Archive - 2010 - Story

RANsquawk 15th January US Morning Briefing - Stocks, Bonds, FX etc.

Some more macro observations from Joe Saluzzi: Last "Friday's stock market was the biggest tell: when you saw an unemployment number come out like that, that tells you what an absolute joke the stock market is, and how it's a lagging indicator, not a leading indicator of what's going on... When you're in the basement you can't stay in the basement, you have to walk up the stairs to get out. We aren't walking up the stairs, we just stopped walking down the stairs... a $77 Estimate on the S&P, you are looking at a 15x forward multiple on that earnings, yet you are in an economy which is closer to the 80's which deserves a 10x P/E. Why do you give it a 15x P/E?... If California was a public corporation they would be the next Lehman Brothers: that's how bad this thing is. The government is saying 'We're not going to bail you outCalifornia.' We're they going to come out with the $9 billion that they owe?"

So let's get this straight: you are a CapitalOne borrower, and you have filed Chapter 7 bankruptcy protection. In other words, you are dunzo with paying off credit cards, revolving loans, non-revolving loans, yacht and country club payments, fired the butler, got rid of the underage nanny, cut up the Centurion, and are waiting for the repo men to come and take your outhouse and two donkeys, even as the third wife and kids are garnishing your wages, and the IRS is doing a full-blown tax audit. Yet because of some fluke the check to COF was in the mail, and while the bank was fully aware your FICO score was essentially 0, they still would not count you as a "charge off"...WTF!!!???

Earlier Goldman issued a new report on the homebuilders (found here). Not much in terms of overall macro perspective change, however notable was that Goldman downgraded TOL as the firm "believes that outperformance will be limited in the first half of 2010." However, before TOL management decides it will no longer pick up phone calls by Goldman's Joshua Pollard, GS hedges with: "That said, we still believe that there is significant value in Toll shares for patient investors as Toll has one of the best franchises in homebuilding." So sleep confident dear hedge funds managers - Goldman should still be able to arrange private one on ones with the CEO at your leisure. As for the true reason for the downgrade, whether this is due to most shorts having cleared out of the stock already, much in line with keeping with Goldman's strategy of upgrading stocks that have a substantial short interest (ref. MGM), is unclear.

University of Michigan January Consumer Confidence came in at 72.8, below expectations of 74, which would have been an increase from unrevised December of 73.4. Instead December was revised down to 72.5 to make January seem like an improvement. The Sentiment number was driven higher by better than expected Current Conditions, which came in at 81 (prelim), up from 78 in December, while Expectations dropped to 67.5 from a revised 68.9 in December (69.7 unrevised).Inflation expectations for 1 Year increased from a final December read of 2.5 to 2.8 (which incidentally is the expectation for the 5 Year inflation expectations as well).

The company which came to investors two years ago via Goldman Sachs peddling the biggest turd of a business model caked with 10 layers of lipstick for a global refi, and proceeded to file for bankruptcy before even one coupon payment was made (we hope that's a warning to Hexion 1.5 lien investors... wtf is a 1.5 lien anyway?), is throwing in the towel once again, and preparing to file for Chapter 11 for the second time in as many years according to the WSJ. Sucks for investors Sopris Capital and Aspen. We hope they managed to extract some equity out of this brilliant investment while they had the chance.

• JP Morgan Chase & Co: 51.50, last 46.3 +5.25
• Goldman Sachs Group Inc: 104.50, last 100.5 +4.00
• Merrill Lynch & Co., Inc: 114.50, last 105.5 +9.00
• Morgan Stanley: 119.50, last 113.5 +6.00

JP Morgan earlier reported better than expected earnings on weaker than expected results. While the 9 am conference call will provide additional data, here are the key data points from the provided slide deck.

• As anticipated, China FX reserves surge to $2.4 trillion; no accompanying TSY purchasing (Bloomberg)
• Steven Pearlstein: A transaction tax is the answer (WaPo)
• Stiglitz: Why are we letting Wall Street off so easy? (Mother Jones)
• JPMorgan beats profit, revenues miss; shares, futures fall on cautionary language from Dimon (WSJ)
• Euro falls most in month against dollar on Greece; oil drops (Bloomberg)
• The Greek CDS curve is now inverted (FTAlphaville)
• Brooksley Born wants the public—and Wall Street—to understand unregulated derivatives’ role in the crisis (City Journal)
• Separating investment banks will not make us safer (FT)

• Asian shares were mixed, with tech stocks gaining after solid earnings from Intel.
• China charged US with “backsliding” toward protectionism; warns on Google.
• Chinese equity funds had a third week of outflows as the central bank tightened lending.
• Foreign Direct Investment in China more than doubles to $12.1B in Dec as economy recovers.
• Jobless Claims in US increased 11,000 last week to 444,000.
• Mortgage rates mostly fell in the past week, 30-yr fixed-rate mortgages back toward 5%.

RANsquawk 15th January Morning Briefing - Stocks, Bonds, FX etc.

Recently China has once again attained prominent status among the investment community, where while the majority still adheres to the old, permabullish view that Chinese risks are contained, increasingly more fund managers are convinced that the Beijing-based central-planned economy is due for a major pullback. One such one investor, as we pointed out previously, is Jim Chanos, whose exemplary track record means his opinion should never be ignored. Somehow we doubt Chanos is much insulted by Jim Rogers' derogatory remarks of his understanding of the China situation. He who laughs last...

We present critical observations by Corriente Advisors which incorporate all the salient ideas of Chanos, Edwards, Grice and other such skeptics into a fluid narrative which is a must read for all fascinated by the topic of China.

The EUR/AUD has been an important forex cross in the realm of risk and liquidity. Could a potential reversal be at hand, signaling the inevitable return to risk aversion and liquidity chasing?

Spreads were broadly wider in the US as all the indices deteriorated. IG trades 13bps tight (rich) to its 50d moving average, which is a Z-Score of -1.4s.d. At 80bps, IG has closed tighter on only 6 days in the last year. The last five days have seen IG flat to its 50d moving average. Indices generally outperformed intrinsics with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but widened the skew, ExHVOL outperformed but narrowed the skew, HY outperformed but narrowed the skew. 17.6% of names in IG moved more than their historical vol would imply as higher vol names outperformed lower vol names by 2.07% to 3.37%. IG's vol is around 4.38% per 1 day period, which leaves 96 names higher vol and 29 lower vol than the index.

The United States of America, in global strategic terms, is tumbling down a series of misadventures, declining in a “step of sighs” through frustrating economic and military endeavors as it discovers that its superpower structures and massive capital wealth are insufficient to cope with a transformed world.

This transformed world was created by the very superpower capabilities and massive wealth of the West. Even the People’s Republic of China (PRC) is beginning to recognize that massive financial holdings are inadequate to address all challenges to national survival and well-being.