Archive - Apr 2010 - Story

A great overview of the arguments on either side of the great Treasury bull-bear debate, courtesy of David Rosenberg. Rosie juxtaposes the perspectives of two of the most respect yields strategists currently: MS' Jim Caron, and Goldman's Jan Hatzius. A dose of Jim Grant is also thrown in for good measure. Must read summary for bond bulls and bears alike.

The VIX has just hit the lowest level since July of 2007 as Sentiment Trader reports that "speculation in the options market has spiked to its highest levels since the spring of 2000." The government's endorsed moral hazard policy has now lead to the worst of both the dot.com and the housing bubbles. There is nothing that can ever again default or lose money: Uncle Sam is there with your money to guarantee it. Ben Bernanke sees no bubble anywhere.

While the press and pundits hype the 11,000 level, the real resistance levels are up around 11,100. That’s where lots of Fibonacci targets and moving averages converge. Friday, the napkins suggested S&P resistance at 1194/1197. Friday’s high was 1194.66. Today’s numbers look like: resistance 1199/1202 and support 1182/1185. - Art Cashin

As we claimed yesterday, Greek bailout #4 is nothing but more hot air and mirages that more debt will fix excess debt. Just as the bond traders who are now starting to take the entire Greek curve wider once again. Goldman agrees too.

• Recession not over - National Bureau of Economic Research not ready to say when recession ended (Bloomberg, Economic Populist)
• Profits for banks dimmed by home-equity loss seen at $30 billion, CreditSights (Bloomberg)
• And now attention turns to... Spain's toughest job, 20% unemployment (WSJ)
• Interest rates have nowhere to go but up (NYT)
• Palm hires Goldman, Quattrone to find buyers (Bloomberg)
• Dubai's $330 billion deferred buildings impose fees (Bloomberg)
• What do we do if the rich start to leave? (RCM)
• 47% of Americans pay no taxes (Fundmastery)

As the chart demonstrates, even after bailout #4, 10 year spreads are just wider than where they were when this latest risk-flaring episode commenced, and are now in the 6.6% range, a spread to bunds of about 350 bps. As the so-called rescue mechanism is supposed to come in at 5% for the 3 year and presumably cheaper down the curve the bond market is once again not convinced that this weekend's videoconference festivities are anything but hot air. That the kneejerk reaction on Monday was unable to tighten spreads more is very concerning, and likely indicative that Greece will activate the rescue plan within the week. Next catalyst: tomorrow's 6 and 12 month auctions.

• Asian stocks rise as Greece rescue, US data boost risk appeal.
• Bank of Korea raises growth forecast to 5.2%, fastest pace in four years.
• Brazil's real poised to rise as rate increase spurs carry trade.
• Chicago to sell $1.2B O'Hare bonds as issuance recovers.
• China import surge triggers trade deficit, adds pressure to scrap Yuan peg.
• Chinese watchdog eyes local loan books; state cos borrow heavily for pet projects.
• Euro strengthens as stocks, commodities gain on Greek rescue; Bonds fall.

RANsquawk 12th April Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 12th April Morning Briefing - Stocks, Bonds, FX etc.

First, the gold manipulation story that Zero Hedge and select others have been beating a drum over for months, had finally made inroads into the broader public, first via the Huffington Post, and earlier today via the NY Post. It has also gone global thanks to the Melbourne Herald Sun, the largest newspaper in Australia, whose column by John Beveridge "More bull than bullion" is reproduced below, courtesy of the GATA. Most importantly, Zero Hedge will soon disclose some very stirring details on the manipulated gold market courtesy of yet another whistleblower, and add a new twist in the greatest precious meals fraud saga of all time. Stay tuned.

The just released minutes from the March 16-17 policy-setting meeting by the Bank Of Japan indicate that dissension to global ZIRP, and its mutant step brother, Galactic Moral Hazard (we can't wait for Goldman to LBO Uranus, with $1 of taxpayer equity and a 0.001% perpetual PIK loan from the Federal Reserve), is growing: the vote to double the BOJ's 0.1% interest lending facility to Y20 trillion saw a final tally of 5 to 2, with two opposing. It is no surprise that as time goes by, ever more rational people will emerge at most central banks, and join such vigilantes as Tom Hoenig in expressing that extremely rare CB quality - unbribed common sense. Yet what is more notable in the last sentence is that Japan just increased the amount of funds to be injected to cover 3 month cash needs among commercial banks, and not only that but that the BOJ will also double the frequency of the new operation from once to twice per week. In summary: the fiscal tragedy discussed earlier by Koo is starting to once demonstrate the powerlessness of monetary policy when you are dealing with a defunct state. Yes America, this is coming here too. Here's why - the reason for all of this newfound excess monetary flooding: "To encourage a decline in longer-term interest rates." Because that is just what Japan need - more deflation.

Goldman's take on the bailout: "Sure it is concessional, so we’ll probably see some interesting court cases if the loan gets disbursed." Look for the lawsuits in Germany to start flying at 9 am. We expect these to derail any prompt disbursement of capital especially once Greece throws in the towel and recognizes what everyone knows is the sad reality of its default condition. We expect this to make Tuesday's Bill issuance problematic and has resolved very little for any future Bond issuance at acceptable rates.

Here is what happens when you green light Moral Hazard - in less than two hours after the videoconference in which the EMU announced €30 billion in aid for Greece, a Greek senior official has already come up and said that they were only kidding about needing just €40 or so billion (with the IMF's 10). The full amount will actually be double that, or €80 billion, for the three year period. Look for Portugal, Spain, Ireland, Bulgaria, Hungary, Latvia, and Lithuania to come knocking in the next 45 minutes.

Someone please explain to us how these two paragraphs do not directly contradict each other?

“In order to set incentives for Greece to return to market financing, Euro area Members States loans will be granted onnon-concessional interest rates.

and

“The pricing formula used by the IMF is an appropriate benchmark for setting Euro area Members States bilateral loan conditions, albeit with some adjustments. Variable-rate loans will be based on 3-month Euribor. Fixed-rate loans will be based upon the rates corresponding to Euribor swap rates for the relevant maturities. A charge of 300 basis points will be applied. A further 100 basis points are charged for amounts outstanding for more than 3 years. In conformity with IMF charges, a one-off service fee of maximum 50 basis points will be charged to cover operational costs.

Nomura's Richard Koo, whose work we have previously discussed extensively on Zero Hedge, is out and about presenting the case for unbridled deficit spending as usual. Amusingly, the big question according to Koo is "why are we not seeing more bubbles." Well, when oil hits $90 on Monday, coupled with 20% underemployment, hopefully the market will answer Mr. Koo's question. Also, Dow at 36,000 in 200 days should pretty much put an end to that debate. Some more practical observations: demand for loans is below zero (which is not news to anyone) i.e., demand for fund is still contracting even with zero interest rates. As always, Koo parlays this in a parallel with Japan, and how nothing has really worked for over 10 years. His key observation - if companies don't want to borrow when rates are zero, they should just return their equity capital to shareholders.