Sovereigns

And now for some woefully overdue attempts at regaining credibility from farce agency Moody's, which after realizing that US debt may soon hit $16 trillion has noted that the US tax package increases the likelihood of negative outlook on the US AAA rating in next 2 years. What is worrisome, is that Moody's apparently did not get their Christmas bribe from Wall Street/the Administration, and actually dares to speak the truth: "From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth." As the announcement has pushed the DXY even lower, expect semi-formal validation that America will soon be insolvent to result in yet another surge in stocks.

For those who still don't get it ...

Speaking of China AND job growth, one industry that's booming in China is: Day Trading! That's right, as many as 10,000 people in China are doing speculative day trading of American stocks, according to the NY Times. They have been hired (ie. outsourced) by our own Banksters to mess with our markets from 9:30 pm to 4 am China time.

Breathless but futile discussions about the creation of a new layer of debt in the form of Eurozone bonds are going nowhere. Jean-Claude Juncker, head of the eurozone group of finance ministers, now clashes with France and Germany who both reject the proposal as it would raise their financing costs. On Thursday he said in Germany's main TV news "Tagesschau" that Eurozone governments would have to finance 40% of their debts via Eurozone bonds, which would lead to a northward conversion of German yields with their weaker Euro brothers in arms. As the Euro dream has rapidly mutated into a nightmare for Greece and Ireland, with Portugal and Spain to follow for sure, I note a fatal tendency in EU circles to hold out for the Endsieg despite all the contrary evidence pointing to a not too distant disintegration of the common currency.

From the exquisite stream of consciousness of Nomura's recent addition: Bob Janjuah, who luckily discovered he was far too smart to be held back by the D-grade bailed out banker-clowns at RBS (we can only hope Bob will next discover the carriage return button): "If you are wondering why the title "Bulls in a China shop", I hope that after reading the [below], it makes sense: financial markets are very fragile right now, and any bullish risk-on phase seems to be based on very hopeful assumptions (“don't fight the Fed”; “beware animal spirits in the US”; “don't position against the US consumer”; “Germany owes us”; and lastly, “China will always grow at 10%”). We prefer to rely less on hope and more on hard reality and sensible and credible policies – even if they may mean more pain in the short term."

Yes, I know the banks are hedged, and that means the are all safe right. We can just ask Ambac, MBIA, Countrywide, Merrill Lynch, AIG, Lehman Brothers and Bear Stearns investors - to start with...

S&P flexes its chicken wings, and nobody cares. After all it's not like a CCC- rated Greece will not have access to the global Bernanke put: "On Dec. 2, 2010, Standard & Poor's Ratings Services placed its 'BB+' long-term sovereign credit rating on the Hellenic Republic (Greece) on CreditWatch with negative implications. Standard & Poor's has also placed its 'BB+' rating on the individual debt issues of the Greek government on CreditWatch with negative implications, reflecting both the action on the sovereign credit rating and the possibility of a downward revision of our '4' recovery rating on this debt...We could affirm the ratings on Greece if our current expectations about the impact of subordination and undefined restructuring triggers are not borne out by events after we have analyzed the full ESM proposal. If, on the other hand, our views are borne out, we could lower our long-term rating on Greece, probably by one, but not likely more than two notches, depending on the details of the ESM."

Today the market surged after it was announced that JC Trichet has finally thrown in the towel and will launch some version of "buy the everything" program made so popular by his bald transatlantic late-afternoon genocide buddy over the last two years. Subsequently the market surged more on a rumor that America would send a mega dose of viagra to make Trichet's "bazooka" even bigger by boosting America's, er, IMF contributions to what will soon be a multi-trillion bail out. Lastly the market surged some more when that last rumor was proven to be false. Which is why tomorrow at 7:45 am Eastern (with conference to follow 45 minutes later) the hapless Pinata formerly known as Jean-Claude Trichet, whose every action is now predicated by the markets, better have something good to announce or else the market will go up so more... just as it will if there is no news. So for all those who wish to know why buying stocks is a guaranteed way to make money now that nothing at all matters, here are JP Morgan's advance thoughts previewing the ECB action, as well as Greg Fuzesi's observations on additional bond purchases.

David Rosenberg summarizes his latest views on Europe, the EURUSD, risk, volatility, bond curves, gold, geopolitics, oil, a subsidized shopping season courtesy of no mortgage payments, and two years of home inventories.

D'oh!

The dominoes are starting to fall ...

Diapason's Sean Corrigan does a succinct review of how the "multi-trillion" ponzi has progressed, where we are now (a point where even intellectually challenged anchors on CNBC gasp in wonder that entire countries are failing merely to save a few not so good bankers), and where we are headed: "under the rules of this multi-trillion
shell game, the sovereigns guarantee the ECB which funds the banks which
buy the government debt which provides for everyone else's guarantees." All in all, nothing that should surprise our readers (as should none of the things that are "suddenly" headline news), but still one of the better summaries of how and why we are now at a point where even the second biggest economy in the world (the EU) is unable to stop the unraveling. It is only fitting that America is today demonstrating to the world the apogee of its consumerist orgy, even as the austerity belt is tightening for yet more hundreds of millions of people all across the world, and where resentment toward America is once again reaching unprecedented levels. At this point it is just a matter of time before said unraveling crosses the Atlantic. One year from today the media will be running amused retrospectives how a deranged bubble chasing hedge fund world was buying NFLX and AMZN at triple and quadruple digit forward multiples. But until then the insanity has just a little longer left to run.

If you are looking for guidance and clarity from the Federal Reserve, your trust will be misplaced. The recently released minutes of the Federal Reserve Open Market Committee's (FOMC) November meeting reveal a deeply divided Fed with no clear consensus on the effectiveness of their policies.

Something is happening. I am not saying it is a trend, but the data are suggesting some improvement in the economy. This is the first time I have said this in two years. It may just be a temporary phenomenon since there are so many headwinds against a recovery. Perhaps it is just that things aren't getting worse. But the data are important and should not be ignored.

Today's sudden spike in yields across the curve is being widely attributed to a conversation between Moody's Steven Hess, Senior Credit Officer covering sovereigns, and Market News, in which Moody's has given the point blank warning that a permanent extension in the Bush tax cuts may lead to a downgrade of the US, putting yet more pressure on the president, who despite having shown a conciliatory stance recently vis-a-vis permanent tax extensions, may suddenly find himself boxed once again, and without much choice but to prevent an all out compromise. As the market has recently been running higher on expectations that a tax cut extension is pretty much guaranteed, today's announcement by Moody's pours cold water over yet another "priced in" concept, which suddenly may not materialize. The net result: a smackdown in the 10 Year which is slowly migrating to all risk assets.