Archive - Oct 11, 2011

Ths U.S. tried not to "needlessly provoke" China on the F-16 deal to Taiwan, but is willing to go all out slapping the meritless Currency Bill on China's face.

Many western politicians have harbored deep suspicions of Russian Prime Minister Vladimir Vladimorovich Putin since he first emerged on the Russian political stage in 1999. This is hardly surprising, given his KGB background, though those with longer historical memories will recall that Yuri Andropov came from the same organization and that the West grudgingly found a way to work with him. While the worst aspects of the Cold War faded away with the peaceful collapse of the USSR in late 1991, twenty years later, trying to figure out Kremlin politics remains as vital an exercise as ever, and the “Putin era” has provided Washington analysts desperately reinventing themselves to hang on to their jobs with rich fodder. Is Putin a democrat? Stalinist? Or something in between? Place your bets.

Update: the PBOC gets involved now too discussing the bill " It won't solve the U.S. economy and employment problems and will only seriously disturb Sino-U.S. economic and trade relations and will also disturb the efforts of the two countries and global community's joint efforts to promote the world economic recovery and growth."

Save this press release for the archives: it may well be the formal counter announcement of a trade war from China, which now realizes it has a batshit schizo trading partner, one who critically needs China to recycle its mercantilist dollars into buying America's one ply toilet Treasurys, yet one which is now blasting China for doing just that...

I personally believe that there is no "free" alpha. That said, there is a way to earn returns that may look like alpha, especially if you are an astute student of human nature. You can make a bet when other people are behaving irrationally, as when you buy when there is blood in the street.

"I went to a boxing match and a hockey game broke out." --Rodney Dangerfield...."I went to a debate and a freak show broke out."--WilliamBanzai7

For all those who can't seem to ever get enough of beltway theater, and enjoy listening to republicans do what they do best when they open their mouths, er, lips are moving, you are in luck: Charlie Rose is hosting a presidential round table with all the usual suspects live from the last resort backup Ivy, Dartmouth college.

Two things stand out in the just released September holdings update of Pimco's flagship Total Return Fund: first, what appears to be a record cash short of 19% of the fund's total unchanged AUM of $245 billion, doubling the previous short of -9%. The incremental cash was used almost entirely to purchase Mortgage Backed Securities, which jumped to 38% of total from 32%, even as the fund kept its government exposure virtually flat at 22%( 21% previously). Yet where it gets downright surreal is the duration and maturity exposure of the fund. Duration has gone from a record low 3.6 in March to 4.56 in July to 6.27 in August to... well, just look at the black line on the chart below.

The Senate is busy tonight: on one they have just started a currency war with China, on the other, they are about to force every bank to cut its GDP forecast now that the prospect of incremental future fiscal stimulus has just been kneecapped, following a widely expected failure to vote through Obama's job plan a move that immediately forcedthat pathological of pathologies, the US Treasury Secretary to announce that "the action by Republicans to block the full plan would likely result in weaker U.S. growth." Somehow, it will all be Bush's fault.

So while the US is setting the stage for a possible retaliation against Iranians hiring Mexicans to kill for them, because they obviously can't do it on their own, the US Senate has just passed the China currency legislation bill in a 63 to 35 vote, which in turn will do miracles for Sino-US foreign relations. According to the legislation, it would let companies seek duties to compensate for a weak Chinese yuan. However, as Goldman indicated first thing this morning, the probability of this bill actually being enacted in its current form, or any, is slim to nil: while the Bill is under review by Obama administration, John Boehner, has called it "dangerous." If only he had an idea... Full Goldman take can be found here.

Now we have a new plan. EFSF would take first loss on the full guarantee amount of 726 billion. Given everything that EFSF can now invest in, and the fact that it is taking first loss risk, the potential loss is 726 billion. So in a little over a year, the risk of loss transfer from private companies to sovereign nations has increased from 120 billion, to 270 billion, to 360 billion, to the possibility of 726 billion! That seems bad enough, but the situation is worse than that. At each turn, Greece has underperformed and been found to have bigger needs than previously thought, but the latest IMF decision to go ahead with the next tranche anyways, sends a clear signal to Greece that they are in the drivers seat. Why do more now when IMF will keep picking up the tab until you finally decide that drachma's suit you better. Portugal cannot be blind. It sees where Greece has failed but still gotten money, and that Italy barely goes through the motions of pretending to try, so why should they?

Ignore Slovakia: everyone has a price. This is the real news:

• RPT-SAUDI EMBASSY IN U.S. SAYS PLOT IS "DESPICABLE VIOLATION" OF INTERNATIONAL NORMS
• SAUDI OFFICIAL SAYS IRAN PLOT TO ASSASSINATE SAUDI AMBASSADOR "IS NOT GOING TO PASS EASILY"

And logically:

• IRAN REJECTS AS "PRE-FABRICATED SCENARIO" US ACCUSATION ON TWO IRANIANS ALLEGEDLY PLOTTING AGAINST SAUDI ENVOY - STATE TV

Take home: Talk is cheap but Brent here is even cheaper... Either way, it is a win win for Saudi which needs crude to go up in price.

From Reuters:

• RTRS-SLOVAK PARLIAMENT REJECTS PLAN TO EXPAND EFSF, GOVERNMENT LOSES CONFIDENCE VOTE
• SLOVAK OUTGOING GOVERNMENT EXPECTS EFSF TO BE APPROVED IN REPEATED VOTE, LIKELY THIS WEEK

Insert clip about the Spanish inquisition.

Refuting the previous update from the WSJ of a vote delay, is the latest rumor-cum-pseudo confirmation that the Slovak EFSF vote is due at 10pm local time or 4pm EDT. In Gasparino's immortal words the situation is fluid. That said, here is a live feed from Slovakia where it can be watch in case it does take place.

The Media Boycott Heats Up.