Archive - Jan 10, 2011

What would Nenner do with new money he received today? What are the cleanest trades out there? It’s very simple. He would sell the next two point rally in bonds through buying the (TBT). He would buy any dips in the grains, crude and the dollar against the Euro. He would sell any breakdown in the Australian dollar. Finally, he would be laying on big shorts in the Japanese yen right now. En exclusive interview with The Mad Hedge Fund Trader on Hedge Fund Radio.

• ECB buying every sovereign bond it can find. Seriously
• Obama Eyeing Internet ID for Americans (CBS)
• US Banks Face Fresh Stress Tests (FT)
• SNB Clarifies Stance On Portuguese Bonds (WSJ)
• Demanding the Mark Back: Opposition to the Euro Grows in Germany (Spiegel, h/t Mark Mansfield)
• Evans-Pritchard: Deepening crisis traps America's have-nots (Telegraph)
• Trade War Looming, Warns Brazil (FT)
• Yellen Speech May Offer `Proxy' for Planned Unwinding of Fed QE (Bloomberg)
• Paul Krugman Channels Jimmy Carter, and The Club of Rome (Forbes)
• Portugal under pressure to seek EU/IMF aid (Reuters)
• China City Set to Tax Residential Real Estate (WSJ)
• "Illusory Prosperity" - Ludwig von Mises on Monetary Policy (Hussman)
• Queensland Floods Within Insurers' Capacity Deluge Worsens (Bloomberg)

It seems at least one person read Buiter's 84-page "Europe is pretty much doomed" (our titling) magnum opus over the weekend. Irish CDS tells the whole story.

Markets finally digest weak jobs data out of US, but it is Europe that has everyone's attention. Asia weakness compounding to problems.

David Rosenberg appeared in the Globe and Mail's Market View segment with a bite-sized, 2 minute segment explaining why he is bullish on the USD (not a big fan of the EUR, and with good reason), and why he continues to be bullish on bonds (although admits that at 2.3% the 10 Year was expensive). A great bullet-point presentation for new to Rosenberg (later today, we will present Jim Caron's latest attempt at redemption, explaining why he sees bond fund flows as indicative of a selloff in bonds. He better get the direction right this year.)

Is it about to be deja vu all over again? The FT reports that "oil markets were braced on Monday for the impact of the loss of up to 15 per cent of US crude after a pipeline leak forced BP, the UK-based oil company, to shut down 95 per cent of production from North America’s biggest field...The leak is in the Trans-Alaska Pipeline System, which carries 14-15 per cent of US crude oil production 800 miles to Valdez, where it is shipped out in tankers. It is the only line carrying oil to market from Prudhoe Bay." And yes: BP will be blamed again: "Prudhoe Bay is jointly owned by BP, with 26 per cent; ConocoPhillips, with 36 per cent; ExxonMobil, with 36 per cent; and others with 2 per cent. BP is the operator of the field." And just as the authorities had managed to put a temporary lid on oil prices: "The cause of the leak is being investigated by state and federal regulators, as well as the company itself, but if it is not fixed within a few days, the incident could put upward pressure on oil prices once more." Time to go through the list of all BP CDS counterparties all over again?

Morgan Stanley's real estate division hits yet another home run in (in fees) as investment clients get (literally) taken to the bank.

For all seeking a reason why China will never voluntarily drop its CNYUSD peg, and why it will now actively buy PIIGS debt indefinitely, in its attempt to keep its currency low against the EUR and fixed against that ultimate debaser of currencies, just take one look at the December trade surplus. Even as gross trade surged to an all time high with total imports and exports just shy of $300 billion, at $295.2 billion, December's trade surplus plunged from $22.9 billion in November to just $13.1 billion, the lowest since March and April when China actually had a stunning trade deficit, and a nearly 50% miss to consensus which was at $21.4 billion. The total 2010 trade surplus was $183.1 billion, down from $196.1 billion in 2009 and $295.5 billion in 2008. This means China has increasingly less linen (primarily dollars) to recycle in purchasing such items as copper and gold, and, to a much lower degree, US Treasurys. As the charts below demonstrate, the drop in exports was largest to the US (down 16.4% sequentially), the EU (down 11.5%) and, to a lesser degree, the Rest of the World (- 9.1%). Bottom line: should the EUR hit parity with the USD, and should the CNY continue appreciating vs the USD, this trend will get increasingly uglier, slowing down the Chinese economy even more, which in turn will continue to make the case for a China-led rebound ever weaker, and the case for increasing Fed UST monetization ever stronger (in the absence of Chinese purchasing power). Welcome to the connected world, where monetization is really an indication of weakness.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 10/01/11

Liu Wei, a director with China's State Administration of
Foreign Exchange, the foreign exchange reserve manager responsible for administering $2.6 trillion in FX reserves, told Caing.com today that "Quantitative easing carried out by the U.S. Federal
Reserve could exacerbate global currency interventions, hurt the
developed countries and fuel flows of speculative capital into emerging
market economies." Additionally, and contrary to all those who believe that commodity prices have in some cases tripled over the past year based purely on goodwill and not excess money, Wei also said that the Fed's quantitative easing program may have some
stimulus impact on the U.S. in the short term, but also that it could
add to global inflation pressure and fuel asset bubbles "so that the
global economic recovery and growth face greater uncertainty." Pretty much as we have been claiming all along.

Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this offers very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs.