Archive - Feb 2012

Whopper of a NFP number, which prints at 243K, higher than the biggest forecast of 225K, on consensus expectations of 140K, the biggest jump since February 2009. The devil will certainly be in the revision details.

More shortly.

Daily news.

In 20 minutes we will get the only market moving piece of news, which many hope will bring back volatility to the market. Or it might not. As Goldman says, 'nonfarm payroll growth should slow on seasonal and weather-related factors'

It seems like last Friday we were waiting for details of the latest Greek plan – PSI and Troika.  We are still waiting.  Details are starting to come out.  We should know what the bonds investors are expected to exchange into will look like.  The ECB sounds like it may use the interest they have earned on SMP to reduce the amount Greece has to pay back.  The Jobs data gives us an additional twist to today’s Euro watching.  How many of the courier jobs will disappear?  My guess is the data will be okay, but nothing special, just like the rest of the data.  The courier jobs are interesting, not just from what happens this month, but will they come back next year?  Amazon has been beaten up over the Kindle, but one of the benefits of the Kindle is that Amazon doesn’t have to deliver e-books.  I think we will all forget that by next December when everyone’s payroll estimate will include a bump for couriers, but maybe we won’t.

Just when it seemed that nothing could possibly surprise about adverse Greek bank exposure, as these are beyond insolvent already relying on the ECB for day to day operations as is, here comes one more development, this time courtesy of the one index that has been in literal freefall in the past two months, and recently hit a 20+ year low - the Baltic Dry. OpenEurope explains: "An interesting but niche issue has come to our attention recently in relation to the on-going troubles in Greece. The 'Baltic Dry Index' (a measure of global shipping demand/prices) has fallen for a month straight to record lows. When this index falls it suggests that there is trouble in the shipping industry, raising questions over the stability of shipping firms. As it turns out many of these firms have secured their financing from Greek and other European banks – meaning if they start defaulting on their loans these banks could take losses. This raise further questions over the bank recapitalisation plans and whether such contingencies have been thought of in the second Greek bailout (which sets aside €20bn for Greek banks)."

Yesterday, Greek finmin Venizelos did his best to exude confidence when he, of all people, decided to give the ECB, and thus Germany, a virtual ultimatum demanding that public sector creditors are also impaired (supposedly only some, while excluding Greek pension companies). Kathimerini has more on this in "Never mind PSI, OSI is all the rage." And the only reason why Veni needs this critical step is because the hedge fund holdouts among the PSI creditors demand it. Alas, Germany does not deal well with ultimatums, especially from fiscal vassals. As OpenEurope notes, Die Welt reports that Greek Finance Minister Evangelos Venizelos has called for Greece’s official creditors, such as the ECB and national central banks, to take part in the restructuring of Greek debt, something German Economy Minister Philip Rösler insisted was “not currently on the agenda”. It gets better. According to Goldman, German Finance Minister Wolfgang Schäuble said that "no additional contributions from the public sector are necessary.”  German finance minister against public sector participation in Greek debt restructuring. Speaking to news channel n-tv finance minister Schäuble said that "Greece needs a reduction in private sector claims of 50% … It does not need an additional contribution from the public sector because we're shouldering everything anyway". When asked whether he thinks that the composition of the Euro area would be the same at the end of the year as today, Schäuble replied: "I hope so". So there you have it: Greece needs further concessions, which Germany will give, if and only if Greece concedes to previous German demands of abdicating fiscal independence. The only question is how badly Greece needs German help. Everything else is smoke and mirrors.

• Greece's Hazardous Road to Restructuring (WSJ)
• Spain Coaxes Banks to Merge to Purge Losses (Bloomberg)
• Brussels Discovers New €15bn Black Hole in Greece's Finances (Guardian)
• UK Recession Predicted to Return (FT)
• Senate OKs insider trading curbs on lawmakers (Reuters)
• China Limits Mortgages for Foreigners (Bloomberg)
• Villagers scramble for fuel in Europe's big chill (Reuters)
• SNB Head Warns of Political Fallout After Crisis (FT)
• Portugal Bond Rout Overstates Greek Likeness (Bloomberg)
• Bernanke Says He Won’t Trade 2% Inflation-Rate Target for More Job Growth (Businessweek)

The macro environment for home improvement stocks continues to be favorable.   Credit standards have eased somewhat over the past few months and with the Federal Reserves new “operation twist” program, it has driven down interest rates even further.  This has created a much more favorable backdrop for home owners wishing to refinance.   It appears for owners who are refinancing, some of the dollars that are being saved in a such a deal are being reinvested in their homes.  Home improvement retailers in recent quarters have all told the same story, that people are shying away from big projects and instead are spending money on smaller ticket items to improve their home.

Pretty much self-explanatory. It would appear that the Pennsylvania rodent is missing out on a lot of NBC Universal-contributor cash by not having a comedy TV friendly presence. As for the accuracy win rate in the groundhog vs permabull race, there really is no contest...

Oh, you just don't get it...

While Europe's financial services sector equity prices have retraced almost half of their May11 to Oct11 losses as we are told incessantly not to underestimate the impact of the LTRO, Morgan Stanley points out the other side of the balance sheet will continue to sag. While short-term liquidity (at least EUR-based liquidity as USD FX Swap lines are back at record highs this week) may have seen some of its risk culled, the real tail risk of the 'Great Deleveraging' has only just begun. As MS notes, we may have avoided a credit crunch but European banks could delever between EUR1.5 and EUR2 Trillion over the next 18 months as the unwind is far from over. History suggests that over a longer time-frame, around five to six years - the deleveraging could reach EUR4.5 Trillion assuming zero deposit growth and the LTRO will slow but not stop the process. As we discussed last night, this deleveraging will inevitably lead to continued contraction in European lending to the real economy (no matter how much liquidity is force-fed to the banking system) which will most explicitly impact Southern and Peripheral Europe and the Emerging Markets of Central and Eastern Europe. In the meantime, we assume the Central Banks of the world will do the only thing they know, print and funnel liquidity to these increasingly zombified financial institutions; and while Dicky Fisher was calming us all down this evening on our QE3 expectations (given Gold and Silver's recent price action), it seems perhaps even the Fed is getting nervous at just how little surprise factor they have left given such a ravenously hungry deleveraging and insatiable need to maintain the market/economy's nominally positive appearances.

Out-of-money date is March 8. $3.3 billion must be dug up, pronto. Now all eyes are on the Facebook IPO. It will solve all budget problems forever—just like Google’s IPO had done.

Stop us when this sounds familiar: 'While we expect central banks globally to continue to provide liquidity, it is the ECB’s position that has changed the most dramatically. The relative expansion of the ECB’s balance sheet is EUR bearish in our view....the liquidity being generated by the ECB is to a large extent absorbed by the bank refinancing process, hence the large deposits at the ECB. Although there is clear evidence that some of the funds have been used in the peripheral bonds markets, helping to stabilise sovereign yield spreads, lending into the real economy remains constrained. We believe that the relative performance of money multipliers will be a significant driving force for currency markets in the coming year. We see the ECB liquidity as a negative for the EUR" At this point the preceding should remind our readers, almost verbatim, of this Zero Hedge post from January 31, "Reverting back to our trusty key correlation of 2012, namely the comparison of the Fed and ECB balance sheet, it would mean that absent a proportional Fed response, the fair value of the EURUSD would collapse to a shocking 1.12 as the ECB's balance sheet following this LTRO would grow from €2.7 trillion to €3.7 trillion." And the reason why the latter extract should remind readers of the former is because it is the basis for the just released conclusion by Morgan Stanley cutting its EURUSD price target from 1.20 to 1.15.

If one were to consider that nearly half the population of a given country has never had the pleasure of killing otherwise efficient time with the likes of Facebook, and other fad internet sensations, one would assume that the efficiency of the population would be far higher than other places whose citizens spend every waking hour gazing at a monitor. One would be wrong. As the following chart from Eurostat via Goldman shows, about 45% of the Greek population has never used the internet. Surprisingly the balance of the PIIGS is not far behind, with Portugal, Italy and Spain hot on Greece heels (which 5 years ago had two thirds of its population never interact with the web). Is it possible that sitting in front of a computer, uploading millions of pics and "liking" this and that does indeed do miracles for globalization and corporate efficiency? Was Zuckerberg's letter, gasp, 100% correct?