Archive - Mar 2010 - Story

RANsquawk 25th March Morning Briefing - Stocks, Bonds, FX etc.

• Asian shares mostly lower; but exporters hold Tokyo up.
• China won't succumb to foreign pressure on revaluation of Yuan, Zhong says.
• Dubai supports Dubai World’s debt restructuring with $9.5B of funds
• European try to find solution to Greek debt crisis as euro slides, Portugal downgraded.
• Germany asserts European clout to impose IMF role in EU rescue of Greece.
• IMF could demand stricter path out of Greece's economic crisis than EU.
• Oil hovers below $81 in Asia after US crude inventories increase.

RANsquawk 25th March Morning Briefing - Stocks, Bonds, FX etc.

In February of this year, Cryptome.org, a site run for the last fifteen years by Architect John Young had its PayPal account closed and in the process over $5,000 in donations confiscated.  Cryptome has made a name for itself over the years by publishing "documents for publication that are prohibited by governments worldwide, in particular material on freedom of expression, privacy, cryptology, dual-use technologies, national security, intelligence, and secret governance -- open, secret and classified documents -- but not limited to those."

The following presentation from November 2009 highlights the top 15 institutional investors that matter more than anyone to Morgan Stanley: essentially the execution and head PM guys who throw MS orders of $100 million and above (all the way to $1 billion and higher). Among the companies listed are BlackRock, Capital Group, Fidelity, Gartmore, GIC, Norges Bank, Wellington, Eton Park, Jabre Capital, James Caird, Meditor, Moore, Och Ziff, and, of course, Paulson. As for the trader envy (as in my G-V is bigger than your Dassault), here are some names to remember Greg Bennett, Nigel Bolton, Philippe Jabre, John Paulson (duh), Greg Coffey and Julian Rifat. Oh wait, did we say Julian Rifat, the same guy that just got busted in the biggest UK insider trading scandal? Hmm: looks like Morgan Stanley sure has an eye for talent. We can't wait to see the metal detectors at Morgan Stanley's Christmas party, as clients demand a bug-free environment. Also, if you didn't make the list - don't despair. Just make sure you front run about $10 billion worth of orders in 2010 and you are golden.

This, by far, is the biggest question troubling the administration, investors, and taxpayers. Here are some very detailed perspectives from Lehman Brothers a/k/a Barclays.

A maritime boundary dispute between Ghana and Côte d’Ivoire that erupted this month casts doubt on future international oil claims near the contested area and raises questions about the reaction of foreign investors to the uncertainty. Earlier this month, Côte d’Ivoire appealed to the United Nations to delineate its offshore border with Ghana, a bid seen as controversial since Russia’s Lukoil discovered oil reserves only days before off Ghana’s coast. Ghana’s Jubilee field will also begin operations later this year and give the country commercial oil-producer status.

Slightly less than two weeks ago we initiated a long EUR/$ trade recommendation on the basis of three factors. First we anticipated a notable improvement of cyclical growth news in the Eurozone, second we highlighted the continued USD negative BBoP flows and finally, we assumed that the Greece risk premium in the Euro would stabilise and decline. While broadly correct on the cyclical news, where the latest round of European business surveys point to strong momentum, we have clearly underestimated the impact on the EUR from the European sovereign crisis and perhaps also from the broader macro adjustment that it portends. The latest developments suggest the building consensus among Eurozone members is becoming increasingly difficult. These political headwinds currently matter far more for the Euro than the cyclical factors. - Goldman Sachs

Just because it worked so well the first time around... We can't wait for the totally unexpected mortgage reduction program announced by Bank of America... in 2012.

A month ago Zero Hedge was ridiculed by RBS' Head of European Rates Harvinder Singh for daring to suggest that Greece was experiencing a bank run. Surely, RBS, with its stash of Greek bonds that it desperately needed to offload, did not need any additional bad news spooking the more timid elements. After all someone would need to buy the endless toxic assets that RBS had managed to accumulate over the years before it needed to be bailed out by its government. Alas, as so often happens when banks gets involved (we would say big, but RBS is a third tier toxic asset repository at best) and refute Zero Hedge, things don't quite work out their way, and yesterday none other than Greek newspaper Eletherotypiha confirmed that "there had been a rush to
withdraw funds from banks." Oops.

In the neverending saga of new disclosure of gold price manipulation, here is the most recent pearl, courtesy of Jesse's Cafe Americain:"In front of 3 witnesses, Bank of England Governor Eddie George spoke to Nicholas J. Morrell (CEO of Lonmin Plc) after the Washington Agreement gold price explosion in Sept/Oct 1999. Mr. George said "We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K." Makes one wonder just how much the gold price was pushed down today alone to make Gordon Brown's most recent budget reception a little more palatable. It also confirms yet again, that there is no such thing as an unmanipulated gold market. Lastly, it demands the question: on how many other occasions has the UK's massively unpopular prime minister sacrificed his people's interest merely to make criminal organizations such as AIG whole?

As the PIIG crises went into full swing again, it was a "Risk Off" day today. Except when in fear of a market correction, it is time to buy mortgage insurers, homebuilders and REITs.

A recent detailed analysis of the composition of US Federal debt has made us question just how much dry powder the Fed has left to manipulate interest rates. We ignore all tangential issues such as what the end of QE will mean on MBS, and by implication 10 Year, rates, and focus purely on the structural composition of the curve, which leads us to some very troubling observations. In summary: the Treasury is running out of time in which to orchestrate a massive rush away from risky assets into the sweet spot for UST interest rates: risk-free Bill holdings. In other words, a stock market crash is long-overdue if the Treasury does not want to face a major spike in rates and drop in Treasury demand in the immediate future.

Remember yesterday's 2 Year which closed at 1.000% and everyone was so happy? Oops. One short day later and the bond has hit 1.11%, leading to "massive" (not our word) losses for all those who bought on expectations that the 2 year part of the curve would be subsumed by the Fed's "near term" part of the window. Not happening. The weakness from today's 5 year as well as various other factors have contributed to one of the biggest broad curve sell offs so far in 2010. With about a trillion in issuance still to come in the near future, things are only going to get uglier.

The spread between the 10 Year and the Bund has surged today to a 3 year wide. After hitting an intraday slide of 14 bps (a massive move in a world in which each basis point is leveraged thousands of times), the UST-BUND is now at 73 bps. The risk aversion trade in Europe has made 10 year Geman bonds yield just over 3%, even as the near-failed 5 Year auction in the US has spooked the bond market, and an unexpected drill has forced the Primary Dealers out of hiding and into purchasing everything past 5 years to prevent a full out rout in bonds. And all this is occurring as the ECB just warned that IMF involvement in the overhyped and two-month delayed Greek bailout will be the beginning of the end for the euro and will throw the Eurozone's economy, "which has shown fresh signs of recovery, into renewed turmoil."