Archive - Mar 2012

Remember what the market did in 2011?

• Investors help Athens over bailout hurdle (FT)
• Greece Moves Closer to Swap (WSJ)
• U.S. Warns Apple, Publishers (WSJ)
• China offers other Brics renminbi loans (FT)
• Court Challenges EU on Bank Downsizings (WSJ)
• QE blamed for surge in pensions shortfall (FT)
• Tang: Open to adjusting dollar trading band (WSJ)
• U.S. Report to Warn on Cyberattack Threat From China (WSJ)

Following a busy overnight session, which saw a surprise announcement out of the Brazilian Central Bank cutting rates more than expected, and confirmation of the deterioration in the Japanese economy where January saw a record current account deficit, today we have already seen the Bank of England proceed as expected keeping its key interest rate unchanged (at 0.50%) and QE fixed at GBP325 billion. The ECB is next with its rate announcement, expected to keep things on hold. Yet the mood of the morning is set by speculation that the Greek debt swap may see a sufficient participation rate for the PSI to go through, even if that means CAC activation, as somehow a Greek default is good, and only an "out of control" bankruptcy would be bad. That coupled with renewed expectations of more QE, sterilized or not, and hopes that tomorrow's NFP will be better than expected, as somehow the Fed will pump money even if the economy is "improving", is all that is needed to send the post-roll ES contract to session highs nearly 1% higher than yesterday's close.

De Telegraph reported on Thursday that Van Lanschot bank had tapped the LTRO for 750 million euros. Quoting Floris Deckers, Chairman of the Board of Managing Directors, "What would you do if you saw a 50 euro note lying on the sidewalk. We're earning a nice margin on it. We don't need it for financing or liquidity."

More on this story at Reuters here:

What a difference 24 hours makes, or 48 for that matter. After an almost 2% decline on Tuesday on virtually no news, the market looks set to get all that back and more - all since about 10:30 yesterday - also on no real news. PSI results continue to come in. It looks like it will beat 75%. It seems that all banks and most regulated entities are voting in favor of PSI - as expected. It looks like Greece and the EU will discuss the results tomorrow. I expect CAC's to get done on Monday. It would be surprising, and controversial, if the don't use the CAC's and pay some holdouts at par. After Greece walks away from over $140 billion of debt, it will be hard for other countries to resist that temptation. Now that politicians realize they can make the banks do whatever they want, they will be tested to use that power.

"We are a hair's breadth or, more exactly, one recession away from a market panic on outright deflation -- a panic that will send the central banks into a printing frenzy that will make their balance sheet expansion so far seem like a warm-up act for the main show." Albert Edwards

All you need to read.

The European Central Bank's recent LTRO programs have effected a significant increase in the amount of encumbered assets -- those pledged as collateral in repo transactions, central bank funding operations, and covered bond issuance as lenders increasingly demand over-collateralized borrowing arrangements to protect against credit risk -- on balance sheets across the pan-European banking system.

The rally for what could be World War III is in full swing. The truth amounts to very little on the eve of war.  Iraq and the lies surrounding weapons of mass destruction proved this lesson almost a decade ago.  Unfortunately for the people of America, Israel, and Iran, the political class and power wielders of their respective governments refuse to learn.  Their desire is for more authority and prestige; no matter how many bodies it costs. With the administration now seeking to provide assistance to the opposition forces in Syria, intervention and war with Iran is only an eventuality at this point.

Does the ECB stop printing? No, because it can't.

Could housing prices be stabilizing?

It would appear, given the actions and rhetoric of the last week or so, that global central bank printing presses have been switched to 'pause' mode and allowed to cool as implicit inflation 'energy' rears its economic-growth-dragging head around the world (as the bears told us earlier). Whether this leads to a slow grind higher or a tactical correction is the question Morgan Stanley considers in a recent note and their answer is that bullish sentiment, 'under-appreciated' risks, and 'tranquil' markets justify a cautious asset allocation. The focus has switched much more to growth, likely why we have not seen a greater deterioration post-printing yet, but this leaves the market much more sensitive to data surprises (as the backstop of QE has been removed for now). Simply put, we tend to agree with MS' view (given our previous discussions of the volatility surface) that as event and growth risks linger, and with valuations no longer cheap in most cases, expectations of a continued grind higher without a tactical correction are overly confident.

Perhaps not so shockingly, AP is reporting tonight that satellite images of Iranian military facilities show trucks and other earth moving vehicles. Diplomats, accredited to the IAEA, suggest this indicates attempted cleanup of radioactive traces possibly left by tests of a nuclear-weapon trigger. As sanctions grow more burdensome and Israel's pre-emptive rhetoric rises, the discovery of this sanitization effort only raises the stakes as the images are said to be very recent and updated constantly and suggest evidence of tests of a small experimental neutron device. This wouldn't be the first time a site has been 'sanitized' prior to IAEA inspector visits but as The Boston Globe reports IAEA expert teams have tried twice - and failed - in recent weeks to get Iranian permission to visit this area and now (following the apparent clean-up) they have finally been granted access. As the US, Britain, France, Germany, Russia, and China postpone their meeting, in an effort to find more moderate language to criticize Iran, it seems to us that actions may just start having more impact than words very soon.

As the global warming debate increases in its intensity we find both sides deeply entrenched, hurling accusations and lies at one another in an attempt to gain the upper hand. This divide within the scientific community has left the public wondering who can be trusted to provide them with accurate information and answers. The IPCC, the onetime unquestioned champion of climate change, has had its credibility questioned over the years, firstly with the climategate scandal, then with a number of high profile resignations, and now with the new “Gleickgate” scandal (1) (2) – One has to wonder where climate science goes from here?