ECB pledges to do "whatever it takes" to preserve the Euro

Mario Draghi, president of the European Central Bank has reiterated today his commitment to the preservation of the common currency by hinting at upcoming supportive measures. Mr. Draghi said today during a conference in London that the ECB is prepared to do "whatever it takes" to keep the euro-boat afloat. The announcement sparked a relief rally in  risk assets such as the EUR/USD, the S&P500, Gold and Spanish yields. But, without hard facts, the rally will most likely be short lived.

It`s a QE world

When patients do not respond to a particular type of medicine, or suffer from side effects, doctors usually stop administrating it and decide on a different course of action. But for central bankers, which are medics hired to fix ailing economies things are not that simple. The European Central Bank and the Bank of England initiated today programmes aimed to expand the availability of credit in an attempt to cure the economic sickness with the very thing that caused it: too low interest rates.

Greek election updates

RESULTS: New Democracy - 29.66% - 129 seats , Syriza - 26.89% - 71 seats, Pasok - 12.28% - 33 seats, Indep. Greeks - 7.51% - 20 seats, Golden Dawn - 6.92% - 18 seats, Dimar - 6.26% - 17 seats, KKE - 4.50% - 12 seats. New Democracy will now most likely form a majority with the centre-left party PASOK.

In Greece, cash is king

With the Greek elections between the pro-EU New Democracy party and the anti-bailout party Syriza under way, one can`t stop and think about the critical importance of today`s events. The future of the European Union may well rest on the ballets in this small Mediterranean country that accounts for only 2% of the EU combined GDP. No matter the outcome, Greek households and corporations have switched to cash, stuffing the mattresses with euro bills, just in case the economy reverts to the drachma. Greece has become in the last months a cash economy.

$125 billion bailout for the Spanish banking sector

After Ireland, Portugal and Greece, the financial contagion has finally spread to Spain, as the Southern-European country asked on Sunday for a bailout worth as much as $125 billion dollars. The money will most likely come from the European Financial Stability Facility and the yet-to-be ratified European Stability Mechanism and are supposed to go towards the recapitalization of Spanish liquidity stripped banks. If the EU does not start taking bolder steps towards more integration Italy may go next.

Markets dissapointed as FED`s Bernanke hints no QE3

Just as expected, no new news came out from Chairman Bernanke today, as he delivered his testimony to the Joint Economic Committee of Congress. He instead focused on reassuring financial markets that FED is ready to act in case of an European financial meltdown and plead against fiscal tightening. As an immediate result, gold plunged by $40 to $1592, and the S&P went down to $1321. Markets need their daily dose of stimulus talk Bernanke!

Greece has to stay in!

The Greek may not be the hardest-working fellows in Europe, as they like to think of themselves as, they may not be the tax-loving people that Christine Lagarde wants them to be, they may have one of the biggest average salaries in the European Union, but these are not good enough economic arguments to allow for their eviction from the EU. It is not about Greece anymore, Greece is a symptom of a bigger problem: should the European Union push for more integration ?

The curious case of the Canadian penny

The inflation squid finally took its toll on the Canadian one penny coin. Due to increasing metal prices the cost of minting and distributing the coin reached 1.6 cents and the Central Bank of Canada decided in May to discontinue its production. Its purchasing power dropped by a staggering 96% since the coin was first introduced in 1908. The Central Bank of Canada reckons that the move will save $11 million a year, while Bloomberg estimates that banks will save $20 million per year from not having to deal with small change. Not worth a penny ?

Interested in negative yields ?

Yields are meant to repay the providers of capital for the risk of tying up their available liquidities into risky projects. The concept is related to the existence of time preference of money: a 1$ today is worth more than a 1$ tomorrow, because lending it entails lost consumption and investment opportunities and because that dollar is subject to inflation. Therefore the only theoretical way in which an interest would be zero, is if the perceived risk of the issuing entity is zero. If this is mesmerizing, than how would one explain the negative nominal yields on Swiss bonds ?

Schadefreude as post IPO Facebook sells-off

Early investors in the over-hyped social networking portal Facebook could not be happier: they managed to cash out most of their stakes while the company was in the extremely overvalued price range. The recent initial public offer raised $16 billion, at an initial price of $38. According to that share price, the internet company was valued at $104 billion, with a price earnings ratio of almost 100 times the expected profits of 2012. Google, a proven internet advertising and search engine giant is valued at 13x earnings. Is Facebook still overvalued ?

The Greek odyssey

Just like the legendary Greek warrior Achilles, at one point Greece seemed invulnerable: the country reported above the European average real GDP growth rates, relatively low budget deficits and stellar growth prospects. The figures ultimately proved deceitful: the budget deficit was adjusted to 12.5% of GDP in October 2009, in a time when the public debt was "only" 90% of GDP. It all went downhill from there.With credit spreads increasing, investors shunned Greek debt, prompting European banks to use cheap ECB credits to purchase more and more Greek bonds.

Message for the muppets

This is pretty much how things are going to be: JP Morgan gets some more of the tax payer`s money in form of a more than generous bailout. Fed will bring back to life credit markets by injecting a massive more than a trillion dollars QE3, giving some more crack to the market, buying some time until the presidential  elections. Some more debt ceiling circus in the autumn, followed by some more black box economics. What about Europe? About that, in the next episode.

How to play Herbalife`s sell off

I am not one with a good history of calling market tops or bottoms, and frankly speaking, I think it is close to impossible to do so. That being said, an investor should focus on asymmetric trading or investment opportunities, which have a much higher risk adjusted expected return than the expected market return. One of this opportunities presented itself in regards to Herbalife stock, which experienced a massive sell-off, after trading in the 70`s a week ago, it is now close to $48. The panic run was generated by an inquiry made by the hedge fund manager David Einhorn on the distribution policy of Herbalife. I consider the worries unwarranted.

Galactic earnings report for Samsung

Samsung Electronics reported a massive gain of 81% in net income for Q1 of 2012 on account of surging sales of its flagship Galaxy smartphones, the demand for which increased by 36% to 93.5m handsets. The South Korean company finally overtook Nokia as the worlds biggest handset provider in terms of volume, after more than 14 years. Even though the Finnish company has sold 82.7 million mobiles in the last quarter, a good part of them were lower range.

Is JP Morgan getting too big not to fail ?

The investment bank, colloquially nicknamed JP Morgue, or the vampire squid posted a first quarter net-income of $5.4 billion, slightly down from last year`s $5.6 billion figure. Earnings per share increased by 4% due to the share buy-back programme which decreased the overall number of floating shares. Investment banking accounted for $7.3 billion our of the $27.4 billion total revenues, while retail financial services accounted for $7.65 billion. The interesting part is the ever-increasing market power attained by its proprietary trade desk, on huge markets such as the ones for MBS, Credit Default Swaps and Treasuries.

Samsung expects record earnings

Samsung Electronics, the brightest child of the massive South Korean conglomerate (Samsung Group chaebol) is due to track the phenomenal quarter of its competitor, Apple. The company announced revenues of $40 billion with a quarterly profit of $5.15 billion, beating analyst estimates of $5 billion, on accounts of higher smartphone, tablets, and TV sales. Analysts believe that Samsung won back the title of market leader in terms of volumes on the smartphones market from Apple, selling 44 million devices.

Swiss Franc: Will another peg bite the dust ?

When back in September of last year the EUR/CHF was heading towards the 1.1 level, many were expecting some sorts of monetary intervention, under the form of a showering of Swiss francs towards the commercial banks. Since the benchmark interest rate was already at the rock-bottom level 0 - 0.25%, and the minimum reserve requirements for short term debt are already at 2.5%, there was little leeway for "traditional" policy instruments. On the 6th of September the Swiss National Bank (SNB) announced an unprecedented peg against the Euro at the 1.20 yardstick. Within minutes the EUR/CHF reached 1.2180, a spectacular 10% gain, after which it hovered around 1.218 - 1.245 depending on the minor jolts sent by the SNB.

Last piece of entertainment: 100 year gilts

The UK announcement that it would start offering sovereign bonds with a maturity of 100 years was greeted with a lukewarm reception by investors. It reminds some of us of the perpetuities issued in 1752 by the Chancellor of the Exchequer Sir Henry Pelham which started as 3.5% annuities and, after a series of "consolidations", ended up with coupons of 2.50%. Truth be told, now with the inflation monster surfacing more and more, issuing 100 year debt without inflation links is nothing more than a bad joke.

Gold surges as chairman Bernanke signals more QE

To QE or not to QE? This is the question. No definite answer is still firmly enunciated, but all odds are in favor of another round of CTRL+ Print. Why? Too put it quite simply, because the massive US debt needs to be financed in some manner, and the easiest way to get away from this Damocles` sword is through a combination of inflationary devaluation and exchange rate manipulation. All under the noble banner of stimulating the economy. Now, why is this even important? It`s probably related to the narrow-minded "traders`" obsession with the term quantitative easing. Upon hearing mere hints or allusions towards more printing, the market turns haywire: launching in 5...4...3...2...1. The side-effects of such a policy of wealth redistribution are inflated asset prices and accumulated cash piles at the corporate level (which incidentally are usually left to "compound" in this negative rate environment).

A Facebook credit for your thoughts

Mr. Friedrich Hayek, one of the most proponent theorists of the Austrian school would be terribly happy to find out that competition is creeping up on the government monetary monopoly. This is because companies like Facebook or PocketChange, offering virtual credits for their users to use in games such as Farmville, or Mafia Wars, are gaining more and more popularity: revenue generated by the Facebook credits system sky-rocketed to $557 million in 2011, from only $106 million the previous year, according to its most filing prospectus. They are counting more and more on the virtual credits to generate income streams and this could generate a positive effect, depending on the popularity of their currency, of competition on government controlled market. 

Brazil joins the currency world war

Brazil has been no stranger to monetary intervention and currency devaluation, but, until now the political rhetoric has been rather passive on this subject. The tone changed a bit after Brazil`s finance minister Guido Mantega declared this week that his country will no longer "play the fool" and let its currency appreciate while richer nations gain economic advantage by devaluing theirs. As a result the government extended this Monday a tax on foreign loans to 6% (similar to the Robin-Hood tax that the European Union is planning to implement). Will this coll down the hot money inflows ?

Monetary policy case study: South Korea vs Japan

The picture may be four years old, but it does a great job of showing the South-Korean eagerness to take Japan`s place as high-end apparel exporter. While most of the eyes focus on the miraculous growth story of China, the economic power of South Korean business conglomerates (formally called chaebols) is ever-increasing at the expense of their Japanese counterparts (named keiretsu). This is because South Korean companies have a fortunate advantage in the relative weakness of their national currency.

February Chinese trade deficit at record $31.5 billion

The Chinese establishment is not shy to show us that after a long period of hoarding cash in the negative yielding "safe haven" of US Treasury bills, they are prepared to initiate the world`s biggest corporate shopping spree. Data released by the Chinese Customs Office present the biggest monthly trade deficit since 1989 as the industrial mammoth is seeking to employ its cash reserves by purchasing industrial commodities like copper and oil. Whereas the deficit may well be seasonal due to the timing of the Lunar New Year, the figure does show the spending appetite of China.

Greek debt deal 95% agreed

A major breakthrough in Greek debt talks was reached today as investors representing 95.7% of Greece`s privately held bonds agreed to restructure their bond holdings without being classified as a credit event and thereby not triggering the underlying credit default swaps. Out of these 95.7% of bond, investors holding 85.8% of bonds have voluntarily agreed to swap their current depressed bonds with new, lower yielding, higher maturity bonds, and the rest will be forced to accept the restructuring under invoking collective action. Where to now ?

Watson: the future of algo trading ?

News emerged today that the IBM supercomputer which defeated the champions of "Jeopardy!" almost a year ago was hired by City Group to analyse financial, economic and client data. Its main capabilities include translating natural human language into quantifiable objective data, an extremely refined form of what some algorithmic trading bots can accomplish at the moment. It will most likely be used to read and analyse SEC reports and market developments and issue prompt trading suggestions. Ladies and gentlemen welcome to the future!

Rusia is 140% Putin

It came to no-one as a surprise that Vladimir Putin won six more years in Kremlin, according to exit polls and preliminary results. He has been someway or another in power ever since he received his divine blessing from Boris Yeltsin at the beginning of 2000. According to an exit poll by the Public Opinion Foundation he got 59.3% of the votes and taking into account the Central Electoral Commission he won 62.81% of the votes, after counting almost 20% of the entire votes. 

Are icy times over in Iceland ?

The financial meltdown of leveraged icebergs started in 2007 a global economic ice-age. While credit has been, in all purposes, frozen for the last four years, the growth prospects have been ice-cold, and while governments in the western part of the world have applied massive stimulus to what is essentially a severely frost-bitten part of the economy, the financial waters are starting to become fine for a tiny European country: Iceland.

Wednesday market outlook

Interesting times we`re trading in. The markets are screaming for an impeding correction, but as the global printing press pumps liquidity into the markets the game of musical chairs has no choice but to continue. What will happen when the music stops and all these injections will prove they have diminishing returns? Until then, let`s take a look on what the markets did this week: gold has managed to hold the bullish channel it entered on the 22nd of February, the S&P looks like a rabid bull and the effects of Bank of Japan`s massive intervention on the yen seems to be wearing off.

Last one out is a rotten AAPL

All good things come to an end, and the recent rally in the Cupertino based technology mammoth is no exception. Apple reversed yesterday almost $24 from its most recent highs, down to $502.08. The main culprit seems to be a piece of news according to which Apple iPads are the subject of a trademark infringement in the Chinese mainland. It seems that the sino company Proview International Holdings is the holder of iPad trademark on the Chinese mainland and is currently seeking a ban on imports and exports of Apple products.

BoJ sprays markets with 10 trillion Yen of liquiditity and all I got was a lousy SL

The Bank of Japan announced more monetary easing today and pumped $128 billion into money markets in a move set to reverse the appreciation of Yen against other currencies. Copy-catting the US Federal Reserve they also expressed their intention to target a 1% inflation for the period. This comes after disappointing GDP news which revealed that the Japanese economy contracted by 2.3% on an annualised basis, on expectations of a 1.8% shrinkage.

Back to the USD/JPY long trade

I`m re-entering the USD/JPY position at $77.71 with a very tight stop loss at 77.48 to capitalise on the disappointing GDP figures posted today. The Japanese annualised GDP was posted at a negative 2.3% on expectations of -1.4%. Moreover, the Bank of Japan is starting today a two-day policy meeting in which they might decide that further intervention is warranted. The risk-reward ratio is favourable.

MF Global hole widens to $1.6 billion

KPMG, the bankruptcy administrator of the former financial services company MF Global revised upwards the estimation of the shortfall in customer custodial accounts. It seems that Jon Corzine, the CEO of MF Global authorised the embezzlement of customer funds through commingling (using the cash left in margin accounts for collateral in their own transactions).  The claims from commodity traders using MF Global accounts are now $6.9 billion, out of which 3.9 billion will be returned by the trustee in the upcoming week. It holds an additional $1.4 billion in reserve, thus leaving it with a gap of $1.6 billion in claims.

Short S&P500 @ 1339.7

I`m entering a short position on the S&P500 as of now at the $1339 level. The QE2.5, Operation Twist, LTRO and MBS repurchases are starting to wear off. Stop loss at $1360. Target at $1291.

Closing the USD/JPY trade @ 77.58

I`m closing the USD/JPY trade started a few days ago. Better leave some money on the table, than have nothing at all. I`ll wait for a move closer to 75.5 to get back in. If there is a central bank intervention at this level, then so be it. A few good pips from 76.42 will aid the bottom line.

It`a all Greek to them!

The Greek tragi-comedy continues: an early agreement to secure an 130 billion euro rescue package from the Troika (the European Commission, the IMF and the European Central Bank) is getting less and probable. The officials failed to reach common ground on the sensitive issue of job cuts, lowering pensions and reducing the statutory minimum wage. IMF requests, or let`s say recommends Papadendreou to sack approximately 15,000 government employees and reduce primary pensions by nearly 20% in order to cut the budgetary deficit by 3 billion euro in 2012.

Facebook files its prospectus: stay out!

Facebook`s initial public offering is imminent, as today it filed the prospectus. Just like all new age, Internet companies "that cannot be measured using traditional metrics", the focus is on the 845 million active users, 2.7 billion likes and comments per day, 250 million photos uploaded per day and 100 billion friendships. That is jolly and all, but how much is an uploaded photo, a like or a friendship worth? Wile the advertising business model seems less effective than Google`s Adsense model, there is some growth potential in the web developer (mainly apps) business model, whereby Facebook is charging 30% of all revenues. Integrating social gaming into its platform is an extremely well though out move.

Is it time to long USD/JPY ?

With the European Union debt deal talks and the US primaries under way, there is little space left for news regarding the second biggest debtor country: Japan. The ugliness contest between the dollar and the euro, seized the news and took the limelight away from the real contestant: the Japanese yen. In the last months the Japanese currency has been slowly appreciating in value against the dollar from 81.11Yen to what is now 76.36Yen. Bank of Japan is most probably going to intervene in the market again, and then traders will be able to fade the intervention again, locking in profits on both ways.

Bernanke expands ZIRP till mid 2014

During the yesterday's Federal Open Market Committee meeting, FED's chairman Ben Bernanke adjusted downwards the US growth outlook and extended the Zero Interest Rate Policy until mid 2014. He didn't mention any further large scale asset purchases except  "Operation Twist" and rolling over of the current portfolio and he didn't mention any unemployment targeting (a widely expected figure).

Apple Inc posts record revenues and profits

Apple, the Cupertino based company, cut through analyst forecasts like a hot knife through butter, today, after it reported quarterly revenues of $46.3 billion, and Earnings per share of $13.87 (diluted shares). Comparing this with Q3  2010, when the company disclosed revenues of $26.74 with a net profit of $ 6billion. This quarter's net profit of $13.06 billion is more than the entire yearly profit of Google, one of its main competitors. Shares jumped to a maximum of 10% in the pre-trading market, and are now hovering around 6.43% in the green. 

IMF seeks to boost half a trillion more in firepower

The Internationaly Monetary Fund issued a statement today, suggesting that it will try to raise close to $500 billion in new funds from cash rich countries like Brazil, China, India and the oil exporters to lend to the eurozone countries in financial difficulties. The question here is, where are they going to shore up this cash-pile, taken that, the countries mentioned have their own little pesky internal issues: China still is at the brink of a real estate collapse and India is going through a massive devaluation of its ruppee.

Financials slump as Citi and JP Morgan miss estimates

Shares in the third biggest US investment bank slumped 5.80% today after it announced that its revenues fell 7% Q/Q to $17.2 billion, and $0.38 earnings-per-share on expectations of $18.5 billion, and $0.52 EPS. This comes after the disappointing Q4 results of JP Morgan, which followed the same pattern: a loss in the debt valuation adjustment (DVA), lower investment bank fees, loss on the trading division all covered by an offsetting release from loan loss reserves.

LTRO liquidity tsunami floods back to the ECB with little effect

The so-called Draghi put, more formally named "Long Term Refinancing Operation", through which the European Central Bank is offering almost unlimited liquidity with 3 years maturity at 1% yield, has proven unsuccessful at supporting the sovereign bond market. The big plan was that, by offering massive amounts of low cost financing to banks and financial institutions, they will park some of this excess cash into European debt instruments. Instead of this, it turns out that banks have chosen to deposit the funds back at the ECB and conduct small carry trades at the short end of the yield curves.

France downgraded to AA+ and what it means for the rest of EU

In a move that only confirms what the rest of the world already knew, financial ratings agency Standard and Poor`s downgraded Friday 9 of the Eurozone countries: Cyprus, Italy, Spain and Portugal by two notches and Austria, France, Malta, the Slovak Republic and Slovenia by one notch. By far the biggest implications are for the downgrade of France from its triple A status to AA+ because it will consequently mean that its EFSF guarantees will not be as high rated as before and threaten to bring down the AAA status of this special investment vehicle.

Hedge funds prepare to show their middle finger to the European Union and IMF

Besides the risky bet on further quantitative easing, another hedge fund favorite has become purchasing Greek sovereign debt. Some of the hedge funds amassed such large positions of Greek debt, that they may have quite some bargaining power in the upcoming debt restructuring. Because the EU and IMF are going to ask for voluntary write-offs, in order to avoid a formal "bankruptcy", which would trigger the massive CDS market, the idea behind this speculation is to reject any kind of haircuts on their share of debt, and therefore pocket the "defaulted amount".

PIMCO is taking a massive bet on QE3

Bill Gross, the co-chairman of one of the largest bond funds, PIMCO's Total Return fund which closed 2011 at a whopping $244 billion dollars, has added to its leveraged Mortgage Backed Securities position during December 2011, in a bet on further Quantitative Easing and further "Operation Twist".  According to Zerohedge, the Total Return fund had in December a $60 billion cash margin account used to purchase $103 billion in MBS, TIPS and long duration US treasuries. Turns out that in December, Bill borrowed an additional $78 billion to purchase more MBS and treasuries.

S&P and precious metals outlook

Last year ended in a rather odd way: it seems that the bounce-back effect of the stock market faded away and, as a result, the S&P500 and the DOW ended almost flat for the year, albeit on the negative side. The precious metals plunged in December below the 200 daily moving average, which has been a support level since 2008, a rather bearish move, and since unsuccessfully tested the 200 EMA once. The picture is still blurry, but this Friday closing prices should provide a better image.

Everybody join in the Too-big-to-fail bandwagon!

According to a recent article published by Bloomberg, global regulators (whoever they may be) from the Financial Stability Board met in Basel, Switzerland to decide on a "framework for domestically systemically important banks" which should be up and going by next year. This would expand the list of financial institutions which, in case of failure, would pose risks to the stability of the domestic system, and therefore should be regulated. After we saw insurers (AIG) and  governmental mortgage associations (Fannie Mae, Freddie Mac) being bailed out in 2008, it is time to also regulate the so called shadow banks.