Archive - Oct 2011 - Story

Italy rejected the budget today. I can't imagine that it is because the opposition wanted more austerity. That must make the Slovakians even more eager to provide the EFSF with money to buy Italian bonds. The IMF has declared that they went to Greece (because they had purchased non-refundable tickets) but are going to give our money to Greece even though none of the alleged criteria were met. How long are countries going to let IMF control their money so whimsically? Since EFSF will likely be approved, I wanted to see what the Eurozone was going to do with all that "cheap" money. As you can see clearly from the graph, French bond spreads are widening relative to Germany, and EFSF spreads are widening slightly faster than that.

Today, at 1:15pm Pacific Time (4:15 EDT), the head of DoubleLine Funds, Jeff Gundlach will hold an open discussion and webcast on the question of whether risky assets are cheap enough. Among the headline topics will be what the most efficient portfolio allocation for the current market going forward is (for those who missed the efficient frontier including real assets, gold appears to have been the best performer over the September 2008-September 2011 with a comfortable margin especially over equities, period much to the chagrin of various naysayers).Anyone can join the webcast at the following link; phone lines will also be made available at (877) 407-1869 or for international calls (201) 689-8044. Full webcast presentation of the webcast presented below.

It seems that everyone's favorite Dr.Doom is selling his consultancy after only several years of operation, David Faber reports. The consultancy, according to confidential sales materials, will generate $11MM in revenue and $2MM of losses. The bulk of clients of the 85 person shop, Faber reports, is corporations, not actual investors, making the buyside wonder "who incremental clients will be." We wonder just how any potential buyer will be able to lock up Roubini for several years, without whose presence RGE will have questionable going concern value. We wish @Nouriel the best of luck in his sales process, whose successful conclusion (or otherwise) probably means that Roubini will end up as a blogger and paid panelist.

It’s always troubling when governments go after firms like GoldMoney. The more signs I see, the more I’m starting to believe that we’re heading down a path where precious metals are once again confiscated, outlawed, or at least severely restricted in many countries. Let’s start with the why. What possible sense would it make to reduce or restrict gold ownership? Simple. The modern financial system is a complete joke. Money is conjured from thin air, backed by false promises from bankrupt governments. Then there’s the fractional reserve swindle, centrally planned interest rates, government-produced inflation, manufactured statistics, insane credit and sovereign debt bubbles, etc. It’s a total fraud… and like any good con, it depends on just that: confidence. In order for a system based on -nothing- to perpetuate, it’s imperative that it commands the confidence of the people within it. And people in rich western countries have been programmed since birth to believe that the colored pieces of paper circulating around in their economies are intrinsically ‘valuable’. It’s funny, because developing countries already know it’s a scam. They don’t trust their governments, and they don’t trust those silly pieces of paper either. Out here in Asia is a great example– most of the region is very gold-oriented. They use paper as a medium of exchange, but it’s a cultural norm to save with gold.

Looks like #OccupyWallStreet is morphing into #OccupySenate first and #OccupyCongress soon.Next up: #OccupyWhiteHouse? From a reader: "Here is a live feed to Occupy DC which has stormed the Hart Senate Office Building in D.C. – there are several dozen protestors chanting, arrests being made, and a flag that was hung upside down (sign of distress)."

It seems like the Slovak Republic will agree to the current plan. It seems like some politicians have decided that getting a general election and a chance to be in charge and have power is worth selling out what they believe in. In the meantime, with the current structure the Slovak Republic, as small as it is, has an equal vote on some items. Anything that is unanimous requires them to vote. People are already downplaying any potential "NO" vote as something the other member countries would just step up and assume the Slovak's portion. Sure, but what happened to the integrity of the Euro? Isn't this someone starting the process of leaving the Euro? I wouldn't dismiss the implications too quickly. It certainly makes dreams of Eurobonds look plain silly.

And Belgium and Austria were doing so well there for a few hours...

Yesterday we presented our cynical perspective on the latest Chinese intervention in its stock market, whose sole intention was to prop up the stock market, and create the illusion that the economy is stronger (following in the Chairman's footsteps, it appears that now the SHCOMP is the best proxy for economic prosperity) now that bank speculation of a Chinese hard landing has grown significantly louder (see here and here). Today, it is Jim Chanos' turn to jump on the, pardon the pun, cynical bandwagon, who, as Bloomberg reports "said a rally spurred by government purchases of the shares hasn’t changed his bearish outlook. The MSCI China Financials Index surged 6 percent today after state-run Central Huijin Investment Ltd. started buying shares in the four biggest Chinese lenders. The gauge of banks, insurers and developers had tumbled as much as 43 percent in 2011 through Oct. 4, sending its price-to-earnings ratio to a record low of 5.6 on concern that slowing economic growth will spur bad debts after a three-year credit boom. “The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating,” Chanos, founder of New York-based hedge fund Kynikos Associates, said in a Bloomberg Television interview." Needless to say this is glaringly obvious, which is why it will have no adverse impact and the only thing the markets will care about is how many trillions in additional government liquidity/purchases will come down the line to prop up the illusion that is the global economy.

In yet another ironic twist, traditional market cheerleader Goldman Sachs, which discusses the factors for the "strong start to the week for equity markets" in the form of the 100 S&P point surge on nothing but hope and more rumor speculation, concludes with rather ominous: "beyond the headlines, it is only the process of grappling with the details and concrete plans that will force the political leadership in these countries to face the difficult tradeoffs involved. And as such, as long as there is not more clarity around concrete proposals – the distribution of legacy losses and the mechanisms for mutual support in the Euro-area going forward – and the details on implementation, we doubt that the current market optimism can be sustained over the medium term, and beyond the upcoming G20 meetings." In other words, precisely what we have been saying: rumors and "plans of plans of plans" are great for short term squeeze induced, bear market bounces, but in the long, or even medium-term, do nothing to address the fundamental math fail which states, quite factually, that going from point A (where we are now) to point B (where Merkozy wants Europe to be), will be virtually impossible absent massive equity losses. Yet, as also pointed out before, Wall Street career risk is always in the "here and now" never in what may happen a day or even an hour from now, now that markets are no longer a discounting mechanism, but a purely headline reactionary one.

Yesterday was one of the strangest days in awhile - and that is from a long list of strange days. The most confusing part is that over the weekend Dexia went through some form of nationalization - the details of which and the need for which remain sketchy. Erste decided to take some big write-downs on CDS positions it had written, and Merkel and Sarkozy yet again held a joint press conference to announce that now they were really serious about saving everything and everyone. European stocks and credit had a relatively muted reaction. Stocks were up small. The Dax for example was drifting from slightly down to up less than 1%. SOVX was a touch wider and MAIN was a few bps tighter. Then the US came along and told Europe that they didn't realize how good they had. Yes, US equity players came along and told Europeans they didn't understand what had happened in their own backyard. The US stock market dragged Europe higher and tighter with it. Investors who were short IG17 or HY17 were hitting bids in MAIN, XOVER, and buying JNK, LQD, and HYG, along with SPX. Today, Europe was basically treading water and tried to do better at 7am as the US opened for business. Since then we have started to drift wider and lower. Part of this is going to be funds getting their positions squared away as they can now sell some IG17 and buy back their other hedges. Credit traders who are left scratching their heads about how things were "fixed" over the weekend are back and fading this rally.

And in tried and true fashion, the counterrumor arrives:

Egypt cabinet spokesman denies report that PM handed in resignation of whole government

That revolution sure was fun while it lasted.

• EGYPT PRIME MINISTER HANDS IN RESIGNATION OF GOVT - JAZEERA TV

Now the anticipated "Thermidorian reaction" counterrevolution comes.

When a few weeks ago we coined the term "plan to plan to plan" we didn't realize we should have also trademarked it. Royalties and all that... That said, when it comes to the Chairman of the Fermentation Committee, we grant him a lifetime license of usage.

Today, at around 5:30 pm, the Senate will pass currency legislation squarely targeting alleged Chinese "currency manipulation" (which as a reminder is pegged to the USD, which begs the question just who is manipulating their currency). And while the PBOC pegged the USDCNY at a new all time low last night in what appears to be an attempt to placate US lawmakers, it may have been premature. As Goldman explains the likelihood of anything real happening as a result of this legislation, which will not pass Congress in its current form, is virtually negligible. That said, here is what the Senate in theory is attempting to achieve: "The bill would impose new penalties on countries whose currencies are found to be "misaligned," including tariffs on goods imported from those countries and an eventual WTO complaint. Like previous legislative efforts on this front, the likelihood of enactment seems low. House passage of the Senate bill seems unlikely, though it is clearly possible that the House could pass its own version of the currency bill instead." Bottom line: much ado about nothing, although China will probably not be too happy either way.

An artist's rendering of what a Merkozy statement on the chart below would be like: "Here you have a chart depicting a perfectly healthy liquidity freeze and a far better than expected interbank bank run. While the amount of money desperately dumped with the ECB is the highest in over 16 months at €269 billion, a very modest increase of €230 billion from the summer lows, we promise promptly, or by December 31, 2099, whichever comes last, to conceive of a plan which will address the subject of how to plan for the public's interpretation of this chart, and in the meantime promise to bend the laws of mathematics, thermodynamics, rhetoric, and money printing, and plug the inverse hole with nothing but even more promises. Please vote for us." Or something like that. To everyone else who likes it non-sugarcoated, there is now open panic in the Eurobank system, where not a single euro left outside the clutches of the ECB is deemed safe. In other news, all is well.