Art Cashin Discusses The STUPIDs And The Global Dollar Margin Call

Tyler Durden's picture

We are delighted that the highly sophisticated, technical and proprietary acronym you saw here first, in collaboration with Credit Trader, the STUPIDs, has now made the UBS and Art Cashin vernacular, and is set to overtake the extremely politically incorrect acronym of the PIIGS, which seems to insult Barclays, the precursors of ham, and so many more with each passing day. We are confident that our version is much more palatable. A modest suggestion - convert PIIGS to GIPSI - now that is sure to please everyone. Anyway, that, and much more from Art Cashin's Friday note.

From UBS Financial Services: Cashin's Comments, February 5 early am

Greece Fire Leads To Flight Into Dollar Resulting In A Global Margin Call – In early afternoon with stocks, gold and oil flat on the canvas, we sent the following email to some trading friends:

Panicky unwinding of dollar carry trade acts like a global margin call which we suggested weeks  ago. Europe a swirl with rumors and speculation. Will there be general strikes in Greece? (Recall ugly street rioting that lasted for months after police killed that youth.) Portugal tries to sell equivalent of Treasury Bills and only gets bids on 60%. Similar concerns and speculation on others in the STUPID acronym.

Euroland starting to sound like U.S. markets between Bear Collapse and Lehman. Looming weekend heightens angst. All we need is a geo-political event to cause a full flight to safety into dollar sparking more margin style liquidation across asset classes. Cross your fingers. Run rate at 1:00 is 1.6 billion.

At the time, the S&P was beginning to break below the critical 1070 support area. There were fears on the floor that a significant breach of that support might trigger trapdoor selling from stop orders and algorithms.

Selling did take the S&P through the support but there was no aggressive follow-through. Nevertheless, stocks closed hard on their lows, grateful that the bell ended the pain.

Decoding The Email – For months we have voiced concern about the growing level in the “dollar carry trade”. Speculators and traders had been borrowing dollars at near zero rates to finance positions in gold, oil and U.S. stocks, among other things. In setting up the carry trade, they would often short the dollar for currency protection.

Back in December, we told Carl Quintanilla that we felt the greatest risk to the market would be a flight to safety into the dollar. If, for example, there was a key geo-political event (Israel/Iran?), the resultant rush into the dollar would result in the equivalent of a global margin call. We said it could drive the Dow down 1000 points in a day. Yesterday, there was a rather mild rush into the dollar and we lost 270 points in a day.

The reference to Greece is self-explanatory. The failed Portuguese auction could have sold the entire offer but at much worse price. Only 60% of the offering received “proper” bids. The “stupid” acronym apparently refers to Spain, Turkey, Ukraine, Portugal, Italy and Dubai (although there are substitutes).

The allusion to analogies with the environment between Bear and Lehman should be self-evident. Then it was financial firms that were the subjects of rumors and contentions. Now it is sovereign nations.

Thursday’s action clearly demonstrated the dominance of the dollar’s influence across asset classes. Let’s hope no geopolitical surprise pops up.

Cocktail Napkin Charting – As noted, the support at 1070 held for a while before clearly yielding as we moved into the final hour. The selloff re-ignited Elliot Wave speculation that we may have begun severe corrective wave C. I wroteyesterday that the market might show its hand by Tuesday. We’ll stick with that timeframe. For today, the napkins look for support in the S&P around 1050/1053. Violating that level could heighten probability that wave C has, in fact, begun. First resistant is broken support at 1070/1075, with a backup at 1087/1092.

Some Eye-Catching Headlines on Bloomberg:
• “Taleb says ‘Every Human’ should short U.S. Treasuries” (Nassim Taleb of Black Swan fame says  shorting treasuries is a “no-brainer” given Fed and Obama policies.) [stay tuned for more on this in Zero Hedge shortly]
• “Biggest Bubble in History is Growing every day” (William Peske on China’s currency reserves)
• “Payrolls probably increased in January…..” (Speculates that this morning’s number may show growth)

A Personal Crusade – While it’s too late to do it this year, I think we should seek to turn Super Bowl Sunday into Super Bowl Saturday. It would be great for the economy. More parties in more places with a chance to sleep in the next day. If you agree, email the NFL.

Consensus – Payrolls may set the tone if the dollar behaves. If the dollar moves, it will dominate the action. Stay very,
very nimble and stimulate the economy by hiring a kid to shovel the snow.

Trivia Corner

Answer - The apples are 25 cents a pound and the apricots are 75 cents a pound.

Today's Question - Heir today, gone tomorrow. The ancient King of Numeria had a favorite stallion who grew old and was dying. The king offered each of his three sons half the entire kingdom if he would bring a fresh apple to the ailing horse exactly half the time the horse had left. If a son accepted the challenge but was off by more than one day, that son would be out of the will and banished. The oldest son declined saying no one knew how long the horse would live. The youngest son agreed and declined also. The middle son smiled, took the challenge and won easily. What did he probably do?

And the obligatory history lesson:

On this day in 1895, America was in a funny financial spot. Well, it was a bit over a hundred years ago today - so - I guess you deserve an explanation. Let me see....if I remember what Sister Herman Joseph taught me - that different America of a century ago looked something like this:

The economy appeared to be struggling. There was a Democrat in the White House. Congress was divided and squabbling, hostily and uncivilly. Some thought the debates were so coarse and rude they spoke of forming a new political party. Technology was the new mantra even after a bumpy start and telecommunications were exploding (in use if not profitability). Much of the country was in the grip of unusual and extreme weather. And...oh yeah....I almost forgot....suddenly folks had begun talking about gold....can you imagine "gold!"

Anyway, despite what pundits of the day thought, gold had begun to rise. Now, in 1895, the old U.S. was on the old "gold exchange standard." That meant, whether citizen or foreigner, if you thought public policy was not to your liking, you could hand in your green pictures of dead presidents and get gold - real, glistening, bite into it to check it, gold.

As hard as it is for us to believe today, a goodly number of those citizens distrusted what they saw in Washington. Gold rose and soon began to bubble and the dollar began to slide. The rush to exchange dollars might deplete the gold of the U.S. Treasury and cause a default. Imagine - a time when the government wrestled with the question of default.

So - to avoid chaos - the President sought the help of the one man who could control the banks, who could calm Wall Street, who - in short - could find a way to halt the run on the dollar and government reserves. (No Virginia, it was not Ben Bernanke - there was no Federal Reserve.) Thus, on this day in 1895, the President of the U.S. sat down with a certain J.P. Morgan seeking the latter's help in saving the country.

Morgan allowed as how he might just happen to know one fellow who could put the government into default that very afternoon. (The President never asked if it was Morgan, himself.) Morgan conveniently recalled some obscure Civil War legislation that allowed the President to issue bonds to buy gold. The same law said the bonds could be sold secretly (without bidding). But who would buy them. Well, Morgan allowed as how it was probably his civic duty (along with that of his syndicate) to not only buy the new secret bonds but to buy up some gold and recycle it to the Treasury for the dollars he paid for the bonds. And all this for just a small commission.

To mark this anniversary recall the words of Warren Buffett - There's always a silver lining -or was that Jimmy Buffett.

There was a lot of buzz about gold on the floor yesterday but none of it was about a scarcity of the yellow metal.

h/t Back9

 

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putbuyer's picture

I must be the only one not watching the STUPID bowl. Cashin is a cool dude.

Anonymous's picture

You're not....but only because I can't figure out how to work all theses damn remotes.

Anonymous's picture

I am watching. The Who halftime show is good
"meet the new boss, same as the old boss"
Who could imagine that line would still apply
35 years later???

dark pools of soros's picture

Townsend butchered his riffs   are you deaf?

Anonymous's picture

I know,I know, he also looked as stiff as a board.
I took into account his age before rendering
my judgement.My algorithm also took into
account the amount of drugs and alcohol he
has consumed in his lifetime...

vachon's picture

...and Daltry's voice is shot.

Anonymous's picture

Townshend was not good but it was still the best halftime ever.

Noah Vail's picture

Sixty year old rockers who can't carry a note in a dump truck. Pathetic. Their act is so bad they have to overshadow it with fireworks and lightshows, just so  you don't notice what a washed up gang of has-beens they are.

ConfederateH's picture

Townsend is my hero!  When Michael Moore wanted to use "Won't get fooled again", Townsend told him to go fuck himself with his America hating socialist propaganda!

putbuyer's picture

If you have not seen it, it's a good watch.

The Incredible Bread Machine Film

http://mises.org/media/4274

Mr Lennon Hendrix's picture

Flight to "safety"...into the DoeLarr?  For some perhaps; those who still believe in the giant ponzi in the sky.

Others will seek shelter in gold and silver.  Many others.

Anonymous's picture

While the collective eyes on the nation focus on the super bowl; Rome burns.

Wake up AMERICA!

Anonymous's picture

Look, we spent all weekend going over a Lehman like
European collapse, re-awakened cds and counterparty
risk, and BLS bullshit numbers. Its now time for
something completely different, at least for a
few hours. Reality will be resumed tomorrow...

Anonymous's picture

He likely killed the horse at a time of his choosing, so that the decree that the apple be given at precisely the 1/2 point of the remaining life could be fulfilled accurately.

i.knoknot's picture

that was my guess as well.

the story probably has a clever way of getting there

RoastingBankers's picture

lmfao! at the brett favre commercial!!

lmfaopmp!!!

Missing_Link's picture

Today's Question - Heir today, gone tomorrow. The ancient King of Numeria had a favorite stallion who grew old and was dying. The king offered each of his three sons half the entire kingdom if he would bring a fresh apple to the ailing horse exactly half the time the horse had left. If a son accepted the challenge but was off by more than one day, that son would be out of the will and banished. The oldest son declined saying no one knew how long the horse would live. The youngest son agreed and declined also. The middle son smiled, took the challenge and won easily. What did he probably do?

He gave the horse an apple the next day and killed it the day after that.

I mean, duuuh.

cthulhu's picture

Why use two steps when one will do? Give the horse a poisoned apple today.

hound dog vigilante's picture

Super Bowl... YAWN.  US pro football is the weakest "sport" around.

Let's all drink more Monsanto corn syrup and chow on transfats.  Idiots.

This country deserves the collapse/depression now unfolding...

 

Take a walk and get some exercise & fresh air... it's nice and quiet outside b/c all the TV zombies are inside, glued to the consumer command center, learning which useless products should be bought to appease the corporate gods.

Rusty Shorts's picture

..."consumer command center" - almost spewed, good one.

i.knoknot's picture

"Let's all drink more Monsanto corn syrup and chow on transfats.  Idiots."

that's the one that got me... lol

Gold...Bitches's picture

and people complain that baseball is boring...

Anonymous's picture

You sir, are un-American.
Please pay your portion of the debt (roughly $125k)
and leave the country immediately!

velobabe's picture

 

by bruce wayne
on Sat, 02/06/2010 - 14:11
#220679

 

75 cents per pound for the apricots and 25 cents per pound for the apples?

Anonymous's picture

Apples cost $1.49 a pound and sometimes are on sale for 99 cents a pound. I don't buy apricots.

doolittlegeorge's picture

hard to imagine a government would trade paper for gold--and pay the fee to boot.  it's the only job of banks and they seem to have done a poor job of getting the gold but they sure have done well at getting "the balance sheet" which when there's a war going on probaby is something JP could only dream of as he watched this American economy simpy soar in productivity and wealth.  Greece will be interesting.  So many people have forgotten about the Russian invasion of Georgia which I think the Russians felt would be an "american tipping point."  the next thing you know the price of oil collapses.  i can't say i know what will happen with Greece but the island of cyprus is no joke.  that's two large armies both laying claim to the place.  both ostensibly american allies and indeed "together" in an "alliance."  haiti actually is a very interesting piece of real estate as well.  it's like it never happend now isn't it?

velobabe's picture

http://theautomaticearth.blogspot.com/

 

Ilargi: My take starts off something like this: What I see reported on the problems in Europe, lately especially Greece and to a lesser degree Portugal, comes to a large extent from American and British media. And it's been clear for a while now that the English will go out of their way to make anything related to the Euro look bad and ridiculous. Their writings are certainly entertaining, but they have such a degree of -increasing- bias that you can't realistically file them under news. The Telegraph's Ambrose Evans-Pritchard is but the leader of the pack in what might best be called continent bashing.

Anonymous's picture

It should be noted (ad nauseum) that AEP's brief is to cover International affairs. The Telegraph has plenty of hacks covering the Sh*tfest in the UK. Europeans reading his work are usually pissed off with the way he removes blinkers from eyes, but they can't really argue with the facts he brings to the table.

Seer's picture

So many people have forgotten about the Russian invasion of Georgia

Per the European Union's investigation (http://online.wsj.com/article/SB125431087432152321.html):

In a statement, Ms. Tagliavini was blunt. "In the Mission's view, it was Georgia which triggered off the war when it attacked Tskhinvali with heavy artillery on the night of 7 to 8 August 2008. ...In particular, there was no massive Russian military invasion under way," she said.

putbuyer's picture

I got a bunch UUP calls.

My parents were born in Portugal, sister, brother and I were born in Brazil. Back in the day, my parents went to Brazil looking for work. Now It's the same shit all over again. So many out of work and feeding off the gov't tit. Another socialist Keynesian experiment failure.

Seer's picture

Don't confuse me with any supporter of governments, but... seems that this is all one big clean-up by govt of a private sector meltdown.  The govt is only trying to protect it's rich elite (as it always does): and the rich elite are the ones running the private sector.

Thanks for playing!

buzzsaw99's picture

Dow 10,000 bitchez!

Anonymous's picture

All right boys and girls.

Lets all get out there and find the most crisis/volatility prone group of assets that best encompasses a particular investing dynamic and then wrap it in the most politically incorrect, pun provoking and irresistible acronym possible.

Anagram help here:

http://wordsmith.org/anagram/

Extra credit if the acronym spells BARCLAYS

Going Down's picture

General strike in Greece!

U PISTD?

Anonymous's picture

So the conclusion is that Iran should be grateful to greece and the ecb; as long as the stupids (maybe 2 "Us", the other is clearly UK, but maybe 3 Us, the last for US of Z) remain in distress and not bailed out, uncle sugar cannot afford an israeli strike on iran. Otherwise, the USD would soar as carry unwind, and the Fed's house of equities and commod cards collapses and deflation would be here for the next century. When Greece is bailed out, Euro would regain some stability, USD's turn to resume downward trek, and Israel would get greenlight to war crimes again.

ratava's picture

only thing i believe in that STUPID of yours is the U and it should apply to both of them 

doolittlegeorge's picture

this situation really is no joke.  world war I started with far less "fanfare." there's an old saying new yorkers have, "it's all uphill from here." 

putbuyer's picture

Portugal used to be a farming country. The current generation, since the Euro was introduced is clueless about growing food. Much of the land went to development too. The all wanted to be rich - they discovered leverage. Now, all the hundreds there, in my extended family, who can not grasp what is coming, look to the state, the broke state to save them.

My father just today, at Sunday lunch, as we discussed Portugal, told me how he remembers, cries in the night of people starving. It still haunts him today.

Seer's picture

Shades of Iceland...  Welcome to the "American Dream," where you can get rich by pandering to the rich! (yeah, right!)

Mother Nature now interrupts this program to inform us that...

Landrew's picture

Again, you can't call what is happening here socialism! Fascist yes. Socialistswould never except debts of the rich to the public. This is a whole new ball game pun intended. Keynes would never have spent bailout monies to make good corrupt debt that only provided a zero sum game. He would more likely have overseen a tax-cut. He never really does speak to how this debt spending would come about. He never once advocated carrying growth defeating deficits. Debt was to be paid during prosperous times.

C+I+G+(X-M)= GDP J.M.K. 

Is there a better way to describe an economy of today. I would argue yes there is, all government spending is not a contributor to GDP as we have seen in last years spending on bailouts. Most of that spending was a zero sum and provided nothing to growth yet was still counted towards GDP. Am I not seeing that correctly? That I believe is why we saw almost zero employment growth for a massive 1.5 trillion (plus the off balance sheet monies) in debt spending.

jeff montanye's picture

thank you for the needed distinctions/clarifications.

Anonymous's picture

Does anyone know how to get signed up for Cashin's daily commentary...that man is the only reason I ever tune into CNBS.

velobabe's picture

http://intelfin.blogspot.com/

i am a little confused, but i always am.

this is the website under the name theback9 or as it is signed on this post h/t Back9

i think it is cashin's, but it is really racy.

Anonymous's picture

thanks for that link, that blog is sweet.