Archive - Apr 9, 2010 - Story

Observe the exponential volume spike at 10:30 when news of the Fitch downgrade hit. And, as always happens, there was smoke coming out of the windows of Liberty 33 following the much necessary stick save. And after that, as volume plunged, the algos took over. Because as everyone knows, If Volume Crap Then Buy, Buy, Buy. At this point if you are in this market, you are on your own and soon to go broke.

Many have asked why all the consternation about the IMF bailing out Greece. After all, as Bob Pisani claims, it is headed by some woman called Dominique Strauss-Kahn? That name sure doesn't sound like it came from Alabama. So what is the big deal?

According to Bloomberg, the ECB has called an extra-ordinary GC meeting tonight to “discuss latest developments”.

I don’t have any concrete information, but in my opinion there are two possibilities:

1.       A Greek package will be sorted this weekend.  I’ll give this less than 5% probability.  I have spoken with people in Athens this afternoon (I am all over the papers there today with my note from yesterday that they’ll have to go to the IMF) – and the message continues to be that there is a huge hurdle to climb before they’ll ask the IMF for help.  Also, the key IMF people are still in Washington at this time.

2.       A serious banking problem is about to emerge and a safety net has to be provided before Monday morning.  This could relate to Greece – or it could be another of these cross-country unclear cases, like Alpe Hypo, where Trichet had to step in. 

Stay tuned – will be back if and when we learn more

 
Erik F. Nielsen

The IMF, realizing it had a catastrophe on its hands, has caved in and according to Reuters will provide US taxpayer money to Greece at vastly below market rates of the SDR rate plus 300 bps plus a 50 bps service charge. With the SDR rate at 0.26%, this comes out to a ridiculous 376 bps, or massively below where Greece could possibly borrow at market. And guess who takes the first loss risk on a pro rata basis? That's right US taxpayers - you. At least when Greece bankrupts eventually, which it will, and the debt is equitized, the US, well more like Lloyd Blankfein, will become owner of the Cyclades at zero cost. Win win for everyone except 99.5% of America.

RANsquawk 9th April US Afternoon Briefing - Stocks, Bonds, FX etc.

Consensus – Greek crisis still festers but the big funding rollover deadline is still more than a month away. Nevertheless, stocks will dance to the Euro tune. Have a great weekend and stay very nimble. - Art Cashin

Total. Soap. Opera. Rumors of a Moody's Upgrade to AAAAA+++ vastly exaggerated

Fitch Ratings-London-09 April 2010: Fitch Ratings has today downgraded Greece's Long-term foreign and local currency Issuer Default Ratings to 'BBB-' from 'BBB+'. The Outlook is Negative. The agency has simultaneously affirmed Greece's Country Ceiling at 'AAA' and the Short-term foreign currency IDR at 'F2'.

Even as the carry trade just went ballistic, with the yen last seen buying a 10 gallon vat of vaseline at your nearest corner drugstore, stocks are not in triple digit gain mode yet. We are giving it a few seconds for the Ph.D. to recalibrate their upward bias models. In other news, FX traders - with this kind of volatility, we hope you are sitting near a defibrilator.

Gold is accelerating its move in the upchannel as it seeks to recapture early December record highs of $1,226 quite soon. When a Greek bailout is announced over the weekend, we fully expect a massive spike in Gold as the EMU experiment is pronounced dead and buried. In the meantime, with Liberty 33 unwilling to risk a, gasp, downprint...ever... the overnight ramp job could not be any less obvious.

• China failed bond auction - Zero Hedge, Greek 3 Months at 21% - Zero Hedge, the entire US financial system is broke - Zero Hedge, yet we have this "Stocks Advance on Speculation of Greek Bailout; Yen Weakens" (Bloomberg)
• No seriously - you give a rat's ass about more news after the preceding?
• Fine
• China may post trade deficit, undermining yuan case (Bloomberg)
• As Greek bond rates soar, bankruptcy looms (NYT)
• The wax melts (Economist)
• Balkans scared of Greek default - Belgrade, yes Belgrade, is terrified of what Greek royal flush will mean (Die Presse)
• The risk premiums for Greek government bonds are higher than ever, ratings agencies are sounding the alarm, and the EU is worried. Only Greece itself is convinced: "We are not broke." (Focus)
• Spain combines Greece and Subprime 2.0 (Infokrieger)

If this information is correct, it is all over. Bloomberg calculates the yield on the Greek 3 Month as determined by the bid, or where investors are willing to buy it, based on BVAL sources at 21.3%. In all honesty the bid/offer market in the 3 Month are all over the place. HDAT gives it as 99.650x99.840, BVAL is at 99.470x99.773. The HDAT bid implies a yield of 14.049%, which is still game over for Greece. Another way to see the carnage is the Greek CDS curve: 3M-5Y is at -185 bps!

• China central bank adviser: conditions are right to return the yuan to a managed-float regimen.
• China may post first trade deficit in six years, undermining Yuan critics.
• Euro gains against Yen, credit risk drops as Trichet calms Greece concerns.
• Most Asian markets are higher, with coal stocks giving Australia’s S&P/ASX 200 a lift.
• Ambac Q4 net income at $558.1M vs. net loss of $2.34B in the same period a year earlier.
• AMD to book one-time, non-cash gain of $325M on deconsolidation of GlobalFoundries Inc.
• Apple steps up rivalry with Google, to add own advertising system to iPhone.

RANsquawk 9th April Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 9th April Morning Briefing - Stocks, Bonds, FX etc.

The WSJ has compiled some data that gives us hope about the future of the MSM journalistic model (and makes us blush for not having thought of it first). In sorting through PD weekly repo holdings, the WSJ has observed a pattern in which End Of Quarter positions tend to be among the lowest of any reported during the quarter. The WSJ study goes back 5 quarters. Zero Hedge has performed a comparable analysis (incidentally we were looking at Primary Dealer holdings just 3 hours earlier) and we present the preliminary results. They are stunning, and we are scratching our heads how this glaring observation could have been missed, not just by us but by everyone else as well. In a nutshell, in the past 9 quarters, beginning with Q1 2008 or about the time Bear failed and things started going downhill fast, the Primary Dealers (a set of banks that as everyone knows includes Goldman, BofA, JPM, and included Lehman and Bear), in 8 of the these quarters closed out quarters at the lowest level of net asset holdings! Whether this is by Repo 105-type transactions, or via BofA type "roll" trades as discussed in detail in the WSJ, is irrelevant: the simple purpose of this phenomenon was to make balance sheet leverage more palatable and easily presentable: the lower the asset base, the less the equity required to satisfy regulatory leverage ratios. How nobody has observed this scheme previously is simply stunning, and a real testament to the PD's collective ability to keep this crucial data to the distribution list of a select few.