Canary in the Coal Mine
Eastern Europe is a powder keg waiting for the fuse to get lit. When it goes things will move fast and we will be treated to the favorite line of "nobody could have seen this coming". Ukraine offers a taste of potential calamity:
Hryvnia Plunges Most in 10 Years as Banks Buy Dollars for Debt
By Emma O'Brien
Oct. 29 (Bloomberg) -- Ukraine's hryvnia slid the most in 10 years against the dollar as political disunity damped optimism an International Monetary Fund loan will shore up the nation's finances and company demand for U.S. currency soared.
The currency tumbled more than 12 percent to an all-time low even as the Parliament in Kiev approved legislation paving the way for the $16.5 billion bailout from the IMF. Ukrainian banks and companies are selling hryvnia to pay as much as $1.5 billion of loans due by month-end, according to Dmitry Gourov, an economist at UniCredit SpA in Vienna.
``It's the end of the month and debt repayments need to be made so that's fueling the extra need for dollars,'' Gourov said. ``People are buying dollars at whatever rate they can get their hands on them.''
Buying dollars aggressively. Interesting.
Avoid Dollars and the Pound
While the Ukraine buys dollars hand over fist, the fellows in Singapore are a bit more reticent to wade into our currency (hat tip Jesse's Cafe):
Singapore's GIC sees more distress in markets
By Kevin Lim and Saeed Azhar
Tue Mar 10, 2009 2:35am EDT
SINGAPORE, March 10 (Reuters) - An official from the Government of Singapore Investment Corp (GIC) said he expects more weakness in financial markets in the next 12-18 months, and recommended investors hold gold and other safe assets such as government bonds.
GIC, one of the world's largest sovereign funds with an estimated $200 billion-plus in assets, has invested aggressively in troubled global lenders, picking up multi-billion dollar stakes in Citigroup and UBS in late 2007 and early 2008.
There is "systemic capital inadequacy globally", and the world will probably see "three years of a very vicious downcycle," GIC's director of economics and strategy, Yeoh Lam Keong, told the Investment Management Association of Singapore conference on Tuesday
"This is a very destructive process for assets."
Yeoh suggested investors hold gold, sovereign bonds and currencies such as the Japanese yen, Chinese yuan and Canadian dollar.
He said he liked gold because governments were under pressure to cheapen their currencies to compensate for falling demand, and that some countries such as the United States and Britain would eventually be forced to monetise their debt by printing money.
"I would avoid these currencies like the plague," he said in reference to the dollar and sterling.
Stay away from dollars. Interesting.
Seems like financial experts the world over are confused.
Stocks Rally on Citi's Great 2 Months
The markets exploded to the upside first thing in the morning when news came out of a "leaked" memo Citi CEO Vikram Pandit sent out to employees concerning Citi's future. Now I do not begrudge Mr. Pandit sending out this memo to employees. Things must be pretty stressful at Citi and little coaxing may well be good for his employees. Where I take offense is that this thing was leaked, immediately spun out as big news, and then misrepresented across the financial media. Case in point: this was an internal memo. This was not a conference call with analysts or a public presentation of data. But look at how it was covered by the media:
Financial stocks surge amid Citi profit estimate
NEW YORK (AP) -- The broader financial-services sector got a lift Tuesday after Citigroup Inc.'s chief executive, Vikram Pandit, said the bank operated at a profit in January and February. Shares across the entire financial-services sector rose sharply in afternoon trading.
The financial-services sector rallied throughout the day after Pandit said the embattled bank was profitable through the first two months of the year on a pretax basis, excluding certain items such as potential write-downs and loan-loss provisions.
Note the headline "...amid Citi profit estimate". It was no such thing. Pandit offered no guidance concerning earnings. Heck, he even offers that this does not take into account loan losses and other write downs!
What to make of this? This is blatant misleading headlines. I would ask anyone right now based on the memo details if they would bet $1000 on whether Citi posts a profit in their next earnings release. I am going to guess NO WAY!
Two great takes on this absolute craziness;
from LOL FED:
You’re operating at a profit so far in 2009. Gee, if I could get the federal government to hand me ten times my current worth, backstop my debts, take over 36% of my interests, allow me to just push all of my money-losing operations into a separate persona that’s still actually me but not on paper, I bet I could make it look like I’m turning a profit as well. But the markets are set for a rebound on the news so let’s not look for anyone to call C out on this.
From The Financial Ninja:
In conclusion, if you really believe Citigroup (C) has suddenly started making money (excluding mark-to-market losses) you are quite possibly border line retarded. They've had the "best quarter since 2007"! Really? They did as well NOW as during the absolute apex of the greatest credit bubble ever? HOW? HOW is that even possible? WHERE could those profits possibly come from? (These are the same clowns that quietly moved a $1 trillion SIV onto their balance sheet.)
Great question and not one I expect the mainstream media to bother asking.
Do I think the big rally today was due to the Citi news? Nope. The market wanted to rally and it did. It looked like what I like to call "panic buying". I would also add that whenever there has been one of these ripper days to the upside, we get news one to two days later about yet another FED/Treasury rescue plan or other market manipulation. It would seem the markets have not "priced in" the removal of "mark to market". And you know how the FED and Treasury hate to disappoint the Wall Street crew. The Thursday afternoon hearing takes on even greater importance.
While the move in financial stocks was obscene on a percentage basis, Citi still only went from $1 to $1.40. I am sure they can now raise all kinds of capital with their new improved share price.
Something Wicked this Way Comes?
I am always amazed at what kinds of information can be charted! I came across this post over at Zero Hedge that seems to point towards bad things.
In its chart of the day, Bloomberg shows the recent performance of the iTraxx Financials CDS index. The index tracks the performance of 25 bank and insurers unsecured securities, and today, for the first time since the Lehman bankruptcy, the Financials index surpassed the iTraxx Euro Corporate index. According to Bloomberg the inversion is indicative of "systemic stress" in the financial system and increasing expectations by financial company bondholders that in the upcoming financial restructurings, unsecured notes will likely end up getting impaired.
“We’re seeing the start of the next leg of the crisis and that’s going to be financial bondholders taking a haircut as lenders default,” said Mehernosh Engineer, a London-based strategist at BNP Paribas. “There’s been a perception that banks’ senior bondholders are untouchable but that’s going to change. The crossing of the financial and corporate indexes “is clearly not a healthy sign,” according to Engineer. Solvency concerns mean that the distortion may continue, “a fact being reflected in cash bonds over the past month,” he said.Of course, Vikram's memo today must have put all fears aside and made it obviously clear to everyone just how stable the U.S. financial system truly is so it will be curious to see if the credit market (which somehow is still rational at least compared to its equity counterpart), at least as represented by iTraxx Fins, follows suit and tightens substantially tomorrow.
That rapid rise represents some serious fear. Interesting data point.
Have a good night.