Archive - Apr 6, 2011 - Story

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 06/04/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 06/04/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 06/04/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 06/04/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 06/04/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 06/04/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 06/04/11

With TEPCO stock dropping to a fresh all time record overnight at just over Y300, it is pretty clear what the fate of the company is at this point. What was less clear is the fate of TEPCO debt, of which there is just over $90 billion, and which many had expected would be made whole once the company is nationalized. Well, one entity is not taking a chance. Three months after quietly excluding Irish bonds from its General Collateral basket, the Swiss National Bank, by far the most prudent of all central banks in the current race to the bottom regime, has decide to take out 600 million in CHF-denominated bonds out of the eligible basket. Perhaps this is an indication that at least one investor is not quite so sanguine about the lack of impairment in TEPCO bonds: all those who have been selling TEPCO CDS in hopes of a JGB-TEPCO compression trade may want to take note...

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 06/04/11

In another confounding episode of biting the biggest hand that feeds it, the IMF has just issued another criticism of US fiscal policy, and in its just released Global Financial Stability report says that the US should include in its budget the "cost of mortgage loan guarantees and other housing supports." Not only that but the fund also urges that the Treasury should immediately make its support for the GSEs explicit and carry Fannie and Freddie's roughly $7 trillion in debt on the books: a move that would send US debt to well over $20 trillion and make the ratio of marketable debt (the lowest common debt denominator) to GDP well over 100%. To wit: "Government guarantees should be explicit and fully accounted for on the government's balance sheet... There is a need for better-defined and more transparent government
participation in the housing market, with all such policies, including
strict affordable housing goals, transparently shown in the government's
budget." Of course this won't happen for many years as otherwise the US would effectively confirm that it is insolvent per various Reinhart-Rogoff ratios, and instead the administration will continue pushing with its misguided plan of offloading GSE obligations on the balance sheets of private institutions. As if that will change anything: it only means that the next taxpayer funded bailout will save the TBTFs once again, instead of leading to a run on the Treasury. End result: same thing.

This will not be news for most objective Zero Hedge readers as we indicated this is a distinct possibility on several occasions, but some of those more "skeptical" about reality would be interested to know that according to Reuters "the core at Japan's Fukushima nuclear reactor has melted through the reactor pressure vessel", Democratic Congressman Edward Markey told a hearing on the nuclear disaster on Wednesday. "I have been informed by the Nuclear Regulatory Commission that the core of Unit Two has gotten so hot that part of it has probably melted through the reactor pressure vessel," said Markey, a prominent nuclear critic in the House of Representatives. Surely there is some bullish spin to this. We are too tired to look for it though.

Following our expose on the unwind in the repo (O/N GC) - reserve (IOER) carry trade yesterday, the FDIC induced compaction in the "free money" rate arb continues with GC sliding again to a jaw dropping 0.03%. And with this source of free money now shut down for good, and creating all sorts of havoc for short-term rates and further headaches for the Fed as it has one more black swan to deal with in extracting liquidity, all the free money trades have firmly shifted to FX carry, where the Yen is now the recipient of the wrath of every single Mrs Watanabe known to man. If and when Yen repatriation resumes in earnest (considering Japan GDP has to surge following its rebuilding effort as pundits claim), the outcome will be quite hilarious.

WTI surges courtesy of a disastrous UK economic update, and expected ECB tightening. Oh wait... That must mean QE3....No....That's impossible. The San Francisco Fed said just this Monday that there is no correlation between monetization and surging commodity prices. And stocks surge just because in Weimar America, $109 crude is bullish for stocks. This will end in tears.

Not quite. Give it a few hours: it just hit $39.70. Then we expect the Hunt High should be taken out shortly thereafter. And not to be left out of the party, gold just hit another all time record as well. At this point, Bernanke is officially panicking.

Marc Chandler, head of currency strategy at Brown Brothers, shares Zero Hedge's healthy dose of skepticism over two things: the pace of tightening in Europe, which the market is now taking for granted (the EURUSD hit 1.4315 earlier following rumors of Petrodollars now being recycled by purchasing European currency, not dollars: deja vu 2005 anyone?), and Fed tightening following a purported QE2 end. Summarizing: "our argument is two-fold. First, in Europe, we suspect the market is ahead of itself on the likely pace of ECB tightening. The market appears ripe for buy (the euro) on the “rumor” of an ECB rate hike and sells on the fact type of action. Second, similarly, the market appears too aggressive in pricing in Fed tightening after QEII is finished. The pendulum of market sentiment has swung too hard and we expect it to adjust in the weeks ahead." The problem is how to trade this: if the market is expecting too much tightening in both the EUR and USD, shouldn't the two offset? Then again, with the Yen carry trade now being put on en masse by everyone in the aftermath of the reserve-repo carry end, what happens with the two currencies may be quite irrelevant as everyone rushes to short the Yen. That said, there appears to be further EUR upside before the strong Europe trade finally fizzles: "Prudent investors should also consider what is potentially on the euro’s upside. An initial barrier is seen in the $1.4280-$1.4300 area. A break could signal another 1-2% euro rise to the $1.4450 and possibly $1.4600. To be sure, we suspect further euro appreciation in the face of tightening of monetary and fiscal policies will exacerbate the pressure in the periphery and act as further headwinds to European growth."