Archive - Mar 2011

Markets worldwide are negative this morning on the news of a possible increase in European bank capital levels while U.S. futures are still in positive territory. The U.S. Treasury Dept. has announced that it will publically grade mortgage providers on response quality to homeowners that need payment reductions. Italian bank equities dropped on UBI Banca announcing a €1B capital increase in order to boost its core Tier 1 capital. As a result of the announcement, speculation that other banks would follow suit resulted in a selloff in the equity markets. Increases in commodity prices sent New Zealand’s February trade balance surging to +NZD194MM v -NZD3MM prior, making it the country’s first trade surplus in eight months. Japan’s Vice Finance Minister said yesterday that the government may have to abandon a planned five percentage point cut in corporate taxes to help pay for earthquake damage. PM Kan followed that up today signaling that multiple government spending plans may be needed to pay for disaster rebuilding.

• Fed’s Bullard Says QE2 Exit Debate Likely ‘Key’ 2011 Issue (Bloomberg)
• Obama Defends Libya Fight (WSJ)
• Radiation Found Outside Japan Reactor, Signaling Meltdown (Bloomberg)
• Radioactive Flood in Japan Reactor Tunnels (FT)
• SEC focusing on hedge funds that outperform “market indexes by 3% on a steady basis.” (Securities Docket)
• Schaeuble Sees Portugal Seeking Bailout, Handelsblatt Reports (Bloomberg)
• Budget negotiations breaking down (WaPo)
• Democrats, White House Said to Back $20 Billion of Additional Budget Cuts (Bloomberg)
• A Requiem for Detroit (WSJ)

Almost all Americans have heard Franklin Roosevelt’s speech to Congress on Dec. 8, 1941: “Yesterday, Dec. 7, 1941 — a date which will live in infamy — the United States of America was suddenly and deliberately attacked by naval and air forces of the Empire of Japan … I ask that the Congress declare that since the unprovoked and dastardly attack by Japan on Sunday, Dec. 7, a state of war has existed between the United States and the Japanese Empire.” It was a moment of majesty and sobriety, and with Congress’ affirmation, represented the unquestioned will of the republic. There was no going back, and there was no question that the burden would be borne. True, the Japanese had attacked the United States, making getting the declaration easier. But that’s what the founders intended: Going to war should be difficult; once at war, the commander in chief’s authority should be unquestionable.

At what point does an advisor who is wrong nearly 100% of the time lose credibility? Well, the National Association of Realtors has been consistently wrong since the very tippy top of the real estate bubble 4 years ago, yet they get ample air time in the media to continuously spout their methodically erroneous viewpoints and data. Finally, someone in the mainstream has called them on this perpetual farce that has costed those that followed them substantial wealth in exchange for a 2.5% commission split!

With so much changing in Fukushima on a daily basis, it is easy to lose track of what is happening on any given day. In fact, some like Zero Hedge are now weary of reporting Fukushima news due to expectations of a full detraction within half an hour or so, after someone is discovered to have no idea what a decimal comma is, or another is simply lying, in ongoing efforts to spread confusion. Which is why the following Q&A from Reuters on the latest situation in the radioactive power plant is a useful recap for virtually everyone, even though most likely the party line, not to mention "fact" will change shortly.

In the second day full of Fed president speeches we hear from St. Louis hawk James Bullard who spoke in Prague on recent developments in monetary policy, and delivered remarks titled “U.S. Monetary Policy: Recent Developments” as part of a central bankers panel discussion at the 19th European Banking and Financial Forum in Prague. During his discussion, Bullard explained how the Fed’s second round of
quantitative easing was “a classic easing of monetary policy” and “an
effective tool, even while the policy rate is near zero.”  He also
discussed the situation in early 2011, stating that “U.S. growth
prospects remain reasonably good for 2011.”  He added that recent global
and domestic events “present considerable uncertainty, but can be
resolved in benign ways.” Finally, Bullard talked about the path to
normalization.  “Discussion of the normalization of U.S. policy will
likely return as the key issue in 2011,” he concluded.  Overall, the presentation had a not surprisingly hawkish tone. Don't forget it was precisely a year ago that the Fed was being extremely hawkish all over again, with reverse repos flying left and right, and everyone expecting that the economic "growth" was self sustainable, until it wasn't.

The decline in house prices may have slowed in January, but consumer confidence probably dropped in March. Daily POMO viagra today is in midget dose, with just $1.5 billion in monetization.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 29/03/11

Retail positioning is staying pretty constant the last few days, GBPUSD has been seeing a strong shift in sentiment however, with increasing numbers of retail traders becoming long the pair throughout the sell off. Although still in the neutral if this retail buying continues we may take a dip into the short zone. GBP Current Account data released at 4:30am EST may tip the balance.

The market rose for most of the day like the radiation readings from...

It appears the plutonium discovered earlier, which according to some Japanese reports was so safe it was borderline edible, may not be all that safe. Per the IAEA: "Traces of plutonium are not uncommon in soil because they were deposited worldwide during the atmospheric nuclear testing era. However, the isotopic composition of the plutonium found at Fukushima Daiichi suggests the material came from the reactor site, according to TEPCO officials. Still, the quantity of plutonium found does not exceed background levels tracked by Japan's Ministry of Education, Culture, Sports, Science and Technology over the past 30 years."

The hedge fund industry's strong rebound from the credit crisis has prompted investors to ask whether some funds have grown too large and inflexible to keep delivering bumper returns for which the sector is famous. Are these concerns justified?

Thus, to say that the US Dollar and debt system are broken would be the understatement of the century… However, the US Dollar has become a massively lopsided trade with investors betting heavily on its demise. When you consider its position relative to the Euro (another doomed currency), it is clear that the US Dollar could bounce just based on the lopsidedness of this situation.

If there is one thing the Japanese authorities are consistent in, it is their complete lack of consistency. First the government leaks information that it will nationalize TEPCO, sending the market panicking and the stock (9501.JP) triggering circuit breakers after it goes bidless, and a few hours later after seeing the devastation this is doing on the market (Nikkei down 1.5%), it backtracks and says it was only kidding. From Reuters: "Japan's government is not considering nationalising Tokyo Electric Power Co , the operator of the stricken nuclear plant, Chief Cabinet Secretary Yukio Edano said on Tuesday." See, they were only kidding. Or, a very clever Japan has decided to not "nationalize" TEPCO in the same AIG was not nationalized, with a whopping 2% of the outstanding stock remaining in private hands following an infinity to one dilution.

Wouldn't it be awesome if spin could actually solve problems? Then, you could just say the word 'recovery' every time you gave a speech, ignore any negative data, assume the markets are up because of general economic health and not a mass infusion of cheap money, and it would be so.