Archive - Mar 15, 2011 - Story

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 15/03/11

Copy/paste of what we got from a trading desk:

Mkt rumour nikkei to remain closed for the rest of week..margin issues.....some rumbling all afternoon, but as we head towards the end of European trading more people asking

More if we get it...

The Fed is being disingenuous in claiming it is blameless for global inflation: the Fed's zero-interest rate policy and quantitative easing are both unleashing "hot money" that is seeking higher returns anywhere they can be found in the global economy. In a larger sense, the Fed is attempting to repeal the business cycle. In the normal course of capitalism, low rates and easy credit lead to increased borrowing, which leads to rising consumption and investment in production to feed that increased consumption. This leads to higher profits, which feed more investment and debt. At some point, the cycle hits a brick wall: borrowers can't afford to pay more interest, so debt stops rising, and consumption and demand slump as borrowing levels off. In the rush to mint profits, production capacity exceeds demand, and as a result prices and profits both fall. As the boom progressed, investors sought out riskier, more marginal investments. As new debt and demand fall, then these riskier investments lose money and are either shuttered or sold for a loss. As profits decline, workers are laid off and commercial borrowers find their income streams aren't sufficient to meet their obligations. The credit cycle turns from expansion to contraction, as marginal borrowers go bankrupt and insolvent businesses and loans are liquidated or written down. This purging of bad debt, speculative excess and misallocated resources sets the foundation for another cycle of renewed growth. But the Fed has attempted to repeal the credit cycle.

Two days ago, as was extensively reported by Zero Hedge, an Anonymous operative leaked various emails by Bank of America employees indicating a wilful and malicious intent to lie to auditors, regulators and the government. Many of the less than informed in the media space were quick to condemn this act as a lot of hot air, without having the faintest clue about the legal implications of the alleged activity. Luckily, a special agent for SIGTARP was not as quick to dismiss the data simply because it did not contain an HD video of the bank's CEO participating in a snuff film. As Operation LeakS has just released, a special agent for SIGTARP, which after spending millions in taxpayer capital has still to put anyone in jail, will investigate these allegations. It certainly is a start, even if the same taxpayers who pay for the SIGTARP program also have to do the SIGTARP's work for them. Very much like the SEC.

About a year ago, when Zero Hedge was nothing but a monocultured, bearish, conspiracy theory-based blog, we wrote a post titled: "Is The Swiss National Bank Using UBS To Launder Its Euro Purchases?" The reason for this allegation stemmed from some dramatic observations in the reporting of LIBOR to the BBA by member banks. To wit: "The Libor reporting dispersion among BBA member banks has actually
tightened marginally from last week, with one notable outlier: UBS. Of
the 15 banks that report both USD and EUR-based LIBOR, all disclose a
higher offer rate for EUR Libor except for UBS! The Swiss bank is a
blatant outlier, in that its disclosed EUR Libor rate of 0.4850% is in
fact 10% lower than its USD Libor." Out explanation for this anomaly was that the Swiss Bank, most likely in concert with the ECB, were manipulating intercurrency unsecured funding reporting in order to mitigate FX mismatch: "SNB buys EUR in the open market (causing massive destruction in the EURCHF and GBPCHF pairs), then the excess euro holdings are funneled back into the market via a much cheaper EUR lending rate in the 3M funding market (LIBOR) compared to all other banks: the UBS 3M EUR Libor rate is a whopping 30% below the average EUR Libor rate of 0.6344%, nearly double the spread from average of the next lowest EUR Libor offer, that of RBS at 0.56%." Once again our monocultured perspective appears to have served us well - per Dealbook "UBS said Tuesday that United States and Japanese regulators were investigating whether the Swiss bank tried to manipulate a key benchmark used to set interest rates around the world." We can't wait to see what the Mainstream Media does with this one, as usual with its roughly one year delay.

Jason Kelly, a financial writer living in Sano, Japan, shares his first person experience of the stunning events from the past several days: "The power interruptions and damage to infrastructure are leaving stores in Japan’s earthquake area sold out. Gas stations are rationing, but closing one by one as they go dry. Between a third and half of the shops in my town, Sano, are closed for various reasons, not least of which is to let society catch its breath. The following pictures were taken by mobile phone at stores in Sano"

Following explosions in at least two reactor cores at Japan's Fukushima nuclear power plant - and as the developing crisis is rated at level 6 of seven levels on the International Nuclear Events Scale (previously being 3, or below 3 Mile Island status, to keep the panic level low)- attention is turning to just what is happening inside the 40-year-old power plant in north-east Japan. Al Jazeera's Dan Nolan explains how a meltdown would happen.

The IAEA Incident and Emergency Centre (IEC) continues to monitor the status of the nuclear power plants in Japan that were affected by the devastating earthquake and consequent tsunami. All units at the Fukushima Daini, Onagawa, and Tokai nuclear power plants are in a safe and stable condition (i.e. cold shutdown). The IAEA remains concerned over the status of the Fukushima Daiichi nuclear power plant, where sea water injections to cool the reactors in units 1, 2 and 3 are continuing. Attempts to return power to the entire Daiichi site are also continuing.

Following reports that all major banks have pulled their employees out of Tokyo overnight, finally broad evacuations are starting to spread to the ordinary citizens, starting with China. AP reports that: "China became the first government to organize a mass evacuation of its citizens from Japan's northeast on Tuesday, while other foreigners left the country following radiation leaks at an earthquake-damaged nuclear power plant. Austria said it is moving its embassy from Tokyo to Osaka, 250 miles (400 kilometers) away, due to radiation concerns. France recommended that its citizens leave the Japanese capital, while the U.S. government advised Americans to avoid travel to Japan." And while the Chinese concern for its citizens is admirable, what is peculiar is the complete silence as to how China, which is very much downwind from Fukushima, is handling the fears of its own local citizens regarding spreading radiation.

Probably a reasonable purchase in these uncertain times.

The Navy said very low levels of airborne radiation were detected Tuesday morning at greater Tokyo-area bases in Yokosuka and Atsugi, prompting commanders to direct base residents to remain indoors as a precaution. At 7 a.m., the aircraft carrier USS George Washington at Yokosuka Naval Base detected elevated radiation levels, according to a U.S. Navy 7th Fleet statement. The Navy said the elevated levels were associated with the disaster at the Fukushima Dai-Ichi nuclear power plant, located about 200 miles to the north. A level of 0.5 millirems of radiation was detected at Atsugi with similar levels at Yokosuka, said Atsugi public affairs officer Tim McGough. The radiation was detected coming from winds blowing from the northeast, he said...“The level of 0.5 millirems, which is translated to five microsieverts, is 50 times more than the level that exits in nature,” said Masaharu Hoshi, professor of radiation physics at the Research Institute of Radiation Biology and Medicine of the University of Hiroshima.

When we looked at TEPCO last two days ago, we said that as a result of the catastrophe in Fukushima its CDS which then had jumped by 90 bps to 133 bps, "we expect this number will soon be at multiples as the fall out to the company is increasingly exposed to the market." Alas, as predicted, the CDS is now trading 390-440 and will likely go points up very soon. Recall that the utility has over $90 billion in debt, which may or may not be nationalized, but any "conservatorship" treatment will likely trigger restructuring clauses. And the latest news out of Kyodo goes from bad to worse for the electric company: "TEPCO unable to pour water into No. 4 reactor's storage pool for spent fuel."

Marc Faber appeared earlier on CNBC in response to a plunging market, and gave his latest updated outlook on QE3... and 4, 5, 6, 7 and 8 (not to mention 18). "We may drop 10 to 15 percent. Then QE 2 will come, (then) QE 4, QE 5,
QE 6, QE 7—whatever you want. The money printer will continue to print,
that I'm sure. Actually I made a mistake. I meant to
say QE 18." Faber was modestly constructive on the Japanese selloff, which at one point hit 18% down in overnight futures trading: "This huge selloff is an investment opportunity in Japanese equities, but if a meltdown occurs then all bets are off." As usual, there is no love loss between Faber and the Chairsatan (recall that today's Empire Manufacturing survey confirmed margins continue to be crushed due to surging input costs): "I think Mr. Bernanke doesn't know much about the global economy but he probably watches the S&P every day." And on Fed criticism: ""Until very recently the Feds have had very few critiques, very few
people criticized the Fed's policies under Mr. Greenspan and Mr.
Bernanke. Over the last few months, a lot of critical
comments have come up about the Fed and its money-printing habit. The
S&P drops 20 percent (and) all the critics will be silent and they
will all applaud new money-printing." No fear of that here: Zero Hedge has been rather vocal in our opinion of the world's most destructive central planning buro from day one. We will continue being so, regardless how low the S&P plummets... Perhaps even to its fair value south of 500.