Archive - Nov 11, 2011

China has a list of demands. German industry refuses to cede ground. People shudder at becoming dependent on money from the communist regime. Clearly, the debt crisis isn’t deep enough yet.

Consuelo Mack has just released a long overdue interview with David Rosenberg, in which the former Merrill strategist is allowed to speak for 27 whole minutes without commercial interruptions of manic depressive momentum chasers cutting off his every sentence, demanding he tell them what stocks he is buying right this second! In addition to the traditional now discussion of America's depression (see attached extended walkthru by Rosie), probably the more interesting part in the interview starts at minute 11 when the conversation shifts to MF Global which to Rosie is a canary in the coalmine, and is merely the 2011 version of Bear Stearns as there is "never just one cockroach." Then the Q&A shifts to Europe, the ECB's next steps and the future of the Eurozone and Germany in particular. Mack concludes with some thoughts on what bond rates indicate about the future of the word, how the 7% output gap as a % of GDP will drive deflation (although in a vacuum: there is little accounting for the Fed's and global central bank kneejerk reaction), and how the corporation is now more powerful than the sovereign, courtesy of more pristine corporate balance sheets than those of actual countries, all of which are on the verge. Will the IBM Stellar Sphere, the Microsoft Galaxy, Planet Starbucks take over when Europe and the US finally tumble? Oh, and like a good M. Night Shyamalan movie, there is a surprising twist ending.

This is Jim O'Neill in about the most pessimistic light that his genetic makeup, not to mention GSAM employment contract, will allow him: "For a couple of days this week, it actually felt as though Europe’s post-war project was nearing the end of the road and, as a result, emotions have been running high. For those that never believed it was a good idea, some have been expressing a mood of jubilance. For many involved in its creation, this has not been a good week. I got more caught up in the middle of this than usual as a result of a newspaper interview, where the headline distorted what I had actually said, claiming that we were predicting a break up. While this was not a fair reflection, I did say that some major issues were now on the table and needed to be recognized. The EMU, as created, has not really worked and needs to change. It is quite clear that many countries should not have been allowed to join. It is also clear that the Growth and Stability Pact has not worked. Policymakers need to be more open in at least acknowledging this, and then doing something about it. If all of this wasn’t enough of a challenge, Italy’s issues have become front and centre. Italy is no Greece. Indeed, although the BRICs can create another Italy in 2012, Italy is close to 4 times the combined size of Greece, Ireland and Portugal. Its total debt is close to 25 pct of the Euro Area GDP. Quite simply, Italy cannot be allowed to stay in the position it found itself this week....while I can see the case for an EMU without some others, and despite all of Italy’s complications, I can’t see an EMU without Italy. At the same time, I can’t see Italy sustaining life with 6-7 pct 10-year bond yields. So something has to give. Let’s see what Italy brings over the weekend, and how Frankfurt, Berlin, Brussels and the rest of us all react."

50K

Earlier today it was Fitch; now, way after the close, it is S&P's turn: the rating agency just put Hungary on junk bond watch, due an "unpredictable policy framework", and better yet, advised readers that the almost certain downgrade from Investment Grade would happen this month. Naturally, if Hungary, AAAustria is next. Then all of Eastern Europe follows quickly and Germany finds itself in a war with contagion on every single front.

I think the MF Global story comes back to the front page next week.

Turd Ferguson is a funny guy. But there's one thing this irreverent, acerbically goofball forecaster is stone-cold serious about: the need to build personal exposure to the  precious metals. For him, it's a straightforward mathematical certainty that the global economy must collapse under the weight of the excessive (and exponentially compounding) credit amassed over the past several decades. The debt is simply too large to be serviced. As a growing number of analysts (including Chris) are predicting, Turd sees the replacement of the world's current monetary regimes as the endgame to this story. And he believes we are watching that endgame unfold in real-time now. In this interview with Chris, Turd discusses his reasons why gold and silver offer the best prospect for preserving wealth through the coming devaluation of world currencies, despite his strong conviction that the markets for these metals are heavily price-manipulated.

FL Clerk of Court Sues Mortgage Electronic Registration System (MERS) for Civil Conspiracy, Unjust Enrichment, as well as Fraudulent and Negligent Misrepresentation

With today's volume over 30% below average (and the lightest since July), the week ended on an up note as the Dow managed to gain just over 1% having meandered well over 1000pts to get there. EUR closed off its best levels of the day but was the outstanding achiever and with credit markets closed (cash and CDS), it seemed the last hour saw major demand for high yield corporates as HYG surged (dislocating from everything) as perhaps it was the lever to try a late day ramp. Commodities surged with copper best on the day and Oil easily best on the week as Gold and Silver added around 1.5-2% on the week. The USD ended the week practically unch despite all the excitement.

Dear Beneficiary,
 
I am Timothy F. Geithner. The Secretary of the Treasury under the U.S Department of the Treasury. The executive agency responsible for promoting economic prosperity and ensuring the financial security of the United States. However, by virtue of my position as the Secretary of the Treasury, I have irrevocably instructed the Federal Reserve Bank to approve your fund release via issuance of a CERTIFIED cheque drawn on Standard Chartered Bank california, USA, which is the authourized bank for your fund release.

Reality is just too complicated. So they give us a cartoon instead. 

A note by JP Morgan released today contains the following gem: "The quite frankly frightening volatility in the Italian bond market this week together with the rapid pace of political developments (nascent new governments in Greece and Italy) confirms not only a new, more extreme phase in the European crisis, one in which the very irrevocability of the euro is now up for discussion, but also the disconnect that now exists with the currency markets. Yes EUR/USD dropped but the worst daily decline was a 3-sigma move compared to the 10 sigma surge in BTP yields Wednesday followed by the 6-sigma drop today. European developments are not only dominating all other idiosyncratic fundamentals in the currency markets and leading to an extreme lack of differentiation in currency performance (chart 1), they are  generating volatility without meaningful or tradable direction. We have steered clear of any substantive cash positions in recent weeks and make no excuses for staying sidelined, especially as liquidity is likely to tail-off quicker into this year-end period than is normal in view of the degree of frustration many investors fell with their performance and the market’s volatility." So, aside from all the rearview mirror pros on twitter and various chatboards, if even JPM is staying out of this sad yoyo excuse for a market who is actually trading?

Federal Reserve Chairman Ben Bernanke is taking his show on the road.

And so the two most "credible" investment banks have had their say on the EURUSD as a result of today's 250 pip surge in the EURUSD: while Goldman earlier said to buy, buy, buy (i.e., sell) every EURUSD pip until 1.40, here is Morgan Stanley with the mirror image call.

Today we entered a short EUR/USD trade at 1.3750. While Italian 10-year bond yields have tightened from the highs reached earlier this week, we believe yields still well above 6% are unsustainable for a debt market of 1.9tr EUR (third largest in the world). This means that Italy will need to spend nearly 10% of its annual GDP on interest payments alone. Meanwhile, political uncertainties add to concerns in the Eurozone, with new regimes in Greece and Italy. We remain fundamentally bearish on EUR, and believe it will retest 1.30 as Italy runs the risk of being “too big to save.”

Confused yet? Why bother. Maybe Goldman can just skip the foreplay, dump its entire EUR inventory to Morgan Stanley and spare everyone else the drama and paternity tests.

The SEC, along with the major U.S. stock exchanges, have "fixed" the problems with the reverse-merger industry.  By "fixed" I mean they've essentially done nothing at all...