Archive - Aug 4, 2010 - Story

• BP Controls Gulf Well That Caused Record Oil Spill (Bloomberg)
• ABC Consumer Comfort index plummet near 2010 low at -50, from -48 week prior (ABC)
• California Democrats Unveil Budget Plan (Reuters)
• Foreclosed on - by the U.S. (WSJ)
• Japan Concerned as Yen Rises Towards 15-year High (Reuters)
• Australia Has Record Trade Surplus on Coal Demand (BusinessWeek)
• Moscow Urged to Ban Grain Exports (FT)
• Bank Rossii Bonds Hit Record $34 Billion in Anti-Inflation Push (BusinessWeek)

David Kostin summarizes what worked and what didn't in the month of July in all the charts that's fit to pitch to bullish clients.

Another disconnect is forming out in Europe, where the much more popular overnight lending metric Euribor rose by 0.001% overnight and hit 0.900% for the first time in 2010. At the same time, EUR Libor dropped slightly to 0.83031 from 0.83156. Alas, the latter datapoint seems to be less relevant: as we have long observed, European interbank liquidity is contracting, confirmed by Market News: "On Tuesday, in the ECB's full allotment Main Refinancing Operation banks tapped E155 billion of 1 week liquidity. With this operation replacing a maturing E190 billion MRO, as economists at Citi noted the reduction in overall liquidity in the euro area is continuing." Market News also points out the obvious lack of correlation between Libor and Euribor: "In theory this is likely to carry on feeding through to higher short term money market rates. Euro 3 month LIBOR rates, however, have not risen since July 29, after their prolonged move higher."We hope for Europe's sake that ever increasing reliance on the ECB for all sorts of liquidity requirements, both short and long-term, will be offset by the export boom, which is now unfortunately over, courtesy of a EUR which any day now will be back to the mid/upper 1.30s. The result will be a continuing game of currency devaluation ping pong, so that one quarter Europe can benefit from an export surge, the next one: the US. We also hope, there is someone left out there to import all this stuff. As we saw in China's trade balance data, the trade deficit was a one time affair, and for the third month running China is again running a trade deficit. So just who is this net importer?

Goldman's economic team continues its string of market negative output, this time focusing on debunking the myth of an expected market run up into the mid-term election in 3 months. Contrary to the attempts of numerous pundits who consistently try to create a self-fulfilling prophecy and allow themselves better exit points on legacy underwater positions, Goldman performs a statistical analysis and reports that while in the past the stock run up has in fact occurred after the mid-terms, this was traditionally accompanied by loosening fiscal and/or monetary policy, resulting in a boost to the economy. As Goldman's Alec Phillips says: "For various reasons, market participants tend to take a more optimistic view of growth following the midterm election." And for all those who think this time is different, fiscal loosening post the elections will be hard to come by, and will be further impacted by the natural contraction of the economy following 2+ years of fiscal gluttony. Goldman says: "By contrast, our own estimates imply a tightening of fiscal policy in 2011, including decreased transfer payments as a result of expired unemployment benefits and increased tax liabilities as a result of tax expirations, and while we don’t have quarterly estimates for 2012, our budget projections assume additional further restraint on an annual basis then as well." In other words next time someone says that the market traditionally runs up into midterms, be aware they are uninformed. And not only that, but it is far more than likely that the stock market will drop after November, as the unprecedented disconnect between the contracting economy and the irrational stock market, finally collapses.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 04/08/10

Excerpt from the much anticipated letter of what will soon be a hedge fund even bigger than Goldman Sachs: "As our mortgage investments mature, we will use the cash proceeds to seed FRC. FRC will then go out and buy S&P 500 futures, wheat, etf’s, leaps, reit paper, speculative biotech stocks, BRIC assets, and anything else you can think of. The Fund’s mandate is to be long only-everything- anywhere on earth." The fund is also rumored to have a lock-up period of 1 milisecond to allow HFT frontrunners to park their securities at FRC LLC, while the traditional 2/20 payment structure will be inverted, with Bernanke paying out 2% on all AUM, and will also pay out an additional 20% to any profit (or loss) generated by the fund for its LPs.

Associated Press reports: "A handmade grenade exploded Wednesday near President Mahmoud Ahmadinejad's convoy in western Iran, but the leader was not harmed, a conservative website reported." We are trying to determine just how this news will be spun to push the red futures (probably the first day in two weeks futures have been negative, and one of several times in the past two months this has happened) back into the green.