Archive - Mar 2010 - Story

This memo will be about one of the inarguably most depressing topics of our time: the seeming inability of governments and politicians to solve – or even tackle – the financial problems we face. - Howard Marks, Oaktree Capital

Yet another Fed-dictated market aberration today as the 10 year swap spread turns negative. “It’s hedge-related activity related to new corporate issuance,” said Christian Cooper, an interest-rate strategist at Royal Bank of Canada in New York, one of 18 primary dealers that trade with the Federal Reserve. “As more and more institutions receive, then swap rates will go lower.” We expect that with ZIRP continuing in perpetuity, many more abnormal market phenomena will transpire, courtesy of Ben Bernanke increasingly dominating every aspect of capital markets. We have yet to see if this most recent foray into economic central planning by our central bank will, for the first time in history, prove to be successful.

Earlier today the FSA announced that in the first ever operation carried out between British regulators and the Serious Organized Crime Agency,"16 addresses have been searched this morning in London, the South East
and Oxfordshire in the FSA’s largest ever operation against insider
dealing." Furthermore, " Six
men including two senior city professionals at leading city
institutions and one city professional at a hedge fund have been
arrested on suspicion of being involved in a sophisticated and
long-running insider dealing ring." And what has just been announced by the BBC is that multi-billion hedge fund Moore Capital, run by billionaire Louis Bacon, is likely about to suffer the same fate as our very own Galleon.

RANsquawk 23rd March US Morning Briefing - Stocks, Bonds, FX etc.

High Yield 1.000%, WI rate at 1:00 PM 0.993

56.32% allotted at high

Bid To Cover 3.00 vs average 3.23 (3.33 previous)

Indirect take down plunges to 34.78% from 53.56% in prior auction, last year average 44.55%

Direct take down surges from 8.2% to 13.8%

Yet more countries are anticipating the Fed finally killing the dollar sooner or later, as Spain now joins Portugal in issuing dollar-denominated bonds. If Europe's most insolvent countries (granted, Greece has yet to issue $-denominated debt, although we are confident that will happen shortly as well) are getting on board of the asset side of the Fed's balance sheet, it can only mean one thing: the InTrade odds for the winner of the currency race to the bottom are squarely in favor of the US currency. Earlier, the Spanish director of Treasury and financial policy Soledad Nunez, told reporters that Spain may issue a dollar bond via syndication. In a page right out of Greenspan's dictionary Soledad said: ""Usually we syndicate in dollars, and we have not made one yet this year, and we may do so, maybe yes, maybe no. That is the answer." She added in Alan-speak: "Doing a dollar syndication is always in our strategy, it is always depending on market conditions." Translation: we bet that, at the end of the day, Ben Bernanke will be far more successful in killing his own currency, than those bumbling buffoons over in Luxembourg.

Headline: GERMAN FINMIN SOURCE: GERMANY,FRANCE AGREE IMF JOIN GREECE AID

The DOW rebounded from a crushing six point opening sell off to close the day at 21,626, up 43 points for the day. The rebound came after there were reports, later denied, that European officials are working on a bailout for EU member Greece. Greece has been in a state of near suspended animation since debt woes struck the country in early 2010, though strikes have been averted through the daily airing on government controlled television of an Anthony Quinn film extravaganza.

If you ever wondered just how independent the Federal Reserve is, wonder no more. A recently declassified transcript of a July 16, 1974 phone conversation between Henry Kissinger and then-Fed Chairman Arthur Burns, demonstrates just how very involved in global financial bailouts the Federal Reserve gets under duress of the administration. In the span of about a minute Kissinger advises Burns to do whatever he must to "not let Italy go down the drain." The facility with which the Federal Reserve throws around US taxpayer capital to bail out the "chosen ones" is simply beyond reproach. We are confident that the Fed is currently preparing a comparable bail out package for Greece as a measure of last resort. There is no way that Ben Bernanke will allow Greece to fail, killing the euro and sending the dollar into the stratosphere, destroying all hope of inflating the trillions in bad debt saddling America's banks and the Federal Reserve (which is now the world's biggest bank holding company).

The double dip in housing is getting worse by the month. After hitting a nearly 6.6 million in existing home sales in late 2009, the number has now plunged to 5.02 million, a decline of 0.9% sequentially, and a major drop from the artificially induced peak. Sales for single-family homes were down and were up for condos and co-ops, indicating a preference for smaller, cheaper units among a population concerned with record unemployment and expiring homebuyer taxes. The number came on top of expectations of 4.98 million, with the range being from 4.75 million to 5.2 million units. Sales in the Northeast and Midwast improved slightly, even as sales in the South and recently bubble West declined. Yet the biggest stunner was the months of supply on market which jumped by a 20 year high, from 7.8 months to 8.6 months.

Making US and Greek economics fun and comprehensible...

At 10:00 AM Tim Geithner will take the podium to pretend he has some clue of how to reform the GSEs (which is funny, because he doesn't). Those who want to watch Geithner live and commercial free can do so here. As we posted yesterday, here is a copy of Tim Geithner's prepared remarks.

In the latest stellar analysis by Dylan Grice, the SocGen analyst discusses the reasons for not only owning gold (and
there really isn't a more profound one than taking a trip to the Marriner Eccles building and checking out what goes on in the first subbasement) but, more importantly to many, selling it. His summary view on owning Au⁷⁹: "The reason I own gold is because I'm worried about the long-term solvency of developed market governments." We all know developed markets are now insolvent and merely exist due to the continued debasement of fiat paper. Period. As to when to sell: "Eventually, there will be a crisis of such magnitude that the political winds change direction, and become blustering gales forcing us onto the course of fiscal sustainability. Until it does, the temptation to inflate will remain, as will economists with spurious mathematical rationalisations as to why such inflation will make everything OK . Until it does, the outlook will remain favorable for gold. But eventually, majority opinion will accept the painful contractionary medicine because it will have to. That will be the time to sell gold." Courtesy of universal denial of our current predicament, we still have a long, long time before acceptance sets in.

Title of today's episode in the never ending soap opera: The Taking Of Stalingrad...er, Santorini - the Propaganda behind the scenes. From Goldman's Erik Nielsen (not his title - you see he would be fired for a joke as off-color as that).

• We couldn't agree more: Op-Ed from Greece: One surefire way for Greece to succeed in borrowing money at a lower
  rate of interest is to prohibit, for a good long time, any statements
  by Greek, as well as by European, officials regarding the Greek
  economic crisis (Kathimerini)
• Euro Declines on Speculation Europe Won’t Agree on Greece Aid (Bloomberg)
• Greek tragicomedy part deux/zwei: In a bizarre twist
  to the Greek debt crisis, France and Germany are pressing Greece to buy
  their gunboats and warplanes, even as they urge it to cut public
  spending and curb its deficit. (Reuters)
  
• U.K. to Expel Israeli Diplomat Over Dubai Passports, Sky Says (Bloomberg)
• Yuan may be less undervalued than it appears (Reuters)... amen
• States are the canary in the fiscal coal mine (RCM)
• Health-Care Cost Lies Make Us Sing the Blues (Bloomberg)