Archive - Jan 2012

As of a few hours ago, Goldman's Francesco Garzarelli has officially told the firm's clients to go ahead and short 10 Year Treasurys via March 2012 futures, with a 126-00 target. While Garzarelli is hardly Stolper (and we will have more on the latest Stolpering out in a second), the fact that Goldman is now openly buying Treasurys two days ahead of this week's FOMC statement makes us wonder just how much of a rates positive statement will the Fed make on Wednesday at 2:15 pm. From Goldman: "Since the end of last August, we have argued that 10-yr US Treasury yields would not be able to sustain levels much below 2% in this cycle. Yields have traded in a tight range around an average 2% since September, including so far into 2012. We are now of the view that a break to the upside, to 2.25-2.50%, is likely and recommend going tactically short. Using Mar-12 futures contracts, which closed on Friday at 130-08, we would aim for a target of 126-00 and stops on a close above 132-00." As a reminder, don't do what Goldman says, do what it does, especially when one looks the firm's Top 6 trades for 2012, of which 5 are losing money, and 2 have been stopped out less than a month into the year.

When we predicted on Thursday that the most recent record number of EUR shorts would take the EURUSD over 1.30 on Friday following a spurious rumor that the IIF and Greece had reached a deal, it turns out we were one work day off. As it happens, the EURUSD has just taken out 1.3000 following an FT Deutschland report that Greece and the IIF have reached a broad agreement. It would be funny if only it wasn't so predictable. The source- unidentified government officials. Either way, it appears this will be the on again, off again rumor that drives risk today, since there are no fundamental economic news. Per Bloomberg, banks and EU, IMF, ECB still trying to agree on coupons, so it actually is not a deal but hey, who cares. Coupon for the new, long-term debt after the voluntary haircut should be somewhere above 4%. Troika still pushing for a 4% ceiling. Deal may be concluded in next few hours. Top level talks were interrupted Saturday, continued Sunday by “experts”. Troika experts want to calculate today if Greece can still meet the goal of cutting total debt to 120% of GDP by 2020. And so on. Of course, since just one hold out hoping for "legal arbitrage" and par recoveries, will force the retroactive implementation of CACs, which in turn will trigger CDS, which in turn will force a subordination of debt claims, all of this is moot.

Find out what the $3.6-trillion Blackrock sees in 2012

The $10 trillion global black market is now the world’s second largest and fastest growing economy.

All you need to read.

The real outlook of Monetary Easing vs Treasury Yields

Stocks usually follow the Fed, but this time when the ECB pumped, so much of it flowed into the US that not only Treasuries, but also stocks, got a lift.

While politicians may debate whether or not America is the most "generous" (with other generations' money of course) socialist welfare state in the history of mankind, the undoctored numbers make the affirmative case quite clear and without any chance for confusion. The single most disturbing statistic: in 2011 nearly half of the population lived in a household that receives some form of government benefit, which in turn accounted for 65% of total federal spending, or $2.5 trillion, and amount to 15% of GDP. And yet some people out there still think these people, long since indoctrinated to do little but mooch off the welfare state (which will continue subsidizing its existence so long as debt rates are so low that the government can issue trillions each year without fears of consequences) will halt their iTunes purchases, will voluntarily stop subsisting on the government's teat, or will rebel against a government which is their only source of income? Why? Especially since something tells us that there will be a peculiar overlap between this 50% and the 50% of Americans that pay zero taxes.

After months of increasingly aggressive shareholder activism, the long-standing co-CEOs (Balisillie and Lazaridis) of the struggling Blackberry maker have resigned as the former COO takes over as CEO and former-exchange executive takes over as chairperson.

• *RESEARCH IN MOTION CO-CEOS/CHAIRMEN QUIT POSTS :RIM CN, AAPL US
• *RIM NAMES BARBARA STYMIEST INDEPENDENT BOARD CHAIRMAN   :RIM CN
• *RESEARCH IN MOTION NAMES THORSTEN HEINS PRESIDENT, CEO

Research In Motion has clearly morphed into Activism-in-Motion as the Globe and Mail reports: "The catalyst for change appears to have been the entry of a new personality: reserved but revered investor Prem Watsa, the CEO of Fairfax Financial. Mr. Watsa, who has been called Canada’s Warren Buffett." While chatter appears to be that change-is-good, G&M go on to note, "Critics of the company’s performance may not be immediately impressed by a management shakeup that involves so little fresh blood." as the Playbook fiasco is fresh in many people's minds but perhaps new CEO's Heins view that "We are not at a point where we try to define a strategy, that’s done" will not hearten those looking for real change.

As the name implies. What is funny is how only after the advent of the Federal Reserve in 1913 did Financial crises expose increasingly more of world GDP to a crisis state. But at least the Fed and ECB tell us all they do is enforce price stabeeletee. Could they be lying!? We thought it was all the gold standard's fault for causing unprecedented economic volatility... Guess not. From History Shots: "The giant wave in the top section of the graphic depicts the percentage of world GDP by region in crisis during the 200 year period. It includes the four major financial crisis types (sovereign default, banking, currency, and inflation) along with stock market crashes. The bottom section provides a detailed chart of all sovereign defaults by country, region and year. It shows the repeating nature of sovereign default, a central theme of Reinhart and Rogoff's book."

The market will look for any signal on the pace of discussions over the ESM pre-funding details and the fiscal compact. Flash PMIs in the Eurozone and the IFO will also be key to watch given market fears over the activity impact of tight fiscal policy linked to the Eurozone fiscal crisis. Attention will likely shift to the US this week. Q4 GDP will likely exceed 3% mostly due to one-off drivers and less so due a genuine pick-up in final demand in our view. The FOMC statement and press conference are unlikely to lead to a change in US monetary policy. However, we will be focusing on the publication of the FOMC participants’ views of appropriate policy (specifically the path for the federal funds rate and guidance for the size of the balance sheet going forward). In addition, President Obama will give his State of the Union speech Tuesday night.

After almost a century of the centrally planned dollar we’re delighted to present a timeline of the most amusingly disturbing speeches delivered by the Federal Reserve & Co.

The CDS index market remains one of the most liquid sources of hedges and positioning available (despite occasional waxing and waning in volumes) and is often used by us as indications of relative flows and sophisticated investor risk appetite. However, as Kamakura Corporation has so diligently quantified, the broad CDS market (specifically including single-names) remains massively concentrated. This concentration, evidenced by the Honolulu-based credit guru's findings that three institutions: JPMorgan Chase, Bank of America, and Citibank National Association, have market shares in excess of 19% each has shown little to no reduction (i.e. the market remains as closed as ever) and they warn that this dramatically increases the probability of collusion and monopoly pricing power. We have long argued that the CDS market is valuable (and outright bans are non-sensical and will end badly) as it offers a more liquid (than bonds) market to express a view or more simply hedge efficiently. However, we do feel strongly that CDS (indices especially) should be exchange traded (more straightforward than ever given standardization, electronic trading increases, and clearing) and perhaps Kamakura's work here will be enough to force regulators and the DoJ to finally turn over the rock (as they did in Libor and Muni markets) and do what should have been done in late 2008 when the banks had little to no chips to bargain with on keeping their high margin CDS trading desks in house (though the exchanges would also obviously have to step up to the plate unlike in 2008).

The bulls have the ball in their court and are on the cusp of turning this recent price move into a multi-month barn burner.