Pop quiz: you are a Central Bank and everything is slipping out of control. What do you do? Correct answer - whatever you can, better known as market manipulation. The SNB just killed the CHFEUR. Every country is now on its own as it tries to kill its currency first. It puts the currency in the basket or it gets the revolutionary hose again.
Albert Edwards: At 500% Net Liabilities To GDP, It Is Too Late To Prevent The Collapse Of The G-7; Greece Is Irrelevant, We Are All Now InsolventSubmitted by Tyler Durden on 02/12/2010 - 11:52
For Greece, with on and off balance sheet liabilities at over 800%, it's game over. For the Eurozone, with the same ratio at about 500%, it is also game over. For the US, at 500%+, it is, you guessed it (sorry Joseph Stiglitz), game over, but since we have the printers, it will simply take a little longer. Following up on yesterday's popular post on prevailing delusions as captured by Albert Edwards' colleague Dylan Grice, we present Albert's latest outlook. Please don't read this if you want to keep believing there is any hope left for the (developed) world.
An announcement from European leaders of a commitment to assist Greece boosted the Euro and dinged the dollar. That in today’s Pavlovian world sent gold, oil and stocks higher. It was entertaining to watch pundits on TV trying to invent a stimulus or two for the rally. A couple even tried to attribute the rally in stocks to movement on financial reform.
Duh! What would make the Dow rise 100 points, gold jump $20 and oil to move up nearly a dollar? The answer fairly jumps off the page. It was the pullback in the dollar – er…..more directly, the dollar basket (DXY).
The relationship between the dollar and other assets is clearly evident by looking at the minute by minute charts. We presume the pundits look for other causation simply to fill up air time. - Art Cashin
Remember "That" Crisis? Dubai CDS Rises Above 600 bps For First Time Since November 2009, Up 40 bps On The DaySubmitted by Tyler Durden on 02/12/2010 - 10:18
Rumor: Nakheel may be going into administration. And an even ghastlier rumor: we are about to see an announcement restrictring all sovereign CDS trading. Time to reevaluate that "Dubai is contained" thesis. Just sayin'... Got Dubai CDS, bitches? Keep them while the government tells you to sell.
- Must read from the master: Lehman justice isn't blind, it's unconscious (Bloomberg)
There’s been much talk the past two years about moral
hazard, which is the risk that companies and their investors
will behave more recklessly when they believe the government
will bail them out. Less has been made of a similar hazard: The
danger that powerful companies won’t follow the law when their
executives believe the government won’t hold them to it. The latter risk threatens not only our economy, but our
democracy. There’s every reason to believe both kinds are
- China raises bank reserve requirement to cool economy (Bloomberg, Reuters)
- EU leaders deploy "Bazooka" to repel attack on Greece (Bloomberg)
- Goldman Sachs, Goldman Sachs, clicking in the votes? (Guardian)
- Evans-Pritchard: Will markets call EU bluff on Greek rescue? (Telegraph)
- Blackstone IPOs show barriers to returning fund cash (Bloomberg)
- Rise in retail sales brightens recovery picture (Reuters)
- Totally not out of leftfield post of the day: Steve "Busted IPO" Schwarzman: Lawmakers rush to punish banks threatens recovery (WaPo)
Perspectives on the the sovereign crisis and bond markets from Roubini, Malpass and some other talking heads. The ever optimistic David Malpass sees no fear of a failed bond auction. Roubini on the other hand, and quite logically, compares the European peripheral crisis with what is happening in California and all the other bankrupt US states. To which Malpass changes the subject to gold and jumps on our bandwagon which sees gold, not the dollar, as the ultimate fiat currency alternative. To be fair Malpass does say: "Europe is actually further down the line to a debt crisis than we are, but we are getting there very fast right now... The Federal government will have to decide how much to bail out California. That creates a lot of social tensions." Ironically, Liesman nails it: "Isn't the difference between Greece and the U.S. that the U.S. has a printing press and Greece doesn't. At some point it is no longer any good for Greece to be part of a union where it can't have any control over its monetary policy." The tide is again turning: isn't it time for Roubini to turn just a little bearish?
Compare and contrast the following headlines:
Really nothing much to say here.
- Asian stocks rose on Friday, lifting the MSCI Asia Pacific Index to its first weekly gain in four.
- China inflation 'blip' masks price pressures from property, credit surge.
- China orders banks to set aside more deposits to cool the fastest-growing major economy.
- Euro declines for third day on concern Greece measures may not be enough.
- Eurozone economy grows by only 0.1 percent in 4Q 2009.
- Germany, others pledged “determined and coordinated action” to help Greece.
RANsquawk 12th February Morning Briefing - Stocks, Bonds, FX etc.
The U.S. consumes nearly three times the amount of oil that it produces domestically on a daily basis. How can this statistic get any worse, you might ask?
Imagine in 2010 the Obama administration persuades Congress to pass a budget that results in a reduction of domestic oil production by 10% - 20%, making the supply/demand imbalance even more lopsided. Foreign oil companies will gain a distinct advantage over American domestic operators as an unintended consequence of these proposals.
Sound farfetched? It’s closer to reality than you may think… If it comes to pass, it will likely be the biggest structural change in the U.S. domestic oil and gas industry in decades and have far-reaching implications for investors and for the entire country.
The Federal Reserve's balance remained at an all time high of $2.233 Trillion in assets, after a $3 billion increase in MBS and Agency purchases week over week. Securities held outright: $1,913 billion (an increase of $57 billion MoM, resulting from $52 billion increase in MBS and $5 billion in Agency Debt), or a $3 billion increase sequentially. The fed is now 95% complete with its purchases of MBS. Net borrowings: $127 billion. The monetary base increased by $50 billion in the past fortnight to $2.06 trillion. The ratio of total assets to Monetary Base remained constant at 1.08x, elevated from the historical ratio of 1.00x. Custody foreign holdings increased by $9.3 billion to $2,956 billion. A maturity profile of the Fed's assets indicates a skewed maturity distribution. Of a total of $2 trillion in dated assets, $132 billion mature in under 15 days, $226 billion in under 1 year, and $976 billion in under ten years.
The CME group announced that margins for metals futures contracts on the NYMEX and COMEX will rise beginning February 12 by approximately 25% across various classes. The initial margin for 100-ounce COMEX gold futures will increase to $6,747 from $5,403, while the maintenance margin will rise to $4,998 from $4,002. For 5000-ounce COMEX silver futures, initial margins will increaseslightly less: from $6,075 to $6,750 while the maintenance margin increases by $500 from $4,500 to $5,000. Margin increases will be largest for palladium, where initial margins will risefrom $2,363 to $3,713, coupled with a maintenance margin increase of $1,000 from $1,750 to $2,750. Additionally, as the full advisory indicates, the CME increase margins by various percentage for virtually all of its product groups.
Today's low volume once again brought about an aberrant market, in which a gust of buying late in the morning even as the euro was probing new lows, took the market to a new churn level, which resulted in a close at 2 standard deviations above the VWAP over the past two days. The gap can be seen on the accompanying chart. Should VWAPs reversion algos appear, the SPY will likely retrace the gain back to the computer model favored 1067 level.
Pimco's Michael Gomez, who recently shared the floor with Hugh Hendry, Marc Faber and Nassim Taleb, and who was likely the key voice in Pimco's recent decision to accumulate German Bunds, shares insights on the euro, Greece and new investment opportunities. Based on this Bloomberg TV interview, it is likely that PIMCO will soon be accumulating a variety of Polish and Brazilian sovereign bonds, as well as corporate bonds in Brazil, Mexico and Russia, with an emphasis on the first. With tens of billions in dry powder, PIMCO will likely have an increasingly risky EM exposure as it departs from its traditional MBS/UST portfolio.
Sergey Aleynikov, the former Goldman programmer, who was arrested by the FBI in July last year on virtually a day's notice after Goldman told the FBI the Russian had stolen secrets that could be used to manipulate markets, has just been indicted on charges he stole computer codes used for proprietary high-frequency trading programs. The specific charges include theft of trade secrets, transportation of stolen property in interstate and foreign commerce and unauthorized computer access. The charges carry a total jail time of 25 years.