Saturday, January 30, 2010

With All The "Surprising" Sovereign Debt Worries Popping Up .....

It´s probably not a bad time for another posting on GOLD.... Especially when more & more people are realizing that not only bank balance sheets have something in common with Charles Ponzi, Madoff or Enron .... For investors outside the US it is not insignificant to highlight that it is not the $ price per ounce that matters.......In Germany it is almost impossible to find the € price per ounce in the media....Even in the so called "business" papers & channels...... The history of my earlier GOLD related postings gives a hint why i think that at least a "few" percentage of every portfolio should include GOLD ....

Nachdem ja momentan die Welt "plötzlich" gemerkt hat das neben den Bankenbilanzen praktisch alle relevanten Staatshaushalte zumindest in nicht unwesentlichen Teilen etwas mit Charles Ponzi, Madoff & Enron zu tun haben, ist es mal wieder Zeit für ein Posting in Sachen GOLD..... Zudem kann es nicht schaden wenn man nochmal gesondert darauf hinweist das für alle nicht US Investoren der $ Preis je Unze irrelevant ist ist...... Leider ist es z.B. in Deutschland fast unmöglich den € Preis je Unze in den gängigen Medien zu erhaschen.... Gilt im übrigen auch für die sog. "Fachpresse" ...... ;-) Ein Blick in meine "gesammelten Werke" zum Thema Gold dürfte erklären warum ich es nicht verkehrt finde, wenn zumindest ein "kleiner" Prozentsatz des Portfolios aus Gold besteht.....

H/T Todd Harrison / Minyanville via Pragmatic Capitalist


Is gold a bubble?

As someone who has been a close observer of bubbles for the past ten years the data does not recommend that conclusion. And what makes me even more curious about this point of view is that the very people who for the most part denied the existence of the obvious bubbles in tech, housing, risk, banking and credit, even to the point of absurdity, who could not or would not see a bubble if it perched on the end of their nose, who are card carrying members of the international monied fraternity, are the most vocal in calling gold a bubble with emotional arguments lacking any fundamental data.

AMEN ;-)


Implications For Gold In The Aftermath Of The Greek Crisis BoA via ZH

Emerging market central banks (EM CB) are ever more aware that gold is really one of the few viable alternatives to the USD. Top holders of currency reserves like China, Russia or India will likely need to increase their exposure to gold over the coming months and years as the value of fiat currency reserve holdings like the USD or the EUR comes into question. The obvious problem with diversification is that there is simply not enough gold to go around. So a deterioration of Greece’s creditworthiness, even if negative for the EUR, should be supportive of gold prices in the long run, in our view.

click on image for a sharper view / auf Grafik für schärfere Version klicken

Somewhat "irritating" that suddenly even Wall Street banks are not bashing GOLD on a daily basis..... Bank of America is getting exited that some EM central banks will diversify their holdings ....I wonder if they view a diversfication of private holdings into GOLD a "Black Swan" event....After watching BofA drawing all the right conclusions they "ignore" that the same diversification effect would be true for every non central bank investor....The percentage of GOLD related investments vs Assets Under Management makes even the Chinese exposure look like "excessive"..... ;-) For more related links visit the comments

Irgendwie "ungewohnt" das plötzlich selbst Wall Street Banken nicht mehr tagtäglich Goldbashing betreiben....Bank of America führt als Argument an das die Zentralbanken in den EM Ihr Goldbestände aufstocken werden. Ich für meinen Teil denke das neben den Zentralbanken vor allem die Privaten als Käufer auftreten werden.......Selbst in dieser Matrix wird diese Möglichkeit bestenfalls ansatzweise gestreift ( obwohl die richtigen Schlußfolgeriungen getroffen werden ).. Wenn man sich das Verhältnis von Gold zu den verwalteten Vermögen ansieht erscheint selbst der Goldanteil China´s als eine starke Übergewichtung..... ;-) Mehr zum Thema gibt es in den Kommentaren....

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Wednesday, January 27, 2010

BBVA Credit Quality Reality Check.....Spain & Portugal NPA Almost Double To 5.1 Percent

Grim is no overstatement......... Keep in mind that BBVA is probably one of the stronger players ( asset management, south america exposure ) when it comes to the Spanish banking system.....No wonder the "complacency" hit a high just two weeks ago...;-)

Übel ist sicher keine Übertreibung.... Verweise vorsorglich mal darauf hin das BBVA ( Asset Management & Südamerika Diversifikation ) als einer der stärkeren Spieler im spanischen Bankenmarkt gilt....Kein Wunder das weltweit die "Sorglosigkeit" noch vor 2 Wochen neue Hochs erreciht hat.... ;-)

BBVA Q4 Report / PDF
Doubtful risks stood at €15,602m, showing a 24.8% increase over the level reported at 30-Sep-2009.

The NPA ratio rose to 4.3%. This was higher than the third-quarter figure due to the aforementioned increase in doubtful assets. In Spain & Portugal the ratio was 5.1%
cleaner / schärfere Version

The Group’s coverage ratio of 57% at 31-Dec-2009 is considered adequate because if the value of the collateral associated to these risks is included (€16,842m), coverage would increase to 165%......
>Let´s hope their collateral comment has priced in the coming implosion of the Spanish housing market ( so far the market has only fallen slightly UPDATE: This BRILLIANT INTERACTIVE CHART gives an excellent hint that we have almost seen nothing yet )..... Otherwise the coverage ratio would be not quite "prudent"......Keep the following stat in mind....

> Bleibt zu hoffen das hier die jahrelange "Implosion" speziell des spanischen Immobilienmarktes eingepreist ist ( bisher ist der Verfall "moderat" gewesen UPDATE: Dieser brilliante INTERAkTIVE CHART zeigt eindrucksvoll das in Spanien in Sachen Korrektur noch "Nachholbedarf" hat ) ...... Ansonsten wären die vorgenommenen Rückstellungen vorsichtig ausgedrückt nicht gerade "weitsichtig".... Dazu sollte man sich nachfolgende Zahl ins Gedächnis rufen.....

Spain Bubble Watch

For a decade, the Spanish housing sector enjoyed uninterrupted growth, as low interest rates encouraged borrowing. Average house prices have nearly quadrupled during the past 10 years. About 750,000 homes were built in Spain in 2006 -- more than in France, Germany and the U.K. combined.

> Combine the number with unemployment rate hitting almost 20 percent and the picture isn´getting better.....

> Wenn man diese Zahl mit einer Arbeitslosenquote nahe 20% kombiniert dürfte klar sein was sich hier die nächsten Jahre abspielen wird......

UPDATE FT Alphaville

....meanwhile, it seems the group was forced to increase provisions after following through on actual foreclosures and acquisitions. In other words, it wasn’t until the bank acquired the assets that it realised the collateral had been misvalued on its books by €200m. The heart of the problem being the misvaluation of the collateral backing the loans.

>With this kind of accounting it is no wonder BBVA has manage to post a profit......But in comparison to Wells Fargo BBVA isn´t loocking so bad......Banks & balance sheet qualities....... Here we go again.... Nice to see that they are still talking about their "strong" capital ratios & the "nice" dividend ( 30% payout ratio )......

>Bei solch "konservativer" Bilanzierung ist es kein Wunder das BBVA es geschafft hat einen Gewinn auszuweisen....Wells Fargo mußte ganz andere "Verrenkungen" unternehmen ... Nur gut das wir in Sachen Bankenbilanzqualität so große Fortschritte gemacht haben..... Beruhigend zu hören das noch immer von der starken Kapitalausstattung und netten Dividende ( 30& Gewinnausschüttung ) geschwärmt wird....

In Spain & Portugal it ( coverage ratio ) was 48%.

>With over 90 percent of mortgages tied to variable rates they can only pray that the ECB will stay on hold for another decade....

>Da in Spanien über 90% der Hypotheken variabel verzinst sind dürfte dort Stoßgebete in Richtung EZB gehen das die Zinsen noch jahrelang auf dem Tief verharren werden....

>Does anybody remember this "fine tuning" news from Jan. 2009.......

>Erinnert sich noch irgendjemand an die "Fine Tuning" Operation der Banco de Espana vom Januar 2009....

How Not To Restore Confidence....."United Arab Emirates & Spain Edition"

Spanish website Cotizalia reports that Spain’s banks and cajas are negotiating on a one-to-one basis with the Bank of Spain to “fine-tune” their 2008 accounts in order to avoid taking catastrophic write-downs on lans.

According to the article, the central bank has agreed to allow the banks to increase the “calendar of amortisation” of these troubled assets, which are said to be mostly loans to property developers.

>Add the following trade ( couldn´t resist.... ) from the Spanish central bank to the mix and i´ll bet that hand in hand with the banking implosion the so far praised Banco de Espana will face some serious headwinds......

>Bei Begutachtung der o.g. Daten und des nachfolgenden Trades ( konnte nicht widerstehen...) wird eher früher als später vom Glanz der bisher so gelobten spanischen Zentralbank nicht viel übrig bleiben.....

Banco de España has already been delving into the covered bond market with money from gold-sale proceeds FT Alphaville May 2009

Barclays Capital on Wednesday morning cites Spain’s Expansion newspaper on a report that Banco de España has already been delving into the covered bond market with money from gold-sale proceeds .

We note that the latest available data, as reported to the IMF for March, show that Spanish gold holdings at end-March were 9.054mn oz, unchanged since end-July 2007. That said, it should also be noted that Spain slashed its gold holdings during 2005-2008: from 16.826mn oz at end-2004 to 9.054mn in July 2007.

PS: Iberia’s weighting is almost 20% of European GDP & Greece only 3%....

PS: Spanien & Portugal stehen mal eben schlappe 20% des European GDP.... Griechenland für 3%.....

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Monday, January 25, 2010

"Rise ( & Fall ) Of The Machines" ...

With volatility finally creeping back into the markets i think the "Rise Of The Machines" aka the QUANT story is deserving extra attention....Especially with market stats shown in Does Anyone Detect A Hint Of Complacency? from 2 weeks ago..... Make sure you also read the UPDATE....

Ich denke das dank der etwas gestiegenen Volatilität das Thema ROBOTRADING aka QUANTS einen ganz genauen Blick wert sein sollte....Das gilt umsomehr als das noch vor 2 Wochen ein kollektiver Realitätsverlust ( siehe Does Anyone Detect A Hint Of Complacency? )die Marktteilnehmer erfasst hatte.... Verweise ausdrücklich auf das UPDATE......

The Minds Behind the Meltdown WSJ

How a swashbuckling breed of mathematicians and computer scientists nearly destroyed Wall Street

Instead of looking at individual companies and their performance, management and competitors, they use math formulas to make bets on which stocks were going up or down.

By the early 2000s, such tech-savvy investors had come to dominate Wall Street, helped by theoretical breakthroughs in the application of mathematics to financial markets, advances that had earned their discoverers several shelves of Nobel Prizes.

PDT, one of the most secretive quant funds around, was now a global powerhouse, with offices in London and Tokyo and about $6 billion in assets (the amount could change daily depending on how much money Morgan funneled its way). It was a well-oiled machine that did little but print money, day after day.

That week, however, PDT wouldn't print money—it would destroy it like an industrial shredder.

The market moves PDT and other quant funds started to see early that week defied logic. The fine-tuned models, the bell curves and random walks, the calibrated correlations—all the math and science that had propelled the quants to the pinnacle of Wall Street—couldn't capture what was happening.
At the time, few quants realized what was happening, but over the next few days a theory would emerge: The U.S. housing market was unraveling, leading to big losses in the mortgage portfolios of banks and hedge funds

The result was a catastrophic domino effect. The rapid selling scrambled the models that quants used to buy and sell stocks, forcing them to unload their own holdings.

Authorities, meanwhile, had little idea about the massive losses taking place across Wall Street.
That Tuesday afternoon, the Federal Reserve said it had decided to leave short-term interest rates alone at 5.25%.Investors on Main Street had little idea that a historic blowup was occurring on Wall Street.

Oddly, the Bizarro World of quant trading largely masked the losses to the outside world at first. Since the stocks they'd shorted were rising rapidly, leading to the appearance of gains on the broader market, that balanced out the diving stocks the quants had expected to rise. Monday, the Dow industrials actually gained 287 points. It gained 36 more points Tuesday, and another 154 points Wednesday.
The huge gains in those shorted stocks created an optical illusion: the market seemed to be rising, even as its pillars were crumbling beneath it.
A source of the extreme damage Wednesday and the following day was the absence of some high-frequency statistical arbitrage traders, firms that use high-powered computers to trade rapidly in and out of stocks and can act as liquidity providers for the market.

As investors tried to unload their positions, the high-frequency funds weren't there to buy them—they were selling, too. The result was a black hole of no liquidity whatsoever. Prices collapsed

Rise of the news-reading machines FT Alphaville

The arms race in trading technology is set to intensify this week as Thomson Reuters, the news and market data company, on Monday unveils a service for “high-frequency” traders allowing them to make split-second trading decisions based on news articles “before the information moves the market” . . .

So-called “machine readable news” services, such as the new Thomson Reuters product, have grown up in parallel with the emergence of high-frequency and algorithmic trading, which depend on lightning-fast delivery of data and news to traders specialising in such computer-driven trading strategies.

Machine readable news systems use computers to “scrub” thousands of breaking news stories, prioritising their relevance for traders – often based on simple key words – and delivering them in a special feed. This provides traders with “signals” that are used to drive their strategies
Chicago Federal Reserve Joins Zero Hedge In Warning Over Threats From High Frequency Trading ZH
A handful of high-frequency trading firms accounted for an estimated 70 percent of overall trading volume on U.S. equities markets in 2009. One firm with such a computerized system traded over 2 billion shares in a single day in October 2008, amounting to over 10 percent of U.S. equities trading volume for the day.

Thorpe was the first true quant and an enormously successful gambler and hedge fund manager. He covers everything from beating casinos at their own game to the financial crisis, the role quants played in the downturn and even his own desire to be cryogenically frozen. He even provides his personal outlook and his worries that the return of “business as usual” on Wall Street means the next big crash is inevitable

The Audio Interview

Sounds reassuring... ;-) For more on this topic i recommend Kass: The Quant Bubble

Hört sich doch beruhigend an, oder...? Mehr zum Thema Kass: The Quant Bubble

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Sunday, January 24, 2010

And They ( Banks ) Are Still Whining......

Add to the chart the "brutal" accounting standards surpressing every leeway in showing the "real" earnings power, the draconian bailout terms, etc & i can understand them........ ;-)

Nachdem man sich den folgenden Chart ansieht kann man schon verstehen das die Banken momentan bei dem kleinsten regulatorischen Eingriff das große Wehklagen einsetzt...Muß zudem an den mehr als strengen Bilanzierungsrichtlinien, die ja seit Ausbruch der Krise nochmals drakonisch "verschärft" worden sind, sowie wie den wirklich unfairen Bedingungen der Bailouts liegen .... ;-)

The bank problem in a single chart FT Alphaville

"In all honesty 12 months ago we felt that the banks would likely become more utility-like in their profitability and their earnings would oscillate around their longrun trend – a level they had reverted back to after all the write downs.

So the size of the surge in profitability in 2009 perhaps surprised us more than the ’shock’ writedowns did in 2008"


Financial Services: From Servant to Lord of the Economy Jesse

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Thursday, January 21, 2010

Visualizing "Froth" In China.......

Fits perfectly to the last post on the "China Syndrome".....

Paßt hervorragend zum letzten Post in Sachen "China Syndrome"...

H/T The Mess That Greenspan Made

In this context it really will be interesting how much of the recent credit bonanza will go bad... Here is one rough estimate....

Nachdem man den Clip gesehen hat dürfte klar sein das ein nicht unwesentlicher Teil der letzten Kreditexoplosion eher früher als später in die Kategorie "problematisch" fallen dürfte.... Hier kommt eine grobe Einschätzung....

But 2009's lending has surely stored up some problems for China's banks. If, say, 20%of 2009's new loans go bad, and 10% of likely new loans in 2010 also run into trouble, total nonperforming loans would reach $381 billion, or 8% of China's 2009 GDP, UBS economist Tao Wang calculates. Nor has China ever truly resolved the bad debts it shifted off banks' balance sheets a decade ago.
Chanos: China Bubble Ready to Burst

With China the main driver of global markets it´s no wonder why i´m "sceptical" when it comes to China, the sustainability of the recent recovery & risk / reward ratios in almost any asset class.... ?

Thanks to the "Volcker Rule" Wall Street Finest can spin any correction of this overvalued / priced for perfection & overbought market on Washington / Obama.... In reality this is only the catalyst aka excuse to sell ( based in part on the "shocking" conclusion that the times for easy bailouts are finally over! > "Power To The People" ) ..... Can´t blame them ( except WSJ see bottom of the post ) ...... At least there is now a good chance that some of the "froth" & "complacency" will be "fleeing" the market.... ;-)

Wenn man jetzt in Betracht zieht das China den bisherigen Aufschwung an den Märkten zu einem ganz gewichtigen Teil geschultert hat verwundert es nicht das ich seit geraumer Zeit eine "skeptische" Sichtweise im Hinblick auf China, Nachhaltigkeit des Aufschwungs & Chance / Risikoverhältnis habe.... ?

Immerhin haben so die Strategen der Wall Street dank der "Volcker Rule" jetzt einen Anlaß gefunden diesen bereits seit einiger Zeit anfälligen ( weil bis zur Perfektion gepreist, überkauft & extrem bullishen Sentiment) Markt abzuverkaufen und den "Schwarzen Peter" Washington / Obama ( und der schockiernden Erkenntnis das die Zeiten der bedenkenlosen Bailouts vorbei sind > "Power To The People" ) zuzuschieben.....Kein Vorwurf ( mit Ausnahme des WSJ, siehe Ende des Postings ) ...... Immerhin dürften damit die Zeiten der extremsten "Übertreibungen" & fehlender "Wachsamkeit" zumindest für einige Tage der Vergangenheit anhören..... ;-)

WSJ Spin Barry Ritholtz

But it doesn’t take much looking to see other, more plausible, less politically motivated explanations than the floated Volcker/Obama proposal.

The market’s biggest losers were not finance related issues, but rather were commodity-related stocks.

While the financial sector suffered a 3% decline after some disappointing earnings from various banks, it was the commodities sector that got whacked 4.3%. China made a major announcement they were restricting bank lending to cool inflation and slow the economy.

The WSJ article? Never so much as mentioned China or commodities.

Oh boy.....WSJ goes Yellow Press......When i meant Wall Street Finest would spin the correction i had folks like Cramer, Strategist, Analysts, Guest on Bubblevision etc in mind.....

WSJ auf Bildzeittungsniveau.... Muß gestehen das ich mit der Behauptung das die überfällige Korrektur von den "Experten" Washington in die Schuhe geschoben wird eher an die üblichen Verdächtigen wie Volkswirten, Analysten, Strategen und regelmäßigen Gesten in den Medien gedacht habe.....

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Wednesday, January 20, 2010

Chinese Banks Already Lend Out 20% Percent Of Targeted Loan Growth For 2010 Withing The First Two Weeks Of January

Does anybody remember my post from last week....? Thank god there are almost no ( other ) signs of "froth" & "complacency".... ;-)

Habe eigentlich meinem Posting von letzter Woche wenig hinzuzufügen.....Gottseidank sind ja ansonsten weit und breit keinerlei Anzeichen von "Übertreibungen" & fehlender "Wachsamkeit" zu erkennen.... Ansonsten könnte einem doch glatt Angst und Bange werden... ;-)

China Asks Some Banks to Limit Lending on Insufficient Capital Bloomberg

China has told some banks to limit lending and will restrict overall credit growth in the nation to 7.5 trillion yuan

ICBC, Bank of China and other lenders have effectively stopped granting new loans after the banking system extended about 1.5 trillion yuan in new credit during the first two weeks of this month, Market News International reported today

This equals almost 30% of the total 2008 volume.....Looks like China still needs more Ghost Towns .... ;-)

Die o.g. Zahl entspricht ca. 30% der Kreditvergabe die im gesamten Jahr 2008 stattgefunden hat... Sieht so aus als wenn China noch nicht genügend Ghost Towns in die Steppe gesetzt hat.... ;-)

Update: FT Alphaville
.....but the latest figures, issued Tuesday, show that full-year property sales in China zoomed by 75.5 per cent from a year ago to Rmb4,399.5bn($644bn), with residential sales jumping a whopping 80 per cent, according to the National Bureau of Statistics.

Sounds fairly bubbly to us, particularly considering that Chinese home prices rose nearly 8 per cent in December alone, the fastest growth in 18 months, despite new attempts by Beijing to cool speculative zeal.
Shanghai mortgages rise 1,600% in 2009 China Economic Review

Banks lent out US$14.58 billion in new mortgages in Shanghai in 2009, a 1,600%increase from the previous year, the South China Morning Post reported.

Of the total, US$5.7 billion went to buyers of new properties and US$8.88 billion to those buying second-hand properties, according to the People's Bank of China.

Average prices of Shanghai homes rose 68% from 2008


"With exports facing hard times, real estate has become an important pillar of China's economic growth," said Ji Zhu, professor of economics at Beijing Technological and Business University. "No one wants to see housing prices fall," he argued— not investors, not property developers, and certainly not government officials.



Goldman: World Markets Teetering At Post Crisis Highs, All Betting On China BI



What really drove Chinese commodity imports?
FT Alphaville
Further to the suspicion that much in the way of Chinese metals imports are related to schemes to game the cheap money there by circumventing capital controls – -whether in order to bet on Yuan appreciation or commodity price rises
Havn´t heard the word "SUSTAINABLE" for a long long time.......

Habe merkwürdigerweise den Begriff "SELBSTRAGEND" bzw. "NACHHALTIG" lange nicht mehr im Zusammenhang mit den Märkten zu hören bekommen......

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Wednesday, January 13, 2010

Does Anyone Detect A Hint Of Complacency?

What a fascinating market and via FT Alphaville comes another good indicator of how "extreme" investor sentiment has become. Joshua Brown in Ladies and Gentlemen, We Are Trading On The Moon (!) has so far the best & funniest transcription of the latest market behavior....

As i have written in the past few days in Don´t Call It A Bubble.... & "Anti Spin" i´m a very sceptical ( more bearish than ever ) that this kind of market level is sustainable.... Especially in the face of a "spiking" Sovereign Misery Index .....To be honest i´m thinking this since October.... Make sure you watch the following clip.... Nice to see that Saluzzi still isn´t drinking the kool aid....

Bin jeden Tag aufs neue fasziniert wie der Markt auf die Nachrichtenlage reagiert. Meiner Meinung nach Joshua Brown in Ladies and Gentlemen, We Are Trading On The Moon (!) die bisher beste und lustigste Analyse zu Papier gebracht.

Ich bin wie in Don´t Call It A Bubble.... & "Anti Spin" geschrieben "skeptisch" ( höflich umschrieben ) was die Nachhaltigkeit der Kursanstiege angeht. Und all das im Angesicht eines täglich steigenden Sovereign Misery Index .....Meiner Meinung nach ist das Chance/Risikoprofil so unvorteilhaft wie selten....Die Skepsis steigt momentan tagtäglich und erreicht geradezu schwindelerregende Höhen.... ;-) Der nachfolgende Clip von Saluzzi liefert eine weitere gute Bestandsaufnahme in Sachen aktuelle Marktstimmung.....

Chilled markets FT Alphaville

Markets move on the interaction of news with flows of greed and fear among investors. When fear is lowest, the danger of a fall is greatest.

Especially when other sentiment indicators are considered:

Another great contrarian indicator is the survey of sentiment by the American Association of Individual Investors. Last week, this showed the lowest proportion of self-described “bears” since February 2007when volatility first started to spike as investors at last began to grasp the severity of the subprime mortgage crisis in the US.

Bearishness in this survey hit an all-time high in March last year when the current rally first started, showing how much money can be made by betting against extremes of sentiment.

But it’s not just the retail punter who’s bullish.

The Pros are too.

From Bloomberg:

Investors forecast gains in each of the nine countries represented in the Bloomberg Professional Confidence Survey for the first time since the data began in 2007.

The sentiment measure for the Standard & Poor’s 500 Index climbed 35 percent to 54.37. That’s only the second time the reading exceeded 50, signaling participants anticipate a rally in the next six months.

The responses from 4,101 Bloomberg users were gathered Jan. 4-8 as the MSCI World Index added 2.6 percent.

The Bloomberg sentiment indexes for the U.S., Japan and Spain rose above 50 and reached all-time highs.

The U.K. gauge topped 50 for the first time since October, while Switzerland climbed to a record.

Spain exceeded 50 for the first time, adding 17 percent to 51.41.

Confidence in Switzerland climbed 3.6 percent to 60.89, and the U.K. index surged 22 percent to 55.61. The measures for Italy, France and Germany increased 14 percent, 3.7 percent and 2.4 percent to 62.61, 57.77 and 53.33, respectively.

Does anyone detect a hint of complacency?
The latest survey showed the highest surge in Merrill’s Risk & Liquidity(46%) indicator since May of 2006. In the past, this indicator has served as a fairly good contrarian indicator.

This survey is showing some contrariansell signals. Just 45% of fund managers are protecting themselves against a downturn versus 52% in December. The survey also shows a strong appetite for risk and high beta names


Faber on complacency & investor sentiment......


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Tuesday, January 12, 2010

"Enron-Esque Characteristics" Hiding An Even More Explosive Credit Growth In China

Ob boy......Looks like the Chinese have learnt quite a bit from their western rivals....;-) All this confirms my "sceptical" view on the sustainability of the recent recovery in China...... Nice to see that this kind of creative accounting is rewarded with a big valuation premium.... You really cannot make this up..... For an up to date inside view on China i highly recommend the blog China Financial Markets from Michael Pettis. A must read.

Sieht so aus als wenn die Chinesen in Sachen Bankenbilanzierung schnell vom Westen gelernt haben.....;-) All das bestätigt mich in meiner "skeptischen" Sichtweise das was momentan in China abgeht nachhaltig ist.... Immerhin ist es nett zu sehen das solch "Kreativität" momentan mit einem gewaltigen Bewertungsaufschlag gehandelt wird..... Paßt hervorragend zum sonstigen Marktgeschehen.... ;-)Wer einen erstklassigen und vor allem zeitnahen Blick auf das Geschehen in China haben möchte für den sollte China Financial Markets von Michael Pettis Pflichtlektüre sein....

Then and now: Banks and their book value Graph FT Alphaville

China Cracks Down on Banks' Loan-Sale Practice WSJ
BEIJING—China's banking regulator has quietly cracked down on banks selling their loans to trust companies, taking aim at a little-understood category of transactions that had fueled concerns about transparency in the banking system.

The transactions at issue had enabled banks to move loans off their balance sheets by temporarily selling them to Chinese trusts, lightly regulated companies that then repackaged the loans into financial instruments for clients.

The banks promised to repurchase the loans any time between a few weeks and a few years later.

The China Banking Regulatory Commission issued a notice banning banks that sell loans to trusts from removing the loans from their balance sheets, said an executive in the risk management department of a Chinese bank who has seen the document. The notice was issue Dec. 24, but wasn't made public.

Banks have been unwilling to discuss the trust deals publicly, but analysts who had studied the transactions say the banks were using them to report lower loan totals at a time when China's government was indicating concern about credit expansion and pushing lenders to increase their capital ratios as a precaution against bad loans.


While no official data on the loan-sale practice is publicly available, Shanghai Benefit Investment Consulting, a research company, estimates that 734 billion yuan ($107.53 billion) of bank loans were packaged into trust products in 2009.

About 80% of that was issued in the second half of the year, as Beijing's concern about loan growth mounted

The volume of new bank loans more than doubled in 2009, as Chinese lenders-almost all of which are majority owned by the state—assisted government efforts to stimulate the economy.

Not all the loans sold to trusts fall into the category barred by the CBRC notice, but the order appears to have nearly halted such transactions. According to Shanghai Benefit, only seven new trust products backed by banks loans have gone on sale this month, compared with 465 for the whole of December.
The regulatory change could add to difficulties for some Chinese banks that were already facing constraints on their lending this year by the declines in their capital-to-loan ratios as a result of last year's credit explosion.

Still, analysts say it's likely to be another banner year for bank lending in China, with many forecasting 2010's new loans will be between seven trillion and eight trillion yuan, down from around 9.5 trillion last year but far above the annual average for previous years.
> To put this number into perspective the loan figure for a booming 2008 was under 5 trillion Yuan......

> Um das in Verhältnis zu setzen muß man wissen das im Boomjahr 2008 unter unter 5 Billion Yuan an Krediten vergeben worden sind....


> Looks like they have already "achieved" almost 8% percent of their 2010 lending target ( 12% of the 2008 loans....) within the first week.... Second UPDATE: Chinese Banks Already Lend Out 20% Percent Of Targeted Loan Growth For 2010 Withing The First Two Weeks Of January & Visualizing "Froth" In China....... Hey, but "Don´t Call It A Bubble"...... ;-)

> Sieht ganz so aus als wenn die chinesischen Banken bereits knapp 8% der für 2010 ( oder 12% der im Jahr 2008 ausgegebenen Kredite ) "vorgesehenen" Kreditvergaben in der ersten Januarwoche ausgekehrt hätten......"Don´t Call It A Bubble"...... ;-) Zweites UPDATE Chinese Banks Already Lend Out 20% Percent Of Targeted Loan Growth For 2010 Withing The First Two Weeks Of January & Visualizing "Froth" In China....... ....Bernanke würde jetzt sagen "Don´t Call It A Bubble"......

Between January 4 and 8, commercial banks issued loans worth 600 billion yuan, a new high in years.

It seems that China's commercial banks have slowed the lending pace due to warnings from the People's Bank of China (PBOC) and banking regulator. However, new statistics showed that the pace actually accelerated during the first week of 2010.

New lending by banks reached 600 billion yuan, with the five biggest banks accounting for 280 billion yuan, according data obtained by Caixin Media.

> Let´s hope that at least a small part from the staggering amount is related to the reintegretaion from the "funny" off balance sheet structures.....

> Bleibt nur zu hoffen das zumindest ein kleiner Teil der unglaublichen Summe darauf zurückzuführen ist das einiges wieder in die Bilanz eingegliedert worden ist.....


China Hits Brakes on Economic Stimulus

China, which for more than a year has been pushing its banks to pump out cash to offset the global downturn, abruptly reversed course Tuesday, in the clearest sign yet that Beijing has turned its attention to controlling the repercussions of that credit explosion.

Starting Monday, most Chinese commercial banks will be required to put 16% of their deposits on reserve, an increase of a half percentage point.

The new rate will effectively lock up 300 billion yuan, or around $44 billion, that might otherwise have been lent, according to Tom Orlik, China analyst at Stone & McCarthy Research Associates.

Next to the 40 trillion yuan or more in loans outstanding and a 24 trillion yuan stock market, that is a small amount.

[China Hits Brakes on Stimulus]

> Sweet Babystep... Too little and definitely way too late.....

> Wie niedlich..... Bestenfalls ein Anfang und definitv erheblich zu spät.....

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Thursday, January 07, 2010

Don´t Call It A Bubble........

After the introduction of the "Pay-If-You-Can-Loans" the comeback of Toggle/PIK Bonds are more than early warning signs that something is at least a little bit "frothy"...... The same is true for numerous stock markets ( see the following chart Mexican Stock Market Back To All Time Highs WOW!)

Nachdem ja vor kurzem die "Pay-If-You-Can-Loans" ins Leben gerufen worden sind ist die noch vor wenigen Monaten undenkbare Wiederaufersteheung der Toggle/PIK Bonds ein weiteres Anzeichen, das nennen wir es mal vorsichtig, eine leichte "Überhitzung" eingetreten ist.... Leider sieht es in etlichen Aktienmärkten nicht bedeutend anders aus ( siehe nachfolgden Chart Mexican Stock Market Back To All Time Highs WOW! )

Treasurers Embrace Pay-in-Kind Bonds as Ghost of Lehman Fading
( Bloomberg ) Companies are selling debt with terms last seen before credit markets froze, showing why the world’s biggest bond fund manager says another bubble may be brewing.

JohnsonDiversey Holdings Inc., a Sturtevant, Wisconsin, maker of cleaning supplies, and Wind Acquisition Holdings Finance SpA, parent of Italy’s third-largest mobile-phone company, sold bonds that can pay interest in new debt instead of cash, the first such deals since 2007, according to Bloomberg data.

Goodman Global Inc. raised $320 million to pay its owner, leveraged buyout firm Hellman & Friedman, a dividend, one of at least seven similar offerings since November

Two years after credit markets seized up, treasurers are luring investors to junk bonds that returned a record 58 percent last year, as measured by Bank of America Merrill Lynch indexes. U.S. sales of $162 billion beat the all-time high of $149 billion in 2006, Bloomberg data show.
“Six months ago I wouldn’t have imagined being able to do this deal,” said Karim-Michel Nasr, head of corporate development in Paris at Weather Investments SpA, Wind’s holding company.....
Capital Access
At least two dozen borrowers since November have asked lenders to change terms of debt agreements to permit bond sales, extend loan maturities or pay dividends to their owners, Bloomberg data show.
Access to capital means defaults will likely drop to 3.9 percent by November from 12.7 percent a year earlier, New York-based Moody’s Investors Service says.

Speculation that companies will have less difficulty making payments has led investors to accept lower interest rates and looser borrowing terms. The extra yield demanded on junk bonds instead of Treasuries narrowed to 6.39 percentage points at the end of 2009 from almost 19 percentage points on March 9, Merrill Lynch indexes show. Speculative grade debt is rated below Baa3 by Moody’s and BBB- by Standard & Poor’s.

‘We Forget’
“I’m looking at some of the things that are being priced and I’m saying, ‘Wow, how quickly we forget,’” said JohnsonDiversey Chief Financial Officer Joseph Smorada. The market is “starting to get a little dangerously aggressive,” he said.

The company sold $250 million of so-called toggle debt due in May 2020 on Nov. 20 that allows it to pay a 10.5 percent interest rate either in cash or notes for the first five years.
The first pay-in-kind bonds since 2007 were part of a $2.6 billion recapitalization in which New York-based LBO firm Clayton Dubilier & Rice Inc. agreed to buy a 46 percent equity interest in the company.
Moody’s gave the notes its fifth-lowest ranking of Caa1, saying the debt is five times more than adjusted earnings before interest, taxes and amortization costs. It has had negative free cash flow the past three years, though it’s expected to break even in 2010, Moody’s said.
‘Dangerously Aggressive’
“In early 2009, I don’t think we could have borrowed a nickel if our life depended on it,” Smorada said. Investors submitted bids for almost four times the amount of notes offered, he said.
Investors haven’t lost discipline and companies are mainly selling bonds to refinance or cut interest expenses, said William Cunningham, the head of credit strategy and fixed-income research at State Street Corp.’s investment unit in Boston.
Wind Acquisition of Luxembourg raised $1.1 billion last month selling 7.5-year, 12.25 percent notes in dollars and euros that allow it to pay interest with more debt until 2014. Wind, controlled by Egyptian billionaire Naguib Sawiris and the parent of Wind Telecomunicazioni SpA, boosted the offering 50 percent as demand rose.
The investment flood has undercut efforts to toughen restrictions that protect investors, said Alexander Dill, senior covenant officer at Moody’s in New York. Many covenants are “largely replicating” rules from 2006 and 2007, Dill said in a Dec. 10 report.
TRW Automotive Inc., the world’s biggest supplier of vehicle-safety equipment, sold $250 million of eight-year notes in November rated Caa1 with covenants “substantially unchanged” from its 2007 indenture for debt graded four steps higher at Ba3, according to the Moody’s report. The Livonia, Michigan-based company said Dec. 22 it raised $400 million in term loans as lenders amended and extended its revolving credit facility.
FT Alphaville
Global high yield debt volume for the week of January 11th totaled $11.7 billion, the biggest week for high yield debt on record. The previous record was set during the week of November 5, 2006 when $11.4 billion was raised. With $14.4 billion raised so far this month, it is the best all-time start for the high yield markets since records began in 1980.
Update High Yield Bonds Continue To Do Well Bespoke
Over the past month or so, the only area of the bond market that has done well is junk. Both Treasuries and investment grade corporates have struggled, while high yield bonds have continued to surge. Below we highlight a six-month performance chart of the high yield bond ETF (HYG) and the investment grade corporate bond ETF (LQD).

Mortgage-Bond Leverage Reaches 10-to-1

Wall Street firms are loosening terms of their lending to mortgage-bond investors as markets heal, an RBS Securities Inc. executive said.

Repurchase agreement, or repo, lending against the debt has expanded so much since freezing in late 2008 that some banks now offer as much as 10-to-1 leverage and terms as long as one year on certain securities backed by prime jumbo-home loans


Bubble warning ( Economist )

Once again, cheap money is driving up asset prices
( Economist )

Ladies and Gentlemen, We Are Trading On The Moon :-) Reformed Broker

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Tuesday, January 05, 2010

"Power To The People" Iceland Edition......

I expect that hand in hand with a rising Sovereign Misery Index the times for bailing out anyone without ( hopefully non violent ) brewing tensions & extreme political backlash are at least getting tougher (outside the US ;-) ..... Needless to say that i largely agree with the following quote from Mish... Iceland has a good chance to nagotiate a much better deal after the referendum......

Ich denke das Hand in Hand mit einem steigenden Sovereign Misery Index die Zeiten der "bedenkenlosen" Bailouts ( Ausnahme selbstredend die USA ;-) ohne "größeren" öffentlichen Widerstand ( hoffentlich weiterhin gewaltfrei ) nicht mehr ohne weiteres ohne politische Folgen durchgewunken werden können... Überflüssig zu erwähnen das ich größtenteils mit dem nachfolgenden Fazit von Mish übereinstimme..... Ich jedenfalls wäre ebenfalls erbost für Kunden, die wegen eines minimalen Zinsvorteiles oftmals mit gewaltigen Summen zu Kaupthing & Co gewechselt sind, jetzt die Zeche zu zahlen...... Gehe jede Wette ein das Island nachdem das Referendum stattgefunden hat einen deutlich besseren Deal aushandeln kann und wird......

Iceland's President Effectively Tells UK "Go To Hell" - Hooray For Iceland Mish

Congratulations to Iceland for figuring out that it is better to suffer a credit rating downgrade than to torture its citizens for a decade or longer Iceland may have other problems but at least that one was resolved (hopefully), the quick and painless way.

And that should have been the model for US banks as well. The stockholders and bondholders should be the first ones wiped out.

Instead Bush started and Obama continued with a policy to punish the innocent to bail out the wealthy, leaving the average taxpayer deep in the hole, against the clear will of the majority.

Photo Gallery: Iceland's Deeply Unpopular Payback Der Spiegel

WSJ Iceland's president vetoed a bill to reimburse the U.K. and the Netherlands for bailing out depositors of a failed Icelandic bank, throwing into question the international plan to rescue the island nation's banks and casting doubts on its bid to join the European Union.

President Ólafur Ragnar Grímsson on Tuesday cited massive public opposition in his decision to reject the bill, which was approved in late December by the Icelandic parliament after months of wrangling.

Iceland's president is the head of state, but rarely wields real executive power.

The veto was only the second time since Iceland's independence from Denmark in 1944 that a president used that authority.

Under Iceland's constitution, the bill -- which calls for nearly $6 billion in repayment ( The money represents 40 per cent of the country's gross domestic product via Times Online, see also Wikipedia ) over 15 years, plus interest -- will be put to a public referendum.

Opinion polls suggest it has little chance. ( 70% against )

But without the payback, Iceland may lose or delay access to badly needed bailout money from the International Monetary Fund and Nordic neighbors. The IMF has approved $2.1 billion in

British and Dutch authorities were stern. The U.K. Treasury said Britain "expects Iceland to live up to its obligations."

"We are very disappointed about the decision," said a Dutch finance ministry spokesman. "Iceland has the obligation to pay back the money."

Almost since the onset of the financial-system collapse in October 2008, Icelanders have blamed a cadre of greedy bankers for turning a prosperous nation into an international economic pariah.

There is strong resistance to piling debt on ordinary citizens to undo the bankers' mess. The bill would have seen Iceland repay the U.K. £2.35 billion ($3.79 billion) and the Netherlands [euro €1.32 billion ($1.89 billion) over 15 years.

That amounts to nearly $20,000 for each of the 300,000 Icelanders.

The October 2008 collapse of one bank, Landsbanki Islands, triggered the trouble.

Hundreds of thousands of British and Dutch depositors, wooed by high interest rates, had placed money with Landsbanki through an Internet arm operating in those countries called Icesave

Under European financial rules, Iceland was required to maintain deposit insurance for those customers, but the collapse of all three of the island's big banks swamped the tiny insurance program. Britain and the Netherlands stepped in to cover their own citizens, and then demanded the money back from Iceland.

Eiríkur Svavarsson, a spokesman for InDefence, a group of Icelanders that organized the petition, said the country would honor its debts but would do so "in line with its economic strength."

It isn't clear how badly Mr. Grímsson's veto will disrupt the international aid on which Iceland depends. The IMF has said its funding isn't directly tied to an Icesave resolution, but notes that other lenders have made that condition, and it is reluctant to put money forward if others don't.

After the veto, Fitch Ratings cut Iceland's long-term foreign-currency credit rating to junk and said the future outlook was negative. Fitch also cut the long-term local-currency rating to BBB-plus.


But the presidential rebuke is being described as a momentous decision for Iceland. It also highlights a widening rift between European governments — pressed by bond investors, ratings agencies and the International Monetary Fund to cut budgets and shrink deficits — and their recession-battered citizenry.
Late last month, the constitutional court in Latvia vetoed a move by the government there to cut pensions in line with an I.M.F.-sponsored austerity package. That development threatens the I.M.F. agreement and the country’s ties with foreign creditors.

Governments in Ireland, Greece and even Britain are also finding it difficult to satisfy both bond investors and voters

> I highly recommend to read the official declaration..... Well said!

> Empfehle sich die offizielle Deklaration im Wortlaut durchzulesen..... Klasse und einleuchtend logisch!

Ice Land Declaration

> Here a very good clip how from 2008 how Iceland got into deep deep troubles.....

> Hier ein sehenswerter Clip aus dem Jahr 2008 der schön aufzeigt wie Island in den Abgrund stürzen konnte.....

> I just couldn´t resist to post this Kaupthing Bank commercial..... You cannot make this up...... Enjoy if you are not an Icelander.....

> Kann mir nicht verkneifen nochmal die inzwischen berühmte Werbung der Kaupthing Bank zu bringen..... Tragisch genial! Für alle die nicht Isländer sicher ein Vergnügen......

H/T Ultimi Barbarorum

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Monday, January 04, 2010

Anti Spin From Rosenberg

Time for a reality check ....Especially with markets at new highs, priced for perfection, investor sentiment ( Chart from December ) & complacency at "extreme" levels & quite a steep "Wall Of Worries" (H/T Zero Hedge) signalling at least not insignificant headwinds ..... UPDATE: Not a Positive Economic Picture M. Panzner .....

"Rosenberg Warning" ..... Make sure you don´t miss Know Your Market Bears – A Field Guide via The Reformed Broker...Hilarious :-)!

Denke die Zeit für einen Realitätscheck .... Gilt besonders da der Start ins Jahr 2010 neue Rekorde gebracht hat und die Bewertung nahe ( jenseits ) der Perfektion gepreist ist, die Stimmung der Investoren ( Chart aus dem Dezember ) & "Selbstzufriedenheit" schon leicht "euphorische" Tendenzen anzeigt und etliche andere Faktoren zukünftig zumindest erheblichenGegenwind versprechen......UPDATE: Not a Positive Economic Picture M. Panzner

Verweise weil es sich um Rosenberg handelt "warnenderweise" :-)! auf Know Your Market Bears – A Field Guide via Reformed Broker....Wunderbar :-) !

Breakfast With Dave 102609 Top

David Rosenberg

"So this remains the Houdini rally — no jobs; no pricing power; no broad participation; and no volume "


"Over the past decade, the stature of the market as an effective discounting mechanism has gradually eroded. The observation and analysis of potential risks – though essential to long-term investing and loss avoidance – is far less actionable than one might expect. Investors will evidently speculate as long they have dice in their hands and the casino is not visibly on fire."
Bob "The Bear" Janjuah FT Alphaville

Well I clearly underestimated the ability & willingness of the Public Sector, notably in the UK, US, parts of periph Europe and Japan, to take huge risks with their sovereign balance sheets, AND IMPORTANTLY, I over-estimated the ability & willingness of the Financial Sector/Market to see things for what they are (Another Debt Fuelled Bubble/Ponzi).
The THE ULTIMATE GUIDE TO 2010 INVESTMENT PREDICTIONS AND OUTLOOKS compilation from PragCap gives numerous market calls from the "Who Is Who" and is a must read! Brilliant!

Wer einen fast kompletten Überblick von allen wesentlichen Adressen der Finanzwelt in Sachen Ausblick haben möchte der sollte THE ULTIMATE GUIDE TO 2010 INVESTMENT PREDICTIONS AND OUTLOOKS von PragCap nicht verpassen. Fantastisch!

But with Bernanke, Geithner, goverments, regulators & central banks around the globe playing the moral hazard card almost on a daily basis ( The Fed Is Preparing QE 2.0, MBS-Only Edition) without being punished significantly from bond & currency markets the party can easily continue for a while..... One of many many reason why i´m a GOLD-BUG .... ;-)

Da Bernanke, Geithner, Aufsichtsbehörden, Regierungen und Zentralbanken rund um den Globus die "Moral Hazard" Karte praktisch tagtäglich ( siehe The Fed Is Preparing QE 2.0, MBS-Only Edition ) in den Ring werfen ohne ernsthaft vom Anleihe und Währungsmarkt "getadelt" zu werden ist nicht auszuschließen das die Party noch ne Zeit lang weitergeht...... Einer von etlichen Gründen warum ich als GOLD-BUG durchgehe .... ;-)

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