With Contagion Risk Back On The Table, Will PIIGS (Spreads) Fly?
by Zero Hedge - November 30th, 2009 11:55 am
Courtesy of Tyler Durden
The chart below, courtesy of CreditTrader, demonstrates that the sovereign credit spread between BRICs and PIIGS (Portugal, Italy, Ireland, Greece and Spain: the Eurozone’s weakest legacy links) continues converging. The market is now fully expecting the next risk flaring event to occur deep within the bowels of Europe. And with the ECB’s head stuck firmly up its rear end, and in fact threatening it is preparing to raise rates, the Stardust has started a line on the number of months before the break up of the European Union experiment becomes a fact.
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DiggNY Fed Announces More Reverse Repos Coming, Spooks Stocks
by Zero Hedge - November 30th, 2009 11:12 am
Courtesy of Tyler Durden
After the first repo test was a complete failure, the FRBNY has decided to try one more time. However, unlike the large test conducted before, this time Liberty 33 “plans to conduct a series of small-scale, real-value transactions with primary dealers.” Anything coming from the New York Fed that has the “real value” stigmata attached to it makes one wonder if April 1 came late this year. We can not wait to report on the near-certain failure that this particular round of repo tests will once again be proven to be, as banks simply can not wait to onboard the toxic filth they so graciously have handed to US taxpayers over the past six months.
As noted in the October 19, 2009 Statement Regarding Reverse Repurchase Agreements, the Federal Reserve Bank of New York has been working internally and with market participants on operational aspects of triparty reverse repurchase agreements to ensure that this tool will be ready if the Federal Open Market Committee decides it should be used. In the coming weeks, as an extension of this work, the Federal Reserve Bank of New York plans to conduct a series of small-scale, real-value transactions with primary dealers. Like the earlier rounds of testing, this work is a matter of prudent advance planning by the Federal Reserve. It does not represent any change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future.
These forthcoming operations are being conducted to ensure operational readiness at the Federal Reserve, the triparty repo clearing banks, and the primary dealers. The operations have been designed to have no material impact on the availability of reserves or on market rates. Specifically, the aggregate amount of outstanding transactions will be very small relative to the level of excess reserves, and the transactions will be conducted at current market rates.
The results of these operations will be both posted on the Federal Reserve Bank of New York’s public website where all temporary open market operation results are posted and reflected as a liability in tables 1 and 9 in the Federal Reserve System’s consolidated balance sheet statements.
IS DUBAI ANOTHER BLACK SWAN?
by ilene - November 30th, 2009 11:08 am
IS DUBAI ANOTHER BLACK SWAN?
Courtesy of The Pragmatic Capitalist
Vern Hayden, president of Hayden Financial Group LLC, and Mark Dow, a portfolio manager at Pharo Management LLC, talk with Bloomberg’s Jon Erlichman about Dubai’s credit crisis and the possible impact on investor strategy.
Goldman Believes Two-Thirds Of Financial Losses Realized, Completely Ignores Derivatives And FAS 166/167
by Zero Hedge - November 30th, 2009 11:05 am
Courtesy of Tyler Durden
“Bad loans = big losses” Golaman’s most recent quantification of bank losses begins objectively enough, yet promptly devolves into yet another cheer fest for the financial system. GS promptly rehashes its estimate of “only” $2.1-2.6 trillion in bank losses, slighty adjusting the composition of loans it believes will go bad, while completely ignoring the onboarding of off-balance sheet liabilities (FAS 166-167) as well as any and all potential losses in the derivative realm, where Goldman itself is on the hook for tens of trillions in gross notional. The only thing missing from this fluff piece is a Conviction Buy rating on Goldman itself (but the Conviction Buy on toxic credit card and real estate debt laden BAC, JPM and COF is certainly present).
The highlights from the report:
We are entering the final third of loss recognition with $1.6 tn of losses realized to date. Key points:
(1) Stable estimate, changing composition: We have estimated $2.1-$2.6 tn of total losses from US credit since March of 2009. We still believe this is the right range but update the composition with more for prime mortgage and commercial real estate and less for consumer and C&I.
(2) Two-thirds through recognition: $1.6 tn of losses have been recognized, putting us about 2/3 through the cycle. Bank NPA and reserve levels are also about 2/3 of the way to the peak in prior regional home price depressions, which have exhibited similar cumulative loss rates.
(3) Remember the cause- bad lending: The core cause of the crisis – bad lending, particularly in real estate. 98% of losses can be traced to bad loans in general, and 70% of losses can be traced back to bad real estate loans. Regulators will likely re-focus on this. Consider that almost every bank that has failed cycle to date has either been overweight Option ARMs or construction loans.
(4) Prime problems: Prime mortgage credit trends continue to disappoint while commercial
real estate will be increasingly evident as well. Conversely, consumer and C&I losses seem likely to come in below our original expectations given recent improvement in the data and outlook.
(5) Q: Was the stress test enough? A: Yes: With unemployment at 10.2% vs. a 10.3% stress test peak, it is reasonable to ask if the stress test was enough. 2009 loan losses, trading results,
…
INSIDER SELLING REMAINS ABNORMALLY HIGH, BUYING STILL NON-EXISTENT
by Insider Scoop - November 30th, 2009 10:44 am
INSIDER SELLING REMAINS ABNORMALLY HIGH, BUYING STILL NON-EXISTENT
Courtesy of The Pragmatic Capitalist
The trend in high levels of insider selling and low levels of insider buying remain unchanged this week as executives continue to sell into the rally. Of course, they’re not the only smart money that is now selling into the rally. Institutions recently turned neutral on markets after have been bullish on equities for the last 6 months.
For the latest week insiders sold $841.9MM worth of stock while
Insider buying remains heavily skewed by buying in Open TV (OPTV) where insiders purchased over $25MM or 67% of the total buying. Outside of the buys, insider buying remains disturbingly low:
RANsquawk 30th November US Morning Briefing – Stocks, Bonds, FX etc.
by Zero Hedge - November 30th, 2009 10:43 am
Courtesy of RANSquawk Video
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5 REASONS TO EXPECT A NEAR-TERM SELL-OFF
by ilene - November 30th, 2009 10:17 am
5 REASONS TO EXPECT A NEAR-TERM SELL-OFF
Courtesy of The Pragmatic Capitalist
Strategists at Credit Suisse are currently expecting a near-term equity sell-off, but are not yet concerned about the downturn evolving into a larger bear market decline. Why have they turned a bit more cautious? A series of psychological, fundamental and technical events:
As we’ve previously noted, sentiment is turning extremely bullish:
(a) Bearish sentiment has hit June 2004 low (Figure 9). When it was this low in 2003 and 2004, markets corrected by 5% (Figure 10), but we would stress that bullish sentiment at that point was a lot higher then than it is now.
Credit spreads have begun to widen in the last few months. Not surprisingly, investors are beginning to focus on the long-term debt problems around the globe. In addition, Dubai and the upcoming wave of mortgage resets could prove a reminder that the credit crisis is not quite over yet.
(b) Stress in the credit markets. We have seen the sovereign CDS rise in the past three months especially in Japan (the world’s largest creditor!), whose CDS has doubled (rising from 35bps to 70bps) – a surprise, given that the trigger has been the DPJ tightening fiscal policy by 1.2% of GDP. We have also seen the credit spreads of lower quality European countries deteriorate (Greece spreads have widened by 100bps over the past three months).
As we recently noted in the Expectation Ratio, it’s likely that the gap between real earnings and expectations has peaked. Credit Suisse believes upgrades have likely peaked as well:
(c) The rate of earnings upgrades has just peaked, and on the last three occasions this happened (June 04, Sep 05 and May 06), the S&P 500 has traded sideways for a the next three months.
Credit Suisse is concerned thatthe ECB could begin pulling the liquidity plug:
(d) The ECB will start withdrawing part of the emergency liquidity – with the announced end of the unlimited one-year refinancing operations in December. Greece and Ireland are the main recipients of the funds from ECB refinancing operations, with these funds being equivalent to around 50% and 16% of GDP respectively, according to our European Economics Team.
Although the technicals remain firmly positive in the long-term,
…
Jeffrey Saut Blasts Rosenberg, New Pundit Drama In The Making As Rogers-Roubini Love-Fest Tapering
by Zero Hedge - November 30th, 2009 9:59 am
Courtesy of Tyler Durden
Looking at the mudslinging campaign going among economic strategists, one would think the presidential elections are early (and for once we may just elect someone who understands something…anything… about the economy). First we had Rogers and Roubini, and now it appears that the Bull-Bear combo of Saut-Rosenberg is next to take center stage.
As a reminder, in his November 18, Lunch with Dave piece, Rosenberg took a stab at permabull Jeffrey Saut:
In terms of reading material, what I found was most fascinating was this Bloomberg News article titled U.S. Stocks Advance as Commodities Gain. In the article, a CIO from an investment house is quoted as saying “we feel like this market still has some room to move higher. We’re still at levels that are lower than we were before Lehman Brothers. We are vastly better off than we were then.”
This is a rather remarkable statement, but this is what many portfolio managers actually believe — that things are better than they were before Lehman collapsed and hence there should be no reason why the S&P 500 cannot gravitate back to the pre-crisis range of 1,200-1,300. To be sure, technicals can take us there, but as for the macroeconomic fundamentals, they are so far worse now than they were before Lehman collapsed that it’s not even funny. Look at what’s happened since then:
- We have lost 6.2 million jobs since then
- The unemployment rate is 10.2% now; it was 6.2% the day before Lehman failed
- Even with the nascent mid-year recovery, real GDP is still down 3% since the summer of 2008
- Housing starts are down 30%
- Auto sales are down 23%
- Bank credit has contracted $500 billion, or 8%, since then
- Household net worth is down $7 trillion
- Home prices are down an average of 10%
- Office vacancy rates are up 3.5 percentage points, to 17.2%
- Apartment vacancy rates are up a percentage point, to 11.1%
- Consumer confidence is down 11 points to 47.7 (Conference Board)
- The U.S. budget deficit has tripled (and the only reason the economy is growing again)!
If this is “vastly better off”, we would shudder to think what “worse off” would look like.
An indignant Saut takes offense today, and retaliates with the following:
Most recently,
…
Are Steel Prospects Rustier Than Goldman Would Like You To Believe?
by Zero Hedge - November 30th, 2009 9:30 am
Courtesy of Tyler Durden
Always searching for a positive inflection point to upgrade the living daylights out of, Goldman now sees major upside in steel stocks, with X making the Conviction Buy (aka GS Prop Desk Conviction Sell) list. Below is a chart of US steel imports in value and tonnage over the past 3 years.
Goldman present the following favorable points:
- #1 – Steel stocks have sharply underperformed other cyclicals.
- #2 – US steel prices have bottomed.
- #3 – Scrap prices (key leading indicator) are moving up.
- #4 – Rising lodestar China prices are pulling up global prices.
- #5 – Rising iron ore and coking coal prices provide cost push.
- #6 – The BDI (another leading indicator) is sharply up.
- #7 – Continued dollar weakness deters imports/boosts exports.
- #8 – Domestic industrial activity is expected to improve in 2010.
- #9 – Steel makers should maintain discipline when raising supply.
- #10 – Inventories are close to a “pinch point.”
- #11 – Demand from other emerging markets, even ex-China, is improving.
- #12 – Multiples have contracted/could expand as prices rise.
- #13 – Margins should recover and expand as we exit the bottom.
- #14 – Steel has already decoupled from other commodities.
Whether all these are sufficient to offset a 70% drop year over year in US imports, even as service centers had been feverishly restocking inventory into H2, is unclear. Frankly, all of the points above by Goldman are irrelevant: the only open question is how much more Krugman-adored stimuli will the US economy see in the next year. Extrapolate from that all the information you need.
| Attachment | Size |
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| Goldman Steel.pdf | 409.23 KB |
Frontrunning: November 30
by Zero Hedge - November 30th, 2009 8:58 am
Courtesy of Tyler Durden
- Dubai World’s debt not guaranteed by government (Bloomberg)
- Taxing Wall Street today wins support for Keynes idea of 1936 (Bloomberg)
- How many FSB chimps does it take to make a Systemic Risk candidates list: where the hell is Citi? (FT)
- Ferguson: An empire at risk (Newsweek)
- How Fannie and Freddie sank in the subprime quicksand (IBD)
- Bernanke starts Fed debate early (WSJ)
- Wen rails at “unfair” renminbi pressure (FT)
- Bring on Fed transparency (Forbes)
- The problems in Dubai (Cumberland)
- MGM Mirage bets on Citycenter to lower debt as partner teeters (Bloomberg)
- Cembalest: Obama’s business blind spot (Forbes)
- World’s cheapest car Tata Nano goes green (BBC)
- Krugman begging for more stimulus money (NYT)
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