Archive - Jan 2011

Germany (i.e., Europe) sure is milking the one-time destruction of its currency this past year for as long as it can. To wit: the just released IFO Business Survey in January continues to reach to all time highs, on the back of a one-time export renaissance. Of course, now that the euro is so tremendously volatile, and little in terms of trade effect can be projected based on daily 200+ bps gyrations in the currency, expect confidence to continue to surge until, just like a high beta stock, it plunges upon the realization that it is time to kill the euro once again, and resume the "Greece is getting expelled any day now" rumors.

Going through Bank of America's apples to monkeys numbers, and awaiting the Q4 presentation eagerly, but for now BAC missed both the top and the bottom line by a mile: the company reported sales of $22.67B, vs. consensus $24.87B with EPS of $0.04 on expectations of $0.21.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 21/01/11

"We have seen the stock market go up..."

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.

The market was down strong in the morning as both fears of rising inflation in China and common sense seemed to hurt sentiment, but then...

A few days ago we reported that Newt Gingrich was pushing for legislation to allow states to file for bankruptcy, "allowing Them To Renege On Pension And Benefit Obligations." As we speculated back then "obviously what this means for equity investors in assorted muni
investments is that a complete wipe out is becoming a possibility, as
Meredith Whitney's prediction, which everyone was quick to mock and
ridicule, is about to come back with a vengeance." Sure enough, this most recent development in the states' path to insolvency was quickly ignored as it was not a dipping mushroom cloud that could be bought. Until tonight: the NYT has just rehashed the post in an article that would not only validate the Whitney thesis if true, but make a Cramer-Bove out of everyone who has been caught on tape in the past two weeks kicking and screaming that there is no chance in hell the carnage predicted by the scourge of Citigroup (and yes, back in 2007 everyone said that Citi could never fail either). From the NYT: "Policy makers are working behind the scenes to come up with a way to let
states declare bankruptcy and get out from under crushing debts,
including the pensions they have promised to retired public workers." Which means that up to $3 trillion in muni debt has a high probability of being GMed, precisely as we predicted: "proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid." Oh, and since all this constitutes an EOD, readers are strongly urged to re-read the primer on what pervasive state bankruptcies will mean for muni CDS (hint: the MCDX is cheap).

Michael Nobrega, chief executive of the Ontario Municipal Employees Retirement System, has to figure out how to deploy about $20-billion into private investments in the next five years. Will he succeed?

As usual, one chart is worth a thousand words, and a couple hundred billion in real, incremental dollars.

No...there was no leak this time. We promise.

Our esteemed Fed Chairman, now claims that QE has helped by raising stock prices. That was never a reason he listed for launching QE before. In fact, this is the first time he’s even mentioned this as a benefit (though everyone with a thinking brain knows that the Fed doesn’t give a hoot for anyone other than Wall Street which is why ALL of its moves were intended to help them juice the markets).

There is no quite formal a confirmation of a problem than some petrified think tank or government center issuing a formal rebuttal. While we have only perused the 21 page report just issued by the Center On Budget And Policy Priorities titled "Misunderstanding regarding state debt, pensions, and retiree health costs create unnecessary alarm", this report's simplistic arguments and assumptions will merely stoke numerous far more erudite refutations, which will only make matters far worse, as the bogey has now been set. Among the pearls immediately sticking out in the report is the following: "Some who claim there is a state debt crisis have likened states’ problems to those in Greece or other European countries. There is no way directly to compare the state debt situation with a national government’s debt situation, but Greece’s situation was clearly far worse than the situation in the U.S. today." First of all, "some who claim", would mean the entire market: last we checked, muni bonds, ETFs and other derivatives are all trading at multi-year lows. Second, we haven't checked but we are confident that either this center or one of its just as worthless comparables, likely issued a report a year ago refuting "rumors" that Greece is insolvent. Look how that ended up. We will have more to say on this report soon, but for now we present it for our readers' amusement.

From the past to the present?

Precisely a year ago, in advance of the then farcical renomination of the genocidal maniac for his n^th term at the printer's, Zero Hedge nominated John Taylor of Stanford for Fed Chairman. Of course, in the subsequent theater in which the purchased cretinous zombies with Wall Street bank indulgence accounts known as Congressmen, it was a given that the Chaircreature would be appointed for his subsequent (and last) term. Yet in the intervening one year, Taylor's role in monetary affairs has only gotten stronger, to the point where BusinessWeek has just released an article titled: "John Taylor: The Republicans' Shadow Fed Chairman." Author Scott Lanman writes: "He doesn't have a vote in Congress. He doesn't sit on the powerful
Federal Open Market Committee. He isn't a member of President Barack
Obama's Council of Economic Advisers. Nonetheless, Stanford University's
John B. Taylor is considered one of the most influential economic
voices in Washington. Taylor's followers include the new GOP House leadership, the chairmen of
key House committees, Presidential hopefuls, conservative thinkers, and
others suspicious of Federal Reserve Chairman Ben Bernanke's
stimulative monetary policy and perceived alliances with Obama
Administration officials...Representative Paul Ryan (R-Wis.), who chairs the
House Budget Committee and speaks to Taylor every two to three weeks,
says he "is probably the leading voice with the highest level of
credibility in proposing an alternative view to the Fed's." We are delighted that as Bernanke's career is about to go down in flames for terminally destroying this once great country, there is a natural successor, who in our humble belief is worthy. Do we smell a mutiny in the Eccles?

Silver spreads continue to sell off on Thursday. So far, any theories that weaker spreads are ultimately bullish for the physical metal have to be viewed suspiciously. We spoke with a couple of traders on the topic and our revised possibilities list is as follows...