Archive - Mar 2010 - Story

• Euro plunges on Portugal downgrade, doubts over Greek aid (FT)
• Wall Street Despised in Poll Showing Majority Want Regulation (Bloomberg)
• Corzine to mooch off taxpayers at latest gig as he seeks to convert MF Global to a primary dealer (Bloomberg) - cause there is nothing quite like the smell of free Fed money in the morning
• "The need to bring in the IMF was a failure for Europe, and
  Greece would likely eventually default even with aid" - UBS
  Investment Bank deputy head of global economics Paul Donovan (Bloomberg)
• Tax-break law could benefit JP Morgan by up to $1.4 billion (WSJ)
• Durable goods orders in February rise 0.5% in February, just below expectations; once again Boeing's sham orderbook saves the day, with a 32.7% sequential increase in non-defense aircraft and parts (Bloomberg, Census Bureau)
• James Saft: Economy volatility a hurdle for stocks (Reuters)
• Global derivatives disclosure to rise (FT)

• Asian stocks rise on strengthening global economy; Euro declines on Greece.
• Crude oil declines for first day in three on increase in US inventories.
• Euro drops to record versus Franc, 10 month low against Dollar on Greece.
• Fiat seen cutting 5,000 jobs – report
• Japan approves record $1 trillion budget amid debt concerns.
• Japan exports in February increased 45.3%.
• Germany, France agree on IMF role in Greece's budget crisis, Official says.
• Mortgage applications in the US down 4.2%.

The rumors yesterday about a Portuguese downgrade ended up being true, courtesy of Fitch. Portugal to Bund spread widens 4 bps to 125bps, all European spreads wider also as a result.Euro dumped and breaks 1.35 support, last seen in mid 1.33 range.

RANsquawk 24th March Morning Briefing - Stocks, Bonds, FX etc.

Not like this wasn't telegraphed from a mile away: Reuters is reporting that Google users in Beijing have been reporting erratic service. This is most likely a preamble to a complete shutdown of all Google access to mainland China. "Users of Google Inc.'s search engines across Beijing reported erratic service on Wednesday, with the site sometimes failing to open, and some searches for even non-sensitive terms like "hello" returning error messages."

Recently the Congressional Budget Office (CBO) published its scoring of President Obama's budget for the next 10 years. It shows a budget deficit of $9.8 trillion. That is just shy of $4 trillion worse than the CBO’s baseline budget, a budget that includes only the laws as currently enacted, with no estimates of any new programs lawmakers may add that worsen future projections. That our budget is out of control is no surprise, but the charts I present here should provide some perspective of just how dangerous this set of budget estimates could turn out to be. - Bud Conrad, Casey Report

A day after the Lehman Repo 105 scandal erupted, one, just one bank stepped up and said it had never used Repo 105-type transactions. The bank was Goldman Sachs. Of course, Goldman's claim is completely useless without a context as the proper refusal would be for Goldman's counsel to say that the firm had not used anything "substantially similar" to a Repo 105. The difference between that and the verbatim phrasing is like night from day. But at least the soundbite chasers bought it, and the whole topic of Goldman and Repo 105 promptly died away. We'll let that be... for now. Yet one bank which not only has not provided voluntary disclosure, but which has now gotten itself bogged down in semantics, after recently speculation had emerged that BofA had used "substantially similar" devices to Repo 105. Today, BofA provided a response on the record as to whether it had (ab)used Repo 105s and it appears, that inasmuch the firm is unable to say no, the answer is a resounding yes.

In the aftermath of the credit crunch, the outlook for most developed economies appears pretty bleak. Households need to deleverage. Western governments will have to tighten their purse strings. Faced with such grim prospects at home, many investors are turning their attention toward China. It’s easy to see why they are excited. China combines size – 1.3 billion inhabitants – with tremendous growth prospects. Current income per capita is roughly one-tenth of U.S. levels.
The People’s Republic also has a great track record. Over the past thirty years, China’s Gross Domestic Product has
increased sixteen-fold. So what’s the catch? The trouble is that China today exhibits many of the characteristics of great speculative manias. The aim of this paper is to describe the common features of some of the great historical bubbles and outline China’s current vulnerability. - Edward Chancellor

The latest example of the Federal Reserve not learning from its past errors comes, amusingly enough, from the Federal Reserve. In a June 1938 bulletin (page 456) from the St. Louis Fed, the Fed provided some of the wisest words of caution on how to approach boom-bust cycles, when it was evaluating the lessons learned (and promptly forgotten) from the Great Depression.

The events of 1929 taught us that the absence of any rise in prices did not prove that no crisis was pending. 1937 has taught us that an abundant supply of gold and a cheap money policy do not prevent prices from falling - at least, temporarily and sharply.

This is, in its shortest and most concise form, the lesson that Ben Bernanke is apt to never learn, in his current pursuit of happiness and monetary bliss, based purely on free money and flawed economic assumptions.

First David Einhorn gets invited to Congress to teach lawmakers how to deal with the Lehman problem of fraudulent reporting (which it is certain was not confined to Lehman), and now the Greenlight founder slams the SEC for its crooked culture and lack of enforcement that allowed the Allied "wrongdoing" to persist for years. As was reported earlier by the Washington Post, the SEC's inspector general found that the agency had failed to properly investigate allegations of wrongdoing at the financial firm. Now Reuters reports that Einhorn is demanding Mary Schapiro release the full version of the Allied report. After the shame associated with the Madoff affair, we wonder just how much abuse can the SEC take before it is finally disbanded for being the most worthless regulator ever to grace capital markets.

Just in case some people forget what the trade off to the market melt up is, today we are starting a periodic daily report of the Treasury's total debt subject to the statutory limit. Today's total: $12,607,140,000,000. We started March at $12,383,717,000,000. We started the fiscal year (October 1) at $11,853,434,000,000. We have added $223 billion of debt in the last three weeks, and $755 billion in just 5 months. As a reminder, the debt limit is $14.3 trillion. We are $1.7 trillion away from the limit. At March's run-rate of about $300 billion per month, the debt ceiling will be breached by October 2010. If somehow the government manages to reduce the monthly issuance to "just" $200 billion, we have eight and a half months until breach, or January 2011.

Janet Yellen earlier said: "Obviously, with the unemployment rate so high, we are very far from that full employment level. In fact, the output gap was around negative 6 percent in the fourth quarter of 2009, based on estimates from the nonpartisan Congressional Budget Office, or CBO. That’s an enormous number and it means the U.S. economy was producing 6 percent fewer goods and services than it could have had we been at full employment. In view of my forecast of moderate growth and high unemployment, I don’t expect the output gap to completely disappear until sometime in 2013." This means no Fed hike for the next three years. Those calls on Dow 100,000,000 looking really good here.

The chart below shows all you need to know about the market participation in the most recent rally. A simple calculation indicates that as algos take the Dow higher by about 100 points a day, we are only 251 days away from Dow 36,000. But why stop there: it is now obvious that Bernanke will not stop until 2 shares of total NYSE volume take the Dow to 100,000 in just under two and a half years at this rate. And as the VIX goes negative in just under a month, the Fed will be paying investors to buy calls on Dow 100,000,000 just in case. Because it is better to be safe than sorry.

It is irrefutable. The Bernanke Fed will go down in history as the most wildly successful ever. Nobody in financial history has been able to re-sky stocks in one year after the two largest banks in the country were within a hairsbreadth of imploding. No doubt, he will be trumpeted and hailed as a national hero, for orchestrating the fastest run in retail stocks in world history.

Gasparino breaks news that David Einhorn will be brought in as a witness in the upcoming Congressional hearing on the Lehman's fraudulent disclosure as reported by the much discussed Anton Valukas report. According to the Fox Business senior correspondent: "Einhorn through a spokesman declined to comment, but a person close to Einhorn said “it wouldn’t be a surprise” if he was called in some way given his role in exposing Lehman’s problems. A spokesman for US Rep. Barney Frank, the chair of the committee, didn’t return a telephone call for comment." With Tim Geithner most likely present at the hearing, this will be quite a memorable spectacle, which will certainly result in absolutely nothing as usual.