the lead, in the currency debasement via more printing race.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 18/08/10

I will be updating this blog on about a weekly basis with market commentary, as well as articles on specific topics. I will instead also be providing daily market commentary in newsletter .pdf format. If you would like to subscribe (for free) to the Shadow Capitalism market commentary newsletter, please email me at naufalsanaullah@gmail.com so I can put you on the mail list. Thank you.

Since world leaders and economists continually display a lack of even the most rudimentary of understanding about the unsound nature of our monetary system, I’ve decided to write them a “Monetary Policy for Dummies” to help them understand why the policies and solutions they constantly advocate amount to legalized theft that destroys the wealth of the nations.

More world governments are "just saying no" to the ponzi. Last week, the Malaysian government of Kelantan "said it was introducing a new monetary system featuring standardised
gold and silver coins based on the traditional dinar and dirham coins
once used by the Ottoman Empire." And as everyone who has taken game theory 101 knows, the first defector wins the most, while the last one is left with nothing. A small province in Malaysia just made the critical first defection. The question now is who will be next... and next...and next.

More insights from "smart money"....

With Greek 2-year rates now above 10% again, it would be wrong to assume that the PIIGS debt crisis is contained. Containment is only possible through drastic budget cuts, says Saxo Bank, the trading and investment specialist, in its Half-Yearly Outlook for the global economy. Government profligate spending is crowding-out private investments and consumption and we expect markets to react negatively to the continuation of the huge imbalances in government debt markets. The reset of Option-ARM and Alt-A mortgages in 2011, 2012 and 2013 and very big budget deficits in the E-Z countries pose very uncomfortable obstacles to the stock market and we expect stocks to be very uninspiring investments well into 2011. This Half-Yearly Outlook for the global economy is a short analysis examining the global economic outlook for the forthcoming quarter. The Half-Yearly Outlook will be followed by a Q4 Outlook in October.

Spreads tightened across Europe and the US today with indices outperforming intrinsics thanks to rumors of JPY intervention and headlines proclaiming European sovereign fears over, the US recovery still in place, a 'coming' M&A boom, and the start of the Fed POMO encouraging risk-taking. The thinness of markets (given the summer slump and general lack of desire) enabled modest re-risking to move markets rapidly at the index levels across sovereigns, financials, and corporates in the US and Europe. The completion of the Irish and Spanish debt issues today seemed in and of itself enough to get everyone going (despite notably higher yields in the former and suspected 'help' from the ECB in both) and despite a major drop in German confidence, bond spreads and CDS compressed relative to Bunds with a feeling of squeeze to the move in SovX today - 9bps tighter vs 6bps intrinsics and leaving the index notably rich to intrinsics overall.

Without a CEO, the longer HP languishes at the $41 a share level, the more likely it will become a takeover target.

Didn't you know that fish "process" oil, so all the oil will disappear ?...