Archive - Mar 15, 2011

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/03/11

Copy/paste of what we got from a trading desk:

Mkt rumour nikkei to remain closed for the rest of week..margin issues.....some rumbling all afternoon, but as we head towards the end of European trading more people asking

More if we get it...

The Fed is being disingenuous in claiming it is blameless for global inflation: the Fed's zero-interest rate policy and quantitative easing are both unleashing "hot money" that is seeking higher returns anywhere they can be found in the global economy. In a larger sense, the Fed is attempting to repeal the business cycle. In the normal course of capitalism, low rates and easy credit lead to increased borrowing, which leads to rising consumption and investment in production to feed that increased consumption. This leads to higher profits, which feed more investment and debt. At some point, the cycle hits a brick wall: borrowers can't afford to pay more interest, so debt stops rising, and consumption and demand slump as borrowing levels off. In the rush to mint profits, production capacity exceeds demand, and as a result prices and profits both fall. As the boom progressed, investors sought out riskier, more marginal investments. As new debt and demand fall, then these riskier investments lose money and are either shuttered or sold for a loss. As profits decline, workers are laid off and commercial borrowers find their income streams aren't sufficient to meet their obligations. The credit cycle turns from expansion to contraction, as marginal borrowers go bankrupt and insolvent businesses and loans are liquidated or written down. This purging of bad debt, speculative excess and misallocated resources sets the foundation for another cycle of renewed growth. But the Fed has attempted to repeal the credit cycle.

Two days ago, as was extensively reported by Zero Hedge, an Anonymous operative leaked various emails by Bank of America employees indicating a wilful and malicious intent to lie to auditors, regulators and the government. Many of the less than informed in the media space were quick to condemn this act as a lot of hot air, without having the faintest clue about the legal implications of the alleged activity. Luckily, a special agent for SIGTARP was not as quick to dismiss the data simply because it did not contain an HD video of the bank's CEO participating in a snuff film. As Operation LeakS has just released, a special agent for SIGTARP, which after spending millions in taxpayer capital has still to put anyone in jail, will investigate these allegations. It certainly is a start, even if the same taxpayers who pay for the SIGTARP program also have to do the SIGTARP's work for them. Very much like the SEC.

Japan is back in recession. The incoming tide just brought in 2,000 bodies. Most major companies, including Toyota, Nissan, Honda, and Sony have shut down all domestic production. Tokyo’s subway system is closed, stranding 25 million residents there. Electric power shortages are a huge problem. Half the country’s nuclear generating capacity is now down. 20,000 expatriates waiting at Tokyo’s Narita airport as foreign companies evacuate staff to avoid a nuclear meltdown. $187 billion worth of credit intervention to “save Japan.”

Shouldn’t average profit margins be higher now, as the U.S. economy has transitioned from an industrial (low-margin) economy to a service (higher-margin) economy?

About a year ago, when Zero Hedge was nothing but a monocultured, bearish, conspiracy theory-based blog, we wrote a post titled: "Is The Swiss National Bank Using UBS To Launder Its Euro Purchases?" The reason for this allegation stemmed from some dramatic observations in the reporting of LIBOR to the BBA by member banks. To wit: "The Libor reporting dispersion among BBA member banks has actually
tightened marginally from last week, with one notable outlier: UBS. Of
the 15 banks that report both USD and EUR-based LIBOR, all disclose a
higher offer rate for EUR Libor except for UBS! The Swiss bank is a
blatant outlier, in that its disclosed EUR Libor rate of 0.4850% is in
fact 10% lower than its USD Libor." Out explanation for this anomaly was that the Swiss Bank, most likely in concert with the ECB, were manipulating intercurrency unsecured funding reporting in order to mitigate FX mismatch: "SNB buys EUR in the open market (causing massive destruction in the EURCHF and GBPCHF pairs), then the excess euro holdings are funneled back into the market via a much cheaper EUR lending rate in the 3M funding market (LIBOR) compared to all other banks: the UBS 3M EUR Libor rate is a whopping 30% below the average EUR Libor rate of 0.6344%, nearly double the spread from average of the next lowest EUR Libor offer, that of RBS at 0.56%." Once again our monocultured perspective appears to have served us well - per Dealbook "UBS said Tuesday that United States and Japanese regulators were investigating whether the Swiss bank tried to manipulate a key benchmark used to set interest rates around the world." We can't wait to see what the Mainstream Media does with this one, as usual with its roughly one year delay.

Jason Kelly, a financial writer living in Sano, Japan, shares his first person experience of the stunning events from the past several days: "The power interruptions and damage to infrastructure are leaving stores in Japan’s earthquake area sold out. Gas stations are rationing, but closing one by one as they go dry. Between a third and half of the shops in my town, Sano, are closed for various reasons, not least of which is to let society catch its breath. The following pictures were taken by mobile phone at stores in Sano"