Archive - Jan 28, 2010 - Story

The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all. - David Reilly

Long-time readers know that I am keenly sensitive to lows set in the equity markets on
consumer confidence reports. In short, if the SP500 is above a significant Consumer Confidence report low
(some Consumer Confidence (CC) lows are more important than others, and this week’s CC low was quite
important as it came just prior to the confluence of several significant events following it), investor
confidence is greater than consumer confidence. If the SP500 is below a consumer confidence low, then
investor confidence is worse than consumer confidence. That in a nutshell explains why it is imperative
stock market traders pay close attention to the Jan 26 CC low was set at 1081-1086. Most important is 1086
pit session low (not the 1081 electronic low) which dovetails much better with the December low anchored
at 1085. - John Bougearel

A Greek bailout is rapidly becoming an extreme likelihood. The implication is that coupled with the newly emerging austerity measures in Portugal, Europe, but mostly Germany, will run out of options very quickly. On one hand Trichet and Merkel have stuck themselves in a corner with all the recent anti-moral hazard talk (and the question of whether Europe's strapped public sources can accumulate enough bailout capital in time is still open), and on the other, as Lehman so well demonstrated, a colossal event such as a eurozone member defaulting, would likely have the exact same unpredictable domino consequences that everyone has long been warning about. The silver lining - an imminent drop in the euro, and a boost to European exports. Perhaps this is the agenda all along - Greece will be the sacrificial lamb which will satisfy the bloodthirst of French and German unions, and prevent political landslides in all of Western Europe. And the kicker - they can't tell Bernanke and the U.S. they did not go along with the G-20 plan of keeping the euro artificially high: after all this will be spun as an "exogenous" event...Ironically, the bitter medicine for the rescue of both Spain, Portugal and the other PIIGS may just the transformation of PIIGS to PIIS.

Did a hedge gone wild account for nearly half of Wells Fargo's Q4 earnings? More importantly, when the economy turns sour, will the same "hedge" drag the company's net income down faster than a financial weapon of mass destruction obliterates lower Manhattan? An analysis of Wells Fargo's Mortgage Servicing Rights and associated "economic hedges" indicates that investors should be concerned by a flashing red light hidden deep within the bank's assets, and the associated loose accounting principles.

• Securities
  held outright: $1,913 billion (an increase of $67 billion MoM,
  resulting from $64 billion increase in MBS and $3 billion in
  Agency Debt), or a $7 billion increase sequentially. 
• Net
  borrowings: $165 billion. Number for the January 28th week has not been updated.
• Float,
  liquidity swaps, Maiden Lane and other assets: $196
  billion. The CPFF program was was at $11.2 billion, another fresh all time low. FX liquidity swaps declined
  by $1.075 billion to practically 0. Maiden Lane I
  and Maiden Lane II were at $26.8 and $15.4
  billion, while Maiden Lane III continues pretending it has value and came at $22.5 billion.

Chairman Bernanke was voted back in today. Interestingly the markets reacted very little to it, and if anything equities showed renewed weakness after the official confirmation whereas they had bounced from their lows earlier in the session. I think it was as much due to late stops into the close than anything but after hours will tell us the true story. - Nic Lenoir

Chairman Bernanke was voted back in today. Interestingly the markets reacted very little to it, and if anything equities showed renewed weakness after the official confirmation whereas they had bounced from their lows earlier in the session. I think it was as much due to late stops into the close than anything but after hours will tell us the true story. - Nic Lenoir

You mean not every American bought 10 kindles last quarter? $116 better hold or then it is straight down to $100 and lower. And just in case the shorts don't get squeezed, the management announced the oldest trick in the book: a $2 billion share buyback. At 40x forward PE this seem like a total steal for management.

Never seen so many eyeballs watching the same microticks on 5 charts simultaneously and seeing virtually everything move in perfect lockstep tick for tick. Everyone waiting and wondering about when and if Bernanke is going to make the cut or not. Meanwhile Obama was desperately on the phone, attempting to get a post-SOTU "resubstantiation" rally in play.

Ben Shalom Bernanke reconfirmation now guaranteed. Sorry America - your senate has failed you. Enjoy the asset bubble and the coronation of the opaque US balance sheet as the biggest receptacle of toxic assets while you can - the next implosion will be the last.

The large gates of New York’s largest prison open and today’s group of newly released emerge. They pass a guard who lifts up a copy of The USA Today to reveal the headlines and date that tells us it’s 2002. Amongst this group we find a man carrying a small duffel.

And we know this man.  He is Gordon Gekko.

Yet another rumor denied vehemently by the Greek Finance Ministry, which automatically means it is 100% true, is that Greece rescue talks are reaching a fever pitch, and according to FT-Deutschland, Germany is seeing increasing pressure to bail out the struggling country. As Dow Jones reports "rescue talks are being held in the EU and with certain capitals about aid for Greece, according to the sources, the report adds. Several options are being discussed, one of which being bilateral loans from some euro zone countries, where Germany would have to shoulder a major part as the euro zone's largest economy."

While Tim Geithner may hope the AIG situation is now dead and buried, it is likely anything but, with the recently launched investigation into disclosure fraud by the SIGTARP, and the relentless efforts by Darrell Issa to metaphorically crucify the tax-challenged treasury secretary currently ongoing. As these noble pursuits continue, we ask two simple questions.

The past week has seen a material break from the long-term support ever since the March lows. After peaking a short week ago, the market has found it impossible to rally on even the "great news" of earnings beats and on what is supposed to be a Bernanke reconfirmation today (should this "given" not transpire, or if even a vote delay is proposed, we hope everyone has an assortment of puts to hedge the fall). The more relevant question from a short-term trading exposure is whether the buying programs that emerge on every low-volume lull after a major selloff will be capable to sustain the increasingly shaky upward trajectory.

After several weeks of driftless correlation between stocks and the DXY, stocks are once again correlating almost perfectly with the critical EUR-JPY pair. Due to the acute impact on the DXY via the EUR-JPY, this is the easiest way to push around the DXY levels. Furthermore, the correlation return could be indicative that the JPY is once again the carry currency of choice. Couple this with a weakness in the short-end of the UST curve, and one can speculate that carry traders are quietly repurchashing dollar shorts and selling Bill positions, meaning that the Yen will likely be seeing rather substantial weakness in the coming weeks.