The chairman of Morgan Stanley Asia Stephen Roach blasts China skeptics, "The idea that [China] is an overheated economy is very much overblown," in this Bloomberg TV interview. Roach, who despite his global skepticism, continues to see China as a source of growth despite the numerous flashing warning signs. One area of ongoing concern - protectionism "As we go toward the mid-term elections in the US, the protectionist drumbeat is something to take seriously." When looking purely at China, Roach notes that "the dynamic needs to shift from the export sector to 1.3 billion Chinese consumers. They need to build a safety net, they have to come up with new sources of job creation, and they have to provide stimulus to their rural population which numbers roughly 850 million people. Since 2000 between 15 and 20 million rural citizens have moved into urban settings, that's like two New York cities per year. The lack of a safety net is a profound drag on Chinese consumption." Good luck with creating a safety net that big. Yet despite that Roach takes a direct stab at Chanos, and concludes that the "fears of a bubble are vastly overblown, in China. The demand for shelter, the demand for office space in a nation that does rural-urban migration 15-20 million people per year, that demand is there. No country has such demand for urban dwellings and urban office space... The Chinese authorities are on top of it. Unlike the US, which lets bubbles get out of hand, and distorts the economy, that's not the case in China." Of course, if inflation in China continues at the current pace, all those villagers may just say no to Beijing and decide to stay put.
After declining marginally in the prior week from a previous record, net euro short positions surged to a brand new record, hitting an all time record of -74,551, according to the CFTC'c Commitment of Traders. This compares to last week's -66,770 net short positions. The previous euro short record was -71,623 attained on February 23, when Greece had still to be renamed to AIG. Yen shorts declined modestly, after surging as we pointed out, by over 32,000 position in the prior week, and were at 26,488 this week. Does this indicate the euro squeeze is over? Today the euro closed stronger, after Greece is now stuck in permastrike mode, while Goldman is trying to sell euros to clients, known elsewhere as victims.
We have often noted our confusion at the seemingly impossible: a sellside analyst, coming to work each and every day, even though this process tends to be preceded by the monumentally difficult process of tying one's shoes. But don't take our word for it - the Valukas gift that keeps on giving, has summarized some of the more relevant analyst quotes disseminated by the sell-side to their clients, in the days and months before the firm filed for bankruptcy. (Stunningly, Dick Bove's Buy call on Lehman days before the firm blew up did not make the list). Instead of actually digging into the numbers, (hint - if Einhorn did it, it can be done] every single analyst was perfectly happy to accept the "reality" that was presented to them (with remarkably few exceptions) and spin it in to some sort of positive case, just so the firm's sales and trading operation could milk a few extra dollars in commissions from LEH shares. Let's dig in:
KKR is going public. Let's be honest, these guys have built a very successful business and a premier name in private equity. They are presumably very savvy investors and have invested years in building the franchise. Now they are telling you they want to sell, and they clearly don't need the cash. One can only guess they must think the market is overvalued. Suppose they are as good as Steve Schwarzman. Attached just for a laugh is the chart of BX IPO. If that thing was in the money 48 hours life to date that must be about it... and that was right at offering. - Nic Lenoir
February HAMP Update: 1.8 Million Eligible For HAMP Out Of 6 Million 60+ Day Delinquent 1st Lien MortgagesSubmitted by Tyler Durden on 03/12/2010 - 15:45
The main program the government has instituted to curb foreclosures and evictions, the Making Homes Affordable Program, is ramping up and has reached a whopping 170,000 permanent mods: this means that about that number of homeowners will be guaranteed a lower mortgage payment for five years. This is truly terrific news. This means that of the 6 million in 60 day delinquent 1st lien mortgage outstanding, a whopping 2.8% have gotten relief. Score one for the Obama administration. This doesn't even touch upon the bigger question: just who are these idiots who are stupid enough to still pay their mortgage? Paying mortgage is so pre-Repo 105.
As expected, banks begin denying any involvement in Repo 105s. The first one out of the gate - Goldman Sachs. MarketWatch reports just that: "Goldman Sachs Group Inc. said Friday that it has never used a transaction known as Repo 105. Goldman Sachs has never used this transaction," a spokesman for the
investment bank said in an email to MarketWatch." We are confident that finding perpetrators will increasingly mean focusing off-shore, especially in Britain (here's looking at your Barclays and RBS). As the Examiner points out, quoting an email from Mike O'Meara, then Lehman's CRO (risk, not restructuring officer - they wouldn't get one of those until a few month later) to Ryan Traversari (Senior VP of External Reporting):
Citigroup and JPMorgan “likely do not do Repo 105 and Repo 108 which are UK?based specific transactions.
It may be time for Barclays to issue a denial as well?
German opposition crumbles, as a Greek bailout plan is now official. We expect Portugal, Spain, Italy, Latvia, Ukraine, Bulgaria, Austria, and, finally, the UK, to line up next at the trough. And for all of you cynical bastards who thought that G-Pap was full of methane when we claimed he was not looking for aid... You were right. So now, under the wise tutelage of Goldman, make sure to plough all your money into the Euro. After all there are at least a few months before the next bailout has to be effected.
Just because, you know, we still need the market to go up a little more so we can short the crap out of it even as we tell everyone how stocks have about 100 upside on average (link to Goldman's most recent conviction list, which incidentally benefits massively from a weak dollar, and a strong euro). Furthermore, by going long the euro will not be breaking any soon-to-be-misconceived laws, whereby shorting to EUR or, and we await for official Congressional confirmation on this, buying the dollar, will be seen as an act of treason.
FDIC Sells Failed Banks' Toxic Crap Back To Soon-To-Be-Failed Banks At 50% Haircut With Explicit Taxpayer GuaranteeSubmitted by Tyler Durden on 03/12/2010 - 13:07
The FDIC has just announced that it has closed the sale of $1.8 billion of Notes backed by RMBS "from seven failed bank receiverships." The value of the actual aggregate balance: $3.6 billion. And somehow banks still keep their RMBS books marked at par. Furthermore, "the timely payment of principal and interest due on the notes are
guaranteed by the FDIC, and that guaranty is backed by the full faith
and credit of the United States. Sure enough, smelling this insane deal, the vultures came out to snack on the taxpayer's corpse: "The transaction was met with robust investor demand, with over 70 investors participating across fixed and floating rate series. The investors included banks, investment funds, insurance funds and pension funds. All investors were qualified institutional buyers." Just how many of these "banks, investment funds, insurance funds and pension funds" are viable to begin with, courtesy of the FDIC's permission for every failed bank to continue existing is an amusing question, and Zero Hedge will attempt to get an itemized list of the participating buyers.
We start off today's audiovisual segment with an insightful analysis of market dynamics by the duo of Mike Shedlock (Mish) and Marc Faber. Mish who runs the deflation-friendly blog Mish's Global Economic Trend Analysis, observes that the rally is not based on fundamentals, and believes that not only is it time to take profits, the probability of a retest of 666 is "50-50." Faber, always the pragmatist, points out that since the entire US economy is now based on the ponzi principle of money bringing in new money as every offer is chased higher, thinks we will never "see 666 on the S&P 500 ever again. If we go down by
say 10-20% on the S&P 500, our money printer in the US, Mr. Ben Bernanke will flood
the market with liquidity, weakening the dollar, supporting equities and other assets." In other words, as the race to the currency bottom and the attempt to force inflation inevitably picks up, the one true non-dilutable alternative to fiat one-ply, is and remains gold. As Faber cautiously says "I think an individual should take responsibility and be his own central bank, and buy gold every single month." As to where money can be invested in this time, both seem to agree that Japan, which is already 20 years down the money printing experiment, and there is little marginal fiat dilution remaining, is a good target to invest. This is further reinforced by Dylan Grice's recent observations about numerous Japanese stocks trading at or below liquidation value.
Earlier today the Census Bureau came out with its February retail sales announcement which was classified by CNBC's Bob Pisani as terrific on the basis of a 0.3% increase over January. What few point out is the January revision, which changed the January retail sales estimate from 355,777 to 354,339. As February came in at 355,546, one can see why the government's game of endless data fudging continues. Had January been unrevised, February retail data would have been a drop of 0.1% instead of a rise of 0.3%. We fully anticipate yet another downward revision to February numbers once March data comes out, to make the March increase even bigger. Yet what nobody at all is pointing out is that the Consumer Spending data reported by Gallup, which tracks "the average dollar amount Americans report spending or charging on a
daily basis, not counting the purchase of a home, motor vehicle, or
normal household bills", and whose 14 day rolling average for the month of February came not only at a drop of 5.8% from January's average read of 63.4, but came in at a series low 59.7, which was an improvement only on the 59.1 recorded at the lows of the US market crash in March 2009. US Consumption, when not parsed by the ever so creative eye of the US government, has rarely been as low as it was in February.
Lehman's Repo 105 Counterparties Barclays, Mizuho, UBS, Deutsche Bank, And KBC May Have Attempted To "Squeeze" The BankSubmitted by Tyler Durden on 03/12/2010 - 11:16
Yesterday we asked just who the counterparties on Lehman's Repo 105 transactions were. Today we get our answer: the parties that Lehman used exclusively to mask its true leverage ratio were Barclays, Mizuho, UBS, Mitsubishi, Deutsche Bank, KBC and ABN Amro. This is accompanied by disclosure from the Examiner that these Repos, which should logically have been cheaper to Lehman due to the overcollateralization compared to regular matched repo (remember: 105 instead of 100 plus a minor haircut), in fact were pricier, prompting Lehman staffers such as Mike McGarvey to speculate that counterparties may "try to squeeze Lehman." This is quite a critical development ahead of the lawsuit between the Lehman estate and Barclays (a Repo 105 counterparty), which not only refused to bail out Lehman in the 11th hour, but to subsequently go ahead and in the definition of a fire sale acquire Lehman Brothers' North American brokerage operations for pennies on the dollar, coupled with some serious additional trickery on the side. Another oddity: none of the counterparties were US-based. Did US banks know too well about the imminent collapse of Lehman and thus refuse to participate in the Repo 105 window dressing game? Or, much more relevantly, was Lehman terrified by retaliation of its US-based peers, (be it CDS or stock-based) and as a result refused to open up its deplorable balance sheet to them?
- Built on a lie - the fundamental flaw of Europe's common currency (Der Spiegel)
- It has been a while since we had a Greece rumor: EMU States near €20-25 billion Greece aid accord (Market News. Banking News)
- Germanry and France have decided that Greece needs €55 billion until the end of the year to prevent insolvency (Euro Intelligence, h/t Paul)
- No snow in February - Retail sales in US rose in February (Bloomberg), so did credit card chargeoffs
- IPO window still weak despite melt up: AVEO raises 23% less than sought in first biotech IPO of 2010 (Bloomberg)
- Not so lonesome doves: Janet Yellen to be next Fed vice chair (Reuters)
- Americans' net worth rised 1.3 percent in the fourth quarter to $54.2 trillion.
- Asian shares mixed, Japan stocks gain on speculation central bank to add funds.
- Eurozone industrial output jumps by massive 1.7 percent in January.
- Money fund assets fell by $36.22 billion to $3.090 trillion in latest week.
- Obama to nominate Yellen to post of vice chairman of Federal Reserve.
- Oil drifts above $82 in Asia as month-long rally loses momentum amid weak US crude demand.