Archive - Jun 2010 - Story

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 22/06/10

Der Spiegel conducts a stunning interview with Norway's foreign minister Jonas Gahr Støre, in which the Scandinavian official rips the G-20 (which is meeting this weekend in Toronto), in a manner far more vicious than any of the tens of thousands of protesters could hope to ever do. Støre essentially compares the Group of Twenty to the most cataclysmic event in the history of mankind: calling it "the "greatest setback" for the international community since World War II." Any other day, this would result in a diplomatic gaffe, and the expulsions of various ambassadors. Today, with the entire world agreeing with the Norwegian, except those, of course, in attendance in Toronto, nobody bats an eyelid. One of the smartest countries in Europe (having refused to join the utter disaster that is the European Union... twice) once again proves its wit, when its minister "questions the legitimacy" of the G-20, stating "We no longer live in the 19th century, a time when the major powers met and redrew the map of the world. No one needs a new Congress of Vienna." Ah, but we do, as otherwise the spoils from the greatest generational wealth transfer would go equally and ratably to all, instead of being concentrated in the greedy hands of those who have already stolen so much, they have no place to put the loot. Which is why the G7, G8, G20, etc. will continue to exist as the world's most potent parasite until there is nothing left to steal anymore.

The transatlantic smackdown is getting vicious, as Angela Merkel makes a point to demonstrate her refusal to follow Obama's policies before a business audience in Berlin. As Bloomberg reports, "Chancellor Angela Merkel championed German export strength as “the right thing” for her country, spurning President Barack Obama’s call to boost private spending as both leaders  prepare for Group of 20 talks. Merkel, addressing a business audience in Berlin today, said she told Obama in a phone call that  cutting government debt is “absolutely important for us,” exposing a second point of contention ahead of the June 26-27 G-20 summit in Canada." It appears Germany's chancellor is actually prudently thinking ahead after realizing that the recent bailout of Europe has massively angered potential voters, cost her parliamentary majority, and absent damage control, her career would come to a premature end. If that means openly mocking the pinnacle of Keynesian insanity these days, Washington D.C., so be it. It is strange that our own president has yet not realized his own political career will be very short unless he follows in Merkel's footsteps. Instead, he and the Fed will melt the market up to unprecedented highs in the months leading to the mid-term elections in hopes that this will presumably indicte just how strong the US economy is, even as fresh new millions in the GoM find themselves unemployed courtesy of some salt water content in the oily gulf. Perhaps Orszag is much smarter than people give him credit for: surely his pitchfork avoidance skills will come in very handy when the tide finally turns.

The Moody's/REAL Commercial Property Price index posted a slight gain in April, after two sequential drops, coming in at a 1.7% increase for the month. As Moody's notes: "This price increase follows two consecutive months of slight price declines. The index currently lies at 113.10 and has fallen 16.4% in the past year. Prices have remained choppy since the low of 107.98 that was recorded in October 2009. Since that low, prices have rebounded 4.7%. The peak of the index occurred in October 2007 and prices are currently 41.1% below the peak." Alas, in light of the ongoing collapse in real estate, it is a little difficult to take Moody's announcement with anything less than a smirk, wink and a knowing nod.

Not sure how this is news, but apparently it is impacting spreads currently. S&P officials are heard saying that they are evaluating the UK (-1 to 77.5 bps) rating in light of the emergency budget, that Spain (+26 to 244) needs additional measures to meet fiscal targets, and that France (+3 to 80.75) has very high deficits. This will certainly not help once again surging European cash and CDS spreads. And does anyone remember Greece? As the chart below shows, its various spreads to all other European sovereigns are blowing out. Risk off in Europe, as the EURCHF just hits a new all time low of 1.3590.

May existing home sales plunged far below expectations, coming in at an annualized -2.2% rate, compared to consensus of 6.0%, and a revised 8% in April. This is the second worst monthly drop in history, and shows just how very wrong economists are, and how they will all have to revise their outlooks lower, for all macro indicators including GDP. The plunge occurred even despite near record low 30 year mortgage rates: the Freddie 30-year, conventional, fixed-rate mortgage fell to 4.89 percent in May from 5.10 percent in April; the rate was 4.86 percent in May 2009. The push forward effect of the administration's various subsidies is now over and a double dip is likely now inevitable unless yet another stimulus plan is implemented. There is nothing quite like the administration finding a scapegoat du jour: first it was snow in winter, then hot weather in the spring, now it is the oil spill: "Florida and Louisiana, also impacted by the oil spill, have the highest percentage of homes that require flood insurance."

As the enormity of the GoM debacle slowly seeps like a tarball into the always somewhat addled brains of the sellside community, the rolling downgrade wave of the oil services and equipment sector is attaining tsunami status. Today's first enlightened soul is Citi's Robin Shoemaker who has obliterated the price targets of virtually all companies in his coverage universe: after the action, the names still barely standing are BHI, CAM, DO, DRC, ESV, FTI, HAL, HERO, HP, NBR, NE, NOV, PDE, PTEN, RDC, RIG, SII, SLB and WFT. Throw in some 74+ mph winds, and things will soon get much, much worse.

It was only a matter of time before "inclement weather" tested the BP falling knifers. Provisionally titled Tropical Storm Alex (currently disturbance 93L), the first tropical storm of the Atlantic hurricane season, is now expected to enter the GoM area as soon as next week, causing unpredictable and possibly irreparable harm to BP's clean up efforts. And this is just the beginning: as Bloomberg reminds: "Forecasters are predicting this year’s Atlantic hurricane season, which runs from June 1 to Nov. 30, may be among the most active on record...Three storms, two of them hurricane-level, may pass through the oil spill area, while three more may come close enough to affect cleanup operations and other rig activity, AccuWeather Inc. chief hurricane forecaster Joe Bastardi said." We are confident all those who have written exhaustive multi-page investment theses vouching their certainty that BP is at least a doublebagger have factored in such completely unpredictable factors as 100+ mph winds and currents that bring BP's tarballs all the way up to Virginia along the eastern seaboard.

• Iran launches aid ship to Gaza on Sunday (AP)
• Furious Obama summons McChrystal to explain comments  (Politico, Bloomberg)
• Goodbye Keynes, hello Hoover (Nation)
• Cancelled mortgage modifications surge 55% in May (eCreditDaily)
• UK's Osborne cuts 2010, 2011 forecasts (Reuters)
• Wall Street's invisible gorilla is killing America's soul (MarketWatch)
• Misguided housing subsidies promote unfairness, bailouts (USA Today)
• Quanto swaps show 9% euro drop on Greek default, Citigroup says (Bloomberg)

Gold washed out after a promising start on Monday, with the August future reaching an all-time high of $1266.5 per 100 troy ounces before an epic collapse. Gold fell about $35 to a low of $1231.6 before recovering slightly and closing at $1240.7, almost a 2 percent loss for the day. The selling has resumed in early morning and overnight trading as anxious investors take profits and question whether gold is overbought. With all the news, rumors and factors that came out on the bullish side yesterday and last weekend it should be obvious to everyone why the market was lower; The Chinese have a time machine and knew what they were going to say before they did it. Then having positioned themselves before the event, they sold into the rally.

As reported yesterday, the ECB today completed a weekly liquidity withdrawing operation consisting of Fixed Term Deposits, to "remove" the excess cash obtained from €51 billion worth of sovereign bond purchases. This was the sixth consecutive such auction, and the sixth consecutive decline in the bid to cover. 67 bidders participated and submitted total bids for €71.559 billion, to take down €51 billion, or a 1.40 Bid To Cover, which was another sequential decline compared to last week's €47 billion in take down after €71.078 in total bids, or 1.50 bid to cover. The weighted average allotment rate was 0.31%, with a maximum rate of 1% and a marginal rate of 0.4%. With another auction next week, and then many more, all dependent on the amount of debt that Spain et al place "successfully", we expect the Bid To Cover to decline consistently, until we hit a 1 BTC and the ECB realizes its monetization program is a failure.

• Asian, European stocks fell for the first time in 9 days; Euro weakened against Yen.
• German business confidence rises on increased export expectations.
• US home sales likely to weaken with the end of the tax credits: Bloomberg
• Japan targets balanced budget by 2020 to contain debt.
• Oil declines as optimism fades over boost to global economy from Yuan plan.
• Russia cut natural gas supplies to Belarus after Minsk failed to pay off debts.

We issued a bearish recommendation yesterday given the daily reversals observed. The S&P future here is sitting very close to the neckline of a short-term H&S pattern (1,103.5). This is relevant because few people spot those on a 10-minute chart so chances of a headfake are actually far lesser. Also the neckline is situated right around the 200-dma which has been a relatively important pivot and the top of yesterday's candle rejected the 100-dma which is about to post a bearish cross with the 50-dma. Overall there is therefore a decent lid on the market. We would use 1,118 as a stop for shorts, and add on to shorts if 1,103/1,100 is broken. - Nic Lenoir

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 22/06/10

The man singlehandedly responsible for the smallest, "biggest inconsistency" in US budgetary history (that whole $6.3 billion in GSE's left off the US balance sheet, for the full post read "Obama's budget has one small, missing piece... For $6.3 trillion"), Peter Orzsag, currently head of Obama' budget office and previously head of the Congressional Budget Office, and also responsible for the most ridiculous budget in US history (what is the most recent 2020 projected deficit: $100 trillion? $100 quadrillion? does anyone even care?) is out. Bloomberg reports: "White House Budget Director Peter Orszag plans to leave President
Barack Obama’s Cabinet in July, before the White House begins preparing
its next budget, administration officials said." This is arguably the biggest slap in the face of the administration's failed budgetary efforts: the rats are now openly jumping ship, knowing full well that the US will soon be ($20 billion in debt) underwater.