Archive - Feb 5, 2010 - Story

I went for a 5km run at the club I recently joined (I aim to lose 30 pounds ASAP just to get back to being fat again, and the 30 pounds after that will finally take me back to my college days). Fast Money came on the tube and it was almost laughable to see them all grappling for the reasons why the selloff occurred. China here. Greece there. No, sorry. Remember Bob Farrell’s eleventh rule: “it’s the news that makes the market; not the other way around.” - David Rosenberg

So much for a FDIC-like entity (with a limitless Treasury line of credit mind you) being set up in Europe. The ECB's board member Juergen Stark flatly rejected the idea of setting up a monetary fund to bail out troubled EMU member states. I think we all know who these are. "I take exception to the consideration [being given] to granting additional means, even under strict conditions, for an instrument that is not necessary," Stark told German public radio Deutsche Welle. "And it is also not compatible with the rules on which we agreed at the start of the currency union," he stressed.

The ever so handsome Tim Backshall of Credit Derivatives Research explains to all rabid anti-CDSites why CDS is the last thing one has to worry about in the spreading sovereign crisis, and why looking at 10% budget deficits (just like Lehman's $50 billion underwater balance sheet was responsible for the firm's bankruptcy, instead of unfounded speculation that naked shorting was the cause) may be the actual reason why half of Europe will soon have to be bailed out. CDS are merely instruments to express a view. And if Joe Cassano found a job somewhere where he is the party responsible for selling tens of billions in gross sovereign notional, then so be it. That said, bailing out the seller of Greek, or any other nation's, protection will hopefully not become an issue all too soon. Alas, the rumor that this seller may be Goldman Sachs (that BS about Greek banks selling Greek CDS causes 5 minute bouts of hypoxia-inducing guffawing in every CDS trader in the business) may mean that one year from now, when AIG is long forgotten (and defunct), we will be discussing why the Fed bailed out Goldman's Greek exposure at 100 cents on the dollar. Lastly, another point by Backshall - don't sell your gold. Should a full blown fiat contagion take hold, the dollar may go higher, but gold, which can not be printed in the mad dash to prop up the Titanic in its final minutes, will surely not go lower.

The Minneapolis Fed has launched a useful charting service which analyzes not only the Great Recession, which allegedly has ended (must be news to the 1.8 million...and growing...newly uncovered unemployed, but we'll take the NBER's word for it) but the even Greater Recovery that we have presumably been in for the past 6 months or so. At least those Fed critters have a twisted sense of humor. In order to quantify just how funny they are, the Min Fed provides the following preamble "The 2007-2009 recession is widely thought to have ended sometime last summer. How bad was this recession, and how quickly is the economy recovering? How does this recession and recovery compare to previous cycles?"How indeed? Here are the charts which just a cursory perusal will lead the peruser to wonder what on earth the administration is smoking. Recovery indeed.

The G7 meeting this weekend at Iqualit will be busy (one assumes the need for tear gas 10 miles south of true north will be somewhat moderated). Even busier if the so far uncorroborated rumor we have received turns out to be true.

Portugal's 9.3% budget deficit is about to get a whole lot worse. A proposed Law of Regional Finances, which was approved yesterday by a parliamentary committee, which would increase funds sent to Portugal's Madeira and Azores regions by €50 million, and keep rising until it hits €86 million by 2013, was just ratified into law by the Portuguese parliament. This is precisely what the Finance Minister had been dreading.

RANsquawk 5th February US Morning Briefing - Stocks, Bonds, FX etc.

This week showed just how jittery the IPO sentiment was, with so many IPOs pulled on "market conditions" even including perpetual cash cows such as porn sites. Now the weakness in the market is shifting to bonds. The latest casualty is Brazil's BES Investimento bank which has postponed a $350 million bond on "market conditions." We are not so sure if the reason is with "market conditions" or whether the true reason has to do with BES being a local unit of Portugues bank Banco Espirito Santo S/A. We anticipate any corporate entities that have a relation with an increasing number of European countries will soon become locked out from the capital markets.

Just flashing headlines for now:

SCHAPIRO:IN COMING WKS,WILL PROPOSE SHRT SELLING RESTRICTIONS

SCHAPIRO:REPEATS CONSIDERING MORE MEASURES ON MONEY MKT FNDS

SCHAPIRO:REPEATS STAFF TO EXAMINE MERITS OF FLOATING NAV

The dead cat bounce in the most shorted names is taking some of the recent peripheral high fliers tighter, at the expense of increased widening at the "risk-free" core. We expect much more of this risk transfer from the zone of perceived risk to the heart of Europein the weeks/months to come. Some key levels: HY 600, IG 101, SovX 110., Greece 415, Portugal 225, UK 99.50

The January NFP number came in at -20,000, a mere 5k away from Goldman's -25,000 estimate. Consensus was for +15,000. December, as all prior months, saw an expected major downward revision to -150,000 from -85,000. The January Birth/Death adjustment was for -427K from +25K in December. Despite a deterioration in every metric, the unemployment rate dropped from 10.% to 9.7%, even with a consensus at 10.0%. A glitch in the excel model is further corroborated when one considers that the civilian labor force participation rate actually rose in January from 64.6 to 64.7. Yet a number that avoids some of the constant fudging by the BLS, the Non-Seasonally Adjusted number, hit a new recent record: instead of 9.7%, this number was 10.6%, a 0.9% increase from December! The same can be seen in the U-6 data. NSA U-6 is now at a record 18%, even as the seasonally adjusted number declined to 16.5%.

We have speculated that the Federal Reserve or the U.S. Treasury could be allowing a "buyer" to accumulate stock index futures to boost stock prices. Perhaps the "buyer" has stopped buying. We know that the S&P 500 has dropped 6.6% since the close on January 20, the day before President Obama announced a plan to restrict proprietary trading by banks. Moreover, the S&P 500 fell on seven of those 11 trading days.

We saw almost to the tick the downside targets mentioned last night in S&P futures and EURUSD as per the hourly and 3-hour charts. However we see more downside potential on the Dax as we have not yet reached the target at 5,396. Also we do not have much hourly divergence in S&P and EURUSD's RSI low coincides with the lows which would suggest we can push a bit lower while remaining in the downtrend channel. S&P futures should bounce (maybe as high as 1070 here) but a break of 1051 on the downside could take us to 1,038.50 as the last leg started yesterday seems to be missing a 5th wave lower (caveat is that catching wave 5 of 5 is a tricky game as it can sometimes be so protracted you hardly see it on a chart!). - Nic Lenoir, ICAP

• Asian stocks fall most in 10 weeks on US jobless claims.
• Australian central bank raises outlook, sees 3.25%-3.5% growth ahead.
• Bank of England voted against extending its bond buying program.
• China announces anti-dumping steps on US chicken amid trade disputes.
• China's stocks drop for 3rd week on global recovery concern.
• Gold saw its biggest slide in 16 months, joining other metals in a broad sell-off.
• Hong Kong stocks fall, headed for longest run of weekly losses since 2008.

RANsquawk 5th February Morning Briefing - Stocks, Bonds, FX etc.