Via UBS Financial Services
Goldman Grabs Headlines. Greece Grabs Markets - Stocks traded uncertainly in the early minutes of trading Friday. European markets were shaky and nervous as the potential financial crisis in Greece headed back to page one. The initial currency (Euro) reaction was somewhat muted, so the impact on stocks, gold and oil was also muted.
Around 10:30, the Euro started to get pounded, driving stocks, gold and oil sharply lower. There were reports that Germany might exit the current European Union and form a new, smaller group of hard currency nations. That seemed to shake things up. The yield on Greek bonds shot up to 7.37% Around the same time, the SEC announced its case against Goldman Sachs. The pressure on stocks, particularly bank and financial stocks, accelerated. Part of the thinking was that the charges might make for a more onerous and expensive reform package.
The media pundits began to seize on the Goldman case as the singular catalyst of the selloff. When traders pointed to the contemporaneous but somewhat more severe weakness in gold, oil and other assets, the pundits tried to push it aside. A few pundits even tried to weave the gold weakness into the Goldman story. They noted that John Paulson’s name appeared in the story (uncharged). Since he had been working on a gold play that must be the reason for the bullion selloff. Nice try, but it failed to account for the equivalent weakness in crude and other assets.
Despite the contortions of the pundits, it looked (from the playing field) like the selloff was 75% Greece and, maybe, 25% Goldman. The selling was quite broad. Nearly 80% of the stocks that traded closed down. The added problem for the bulls was the increased volume brought on by the option expiration. That made Friday a clear distribution day in the key indices.
Traders headed for the ritual marination wondering what the next step in the Greece situation would be. Reports were that the ECB and IMF might be in Athens as early as Monday. It sparked the bulk of post close conversation.
Volcano Ash Clouds Greece’s Rescue – As noted above, traders left the floor, Friday, believing there would be a key meeting in Athens this morning. It appears that the airline groundings connected with the Iceland volcano have delayed the meeting. They are said to now be shooting for Wednesday or Thursday.
What was not delayed was market and public reaction. Here’s a bit from Bloomberg:
The yield on the Greek two-year note climbed 59 basis points to 7.49 percent at 10:57 a.m. in London. The 4.3 percent security due March 2012 slid 0.97, or 9.75 euros per 1,000 euros face amount, to 94.50. The 10-year bond rose 29 basis points to 7.74 percent, driving the difference in yield, or spread, between the security and bunds 30 basis points wider to 460 basis points, the most since October 1998. The Portuguese-German yield spread jumped 8 basis points to 147 basis points and the Irish-German spread rose 6 basis points to 153 basis points.
Credit-default swaps tied to Greece’s government bonds rose 17 basis points to a record 455, according to CMA DataVision prices.
Prime Minister George Papandreou’s decision to call for the talks prompted a reaction of “rage” among 48 percent of Greeks surveyed in a poll in the Eleftheros Typos newspaper yesterday. Nine of every 10 people surveyed said they expect the IMF to insist on deeper austerity measures. Labor unions have threatened strikes over the prospect of deeper budget cuts.
Greece is due to repay 8.2 billion euros to investors tomorrow in a debt redemption. The government has no need to raise money until May, according to Petros Christodoulou, the head of the Public Debt Management Agency.
Please note that the labor and public pushback is to an austerity program that not only hasn’t been implemented yet, it has not event been designed. This may be along hot summer in Athens and elsewhere.
Random is as Random Does – My friend, Dennis Gartman, and I used to poke fun at the monthly non-farm payroll numbers. Dennis felt they were so random, he tried not to be in the office when they were announced. As the crisis has evolved and 8.5 million jobs have been lost, media attention to the number has grown expmentially and we can’t quite ignore them so readily. Or can we?
Dennis came across an article in the weekend WSJ that shows how random the payroll numbers really are. Here’s a citation by Dennis:
The ranks of unemployed individuals grew by 134,000 last month From February to 15 million, the Department of Labor’s Bureau of Labor Statistics says. But it is also plausible, the agency says, that the number of unemployed rose by 500,000.
Or, it could have fallen by 200,000.
In act, at a time when high unemployment tops many people’s worries about the economic recovery, the BLS says only that it is 90% confident that the true change in the numbers of unemployed in March was somewhere between a drop of 243,000 and an increase of 511,000. In other words, it isn’t even clear whether the number of unemployed rose or fell last month. The ranges are similarly broad for seven of the past 10 months--- and for more than 75% of the time in the past decade.
Wow! To think that markets react to these numbers as though they were truly meaningful.
Consensus – While Goldman still dominates pundits’ comments, we’ll watch the bubbling cauldron that is Greece. Stay very nimble.
Answer - The numbers of available socks was not important. There were 5 colors so 6 choices were needed to assure one pair.
Today's Question - Something Fishy. The well known angler and sportsman, Allen Jefferies, has caught a beaut. The boys at the fishing club estimated that the bass weighed 22.5 ounces plus half its own weight. How much did it weigh?
AN ENCORE PRESENTATION
On this day (-1) in 1775, there occurred one of the best known yet most misunderstood events in American history. Thanks to Longfellow's famous poem, popularly but mistakenly called, "The Midnight Ride of Paul Revere," nearly every schoolchild has heard of "that famous day and year."
But many of the images in the poem, while stirring, are not correct. Revere was not a volunteer. He didn't ride alone. He never finished the ride and he didn't hang any lanterns in the Old North Church.
Revere was a patriot, of course. He was one of the "Indians" at the Boston Tea Party. He had been active in many pre-revolutionary groups. But that night he was serving as a paid messenger, a role he had often before served. (He actually submitted a bill for his famous ride.) Historians believe the ride started at a time earlier than midnight.
The lanterns signaling "one if by land and two if by sea" were actually set by church sexton, Robert Newman. The signal meant the British regulars were setting to out arrest John Hancock and Samuel Adams (two higher profile patriots) at Lexington and then to seize a stash of revolutionary arms and gunpowder at Concord.
Revere and a co-rider William Dawes rented horses and set out on their ride. They made it to Lexington, warning Adams and Hancock. They were joined by Dr. Samuel Prescott. On the way to Concord, Dawes and Revere were arrested. (Speeding?)
Prescott, however got through and so the patriots were ready the next day to fire "the shot heard round the world."
And sources say that Revere didn't shout, "The British are coming!" Rather it is believed he called out - "Awake! The Regulars are out!" (How riveting.) And, finally despite thousands of barroom bets no one knows the name of the horse.
(Not even the Boston Historical Society. - Don't bother to write in - it was not Brown Betty! Recall, it was a rental.)
There was no Paul Revere on Wall Street Friday but there were several alarums sounded or felt.