January 27th, 2011
Futures mixed in the early going as yesterday's Fed left little doubt that QE2 will remain firmly in place. With no dissenters to the policy and the only nod to inflation a note that "commodity prices have risen" the Fed seems entrenched in their game of chicken between commodity price inflation and labor market inflation.
Egyptian Stock Market Plunges Over 11% To Fresh Multi-Year Lows; Is A Suez Canal Transit Halt Imminent?Submitted by Tyler Durden on 01/27/2011 08:41 -0400
Ever wanted to see what a market plunge looks like into a revolution-inspired bidless open? Look no further than Egypt: after being halted briefly earlier, the market is now in freefall, dropping 11% in the span of minutes. This brings the two day drop to over 16%, and brings the EGX30 to the lowest level since 2009. Egyptian CDS have surged over 10% to 385 mid, a jump of 40 bps on the day. Anyone who purchased protection on the riot-torn country after we first suggested it is about to roll this weekend, congratulations. And while the important part of the world may ignore what is happening in Egypt, after all it is not US banker money thay is being lost, they may want to consider this: according to reports, there has been live fire in Suez, where the police headquarters have been taken over. More importantly, according to the Guardian, we may see the first army insubordination in this city: "a lawyer and executive director for the Arabic Network for Human Rights Information, has tweeted that some army units in Suez are refusing to support the crackdown against the people." Which means the government may be about to lose control over Suez... And the Suez Canal.
Durable goods, pending home sales, and the usual weekly diet of claims and Fed data….Expect the Fed to monetize $4 – $6 billion of recently auctioned off 2 Year bonds in today's POMO
From S&P: "The downgrade reflects our appraisal that Japan's government debt ratios--already among the highest for rated sovereigns--will continue to rise further than we envisaged before the global economic recession hit the country and will peak only in the mid-2020s. Specifically, we expect general government fiscal deficits to fall only modestly from an estimated 9.1% of GDP in fiscal 2010 (ending March 31, 2011) to 8.0% in fiscal 2013. In the medium term, we do not forecast the government achieving a primary balance before 2020 unless a significant fiscal consolidation program is implemented beforehand."
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 27/01/11
The market continued to rally today as the Fed voted to keep QE2 going (something about the economy being shitty, so rally on), bankers at Davos...
Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this offers very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs.
Recently there has been much speculation about the nature of the notable divergence between WTI and Brent. Explanations range from the now traditional Cushing syndrome, to Hess attempting to corner the BFOE, to correlation desks blowing up, to the ludicrous, which includes HFT (as much as it is trendy to blame parasitic HFT for everything, is not responsible for correlation trades, especially not in markets that do not have endogenous liquidity at least 1,000 times above that needed for HFT to actually add value). Probably the best explanation to date comes from JPM's Lawrence Eagles who in a just released note asks "Is Brent-WTI wide enough." His lede: "Brent and WTI have been trading increasingly as entirely separate commodities in recent weeks, driven by decidedly different fundamentals. Yet this is an important spread, which tells us a lot about regional Midwest and international crude economics and will, over time, drive investment that will ‘normalize’ price discrepancies." In other words, it is not the spread's wideness that is the outlier: it is the fact that it was overlapping for so long that is peculiar. In time, Eagles claims, speculation may drive the spread so wide that the economic incentive to close the gaping infrastructure holes will be large enough and the discounting of this act will bring the spreads back to parity. In the meantime, the spread will likely persist. Not only that, but he also believes that the 2012 calendar dated differential, currently trading at a far more reasonable $2.50, will likely also diverge, as two years is insufficient time for the required changes to transpire. Furthermore, the last straw that convinces us that it is likely early to bet on a convergence, is Goldman's just released commodities report which has a WTI target $2 above Brent. By now everyone should know what they say about trading Goldman recommendations...
DAVOS: 0600 [EUROPEAN BULL SH*T TIME]--East Coast USA: 12:00 AM [EASTERN SWINDLER TIME]
Frequent readers know that when it comes to Goldman Sachs, Zero Hedge has consistently claimed two things: i) that in the peak bubble days, the firm regularly commingled flow and prop traders on its trading floor(s), thereby allowing prop traders to either front run the firm's flow accounts, or trade alongside them in real time; and ii) that when it comes to OTC derivative trading, Goldman Sachs is the de facto Wall Street monopoly, a status made even more acute following the annihilation of Bear and Lehman, thereby cementing the firm's undisputed role as primary fixed income/OTC derivative market maker. Whereas yesterday we received indirect confirmation of the former, when we learned that Merrill was slapped on the hand with a token $10 million fine for doing precisely what we alleged, and which we are certain will soon be reconfirmed transpired at all other major banks in the 2003-2007 period, Goldman most certainly, and probably profitably, included, tomorrow it will be made clear that Goldman was an effective monopolist within the derivative space, with a bulk of its revenues in its highest margin, FICC group, coming from derivatives. When tomorrow the FCIC releases its long-awaited 545-page report exposing a tiny fraction of the criminality on Wall Street, we will discover that "Derivatives accounted for 70 percent to 75 percent of revenue in the firm’s commodities business from 2006 to 2009, and “half or more” of revenue from interest rates and currencies, the firm estimated, according to a report by the Financial Crisis Inquiry Commission. From May 2007 to November 2008, about 86 percent of $155 billion in trades made by the firm’s mortgage business involved derivatives, the FCIC said."
AlpInvest Partners, Europe's largest private-equity investor, has been sold to Carlyle Group and the AlpInvest management in a move that looks set to shake up Europe's buyout landscape.
Entire towns exploded and collapsed based on where oil was discovered. One area only 15 miles from Titusville, Pennsylvania (where Drake first discovered oil) went from being unnoticeable on the map to a booming metropolis of 15,000 people and back again in one years’ time (the fifty hotels and other businesses that sprang up in that time were all gone within 24 months). Parcels of land went from a few dollars in value to $2 million and back again in less than a decade.
Watching Obama deliver his State of the Union Speech last night, reminded me of all the rah-rah quarterly meetings that we had to attend as Managing Directors at Goldman, where senior management would remind us all of how great we were, and if there were any areas of competitive weakness relative to our adversaries at other banks, all we had to do was step up our game, innovate and globalize (or something like that.) Obama wasn't delivering a summary of what has, or is, going on for most Americans last night, no such negative status report. And, if you didn't expect him to, he gave good speech - full of reminders of how it is America's destiny and the American dream to be great and powerful, "robust democracy" that we are. There was a massive pink elephant in the room called reality though....My reaction was wtf?