Portugal

One would think that judging by all the frequency of lies about Europe's latest CDO knight in shining armor, also known as the EFSF, that bond spreads would be rushing headlong to zero as yet another form of perpetual taxpayer backstop is implemented. One would be wrong. Spreads on the Portuguese and Spanish 10 Years are now back to their widest levels in history. It is fairly complicated to reconcile this stickiness with the daily barrage of mendacity from all ECB apparatchiks. Basically, the market, unlike Goldman (see below), is fairly unconvinced that any of the currently planned rescue plans have any chance of being successful.

If nothing else disturbs you while you buy your NFLX today – that last one should. Rich folks in an industrialized nation trying to go to the theater in their limo and being attacked by an angry mob.

If there is one thing that the one-time GAO audit of the Fed disclosed, is how woefully insufficient the extremely superficial data discovery was. Another thing uncovered was just how needed this disclosure was: it provided extended material into how the Fed subsidizes banks (both domestic and international) on an ongoing basis, not to mention substantial number crunching for the blogosphere. Either way, if Bernanke was hoping that the Frank-Dodd bill would take care of the Fed opacity, pardon, transparency issue in perpetuity, he may be disappointed: Ron's son, Rand, has just announced he is introducing legislation to, well, Audit The Fed, precisely along the lines of what his father did previously and generated massive support from everyone in Congress. Once again Ben Bernanke is about to become a major thorn on the side of the political puppetry.

The proper decision now regarding your child's education may be the difference in whether you set your child up for a life of failure or a life of success. Yes I really do believe that the decision on whether to send your child to university now or to forgo that traditional route is a “make or break your child’s life" type of decision.

I, among many, was thinking the Euro would test the 125 level, but things have turned. Here is how the reversal of foturn came about and the outlook ahead.

The announcement by Brian Cowen that he was resigning as the leader of the Fianna Fail party, but is going to stay on as Taoiseach (Prime Minister) until the March 11 election, has put the Irish bailout into question.

One of the hottest topics over the past two weeks in Europe has been whether or not the EFSF, or the multi-billion, AAA-rated synthetic CDO that is affectionately called the "rescue fund" (and which we are confident Goldman is somehow betting against as we type), should be allowed to buy back debt of insolvent countries trading at less than par (obviously). Allowing this process to go ahead is nothing less than a wholesale ponzi pyramid, whereby everyone chips in to make everyone that little richer, while in reality the fundamental problem remains, and the only thing achieved is eliminating the need to have a market interest for any country's sovereign debt (something Portugal recently did when it placed a billion or so in debt with China), and completely eliminating market discovery. And while Germany has, as usual, been very much against this proposal, which it sees as one step short of a federal Euro debt issuance authority, it will sooner or later have to cave in to the chorus of demands by everyone who is insolvent, if it wants to keep the Euro, which it does since it is the European equivalent of the Dollar-Yuan peg, and keeps the country's export strength supremacy to the rest of the continent. To that point, earlier today, Eurogroup Chief Jean-Claude Juncker told Spiegel that European leaders should not shy away from a proposal to buy back the bonds of troubled euro member states but should not rely too much on rich countries. "It would be wrong to create taboos but we cannot overstretch the strong countries," Juncker said in an interview with German magazine Der Spiegel seen by Reuters on Saturday ahead of publication. We wonder who they should rely on then: why themselves of course - let everyone chip in a little so they can grab from the rescue fund with both hands, all the while pretending this is a fair and equitable treatment.

• Peter Orszag: America must brace itself for turbulence (FT)
• ECB Flags Risks of Higher Prices (WSJ)
• Spain Plans Partial Nationalization of Savings Banks (Reuters)
• BofA Reports Loss on Costs Tied to Bad Loans, Mortgage Unit (Bloomberg)
• European Governments Weigh Bond Buybacks (WSJ)
• Portugal Vote Imperils Accord (WSJ)
• Obama Taps GE's Immelt to Head Economic Advisor Panel (Bloomberg)
• Hu defends Beijing’s Currency Policy (FT)
• GE Net Rises 31%, Tops Estimates Amid Finance, Health Gains (Bloomberg)
• Nigeria oil fund fears hit bond issue (FT)
• Ivory Coast's Gbagbo Faces Financial `Asphyxia' by EU (Bloomberg), bad news for bondholders

Global markets trading lower this AM on China growth story that indicates further tightening is imminent in the region. Yesterday’s mortgage/housing data montage was mixed to slightly positive as weather was no doubt a factor. Today features weekly jobs data as well as the Philly Fed, both of which will be watched closely to see if jobs data returns to its prior dour trend and if the 4Q10 upswing in activity is sustainable. In corporate land, the calendar appears to still be full and growing on a forward basis. From an issuer’s perspective, the still-low all in coupon rates combined with the risks of waiting to issue are quite attractive.

The market sold off today as earnings were more mixed than...

Read between the lines and you will see the "R" word (restructuring), clearly and plainly.

• Define irony: Goldman among four underwriters picked to manage AIG share sale (Reuters)
• Prop trading is baaaack: Volcker Rule Should Require Sign-Off by Bank CEOs, Panel Says (Bloomberg)
• Wells Fargo Misses Profit Estimates as Mortgage Banking Weakens (Bloomberg)
• Asia to See Soaring Prices in 2011 (Reuters)
• Chinese Premier stresses stabilizing food prices, housing market in 1st quarter (Xinhua)
• China and U.S. Set to Square Off (WSJ)
• China Needs Urgent Guidance on Euro Debt Risk, Yu Yongding Says (Bloomberg)
• Gerova Hires Investigator in Bid to Refute Critical Report (NYT)... stock plunges again (report posted here first)
• José Sócrates reportedly begged for help last week as Portugal became the latest eurozone country tipped for a bailout (Guardian)
• European banks face tougher stress tests (Irish Times)

Markets mostly bullish this AM following the holiday weekend in the US. Friday’s CPI print seemed reflective of inflation, showing increases in core and non-core metrics, while retail sales was mixed relative to expectations. We fear the real demand rally might well be short lived. Today’s Empire Manufacturing and November TIC flows will be watched closely for forward indications in the US, while the story out of Europe continues to be the market’s focus.

The Celtic Tiger has been on the economic ropes since the crash of 2008. In the first hours of the crisis, the US Federal Reserve provided emergency funding to Irish banks, pouring 10’s of Billions of US dollars into the Irish Banking system, providing funds as needed.