Archive - Jun 25, 2010 - Story

With the ECB determined to hold the EURUSD above 1.20 for the time being, the question of whether the EUR will hit parity with the CHF first is becoming more topical. The Swiss currency has been dropping consistently every single day, and just hit a fresh all time high against the EUR at 1.3491, and looks like it will hit parity with the so called reserve currency within the month. Even as gold is once again on fire (+ $10 so far today), investors have suddenly realized that with all of Europe moving its deposits to Swiss banks, it may in fact be the Swiss currency that is safest out there, backed by an increasing amount of deposits, and not to mention, gold. Should the Fed indeed announce a $5 trillion QE expansion as predicted by AEP yesterday, and Bob Janjuah a month ago, look for the "risk haven" currency to promptly regain its place as everyone's favorite short, leaving just the CHF on top, especially since the SNB now appears to have given up on intervention for good.

By now, everyone is well-aware the US, as the Federal level, is insolvent, and continues to exist merely thanks to 1) the ability to print money and 2) having the world's reserve currency for the time being. Yet more and more are focusing not only on the calamitous, and even more bankrupt, state fiscal picture, but increasingly so on the smallest bankrupt quantizable element: local governments. The following surprisingly objective note from Goldman's Alex Phillips separates fact from propaganda in this increasingly more critical discussion, now that the question of how soon the administration will need to provide state bail out funding reaches critical mass.

Yesterday, the open interest at the 1250 strike acted as a magnet in a market looking for an excuse to do something. However “they” could not quite get the pin. Historically, this means the next day has a higher probability of a wash out. But thus far today that is not the case. Could this mean that we are in a market where secular interest and macro hedge fund buying power is finally overwhelming the small but deep liquidity pool of Bullion Dealers? We certainly think so. This is an evolutionary process, and will take time.

It is going to be an ugly day for BP longs. BP stock has crashed in early trading in London, dropping as much as 8% at one point to 296p. It has subsequently recouped some of the losses and last was off "only" 4%. Reasons for the plunge include new bankruptcy rumors, concerns about hurricanes in the Gulf region (that took a while), and general worries about "fat tail" events as a trader told us.

The final Q1 GDP revision came in at 2.7%, a huge drop from prior, and especially the first GDP forecast which was 50 bps higher. Trillions in stimulus and the economy barely grew. Time to revise Q3 and Q4 GDP forecasts to just over 1%, and to whack those S&P EOY forecasts. Digging through the data, consumer spending fell to 3% from 3.5% earlier, business investment was revised down to 2.2% from 3.1% previously. The only imprvoement, the PCE price index rose to 1.6% from 1.5% prior. All in all, a complete disaster.

• Asian stocks decline on US growth, Greek default concerns.
• German luxury carmakers add shifts and cut breaks to meet demand
• Monsoon rains may be more than predicted, helping output of crops in India.
• Mortgage rates on 30-Year U.S. loans slide to record 4.69%
• Yen near two-week high against Euro on speculation global economy slowing.
• Adobe enters into stock repurchase agreements for $400M.
• Alibaba.com buys US e-Commerce site Vendio to boost sales outside China.
• AO Smith lowers 2010 EPS below consensus, due to one-time charge from flood.

As if anyone thought otherwise, the final shape of finreg has now been formalized and as Shahien Nasiripour at the Huffington Post notes, "many of the measures that offered the greatest chances to fundamentally reshape how the Street conducts business have been struck out, weakened, or rendered irrelevant." Congrats, middle class, once again you get raped by Wall Street, which is off to the races to yet again rapidly blow itself up courtesy of 30x leverage, unlimited discount window usage, trillions in excess reserves, quadrillions in unregulated derivatives, a TBTF framework that has been untouched and will need a rescue in under a year, non-existent accounting rules, a culture of unmitigated greed, and all of Congress and Senate on its payroll. And, sorry, you can't even vote some of the idiots that passed this garbage out: after all there is a retiring lame duck in charge of it all. We can only hope his annual Wall Street (i.e. taxpayer funded) annuity will satisfy his conscience for destroying any hope America could have of a credible financial system.

And now for the envelope... oops, it just burned down. Oh well. First no budget, now, no GDP. According to unsubstantiaed rumors, the fire is headed to the records room at the US Treasury next. Unfortunately for our creditors, there will soon be no paper record we owe money to anyone. And like that, our $13.1 trillion in debt, it's gone.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 25/06/10