Archive - Apr 2010 - Story

Today's FX action is pretty simple: EUR poundage as the european currency is doing hard to prevent the 1.32 stops. On the funding side, EURJPY continues to provide the fumes needed to gun the market to new highs. The dollar continues being the conduit. Without the carry, the money to ramp markets higher. However, with the just completed T-Bill auction, look for PDs to have another $50 billion in cash from repoes, and blast market higher. After all Europe is about to close, and it is a Monday (19 out of 20 positive closes coming).

The full blown curve inversion that is taking the PIIGS by storm is slowly coming to a TBTF near you. As the chart below shows, the 5s/10s in CDS curves for the most prominent banks are now inverted, while the bulk of them are flat at best. Should the ongoing pounding in GS stock continue, look for flatness to slowly creep to the 4, 3, 2 and 1 Year marks.

Here comes the next witchhunt: The Atlantic, citing two Deutsche Bank traders, reports that the German bank is guilty of an identical transgression that Goldman (and to a much lesser extent, John Paulson) is in hot water for currently: i.e., DB arranged a deal for IKB designed by JP. Look for DB's stock to drop as expectations for a Wells Notice hit fever pitch. The reason one has not come yet is because, as we reported this weekend, Robert Khuzami has recused himself from investigating Deutsche due to his long tenure there as a lawyer (presumably supervising CDO issuance). The reason one most likely is in the making, is that, as we also reported, Greg Lippmann, or the head Deutsche CDO trader mysteriously departed last week. Look for much more weakness in fins over the next few days.

The latest very much provocative letter from former Goldmanite and current AQRite, Cliff Asness. "All derivative contracts are side bets. They serve a useful economic purpose and our base case should be to let free people who want to make contracts with each other do so. The reviled Goldman transactions did not cause, or even inflate, the real estate bubble, it just made one financial institutional (Paulson) a bigger winner, and another a bigger loser. It was a bet each wanted to make, and was by definition considered a fair one by each party at the time. How do we know this? Easy, it was voluntary. Now government wants to rewrite history and say that this type of fair bet caused all our problems, and they’ll never bother us again if we just give them much more power, again. Do you believe them?"

Traders were a bit puzzled by how the markets responded to Greece’s requesting the implementation of the proposed aid package. Prior to the request, Greek debt was in full panic mode. Yields on Greek bonds spiked to over 12% and appeared ready to explode. After the request, Greek bonds rallied enough to bring the yield to just under 10%. That was understandable since a potential package might insure that you would actually get your money back. What was confusing was the bounce in the Euro and the resultant rally in stocks, oil and gold. That reaction seemed to imply that the rescue package was “a given”. Yet there were no details on what kind of austerity program Greece would implement in exchange for an aid package. Lacking clear austerity, it is hard to believe Germany would put up any funds. To do so would put the German government at risk of failing. (It is a coalition government.) Conversely, a strict austerity program would certainly bring social unrest to the streets of Athens. That, in turn, might likely bring down the Greek government. So, traders were puzzled by the pundit response that the request equaled a solution. The devil is in the details. - Art Cashin

Last week's number one soundbite on CNBC was the increase from the all time bottom in new home sales. What they did not focus on was the reason for this. Here it is, courtesy of David Rosenberg.

No, you are not looking at Portugal or Greek CDS. BofA starting to rumble too: CDS hits 163.

Merkel's 1pm GMT speech disclosed that Greece can pretty much surrender all hope of funding prior to Germany's May 9 elections. The chancellor said that not only must Greece show it can return to a sustainable budget path, but that further savings measures are needed. Sell that to the Greek people who, courtesy of paradropped Kindles, have had a chance to finally figure out what Austerity 1.0 means. They can look up version 2.0 at their leisure. Lastly, Merkel said she "feels an obligation toward stability of EUR." Look for the EUR to sell off on this latest political non-news.

"This is not the sovereign crisis you are looking for."

"This is not the sovereign crisis we are looking for."

"Buy shares of Goldman Sachs which is innocent of being a market monopolist."

"We will buy shares of Goldman Sachs which is innocent of being a market monopolist."

"Move along"

"Move along, move along"

• Computerized front running: how a computer program designed to save the free market turned into a monster (Web of Debt, h/t MF)
• Even after failing to keep Citi above $5, US Treasury to sell 1.5 billion shares of Citi stock (Bloomberg)
• Dodd accepts ban on bank derivatives business (AP)
• But hold on: this would hinder the billionaire's plans to become a trillionaire: Berkshite presses lawmakers to roll back proposed curbs, avoiding potential hit... and we can't have that now can we (WSJ)
• Rogoff says Greece may not be Europe's last bailout (Bloomberg)
• Bill Gross: "In order to pay the interest and the bill when it comes due, we'll
  simply have to issue more IOUs. That, to me, is Ponzi-like. It's a game that can never be finished." (WaPo)
• Do you have any reforms in size XL? (NYT)
• AXA Rosenberg finds cording error in risk program (Reuters)

• Asian stocks, commodities rally on economic recovery, Greece.
• Bond traders declare inflation dead with yields below 2008 crisis levels.
• China is considering introducing new or higher taxes on real estate.
• Consumer spending in US probably stepped up, carrying expansion in 2010.
• Dollar rises versus Yen amid signs of global recovery before Fed meeting.
• Finance Ministers urge IMF, EU to speed aid to Greece at Washington Talks.
• Germany is laying the legal ground for its contribution to the financial aid package for Greece.

"We are trapped in some horrendous Keynesian/monetarist nightmare, where policymakers, aided/abetted/advised by their buddies in the media, in the lobbyist cabal and in financial system, have YET AGAIN decided to go down the route which merely delays the problem/pushes it down the road, but which virtually guarantees that when the NEXT bubble collapses (I assume it will be the Global Government Debt/Bond Bubble and/or the Global Fiat Money/Paper Money/FX Bubble), there is NO pleasant way back. When this next bubble collapses, those of us living/working in these problem economies will realise, too late of course, that WE are the new emerging markets. And no, I don't mean the next China, instead my reference is to Argentina back in the late 90s/early 00s!. So if (as it seems to me) - even though we are agreed on the weak sustainable grwth outlook for the UK US Japan & Europe - that I WAS wrong and that Kevin is right on Austerity and the Reflation Trade, that policymakers will simply keep on behaving recklessly by loading on more debt and blowing more and bigger bubbles until the point of market and/or taxpayer revulsion, then this has some very clear 'asset allocation', and other implications" Bob Janjuah

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 26/04/10

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The Greek bond holiday is here. Greece's bond pricing administration HDAT has withdrawn bond prices as spreads have hit 650 bps. Greece acknowledges it is game over as 10 Years are at 10%, and 3 Years at 13%. Stock liquidation are rampant as Greeks are on the verge of panic: the ASE is down 3% and investors are now widely expecting a 10% correction to below 1,700 on the ASE. And Portugal is now officially part of the party Portuguese - CDS just hit 310 bps.In the meantime Germany is starting to feel the burn - German FinMin Schaeuble has stated he is determined to defend the stability of the euro by asking that Greek talks with IMF conclude by weekend. He also said that he anticipates that Euro zone and IMF want to free up Greek aid simultaneously and does not favour idea of granting Greece moratorium on debt. Alas, the time for speeches is over. Making matters worse, Germany’s SPD says will not back accelerated parliamentary process to approve Greek aid, rendering all rhetoric useless. Lastly, Angela Merkel will make a statementon Greece at 13:00 GMT. We can't wait to hear the powerlessness in her voice.