Archive - May 2010 - Story

This is Wall Street value added at its purest. The day when the stock price of National Bank of Greece (NBG) is trading within millimeters of its all time low set during the March 2009 lows, and following a 70% straight decline from highs hit in September of last year, JPMorgan analyst Paul Formanko has officially submitted his bid for the client wealth destroyer of the century title (despite the guaranteed shoe-in of every Goldman Sachs "sellside analyst" for this title), by downgrading the soon to be insolvent Greek firm (which as even Formanko acknowledges has >200% of core equity exposure to GGBs) from Overweight to Underweight. The stock which now trades at around €10/share was initiated by Paul with an Overweight in May 2008, a rating from which he has never wavered, with just his price target moving up and down. His most recent PT on NBG: €25/share. Yet something happened between yesterday and today: Paul decided that the firm is no longer worth his old price target... or even half of it. His new expected price: €9.80, a 60% discount for all those who were dumb enough to listen to Paul as recently as yesterday, not just when he slapped a €45 price target at initiation in May 2008, or a €36 PT in September of 2009. And just to prove that Paul is man of action, he has also gone and downgraded every single Greek bank in his coverage universe from Overweight or Neutral to Underweight with a comparable price target cut.

As usual the Federal Reserve, when dealing with the public, is confident it is dealing with subhuman idiots, as only its Wall Street masters are clever enough to read between the lines of perpetual fraud spewing forth from the Marriner Eccles building. Maybe those who buy into this "bull market" with both hands potentially fall into that category, but others, like ConvergEx's Chief Market Strategist Nicholas Colas, are still capable of rational thought. Today, the Fed came out with its latest bout of projection insanity. It is hereby totally refuted.

The oil complex dropped on Tuesday, as traders returned to their recent pattern of following equities and currencies. On Monday, they had ignored a stronger US dollar and a weaker euro, two factors that would have knocked quotes lower on most days this month and on the vast majority of trading days since March, 2009. Early Tuesday morning, the euro had dropped steeply and Asian stock markets had started moving lower again. The weakness in thos markets triggered sell-stops in crude under $69.57 and then beneath Friday’s low of $69.00. Heating oil futures touched off sell-stops under 188.40 and 187.45. Gasoline triggered stops under 194.85. By the time trading started in New York, prices were already under the gun.

All-in-all a miraculous day (once again) but with geo-political risk revving up in Asia, liquidity remaining a threat in Europe, and contagion ever-darkening the horizon, the significance of the cash market's weakness/thinness (and concessions) and gappiness in single-name CDS leave us comfortable long risk here for now (625bps or 670bps for nervous-nellies in HY are decent stops and 115.5 and 122.5bps in IG). We almost reached out target for HY-IG today and would perhaps bring up the stop on that to 500bps differential (in line with 625bps stop on HY).
Let's take a breath and re-assess - HY and IG at multi-month wides (OCT09 and JUL09 respectively), short-end of the credit curve underperforming, cash underperforming synthetics, new issue concessions high, HY deals failing, close to close widening today in risk premia everywhere (except stocks...), carry pairs actually weaker on the day, US and EU FINLs wider on the day, sovereign risk rising globally, funding markets stressed, and CP rates starting to crack. Short-term bounces will always happen and we must be prepared for them but rising dispersion in single-names is where we will be spending the bulk of our time (as per today's MFCI strategy article) as an elevated volatility and discrimination-driven dispersion is just what we need to benefit as credit fundamentals re-appear from beneath the liquidity Tarp (pun intended).

Eric Sprott's Physical Gold Trust (PHYS) has just announced it is issuing a follow-on offering of 18 million trust units, with an overallottment option of another 2.7 million, for a total, including the greenshoe, of 20.7 million new units. The proceeds, as expected, will be used to purchase physical gold bullion to satisfy unprecedented investor demand for a safe haven away from the central bank printing press madness. At a post-announcement per unit price of $11.40, this means Sprott will buy $235 million worth of gold in the open market. At today's gold price of $1,200 this translates into 195,833 troy ounces of gold to be acquired, or roughly 6 metric tonnes. Somehow, we don't think the LBMA will be too thrilled with this extraction of physical gold out of the controlled synthetic precious metal ponzi system.

Total US debt per today's Daily Treasury Statement was $12,989,095 million. Also today, the US Treasury auctioned off $42 billion in coupon debt. This means that as of this moment, assuming the new debt were to settle today, the US has $13,031,095 billion in debt: congratulation America - you have now passed lucky $13 trillion in total debt. But don't worry, we won't stay here for long. At the current rate of issuance, $14 trillion will be passed in 8 months, and $15 trillion in another 7. By the end of 2011, we estimate total US sovereign debt to be about $15.5 trillion. For some recent vivid examples of prosperity courtesy of runaway debt issuance, please see Argentina, Japan and Greece.

Major resistance is at 1,089 in S&P futures and should not be bypassed at this stage. Nasdaq futures have not overtaken the lows of the flash crash and as such the Nasdaq looks a lot more bullish than the S&P because it also held the 250-dma which was support below the lows of today's session. For those who have not taken profit on their shorts if we gap up on open tomorrow we would recommend covering them, or on a break of the 1,089 resistance. Another way to play this is to keep shorts in S&P unless one of the two stops mentioned above is activated and get long Nasdaq which is certainly more bullish here. - Nic Lenoir

In a day full of good news, does one really need commentary on the US undecoupling form the rest of the world? Funding problems, upcoming failed Spanish auctions, Volcker rule passing, commercial paper troubles, the SNB left as the only player in FX land, Libor explosion, some salt water left in the Gulf of Mexican Oil, bankrupt states, it's all priced in. And whatever is left, Liberty 33 will take care of.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 25/05/10

Zero Hedge's own Bruce Krasting has an excellent piece ("The Swiss Did It?") from last week commenting on the interventionist bent the Schweizerische Nationalbank or Swiss National Bank (hereinafter the central bank of Switzerland or the "SNB") has been demonstrating in the face of the recent crisis. Of course, this particular behavior is not at all new on the part of the SNB, but it bears examining in a bit more depth why and how Switzerland's monetary authority acts in the face of global crisis.

We see no shortage of market commentators claiming that investors should be buying into this rapid selloff. Of course, these commentators never saw a correction coming in any event. Our advice is to be patient and disciplined and let the market do the talking. - David Rosenberg

The most ominous sign for US bank P&L continues to not relent: the 2s10s curve, which is the primary source of "revenue" for the hedge funds formerly known as US banks until a bunch of idiots came along and repealed Glass-Steagall, has just gone inside 240 bps. As before, we view this as the primary margin call threat, as billions, if not trillions, of wrong-way bets on curve steepening move further out of the money with every passing basis point. Once the first major repo counterparty blinks and demands a trand unwind, this trade will snap and we could see an even faster flattening, which would lead to some scary consequences for every other asset class.

If anyone has been curious why the Fed, banks and politicians have all been pushing for the "consumer protection" portion of the Financial Regulation bill, it appears we may have the answer. As CNSNews.com reports, the bill "would create the Bureau of Consumer Financial Protection and empower it to “gather information and activities of persons operating in consumer financial markets,” including the names and addresses of account holders, ATM and other transaction records, and the amount of money kept in each customer’s account. The new bureaucracy is then allowed to “use the data on branches and [individual and personal] deposit accounts … for any purpose” and may keep all records on file for at least three years and these can be made publicly available upon request." And quoting verbatim from the Bill: "[T]he Bureau shall have the authority to gather information from time to time regarding the organization, business conduct, markets, and activities of persons operating in consumer financial services markets." Goodbye privacy, hello 1984.

• $42 Billion 2 Years close at 0.769% high yield (91.01% allotted), 0.762% expected, 1.024% previous, 0.989% one year average
• Bid-To-Cover comes in at2.93x, lowest since December 2009; prior came in at 3.03x, 3.08 one year average; with stock markets collapsing, no more need for PDs to overbid
• Indirect Bidders: 36.22%, 31.04% previous, 43.23% one year average
• Direct Bidders: 15.18%, 21.41% previous, 11.88% one year average
• Primary Dealer take down 23.06%

If you needed any confirmation that the next round of QE is just around the corner, here it is. Just headlines for now. As the US is in a pretty "bad downturn" right about now, it is only a matter of time before Bernanke flips the turbo-print switch. Recall that Bob Janjuah expects the Fed to launch a new $5 trillion QE version by early 2011. The odds of him being right just went HFT caught in a short squeeze. Bullard also noted that QE will be removed eventually and in due course, which he presumably equated with a 5 year period. Expect ZIRP to last through 2015 at least. By then US debt/GDP will be around 100x (not %).