Archive - Feb 2010 - Story

RANsquawk 11th February US Morning Briefing - Stocks, Bonds, FX etc.

"Cocktail Napkin Charting – As noted above, Wednesday’s action may have clouded rather than clarified the technical picture. Even a seasoned technician like Walter Murphy titled his discussion this morning “A Coin Toss”.

Yesterday, the S&P circled the wagons within the support band of 1058/1053. The intra-day low was 1059. The snowstorm may have postponed the technical resolution. Now the Lunar New Year may blur trading as much of Asia goes on holiday. Nonetheless, a definitive move appears to be looming in the next few trading days. We hope to get some clue to direction before it actually happens.

For today, the napkins suggest that first support still is 1058/1063. Resistance looks like 1074/1078 and then 1083/1088" Art Cashin

Euro area debt levels are rising faster than at any peacetime rate in the aftermath of the ongoing crisis. Further, as a result of the crisis government bond yield spreads between different euro area member states have exploded. The Maastricht Treaty’s debt-to-GDP criterion of 60% seems unrealistic within the next 10 years for many EMU countries. Even a 100% debt-to-GDP ratio in 10 years time could prove difficult for several countries.

• Majority of Germans wants D-Mark back (Frankfurter Allgemeine h/t Paul)
• Fed in talks with money market funds to help drain $1 trillion (Bloomberg)
• Jobless claims in US decrease more than anticipated (Bloomberg)
• Jobless suffer with corporate cash climbing to $1.9 trillion (Bloomberg)
• PIGS in rescue lipstick are uglier than default (Bloomberg)
• Greece: how the bond vigilantes left it in ruins (BusinessWeek)
• Stuyvesant Town ownership hinges on payment of $90 million (Bloomberg)

Time to recalibrate the FX/market correlating robots. Shockingly, the emerging wave of still unknown bailouts is finally starting to be perceived as euro weakness. The onlly logical "euro-strength" outcomeis if the IMF is once again dragged in, which in turn becomes dollar weakness.

Just in case you were mystified what "excess capacity" cheerleader #1 Jim O'Neill thinks of the world, be mystified no more. Spoiler alert: Jim uses the words "remarkable analytical mind" and "Alan Greenspan" in the same sentence. And with that out of the way, read on, and while you are at it, buy buy buy.

• Asian shares were higher Thursday, with China's more benign than feared inflation data.
• Australia job growth surges, unemployment rate falls; Aussie dollar strengthens.
• Bernanke says Federal Reserve may opt to raise discount rate 'before long'.
• China's January loans rises to $203B, property prices surge as banks extend more credit.
• EU to lay groundwork for Greek aid summit package in push to shield Euro.
• Health groups urge U.S. states to increase cigarette taxes by $1 a pack
• U.S. foreclosure filings rose 15% in January from a year earlier

The non-bailout bailout is here. Or is it? They really should have used Larry Summers. Van Rompuy says "determined and coordinated action if needed" will be provided. Uh, it is needed. But what is the deal? And what are the details? Greek 2s10s 40 bps steeper to +93 bps as 2 Year trades 56 bps lower to 4.97%.

RANsquawk 11th February Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 11th February Morning Briefing - Stocks, Bonds, FX etc.

The only thing in this world worse than Hank Paulson showing up in Congress with his initial 3-page TARP proposal giving him unlimited control over the US printing press? 12 non-Hank Paulsons, all of whom speak different languages, all of whom are hell bent on bailing everyone and everything out (just not on their political or physical dime...or 10 eurocents as the case may be), and all of whom have no idea how to bail out others' (and soon their own) economy... oh, and none of whom have access to Hank's reserve currency printer. In short, more than 24 hours after announcing a "bailout" of Greece, nobody in Europe has any idea what they need to do to actually "bail" Greece out. On the verge of tomorrow's summit during which it is widely expected that EU's new president
Herman Van Rompuy will announce just what the details of [asset guarantee|debt purchase|IMF (aka US Taxpayer) to the rescue] plan will be, the utter cluelessness and confusion is unprecedented.

U.S. lawmakers are toughening their stance on Iran’s energy industry with new economic penalties, but experts doubt the Islamic regime will pay much attention and is more likely to open the doors even wider to other players eager to replace fleeing investors.

Yesterday we presented our views on why Europe's decision to tip over the first of the bailout dominoes will be inherently a catastrophic one in the long term, and will ultimately transfer the peripheral liquidity risk into funding, and ultimately, solvency (and once again, liquidity) risk to the very core. Today, Niall Ferguson joins in, in this latest Op-Ed in the Financial Times. "It began in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate." In other words, Marc Faber 1, CNBC talking heads, 0... as usual.

Some "purists" seem to have taken offense at our earlier suggestion that standalone clearinghouses (DTCC) could be impaired in some quasi-principal risk taking form. We respectfully disagree and present some perspectives from the conversion of the ICE Trust into the central clearing counterparty for CDS transactions (which will be lucky to ever see even clear even a fraction of the CDS transactions that the DTCC does... which could very well be the Fed's thinking).

"Clearing is a form of extending credit, one of the main functions of banking institutions. A clearing agent substitutes its credit for that of its customers. A clearing agent is liable to a clearinghouse for performance on all submitted contracts, and assumes, with respect to the exchange, clearinghouse, and counterparties, the risk of default. The clearing function is akin to two other traditional bank credit functions, providing bankers’ acceptances and letters of credit. The credit function provided by a national bank in its clearing capacity is part of the business of banking, because a principal business of a bank is to extend credit." - OCC Interpretive Letter

Picking up where he left off in his prior Bloomberg interview earlier this week, the author of the "Gloom, Boom and Doom Report" continues his bashing of the governments of all developed and overleveraged nations, which he claims will sooner or later default on their obligations. This could be the most scathing critique of the fiat-money system to date, which is the primary cause for the facility with which governments have accumulated untenable debt loads. Sure enough, CNBC was not too happy with his assessment.