Archive - Jun 3, 2010 - Story

Reuters reports that the Kansas City hawk says Fed should hike to 1% by the end of the summer, and should sell MBS immediately and certainly by the time the hike at the end of the summer. Not stopping there he says the Fed should promptly proceed to raise rates from 1% to 3% thereafter. Hoenig also noted that the low inflation over the next year would increase as the economic recovery picks up. Of course, a raise in rates, would kill stocks, and promptly push the EURUSD to parity, also killing US exports, which is why we are confident Bernanke will completely ignore this most recent bout of deranged sanity from Hoenig.

Earlier we predicted that the dirt in Eastern Europe is about to clog up Bernanke's liqduity swap Hoovermatic, but had no idea we would be proven quick so fast. Romanian website zf.ro reports that in a 600 million lei auction conducted earlier, the "Public Finance Ministry has rejected all bids submitted considering them an unacceptable level of offer price." In other words, the Romanian government now thinks it is Greece and it doesn't need money it finds too expensive. In yet other words, this means a failed auction. This follows the news of a semi-failed auction in Hungary earlier today, and a busted auction in Germany two weeks ago. Does anyone know if there is an iPad app that magically makes direct bidders appear whenever and whereever needed, leading to a 10x Bid To Cover at 0.00% for any bond auction? If Jobs can come up with that, we would immediately bet the concrete bunker on AAPL stock.

Retuers reports that the IMF mission chief Rosenberg is going to Budapest to hold informal talks with the new Hungarian government - is this a preamble to the latest admission of austerity failure in an IMF intermediation. Independent of this, Hungary CDS is now exploding wider, and was 60 bps at last check, however this name is now virtually bidless. In other news portofolio.hu reports that Hungary was forced to cut a bond auction today over subdued demand.

Goldman Sachs: "we’re going to add Bearish-EURUSD to our Favourite Tactical Themes. Overall, it looks like the chances of a downside break from the recent range on EURUSD to target 1.19-1.18 are increasing." We are not sure how David Kostin will take this move which directly threatens his recent S&P EPS target increase.

As Egan-Jones says,the downgrade should be a "big heads up for Money Market Funds." Not to worry, we are confident that two years after the Reserve fund broke the buck, financial regulation has moved far enough to contain any potential fall out from massive redemptions. Right. Right?

The US Treasury has announced its coupon issuance timetable for next week. The US will auction off a total of $70 billion in 3, 10 and 30 years next week. In a surprising move, this number is more than a 10% decline from like issuance in the last month: the last pair of 3-10-30 raised a total of $78 billion. Is the US Treasury seriously "telegraphing" that the budget deficit situation is under control? What happens when the cash crunch gets acute again courtesy of half a trillion in Bill redemeptions this month and issuance has to work overtime just to catch up. This seems like a very foolhardy move.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 03/06/10

Poor, poor Europe. Every room one shines a light in, the cockroaches don't even bother to scurry to safety any more. Yet what is glaringly obvious takes a media-reported soundbite to awake people. So is the case with Hungary today. After opening 7 tighter, Hungarian CDS are now 14 bps wider to 277bps. As the attached chart shows, the Hungarian Forint is now in freefall. Yet if investors are concerned about Hungary, they should take a look at some of its less lucky Eastern European neighbors which, just like Hungary, have been considered to be strong for so long.

Rosie brushes off the WSJ's allegations that gold is nothing but a ponzi, and explains why despite a prevailing (currently) deflationary environment, savers throughout the world have forced global gold dealers to run out of inventory. "It is a reflection of investor concern over the monetary stability, and Ben Bernanke and other central bankers only have to step on the printing presses whereas gold miners have to drill over two miles into the ground." - pretty simple really. Everything else is just obfuscation.

Goldman is still off the Zero Hedge estimate of +700k. However, seeing how Goldman has the hot line to the BLS, especially on matters relating to NFP revisions 24 hours prior to actual announcement, we will go Hatzius on this one: "We are raising our estimate for tomorrow's nonfarm payrolls release for May to +600,000 from +500,000 previously. This is composed of a Census contribution of +450,000 (vs. +350,000 in our previous estimate) and a private sector contribution of +150,000 (unchanged). We also expect the unemployment rate to decline from 9.9% to 9.7% and average hourly earnings to rise 0.1% (both unchanged from our previous estimate)." - Goldman Sachs

Headlines from Reuters. Kim, unlike Donny, is not a pacifist it seems.

Update 2: think tank report making rounds saying SNB cannot keep intervening in CHF.

Update: fresh round of euro weakness due to rumor that the ECB will recommend further unlimited Long-Term Refinancing Operations (liquidity providing) in a major dovish reversal. This is very EUR negative as is just more fuel for the currency debasement game.

Just as the EUR decoupled from risky assets two days ago, with the broader market dropping far more than the EURJPY pair suggested it should, so the opposite is occuring currently. The far too obvious trade, which in this market is apparently the right one, is the buy the EURJPY and sell stocks.

The WSJ issues an amusing hit piece on why gold is nothing but a "Ponzi Scheme", ignoring the fact that by its definition the stock market is precisely the very same. Either way, since we are seeing no let up in the currency debasement department of Central Banks, and gold continuing to trade near record highs, it is a good thing to occasionally have a shake out of the weak hands. After all it will merely provide far better entry prices for countries like Russia, which as we disclosed recently, have been buying up all the IMF has to sell in the open market. At the end of the day - the opinion of Brett Arends or of David Einhorn, David Rosenberg, Jim Rickards, Eric Sprott, and, oh yeah, John Paulson.

If you are wondering where the latest bout of Euro weakness is coming from, look no further than long-forgotten Eastern Europe. From Bloomberg: "Hungary’s forint weakened against the
euro, erasing earlier gains after Napi.hu reported deputy
chairman of the ruling Fidesz party, Lajos Kosa, said that the
country has a “slim chance to avoid the Greek situation” and
that the new government’s primary objective is to avoid a
sovereign default." It is rather amazing how long Eastern Europe has managed to squeek through the cracks. Will Hungary be the first rerouting of the PIIGS crisis into this latest European market. This means that another under the radar player, Austria, is about to get whacked big.

BOTTOM LINE: ADP report weaker-than-expected, showing an increase of 55k in May. Initial claims fall while continuing claims rise from upward revised level. Productivity revised down a bit more than expected, but unit labor costs are still falling. - Goldman Sachs