Archive - Mar 2012

So, WTF is so super about it anyway?

Some of these 15 swans are blacker than others....

As gold pulls back under $1700, back to 6 week lows (and Silver collapses in its high beta way, reverting back in line with Gold), Morgan Stanley says 'Stay Long Gold'. The recent sell-off notwithstanding, they remain bullish through 2012 and while the current USD strength is a headwind, they expect aggressive Fed action (and other global central banks), including the likely adoption of QE3 in 1H12, to be gold positive. Deciphering the demand and supply dynamics, they forecast prices to rise on a quarterly average basis through 4Q13 as the four pillars of their bull market thesis persist.

Next, it is turn for the families of the thousands of people whose money was stolen by MF Global (and apparently Fabrice Tourre, since nobody at MF Global was responsible for anything... or else it just vaporized) to send in their letters.

So much for Venizelos' best, final, and most importantly only deal. From Reuters: "Most Greek pension funds holding Greek sovereign debt have agreed to take part in a bond exchange to ease the country's debt burden but four have refused to do so, a Greek official said on Tuesday. The pension funds have come under pressure from workers' unions worried the writedown on Greek debt holdings will affect the viability of their funds. About eight or nine funds have agreed to take part but pension funds for journalists, police, the self-employed and hotel workers - which hold Greek debt worth 2 billion euros - have refused, the official said."

As the situation in Greece plays out exactly as we expected, no matter how much confidence Merkel and Papademos believe they have in a successful PSI, we thought it worth looking at the implications of the holdouts being 'punished'. For sure, as Peter Tchir notes, confusion reigns supreme, though we are probably due for a 'China saves the world' rumor any moment now, because too many people enjoy the fact that we haven't had a 1% down day yet this year.

If anyone is confused about what the real issue in Europe is, the following two charts should explain it all.

In what can only be the most ironic of stories today, Reuters is reporting that Citigroup has become the first financial services client for IBM's Jeopardy-playing human-cognitive 'machine' Watson. While IBM expects the financial services segment to provide significant revenues, we worry that Congress will enact some protectionist policy as thousands of highly paid extrapolators analysts are suddenly outsourced to a non-eating, non-bonused, non-champagne-buying, non-tax-paying server farm somewhere. Supposedly Watson offers a 'huge marketing edge' as the government-owned bank is likely to use the uber-computer for "risk management (as opposed to stock picking)" as it offers a 'more global picture' combing through 10-Ks, prospectuses, loan performances, and earnings quality while uncovering sentiment and news not in the usual metrics. We look forward to the next conference call as Vikram is replaced by a Siri-Watson discussion of why TBTF exists.

The BIS published a working paper estimating the costs of moving off-balance sheet derivatives trading to central exchanges in terms of daily margin requirements could be, for a dealer like Deutsche Bank, upwards of $8B, and for JPMorgan, $5B in times of volatility. The cost to the biggest 14 swaps dealers in terms of initial margins? Over $100B.

Obama takes on Syria and Iran in his Netanyahu meeting post-mortem. Every time the President says "Israel", "AIPAC", "Friend", "Syria", "Iran", "Terrorists", "Threat", and "Nuke them out of orbit" everyone does a shot.

In case anyone cares:

• ALLEN STANFORD FOUND GUILTY BY FEDERAL JURY IN HOUSTON - BBG
  
• ALLEN STANFORD FOUND GUILTY ON 13 OF 14 CHARGES - BBG
• STANFORD CONVICTED IN $7 BILLION INVESTMENT FRAUD SCHEME - BBG

Of course, his real crime was not realizing that if you are going to get busted for ponzinomics, you better make sure everyone goes down with you. In the meantime, rejoice, sheep, for the theater of Ponzi crime and punishment continues. Then again one wonders: why are the perpetrators of the biggest Ponzi of all time, i.e., the central bankers, walking free? Or Jon Corzine for that matter?

As if further evidence of the algo-driven maniacal market were needed, for the fourth time since this liquidity infused post-March 2009 ramp began, the S&P 500 has managed to correct after a similar length and magnitude move based on global central bank exuberance. What happens when SkyNet becomes self-aware of this pattern? Each time the ES has managed to pull back to at least its 50DMA.

While we have noted the comparative weakness in European credit and sovereign markets, stocks had so far remained hopeful until today. Bloomberg's broad BE500 index of European stocks fell 2.8% today, its worse performance  since mid-November when the recent rally began. This one-day drop has wiped out the gains of the last five weeks in stocks and credit is even worse as it continues to lead risk lower. European financial stocks are catching up to European credit's weakness (and we note US financial credit is really coming off today). Whether or not to BTFD is the question. We note that this sell-off is much more broad-based with stocks and credit dropping together (instead of just credit last time) and across asset classes the weakness is in CONTEXT with broad derisking. Furthermore, Sovereign credit stress re-emerged with Spain and Italy up 26bps and 18bps on the week as the former is now at almost 4 week wides. At some point, we wonder when MtM losses will hit all those aggressive Italian and Spanish banks who loaded up on chaotically procyclical carry trades?

The always-enticing Abby Joseph Cohen serves as the eye candy to this key crack in the Dow's uptrend.