Archive - Mar 2010 - Story

Marc Faber's latest thoughts on the euro (not good), on Greece (also not too good), and gold (good to quite good). "I don't think it will work out, and I think other countries like Spain and probably Portugal (and Italy) will then also have to be bailed out eventually, and it will lead to more monetization in Europe, one of the reason the euro has been so week... The pain of the austerity will be very, very burdensome on Greece, and eventually the economy can not grow with the kind of budget they will have to enact, and under these conditions their currency is way overvalued (they are in the euro). And so without the ability to grow, their ability to pay the interest and repay the debt will actually diminish.... I think everybody should accumulate some gold over time. I would recommend people to buy every month some gold for ever."

Barely had we finished bashing Deutsche Bank in our prior post, that we noticed that Moody's had just notched Deustche Bank not once, but twice, from Aa1 to Aa3. Now where the hell are those pesky shorts who are #*$!ing up the grand German uberplan of trying to mimic the US in its don't ask/don't tell plan of financial gayness. From Moody's: "The rating agency believes that Deutsche Bank's capital ratios are likely to face further pressure from pending acquisitions, potential increases in loan-loss provisions and higher regulatory capital charges."

Yesterday CDS speculators, today financial shorts, tomorrow the world. German regulator BaFin has learned absolutely nothing from America's 2008 brush with the short sale ban, and has announced that it is tightening disclosure rules on short-selling as related to ten financial company shares, saying it "wanted to ensure the stability of the financial system" is preserved. Ah, the old "if-the-world-is-threatened-by-vicious-speculators-you-must-acquit-of-irresponsible-fiscal-policies-and-mismanagement" defense. Additionally, BaFin, which is still trying to figure out just who it was that got cremated on the most ridiculous short squeeze ever (i.e., Volkswagen) said that the move was made necessary "by the need for the regulator to be informed quickly to take "targeted action" should such activity pose risks."

From the rumor bag:

Not too sure what to make of this, but this rumor is around on Chicago area short term rate desks

Just heard that Fannie has cut off up to 10 European banks in the short-term funding mkt (not hearing why), meaning that they will have to borrow elsewhere going forward, thus being blamed for the movement down in price in Fed Funds mkt & Eurodollar mkt (expecting LIBOR to be higher tmrw & next few days b/c more people will need to borrow). That movement is being blamed for the 2yr selloff / curve flattening & thus impacting the long end as well (just not as
much).

Setting aside the implications for european short-term funding, it may be time to take a look at Libor futures once again.

Rumors swirling earlier this morning that the identity of the heretofore unknown direct bidder may be none other PIMCO competitor BlackRock. In part these rumors have been fuelled by an earlier WSJ article "BlackRock plays it safe - Treasuries" in which author Min Zeng notes that "the world's largest money-management firm by assets, has increased its holdings of Treasury securities in recent weeks in response to the unsteady outlook for growth, ongoing sovereign-debt woes and contained inflation risks." If so, it will be interesting to watch the divergence in sovereign bond holdings between PIMCO, which has made it clear it finds the best opportunities in foreign holdings, namely Brazil, Russia, and Poland, and BlackRock, which prefers to play it safe by going domestic. Yet, is BlackRock merely being handed PIMCO's sloppy seconds? Bill Gross' fund has lately been marginally "constructive" at best on US Treasuries. To be sure, a deep pocketed buyer will be needed to absorb the trillions in upcoming UST supply, and with PIMCO allegedly out of the picture, the US Treasury will gladly take anyone's money at this point.

RANsquawk 4th March US Morning Briefing - Stocks, Bonds, FX etc.

At the risk of repeating myself, I hold the view that one of the big risks is China equity market blowing along with other EM and certain commodities like copper. The other day I warned that if we gapped down in Copper we would form an island reversal on local highs after failing against the former support of the bullish channel now resistance, which would have been a MAJOR bear signal. What was interesting is that overnight markets traded down enough and we looked set to gap down, but around 6/7 AM the market caught a bid. It's all the more interesting that it is not just a one day occurrence, the past few days we traded soft in Copper and Gold in Asia and caught a bid in early morning NY time. Given that Asia is one of the huge buyers, it is clearly adding to my concern. - Nic Lenoir

Over the past three months it has become clear that one of the traditional staples of the second part of the bear market rally (the one beginning in July of 2009), the near 1.00 correlation between a weak dollar and a strong market, has broken terminally. And even with the dollar surging as problems in Europe come to the fore, the market, after dipping temporarily in early February, has staged an almost complete comeback, which has left many scratching their heads as to what the cause for this uncorrelated market move may have been. An interesting summation from one of the more prominent economic skeptics, David Rosenberg, provides some answers not only to this question, but why an economy which refuses to improve, can lead to continuous stock gains.

The turf war to (not) bail out Greece is on. Even though nobody wants to do it, yesterday's announcement by the IMF that it is willing to lend the troubled country a hand (and a few billion drachmas) has put Jean-Claude Trichet on edge. And even assuming today's bond deal gets done without too many glitches, Greece has at best bought itself breathing room for a month or so.We expect the volume on bailout speculation to go down at best by a couple of notches. In the meantime, the ECB has made it clear that Greece's problem are Europe's and Europe's alone, thank you IMF and America. This was made quite explicit in Trichet's post-ECB rate press conference earlier, when he said that he does "not trust that it would be appropriate to have the introduction of the IMF as a supplier of help through stand-by or through any other such help."

Today's BLS release on initial claims showed a moderate improvement in SA initial claims, which declined by29,000 from 498,000 to 469,000, which lead to a just noticeable improvement in the 4-week average, and a 134,000 decline in the SA unemployment to 4.5 million. Yet this week once again saw a divergence between the SA and NSA numbers, where NSA initial claims increased by 17,128, and SA unemployed went up by 24,534 to 5.6 million. The spread in the SA and NSA unemployment rates, after tightening for 4 weeks, has once again started to diverge, and was at 80 bps, after hitting a 2010 tight of 70 bps in the week ended February 13. As for the extremely volatile (and delayed) Emergency Unemployment Compensation series, that increased by 207,632 in the week ended February 13. Oddly enough, snow storms were once again implicated, this time for the decline of claims, even though the data being from the last week of February saw some pretty dramatic snowfall precisely then.

• There is no bubble: China punishes 7 banks for loans misused on stocks (Reuters)
• Oh look - consequences: Greek demonstrators took over the
  Finance Ministry building in central Athens and blocked streets
  in the city center (Bloomberg)
• Economist - Now comes the pain (Greece)
• Even as ECB says Greece will need further measures: What next - mandatory selling of citizens' kidneys for debt reduction (Reuters)
• Traders seek out next Greece in an ailing Europe (NYT)
• Even as German MPs demonstrate a rare sense of humor - "Greece could sell islands to cut debt" (Reuters)

• Asian stocks decline on concern China lending to slow; Euro pares gains.
• Australia's January trade deficit narrows on increased iron ore shipments.
• China to boost defense spending by 7.5% in 2010 - slowest pace in a decade.
• Japanese businesses cut spending for an 11th quarter even as their earnings rebounded.
• Greece's financial aid plea snubbed by Merkel in 'historic moment' for EU.
• Mortgage rates offered by some Hong Kong banks are too low: Regulator.
• The Obama administration reasserted Volcker rule.

RANsquawk 4th March Morning Briefing - Stocks, Bonds, FX etc.

Greece has finally come to market with a 10 year bond, catching the very end of the offering window, through a €5 billion bond issue, which according to Petros Christodoulou-spread rumors, is nearly 3 times oversubscribed. Underwriters Barclays, HSBC, NBG, Nomura and Piraeus Bank are alleged to have collected nearly €14.5 billion in bids. We wonder how much of that is merely basis trades being fillled on the cash side. "We are very happy with the bid because the re-entry into the market is always challenging. It went very well," Petros told Dow Jones Newswires. Greece has cut price guidance on the bond from 310 bps over mid-swaps to 300 bps, with books closing at 11am GMT. Pricing is expected later today. Assuming this bond offering closes successfully, Greece will have enough money to last it for at least 30 days, joining such other illustrious countries as the United States, in living bond auction to bond auction.

RANsquawk 4th March Morning Briefing - Stocks, Bonds, FX etc.