Archive - Feb 2010 - Story

Very quiet, boring day today. Keeping an eye on the European banks and the resilient semiconductors. If the girls can get themselves out of rehab and the banks cen get something going, then a reaction rally might be due. Otherwise, its back to "Risk Revulsion and Convulsion".

One of the less-reported events this weekend was the not so secret central banker meeting that is taking place in Sidney Australia. Now that factual details are finally emerging it is appropriate to collect some information tidbits about this shindig which has some claiming is reminiscent of a modern day version of the Jekyll Island meeting.

Developing story. The probability of Rakoff turning down SEC Settlement #2 just went up substantially.

We have so far avoided discussing this weekend's most tragicomic news, which undoubtedly is the Mortgage Bankers' Association selling their headquarters for a huge loss in less than two years. The building which was acquired for $76 million was sold to CoStar for $41.25 million. How the MBA is in any way supposed to provide insight on sentiment and market perspectives after a slap in the face such as this is beyond us. At best, they should start a $2.95 newsletter titled "How to top tick the market and never look back while waiting for the Dow 36k." The other implications of this transaction are self-explanatory. Yet courtesy of diligent readers, we have received some other very amusing information, which however focuses on the buyer in this transaction, specifically CoStar, which on its website brands itself as the "#1 Commercial Real Estate Information Company." Apparently the validity of this branding is only as good as the (un)solicited hot tips CoStar receives every day. A letter sent out earlier by an editor of CoStar's Watch List Group seeks to expand on the groupthink permeating the permabullish CRE investor landscape (we hope they approached Cohen and Steers with their query for an objective and unbiased perspective), with a set of questions that makes one question the validity of CoStar's self-branded imprimatur.

Janet Yellen, who in mid-November completed a "fact-finding" trip to Hong King and China, provides some insightful observations into the closely tied monetary fates of China, Hong Kong and the US, as well as China's Catch 22 paradox of overcapacity. As Yellen points out, US monetary policy is a critical factor for both Hong Kong and the mainland "both Hong Kong and the mainland are currently pegging to the dollar, they are both to some extent stuck with the policy the Federal Reserve has chosen to promote recovery." In essence, and in confirmation with Zero Hedge's "vassal theory" of the Sino-US relationship, China has a "considerable interest" in the Fed's exit strategy. Yellen demonstrates that while China is forced to look to growing its own internal economy now that the export-led, current account surplus model is over, the transition will require yet more stimulus, thereby further inflaming the asset bubble, spurred by the massive overcapacity already in place in the country, and further pushing the country into a monetary-fiscal zone of disequilibrium. This would be exacerbated by any move to strengthen the Yuan, which is what has to happen for the US to keep inflating its troubles, yet won't happen so long as China continues being in denial about its bubble conditions, thanks to a phenomenal precedent set by none other than the Federal Reserve itself. Yellen won't go so far as admitting it, but all the ingredients for a massive Chinese (and thus, U.S.) crash are now in place.

A Bloomberg Television interview with Ken Feinberg discloses that the Pay Czar believes the Goldman CEO's compensation is still excessive. "If you look at the 700 people that are under my mandatory jurisdiction I do not believe there is more than one or two in the total of 700 that are making that type of total compensation." Yet Feinberg is happy that Lloyd has received the bulk of his comp in slow-vesting stock. More curiously, Feinberg was in fact consulted when determining Blankfein's bonus package - this is odd as Goldman's has repeated its belief that since it has paid back TARP, but not TALF, it is its own bonus master. Is Goldman so terrified of the Administration's PR onslaught that no matter what it wanted to make sure a bonus announcement wouldn't be followed up by the Teleprompter In Chief immediately firing back with some more fire and brimstone?

The most notable feature about today's Bill auctions was the surge in Direct Interest. The $13.3 billion Direct Bid for the 3-month bill was a record. Theresulting take down of 17.3% was a major upside from the 3 month Direct Take down average of 7.3%. As noted previously, the Direct Bid came at the expense of a decline in Indirect bids: the Indirect Bid of $10.4 billion was lower than the total Direct bid for the first time in remembered history. At this point indirects are all shifting away from the Fed's methodology and seemingly expressing interest only via the Direct bidding syndicate. The reason for this transfer is still unknown.

The $11.9 billion Direct Bid in the 6 month auction was also a record: the Take Down was a whopping 18.2%, which was still below the all time record 38.7% seen in July 2008. And, as above, the Indirect Bid dropped to the lowest in over ten auctions at just $10.2 billion, once again less than total Direct interest.

Moody's provides a complimentary report of its 2010 hedge fund outlook (if it is being given away for free you can imagine the pent up demand for this particular bullish case). Of course, should Moody's global economic models again Ref out courtesy of some negative output, we expect this report to be about as valuable as a 14 pages of single ply 30 Y Treasuries in 2040. It almost comes through when Moody's warns "Another systemic shock or reputation damage caused by a large-scale failure may have knock-on effects on investor confidence and, if sufficiently severe, could undermine the foundations of the recovery." So we are right if we are right, but if something changes in the permabullish groupthink of which we are so fond, we are wrong. Read at your own peril. Pretty charts though.

With Greece getting all the imminent default attention, have we forgotten California? Jim Grant chimes in.

The $24 Billion 3 Month Bill closed at 0.11% high rate (just 7.85% allotted at high). Bid To Cover was 4.46 versus last weeks 4.06, and 3.96 over the past year. The demand for Bills surges as does direct bidders take down which was a whopping 17.2% of the total $22.7 billion. Indirects came in surprisingly weak at 28.9%. The balance is Primary Dealers.

The $27 Billion 6 Month Bill closed at 0.17% high rate, with 43% allotted. Bid To Cover was 3.83 versus last week's 3.88 and an average of 3.8 over the past year. And as in the 3 Month, the Direct take down was a whopping 18.2%, with Indirects at 39.2% and the balance for PDs.

While nothing new to constant Zero Hedge readers, Rosenberg's recap in a few simple paragraphs of what is happening in the European periphery, the EMU, and with sovereign balance sheets is a must read for all recent entrants into fundamental sovereign default analysis.

As always, a much more rational credit market is not following the sudden intraday exuberance of stocks, which are trading in lock step with the DXY and specifically the EUR-JPY pair: every correlation engine is primed to copy step for step how the Euro and Yen trade in the stock market. With all indices green for the day, the culprit is solely the DXY which has taken a downleg over the past 30 minutes for no particular reason. In the meantime IG, HY, SovX and, yes the STUPIDs, have all put their fireman's hat on: IG is 2.5 wider, HY is 15 wider, SovX is 6 wider to 112, the UK passed a hundred and the prevalent STUPIDity is surging to 242 from 235, another recent record.

In the pre-math of the Greek collapse, conspiracy theories are swirling about who keeps blowing Greek CDS spreads wider. The answer, so far completely unconfirmed, is that a large US investment bank (we "wonder" just which US investment bank dominates the sovereign CDS market), and two major hedge funds are behind the CDS "attacks" on Greece, Portugal and Spain. According to Jean Quatremer, and his Coulisses de Bruxelles, UE blog, the plan involves blowing spreads to record levels, and is prompted by the hedge funds' anger at not having been allocated substantial amount of the recent €8 billion GGB issue, in order to lock in profits from their CDS long exposure. Being thus unhedged with a short bias, their alternative is to continue buying protection else risking to mark losses on their extensive CDS short risk exposure.

After last week's outlier data, in which 3 buyers pushed the balance for the first time in over a year to a positive buyer/seller ratio, this week we are back to the new normal: a/k/a selling deluge. $488 million in shares was sold in the past week in 192 documents transactions, while just $8 million was bought in 38 deals. Notable dispositions included Bill Gates selling $85 million worth of MSFT, Roger Pensky dumping over $100 million, and Juniper Chairman Scott Kriens selling $12.5 million worth of JNPR stock. Also, after announcing a major trimming in his GOOG portfolio, Sergey Brin sold some "pocketchange" worth of Google stock worth $7.6 million. Source: FinViz

RANsquawk 8th February US Morning Briefing - Stocks, Bonds, FX etc.