It seems that the European debt markets are rallying in response to the end of ADVERSE FEEDBACK LOOPS. In a mind-numbing thought, it appears that the implementation of austerity budgets actually had the effect of increasing deficits as economies slowed as austerity began to bite. (The outcome of the adverse feedback.) The more austerity, the larger the deficit, which is compounding the debt problems of peripheral nations. Greece is the poster child of austerity gone awry. So as the threat of AUSTERITY diminishes, the more a nation’s bonds rally. The ITALIAN BTPs (10 years) saw its yields drop precipitously as a new government was formed over the weekend. But the rally in the BTP futures had begun well before the new government was actually crafted, as I noted last week. The BTP FUTURES had closed over the February 25 high–that was made before the failed election was a reality.
Posts Tagged ‘AIG’
Notes From Underground: Are European Bonds Rallying Because Austerity Is Being Rolled Back?
April 29, 2013Notes From Underground: The GCC WILL ANNOUNCE AT 4:00 a.m. EST … Until Then, “ALL QUIET ON THE WESTERN FRONT”
September 11, 2012The equity market recouped some of yesterday’s loss as the entire trading day was position squaring ahead of the German Constitutional Court rendering its decision on the constitutionality of the ESM and the role of ECB moves to buy the primary issuance of European sovereign debt. There are many pundits trying to place probabilities on the court’s decision but I am not briefed enough in the BASIC LAW of Germany to even try to make that bold a prediction. To my mind, I will concentrate on the language the court uses and what position it takes in directing the German government to have to consent to the WILL OF THE PEOPLE. Will it direct the Merkel administration to return the issue to the Bundestag for approval of the new enhanced ECB “bailout” or will it suggest that the entire Maastricht Treaty needs to be approved by the entire citizenry through a REFERENDUM?
Notes From Underground: It’s March and We Hear the Wind Blowing
March 4, 2012Do you have to be a weatherman to hear the wind blow? There are many cross currents alive in the investment world as the LTRO is behind us, ISDA defaulted on its role as a referee on global financial issues in the face of political threats from the EUROCRATS, and the Bernanke FED looks to be waiting for a new crisis to erupt before undertaking another further easing. March is always a difficult month for trading YEN as the JAPANESE CALENDAR YEAR ENDS MARCH 31 so repatriation of corporate profits is always a wildcard for any short YEN positions.
Notes From Underground: Bernanke Testified On The Hill and Proved to be no FOOL
July 13, 2011It was time for the FED Chairman to make his legislated appearance to Congress and Mr. Bernanke rightly refrained from being dragged into the battle over the budget. I have criticized the FED Chairman more than a month ago when he offered an opinion on the budget resolution. Fiscal issues are the purview of CONGRESS and the FED risks its independent stature if it wants to opine of the CONGRESSIONAL PREROGATIVE. Congressmen and women tried to get Bernanke to wade into the muddied waters and finally he flippantly said that legislators get paid the “big bucks” to make fiscal policy.
Notes From Underground: The revolution will not be televised*
February 14, 2011As I was inundated with the news out of the Middle East it was simple to recall the song by Gil Scott-Heron. The talking heads were mesmerized by their apparent influence in helping to spark the “PLAZA FIRE.” This is a nice kumbaya moment to believe that the Twitter generation can overcome autocratic rulers by messaging. However, I think it creates a great deal of danger for those with their bodies in the squares. I am a believer in the need to remove the sclerotic autocrats from power but Egypt was not one of those moments. The military that has run the political machinery in Egypt is still intact and pulling all the strings. It is certainly a feel-good moment for those involved but until real change occurs it is nothing more than rearranging the chairs.
Notes From Underground: Who put the prudent in Prudential?
March 2, 2010The Bank of Canada left interest rates steady as the arm that directs the curling stone. The statement released raised the issue of the continued low level of U.S. demand and the continued strength of the LOONIE acting as drags on the economy. The Canadian Dollar strengthened though as some traders thought that the removal of the line, “retains considerable flexibility,” meant that the BOC would be quicker than the FED to raise rates.
We don’t argue with market price action but we found this rationale devoid of substance. We have been bullish of the LOONIE based on its sound fundamentals and continue to be so, but we are skeptical of any rate movement on the part of the BOC as long as the currency remains strong. The strength of the Canadian currency was more about the general selling of the U.S. Dollar as some profits were booked. There is no question that Europe is being called into question but before U.S. Dollar exuberance takes hold, traders and investors have to rethink “buy the DOLLAR at any cost” outlook. While the U.S. growth story may be better than Europe, it is not without its warts. The credit crisis in the U.S. is far from over and the Obama administration can’t be happy about the safe haven status of the DOLLAR putting a dent in the export sector.
A Reuters story reported that the FDIC is planning to sell $1.8 billion of guaranteed ABS, the residential mortgage assets of failed banks seized by the FDIC. Barclays Capital will bring the paper to market, and some credit people believe this will help unlock the dormant securitization market. The FDIC bond will be priced at a discount to Fannie and Freddie, but because it has some guarantee, the bond will be a premium to non-guaranteed paper. This connotes another way the government is getting ready to deal with the MBS market after the March 31 deadline for the FED. We advise all market participants to be aware of this for a poor result would be a problem for the FED and others going forward.
Tonight there is word that the AIG/PRU deal announced over the weekend is under severe stress, as PRU shareholders are not overwhelmed by the repercussions of this acquisition. PRU’s stock already dropped 20% this week, which makes the details of the merger murkier. The British pound is rallying off its recent lows as there is talk that the currency component is already fully hedged and if the deal fails will have to be unwound. We can’t confirm or deny this news but with the preponderance of short POUND positions, it will not take much to shake the weakest shorts. The pundits have been talking about $1.35 price objective but that we leave to others.
The interesting fact is that the British pound has been weakening even against the EURO. While talking heads talk, they overstate the British problems for at least the British exports get a boost from a weakened currency, which is something that the sick men of Europe (PIIGS) cannot avail themselves. The recent EURO/POUND rally, from .8650 to .9150, is not something to be taken lightly. The British industrial sector competes directly with the European peripherals for markets, so the recent pound weakness is addinng to the woes of Europe. The advantage of having ones’ own currency to trash cannot be overestimated (just ask the Eurocrats in Athens). This story will be on our radar and with all the British data being released tomorrow, the pound should be more than interesting.