Archive - May 24, 2010 - Story

The long expected bankruptcy of the Texas Rangers is now a fact as case #10-43400 in Northern District of Texas. The company has listed $100-500MM in assets, and the same amount in liabilities, on 5000-10,000 creditors, of which the largest unsecured one is none other than Alex Rodriguez, who is owed $24.9 million in deferred comp and will likely see at best pennies on the dollar of this GUC. The only beneficiary in this most recent collapse of an American symbol: Dubya, who made about a 1,000% IRR on his investment in and out of the Rangers in the 90s. Tom Hicks, not so much.

Headlines for now, but we get it. Although hold on, wasn't it the ever reliable Timmy G who just last week said the US will not be impacted by the European crisis? Which of these pathological truth tellers to believe...so difficult to decide.

Libor keeps rising as the short-term funding situation in Europe gets worse by the day: today USD Libor hit 0.50969%, a change of 0.01281% from Friday, the first time this metric has pushed over 0.5% in about nine months. The Libor reporting dispersion among BBA member banks has actually tightened marginally from last week, with one notable outlier: UBS. Of the 15 banks that report both USD and EUR-based LIBOR, all disclose a higher offer rate for EUR Libor except for UBS! The Swiss bank is a blatant outlier, in that its disclosed EUR Libor rate of 0.4850% is in fact 10% lower than its USD Libor. Just how big are the dollar funding needs of UBS, which many see as an "open market operations" vehicle for the SNB, a bank which it is no secret is now openly intervening in FX markets, and thus likely has provided a lifeline to UBS to provide this lower EUR Libor rate compared to US Libor. So how would the circle jerk go: SNB buys EUR in the open market (causing massive destruction in the EURCHF and GBPCHF pairs), then the excess euro holdings are funneled back into the market via a much cheaper EUR lending rate in the 3M funding market (LIBOR) compared to all other banks: the UBS 3M EUR Libor rate is a whopping 30% below the average EUR Libor rate of 0.6344%, nearly double the spread from average of the next lowest EUR Libor offer, that of RBS at 0.56%.

When you have a self-fufilling prophecy such as that the market never, ever goes down on Mondays, who will be brave enough to take the other side of that trade? Nobody, that's who. As a result cumulative volume plummets, and the market goes green even as things around the world are getting worse by the minute. Once again, nobody but a few computers is participating in this run up.

The NAR reported April existing home sales which came in at 5.77 million units, which was a 7.6% improvement from March, and 22.8% higher than last April, primarily as a result of a last minute rush to buy before the expiration of the homebuyer tax credit. The increase was driven primarily by a spike in Northeast sales which increased from 900k to 1,090k or a 21.1% bounce. This was offset by a decline in West existing home sales of -6.2% (both on a SAAR basis). Yet the most relevant data item was that Inventory increased by 11.5% from March to 4,044,000, the highest number since July 2009's 4,062,000. The April 2010 number represented 8.4 months of supply. As can be seen on the charts below, both of these metrics indicate that even as houses sell, and average and median prices grow, the over and shadow supply keeps surging. For all those who bought houses in March at a US average price of $218,300 in April, waiting a few more months may have been a tad more prudent approach.

Zero Hedge has said much about Klarman's presentation before the CFA Institute last week. For those, like us, who enjoy picking the Baupost big man's brain, below we provide the full notes by Cameron Wright on Klarman's discussion with the WSJ's Jason Zweig from the CFA Institute annual conference.

Goldman is now adding to its clients' future woes by upgrading bankrupt bank Citi even as it sells Citi shares to clients who follow its advice. The reason: "There are two themes that keep us positive on universal banks – the turn in consumer credit, and prospects for a good capital markets quarter." Oddly enough, there is no mention of the fact that the primary means by which banks have generated (near) flawless recent quarters has been due to the extremely steep yield curve and that this steepness has been reduced by almost 20% in the past week, thus taking away a massive chunk of Bank P&L. As for the turn in consumer credit, should some administration be voted in that actually tells homeowners to pay their mortgages for a change, the bloodbath in bank balance sheets will be unprecedented. Now that Goldman has put Jefferies on the Conviction Sell list it is time to load up. Here is the full rating change summary from this morning's Goldman report on financial firms.

Consensus – Futures and markets quite nervous as Spain steps in to seize a 146 year-old savings bank. That has stocks sinking along with the Euro. Gold is bouncing off its 200 DMA. Oversold and ripe for a rally but, oh so fragile. Stay very, very nimble. - Art Cashin

• Most European markets, ex UK, closed for Whit Monday
• LIBOR/OIS: Dollar spread widens again (Market News)
• Gold rising as euro weakens spurs more speculation (Bloomberg)
• "Seriously, GLD is not a scam. But PHYS might be" (Index Universe) - Seriously, if anyone can explain to us what this article is complaining about we would be grateful (h/t Robert)
• Defaults on apartment-building loans set record for US banks (Bloomberg)
• Kunstler: Something Happened: (Clusterfuck Nation)
• European fear crisis threatens liberal benefits (NYT)
• CajaSur seizure marks change for Spain's ailing banks (Bloomberg)

• April sales of previously owned homes likely got a big boost from tax incentives.
• Asia stocks gain as China rises most in seven months on policy speculation.
• China presses US to end tech export controls.
• China shares up as fears of tighter policy ease amid hopes of rising yuan.
• Corn futures advances on speculation that China may boost imports from the U.S.
• Defaults on apartment-building mortgages held by US banks climbed to a record 4.6% in Q1.
• Dubai officials lay out need for financial reform following the credit crisis.
• Euro falls, ends 3-day gain, on concern debt crisis to spread.

Did someone just spill some Gulf Of Mexico 2010 special BP vintage in the UK water supply? First Janjuah comes out bearish guns blazing, and now even the biggest permabull of them all, Goldman's Jim O'Neill, issues some very overcast observations, the most cheerful of which is the ominous stop of the clock of St. Paul's cathedral on Thursday when the market broke the 200 DMA... and yes, speculators will be blamed.

Dear All

I am deeply troubled by the world and markets. THIS IS AN UBER BEAR EARLY WARNING ALERT:...I know its not what folks in general want to hear but hopefully you'll understand that I am trying to do my little bit to help....

First please refer back to my last comment, dd 26th April (Bob's World: What an idiot!)....2 takeaways from this note in particular - 1) my bearish trading call on risk assets, looking for a 10%/10%+ S&P selloff over late Apr and May from the 1220 level, driven by sovereign concerns, was spot on - maybe not bearish enough!, and 2) the point of market and taxpayer revulsion with the horrendous Keynesian/monetarist nightmare forced upon us by policymakers has come to bear. Sovereign limits and sovereign credibility concerns are not now a future risk - they are HERE. The enormous failure here is that the private sector has barely had time to catch a breath, let alone develop any form of self sustaining private sector recovery, before these limits have already begun to hit home.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 24/05/10