Archive - Mar 30, 2010 - Story

RANsquawk 30th March US Afternoon Briefing - Stocks, Bonds, FX etc.

The just completed 4 week auction closed at the worst level since August 2009: the Bid to Cover of 3.58 and the High Yield of 0.15% were the weakest since mid-August. As the chart below demonstrates, since last closing at 0.000% on January 26, yields on the 4 week have spiked, making life for Ben Bernanke increasingly difficult. This also means that the cost for massively leverage primary dealers who sell the front-end and use the proceeds to purchase equities is starting to become increasingly prohibitive. Watch the 2s10s and 6m30s for an indication if this is actual broad tightening, or just a curve shift wider overall.

Do you see what happens Larry when you sell CDS on California? You get a Greek-style scapegoating campaign. Cali's State Treasurer Bill Lockyer, exasperated at his impotence to sell $2 billion in GO bonds, has resorted to the last option: sending angry missives and trying to make a media circus out of it. It is now all Goldman's fault that California is bankrupt, just because it dares to make a market in Cali CDS. Ring a bell? It worked miracles for Greece, whose bonds are now tumbling a day after everyone said Greek issues were resolved. Also, we can't wait to uncover, just like in the Greek case, that the biggest buyer of Cali CDS is PIMCO, CalPERS, TCW, Western, Oaktree, or some other California-based fund. Now that would be even funnier than Cali considered a more worthless "asset" than Kazakhstan. At least their potassium deposits are best in region.

China is now playing hardball, and this is even without Paul Krugman being in the picture (yet). The WSJ reports that China has now blocked virtually "all searches by Chinese users on Google
Inc. sites Tuesday, sharply escalating the battle with the U.S.
Internet giant a week after it stopped obeying Beijing's censorship
rules." This is hardly unexpected, yet what it means is that just as the US stock market will now be defined by QQQQ, C, BOFA and now APPL, as consumers decide against paying their mortgage and reroute their meager unemployment checks into advance orders for the iPad, so the Shanghai Composite will be determined solely by BIDU.

Every month the New York State Common Retirement Fund (CRF) provides an update on which funds are the beneficiaries (or lately, have suffered the wrath) of its portfolio manager capital allocation. As everyone knows, in the past preferential allocation to select external asset managers has cost quite a few of the "capital allocators" not only their jobs, but now that the NY AG is involved, potentially their freedom. Which is why keeping a running tally of this data is relevant as it shows not just who, in the eyes of the New York Pension system is doing well, but who is, shall we say, "politically connected" these days. Here are the most recent winners and losers. Oddly enough, recent monthly allocation has been surprisingly muted compared to prior periods, especially in domestic and international equity strategies: is the CRF running out of allocatable capital? Also, we are confident Perella Weinberg's receipt of $100 million from the CRF in November had nothing to do with its acquiescence to being strong-armed by the administration in Chryslergate.

As Argentina's oil battle with the United Kingdom rages on, the only other obstacle the South American country can throw at oil companies planning to drill near the Falkland Islands is to interdict U.K. ships or equipment - but regional expert Riordan Roett doubts the Argentines are “stupid enough to do that.” This would be a “very dangerous move” on the part of the Argentine government, said Roett, director of Latin American studies at Johns Hopkins University in Washington. Argentina, which went to war with the U.K. in 1982 over Falklands’ sovereignty, is “very careful” about challenging the British in reaching the islands, Roett noted. The dispute between the old foes erupted in February when U.K.'s Desire Petroleum towed an oil rig from Scotland to the South Atlantic to drill near the Falklands. Experts tout the area beneath the islands contains as much as 60 billion barrels of crude oil but there are many doubts about this claim.

The great risk transfer into Other People's Money continues as evidenced by an absolute record amount of high yield issuance in March: so far was have seen $29.7 billion in bonds price and with over ten more deals announced for this week to take advantage of the euphoria gripping the three stocks (C, BofA, QQQQ) that now represent the entire stock market, we are sure to surpass $32 billion. Banks are scrambling to underwrite as many bonds as the buyside will accept knowing full well the new issue window will likely close soon (or at such time as the American middle class says enough to the great wealth transfer experiment conducted by the Federal Reserve). The last time we saw such irrational exuberance in bonds was in the months and days leading to the onset of the second great depression (oh yes, consumer confidence at 52.5, which about 30 below levels indicative of a healthy economy, came in better than expected).

A quick note to start the trading session: the Dax is quite overbought here and shows relatively strong divergence of MACD and RSI on the 3-hour chart. In Elliott we have either completed a 5 leg impulse or wave 3). Either way the minimum common case retracement is 5,951/5,917 which is a reasonably big move from here. Given that there is absolutely no divergence on the daily RSI it is very possible we only completed wave 3, but we will monitor how the market trade if/when we reach 5,917. - Nic Lenoir of ICAP

Recently, whistleblower Andrew Maguire gained substantial notoriety among LBMA circles after disclosing what could be an epic cabal of commodity price manipulation, and was subsequently involved in what could be classified as an attempted hit-and-run. In a first media appearance, Andrew is interviewed in this exclusive with Eric King of King World News, where he is joined by GATA director Adrian Douglas, who also made ripples at the recent CFTC hearing in which he used the words of former Goldman analyst Jeffrey Christian against him in proving that the gold market is nothing but one big Ponzi, in which a run to deliverables would result in 99% unsecured claims (a 1 in 100 dilution).

Even as the adjusted Case-Shiller index came in at a 0.4% sequential increase, the deterioration in the index' unadjusted series continues, with the number a mirror image across the X-axis, coming in at -0.4%, the biggest decline in over a year. After having troughed in October of 2009, the unadjusted index had declined by 0.2% in November and December, and in January took another new leg down by 0.4%, as house price declines across the major MSA accelerated yet again.

• A morbid, reverse Robin Hood: Ben Bernanke is stealing from the old to give to the rich (WSJ)
• Greek credit spreads deteriorate rapidly post 7 Year GGB Issue: The yield on the new notes rose to 6.32 percent, up from 6
  percent when they were issued yesterday, ABN Amro Bank NV prices
  show. Yields move inversely to bond prices. The yield premium on the Greek seven-year security widened
  about 5 basis points to 339 basis points over benchmark German
  debt. The 10-year
  Greek bond yield jumped 15 basis points to 6.47 percent, and the
  difference in yield, or spread, with benchmark 10-year bunds
  widened 14 basis points to 330 basis points. (Bloomberg)
• The drop occurs even as first day trading picture is supposed to determine need for full EU bailout (Bloomberg)
• Stocks: a rally that defies gravity (BusinessWeek)
• Beijing gears up to reform equity trades (FT)
• Time for Obama to put Americans back to work (NYT)
• Downtown New York towers empty empty as best office market falters (Bloomberg)
• Tomorrow QE ends. Will investors take over the Fed's mortgage market making dominance? (Bloomberg)

• Asian shares were higher Tuesday, with steel firms leading gains in Japan.
• Greece sells €5B of seven-year bonds to refinance debt.
• Japan industrial output drops 0.9%, Jobless rate unchanged on sluggish recovery.
• Nikkei surges to 18-mth high
• OPEC, IEA, IEF to unveil measure to combat oil-price volatility.
• U.S. Treasury to sell $73 bln in bills.
• US and Vietnam sign nuclear energy agreement.

RANsquawk 30th March Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 30th March Morning Briefing - Stocks, Bonds, FX etc.