Archive - Mar 26, 2010 - Story

Several South Korean sailors were killed and one of its naval ships with more than 100 aboard was sinking on Friday after possibly being hit by a North Korean torpedo, South Korean media reported.

A South Korean vessel fired at an unidentified vessel towards the north and the South's presidential Blue House was holding an emergency security meeting, Yonhap news agency said.

From Fox News via Yonhap:

URGENT: SEOUL, South Korea -- A news agency says a South Korean navy ship has fired shots at an unidentified ship.

The South Korean navy reportedly shot at an unidentified ship near
North Korea as one of its vessels is sinking near the maritime border
along the country's west coast.

South Korea's Yonhap news agency said late Friday that the navy ship fired shots toward North Korea.

The report comes as South Korean officials confirm that a navy ship
is sinking off the west coast near the border with North Korea. There's
no word yet on what caused the sinking.

"I cringe when I hear men like Kansas City Fed President Tom Hoenig muse that the Fed will ultimately need to get the Fed funds rate back up to a 3.5-4.5% zone. I deeply respect Mr. Hoenig, both as an economist and as a man, but I just don't see why the Taylor Rule of the Forward Minsky Journey should apply to the Reverse Minsky Journey. Simply put, the 2% real Fed funds rate constant in the Taylor Rule should, in my view, be considered toast. In a world of deleveraging and hoarding cash it makes absolutely no sense to reward holders of cash with an after-tax real rate of return." - Paul McCulley, Pimco.

As part of yesterday's hearing with Ben Bernanke before the House Financial Services Committee, Ron Paul provided the following statement in which he blasts the Fed's ever-increasing cluelessness over monetary policy and its disastrous Catch 22 implications: "the Fed only sees what is seen, the superficial results of its policies, and not what is unseen, the effects of its monetary intervention throughout the economy. Monetary inflation leads to malinvestment and causes the boom phase of the business cycle. Once the malinvestment is realized the bust phase occurs, and these malinvested resources need to be liquidated in order for the economy to recover. But the Fed actively works to prevent this liquidation and does everything in its power to continue inflating in order to prolong the boom. The first act of intervention begets the second and subsequent interventions, each bigger than the first, as each economic bust gets larger and more severe." As the only thing that currently matters for the economy, for LBO rumors, and for stock picking in general is the overabundance of liquidity, one wonders to what rabbit holes the Fed's push for central planning of the US economy will eventually lead us: "The Soviet Union's economy failed because of its central planning, and the United States economy will suffer the same fate if we continue down the path toward more centralized control."

In April of 2000, we first stepped to the plate and bought Berkshire Hathaway (BRK) and made it one of our larger holdings, where it has remained until last month, when we sold half our position. After a few romantic days alone with the 2009 Berkshire Hathaway Annual Report, and several emails to people we know in the insurance world to confirm for the 32nd time in 20 years what we know and don’t know about insurance accounting, we admit to mixed feelings about both the half we sold and the half we retained. As anyone with even modest investing experience can honestly attest, sometimes it just ain’t easy. What follows is our thought process. - RCB Investment Management

Bernstein cuts FY 2010 outlooks for GS from $225 to $210 after trimming its 2010E EPS from $20.28 to $17.18. Morgan Stanley also cut from $3.14 to $2.97. Oppenheimer cuts Q1 2010 estimates for BofA, GS, Jefferies, JP Morgan, Morgan Stanley Lazard, and Wells.

"The third estimate of the fourth-quarter increase in real GDP is 0.3 percentage point, or $11.6 billion, lower than the second estimate issued last month, primarily reflecting downward revisions to nonresidential fixed investment, to private inventory investment, and to PCE." In the meantime, total current dollar GDP is $14,453.8 billion. As the total debt is $12.606 trillion, the debt to GDP is 87.2%. Adding $6.264 trillion in GSE debt which is explicitly backed and should be on the Treasury's book, the total debt is $18.87 trillion and the Total Adjusted Debt to GDP is 130.6%.

• Market forecast project Issue #8 - 2010 (Value Expectations)
• China announces it may pursue a "managed float" (China Daily)
• Europe agrees IMF-EU rescue for Greece (Telegraph) - the IMF's quota of $15 billion will only cover cash needs through end of May
• The VAT cometh (NRO)
• Budget 2010: interest bill on UK government debt set to soar (Telegraph)
• White house to announce more housing aid, principal reduction for everyone (Reuters)
• The bad news for RBS don't stop: RBS Tier 1 notes fall most in five months after swap, S&P cut (Bloomberg)
• Mortgage delinquencies rise to record 14% (Reuters)

Shortly we are going to see what will be almost certainly a downward revision to the revised 5.9% Q4 GDP number. How big will it be? According to Goldman's Jan Hatzius the real number, which will be based on an "income side" calculation of GDP as opposed to an expenditure, will be about 2.2%, a more than 50% drop from the expected revision of 5.8%. Will the government allow such a GDP indication? Of course not as that would completely kill the stock market rally which is the only thing the administration has going for it. Yet the numbers don't like. As Rosenberg demonstrated Q3's GDP was about -7% absent the government's stimulus. Even with it, it appears at the economy, when all is said and done, will have managed to eek out just a barely positive number. Take that out and you are again left with a mid single digit negative number. And this is the basis for a sustainable rebound? What it certainly will be the basis for, is another percent or two on the S&P as the last remaining short capitlate as State Street recalls whatever shares are outstanding to allow Citi smooth sailing after the government sells several tens of billions of worthless Citi stock.

• China may resume 'managed' Yuan float, avoid sharp gain, PBOC's Fan says.
• Euro rebounds from 10-month low, Asian stocks gain on aid plan for Greece.
• European leaders steer Greece to IMF, pledge loans in last-resort aid plan.
• Japan's consumer price index fell again in February, shows deflation continues.
• Taiwan Central Bank to accelerate liquidity withdrawal to prevent asset bubbles forming.
• AAR CORP to acquire Aviation Worldwide Services for $200M.
• Accenture lowers FY10 EPS view by $0.06, sees EPS of $2.61-2.69 vs. $2.70 cons.

RANsquawk 26th March Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 26th March Morning Briefing - Stocks, Bonds, FX etc.

Excess marginal dollar liquidity is gone and the USD is spiking in value. Commodities (particularly oil & the energy sector in equity) are rolling over and are ready to sell off big. Equities may follow soon. In the FX arena, long USD is best, especially against EUR (PIIGS), GBP (just another pig), NOK (CEE exposure), HUF (see NOK), AUD, and JPY.