Archive - Mar 2011

Another day, another imminent perpetual trading halt of a Chinese reverse merger or some other imported domestically listed scam. Today's target (which is not new to adverse research reports - recall that Upton Sinclar Research recently present a comparable fraud case recently), per Alfred Little research, is Chinese company China Integrated Energy (CBEH), which Alfred Little spares little kinds word for: "China Integrated Energy, Inc. (NASDAQ: CBEH) is a complete hoax, according to a detailed investigation by the International Financial Research & Analysis Group (“IFRA”) commissioned by one of its hedge fund clients." Considering all the other words previously lashed out at CBEH, this may be one of the less scathing reports we have seen out there. That said, there is little to look forward to for stockholders per this report, as Alfred Little concludes "CBEH shareholders will almost certainly ecover nothing."

The much anticipated Global Tactical Asset Allocation quarterly update from Damien Cleusix is finally out. Arguably one of the most comprehensive equity market overviews, we present it in its entirety for our readers' enjoyment.

Residential real estate is a downright mess, and its getting worse despite multiple proclamations from Treasury Secretaries past and present that the worst is behind us. We have already qualified, by any metric imaginable, as a real estate depression. Is anyone curious as to how we got here? Well, I have some keen observations...

Remember, the interest-rate based derivatives market in the US is $196 TRILLION. If the Fed lets interest rates get out of hand, then the entire system breaks down even worse than it did in 2008: 2008’s crisis was triggered by the credit defaults swap market which was just $50-60 trillion in size (less than 1/3 of the interest rate based derivatives market).

Following last week's deplorable durable goods number, and the subsequent Goldman warning, i.e. "the data increase the sense of downside risk to our Q1 GDP estimate of 3.5%", Hatzius has just stepped it up a notch, adding a key adjective confirming it is just a matter of time now: "The latest real consumption figures - including revisions to earlier months - point to growth for Q1 as a whole of approximately 1.75-2.0% qoq annualized. This compares to our current forecast of +3.0%. The report therefore implies significant downside risk to our Q1 GDP estimate of +3.5% qoq annualized." We give it two weeks.

While there was no surprise in this morning's release of the PCE data, which came at 0.2%, on top of expectations, and unchanged from January's revised 0.2%, it was the action at the consumer level that was notable, as Spending increased from a revised 0.3% to 0.7%, on expectations of 0.5%, while personal income declined notably from a revised 1.2% to 0.3%, below expectations, as US Consumer had to dip into their savings in the month of February. On the Personal Savings Rate: "Personal saving -- DPI less personal outlays -- was $676.7 billion in February, compared with $710.5 billion in January.  Personal saving as a percentage of disposable personal income was 5.8 percent in February, compared with 6.1 percent in January." As the chart shows, personal savings continue to trend in the 5-6% range, indicating that consumers are still uncertain whether to splurge or continue deleveraging.

With TEPCO unwilling (or unable) to disclose consolidated detailed information about the status of its reactors, the task has fallen on third party analysts. Luckily, Jorge Stolfi of the state university of the State University of Campinas in Brazil, has compiled what is probably the most comprehensive data dump of all key Fukushima reactor indicators including water level, core, drywell and torus pressure, as well as temperature at the core bottom and nozzle. Below are the detailed results for each of the fuel loaded reactors since the start of the crisis.

Tsunamis to the left of me TEPCO Clowns to the right...

Markets positive in the U.S., but mixed globally as this week will show the results of Ireland’s bank stress tests and possibly more events related to Portugal’s growing debt crisis. Speculation abounds this morning as to the future of QE2 as St. Louis Fed president James Bullard called the program into question. Germany sold €2.66B in 12M bills at 1.2649% v 1.0636% prior with b/c at 2.2x v 2.0x prior while waiting on ECB president Trichet’s statement today that may reaffirm his rate hike plan. German Chancellor Merkel’s CDU party showed further weakness in regional elections yesterday as the Green party and its anti-nuclear platform surged in the polls. The election results prompted the CDU to announce that most of the country’s older nuclear power plants will be shut down. Japan’s nuclear crisis persists as high levels of radiation at the power plant delay reactor cooling efforts.

More bad news for Portuguese bonds which just traded at lifetime high yields. From Moody's: "We are lowering our long- and short-term counterparty credit ratings on the five Portuguese banks and two related subsidiaries that we rate. The long-term ratings remain on CreditWatch with negative implications. The negative CreditWatch implications reflect the possibility of a further sovereign downgrade, which we expect could take place as early as this week, and its direct and/or indirect impact on our view of Portuguese banks' creditworthiness."

Today's economic docket includes Personal Income and Spending (which is expected to show a jump in inflation) and the Savings Rate, core PCE, Pending Sales, the Dallas Fed, and a whole lot of dovish Fed speeches. These will be analyzed under a fine toothed comb to see if any of the more dovish members are starting to become as hawkish as their brethren from last week. In the meantime, Frost-Sack will monetize another $5.5-7.5 billion in 5 year debt.

It only took TEPCO about two weeks to realize what had been so glaringly obviously to many - namely that the company is largely unprepared to deal successfully with the Fukushima catastrophe on its own. Reuters reports that TEPCO, which has conceded it faces a protracted and uncertain operation to contain the crisis, sought outside help, asking help from French firms including Electricite de France SA and Areva SA. The question now arises whether it is too late for any help to come, and how fast before the sudden inlfux of new cooks spoils the radioactive broth. The news comes after TEPCO announced highly radioactive water has leaked from a reactor at Japan's crippled nuclear complex, as environmental group Greenpeace said it had detected high levels of radiation outside an exclusion zone.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 28/03/11

AUDUSD is firing on all cylinders in the long zone whilst 65.81% traders are short and actually made it to the strong short zone in Fridays session before pulling back a little into the long zone. Both EURUSD and GBPUSD are now well within the neutral zone. Pending Home Sales coming out of the US at 10:00am EST is the big new event of the day and if we do have a strong deviation from consensus we expect it to have a strong influence on retail positioning.

The latest in the tragic story that just gets weirder by the minute.

• TEPCO's mishandling of info on nuclear crisis 'unacceptable': Edano
• Partial meltdown of fuel rods believed to be temporary: Edano
• Radioactive water from No. 2 reactor due to partial meltdown: Edano
• Contaminated water due to condensed steam, not reactor crack: Edano

And our personal favorite:

• Locals within 20-km evacuation zone asked not to return for now

As this whole farce has gone beyond the surreal, we are now actively waiting for a cartoon Mr. Burns to show up at any ongoing press conference and announce that Springfield Nuclear Power Plant has LBOed Fukushima with Discount Window financing, at a #Ref! EV/EBITDA considering 9501.JP will not see any positive cash flow for millennia, and is appointing Mr. Sparkle (aka Homer Simpson) chief safety inspector.