Archive - Feb 22, 2011

This has to be some sick joke...

As of December, so almost three months ago, the housing double dip was getting increasingly worse. This was confirmed by the latest Case Shiller data, according to which the 10- and 20-City Composites posted annual rates of decline of 1.2% and 2.4%, respectively. The 20 City Composite printed at 142.16, the lowest since June 2009 when it was 141.75. Luckily, NAR's now completely disgraced Larry Yun is nowhere to be found in this release, from which we quote: "Data through December 2010, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index declined by 3.9% during the fourth quarter of 2010. The National Index is down 4.1% versus the fourth quarter of 2009, which is the lowest annual growth rate since the third quarter of 2009, when prices were falling at an 8.6% annual rate. As of December 2010, 18 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down compared to December 2009." Bottom line: the chart says it all.

Today's rumor mill will apparently focus on whether OPEC will or will not miraculously push the "gush" button. After earlier we reported rumors that OPEC would raise oil supplies, and quoted the Kuwait oil minister, now the Saudi oil minister was caught on tape saying there will NOT be an extraordinary meeting. Which means that the Italian guy was spreading false rumors. Which means that whatever the offer for Italian CDS is, it is cheap. WTI, naturally, rallies on the news.

Is the ECB ready to admit the potential failure of the Great Global Macro Experiment? What will an increase in interest rates bring? Prepare for global cap rate expansion and the potential equivalent for the first global real estate depression...

Despite indications that the US would attempt to forcefully box the Iranian warships in the Red Sea, first observed here, this strategy, if that was indeed the plan, has failed, and according to Egypt's state-run MENA agency, the Suez crossing for one (very old) Iranian frigate and one (very old) supply ship has commenced. Bloomberg reports: "The ships entered the canal early today after the approval of Egypt’s Defense Ministry, the state-run Middle East News Agency cited Ahmed El Manakhly, head of traffic at the Suez Canal Authority, as saying. The crossing usually takes 10 to 12 hours, El Manakhly said." Israel is, needless to say, unhappy: "Israeli Foreign Ministry spokesman Yigal Palmor today said that Israel would consider the presence of the warships sailing through the canal to the Mediterranean Sea “a provocation” that should be “dealt with by the international community.” Palmor said he was citing previous comments by Foreign Minister Avigdor Lieberman." Yet with tensions already on edge, the possibility that this latest war of words escalates into anything more is quite remote.

Those following the move in WTI this morning may wonder what the catalyst for the ongoing retracement has been. According to Italian sources (the country most affected by developments in Libya so take it with a grain of salt), OPEC is meeting in Riyadh to evaluate hiking crude supply in light of Libyan developments. This mirrors a less definitive statement issued earlier by the Kuwait oil minister that "OPEC could call an emergency meeting if required by disruption to oil supply due to Middle East unrest." As a reminder after peaking WTI at $98.25, it since pared gains to under $95.75, and was trading at $96.11 last. So while Bernie Bernanke can always print dollars, it is up to OPEC to print oil. And the market seems to be satisfied for now with promises of such.

• Housing data may have understated extent of collapse (Reuters)
• Powerful 6.3 Earthquake Hits New Zealand, NZD slides (FT)
• Shutdown Fears Raise Hopes for US Budget (FT)
• Oil price shock: Pandora's Box is opened (Telegraph)
• Spain's rotting corpse finally floats to surface: Spain Pegs Cajas' Possible Problem Debt at €100 billion (WSJ)
• Wal-Mart Fourth-Quarter U.S. Comparable Sales Trail Forecast (Bloomberg)
• New Property Rules Driving Rent Prices (People's Daily)
• BofA Doubles Writedown for Credit-Card Unit to $20.3 Billion (Bloomberg)
• Weber Sets Germany on Collision Course with EU (FT)
• Desperate Gaddafi Clings to Power (FT)
• Bond Market Swaps Back Bernanke's Benign Inflation View (Bloomberg)
• Sale of the Century (Newsweek)

Markets down this morning as turmoil in Libya heightens. Treasuries remained unchanged and LIBOR-OIS fell to 16.3bp from 16.75bp last Friday v 12bp at the start of the year. Look for today’s release of consumer confidence and Thursday’s release of durable goods to put the recent stock market gains in the context of the economic recovery.

More trouble for Italy, whose CDS has surprisingly not spiked in OTC trading yet. In addition to a "technical glitch" halting its stock exchange, now Reuters reports that the country's natural gas deliveries may be compromised. "Political unrest has hit Libya, which is Italy's biggest oil
supplier and covers about 10 percent of its gas needs. Gas is
carried via underwater pipeline Greenstream, which is controlled
by oil and gas major Eni. "Supplies have not been interrupted, but the situation is
very complicated," Industry Undersecretary Stefano Saglia told a
conference on Tuesday. Gas flows from Libya into Italy through the 510 km pipeline
have been slowing since late Monday, and the situation is
worsening, Italian energy publication Staffetta Quotidiana said,
quoting sources close to the situation. Who would have thought that African revolutionary butterflies can flap their wings and cause the price of that most hated of products - nattie, to be on the verge of surging.

Yesterday we pointed out that UniCredit, the bank which had fallen by 5% in day trading, was 7% owned by Libyan interests (we also noted  some other odd Libyan holdings). Today, this stigmata is far more of a curse than a blessing, as not only the bank, but the entire Italian stock exchange, the Borsa Italia, is in major unwind mode, and has been halted all day. FT reports: "Borsa Italiana, the Italian exchange, failed to open as usual on Tuesday amid concerns in the Italian broking community about possible fallout from turmoil in Libya. The outage, which left brokers unable to process orders, came a day after the main Italian stock market index closed down 3.6 per cent, making it the worst performing European market on Monday. Traders in London said the failure to open meant that the crucial opening auction, which sets initial prices at the Borsa, had also not taken place. Yet there was growing demand from investors to trade certain blue chip Italian stocks." Following up with a European market participant we got the following: "stock exchange suspension has been ordered to handle massive unwind of positions in some of the largest index components. Significant dislocation occurring on swap and option market on the FTSE MIB as well.... So you see, it's not just in the US that it is forbidden to sell." In other words, when faced with a huge deluge of selling, best to implement the biggest known circuit breaker of all and just shut it down. In the meantime, UniCredit CDS trading away from Italy was 3% wider this morning as concerns about that "7%" spook risk holders.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 22/02/11

GBPUSD has become firmly entrenched in the Strong Long zone, at the time of writing this we're seeing GBPUSD pull back from the highs, the bias for this pair does however remain to the long side overall. We have some market moving events including UK Public Sector Net Borrowing at 04:30 EST and US Consumer Confidence at 10:00 that could potentially add some spark.

Good morning. The investment thesis for this comment advocates a barbell. Long quality flight "insurance" Treasury bonds (despite 3 leg 2yr, 5yr, and 7yr auctions in shortened Holiday week), short complacency, and long energy/geopolitical plays. The upshot is that markets will be dominated by geopolitical risk which I don’t feel is valued properly at the moment. This is a departure from an extended period of catalysts to investment performance dominated by a chronology of sovereign and Club Med imbalances, QE light and QE2 ruminations, midterm election/budget austerity leanings, and earnings recovery/growth prospects contributions to valuations. Until ever so late the marketplace hasn’t had the liberty of focusing on simple mundane economic fundamentals, and I suggest that fundamentals may be put aside again in light of tidal wave of hearts and minds of peoples versus regimes. Petty domestic partisan budgetary and ideological spats will play second fiddle to a global stage littered with toxins that possess the potential to re-arrange global allocation of physical and human resources. The stakes are high and any investment theses must aspire to handicap risk premium of potentially explosive re-arranging of deck chairs of all things political GLOBALLY.

The following are my exclusive notes from a presentation by Oaktree Capital's Howard Marks. In the presentation, Marks held an extensive discussion of Oaktree's investment strategy and answered questions on his views on gold and fraud in the financial system. Needless to say, there were many nuggets of wisdom for all investors.

The last time the oil price lost touch with gravity, which it threatens to again with the price of Brent crude now well north of $100 a barrel, it helped tip the world economy into the deepest recession since the 1930s. Is history about to repeat itself?