søndag den 13. juli 2008

One step closer to a true US dollar crisis

The Ponzi scheming by the US continues- making a high-impact Sunday announcement on support for the GSCE's Mr. Paulson showed not only his Socialistic cridentials but also his total lack of understanding of the reason for this dismay.

All the way through the week-end press there was leaked information that The Treasury was in talks with bank on placing the 3 bln. US Freddie Mac papers due on Monday(today) - but it seems there was no luck in the usual Bush strategy of: "I scratch your back, you scratch mine" - so next step was to up-the-ante and go for full blown support.

I must say I am VERY happy I no longer pay US taxes, except the ones induced on my small saving account in Charles Schwab, as with the incoming President Obama, the US is about to see Sweden/Denmark like tax pressure to pay for this financial mess which Greenspan mainly, but lately also the Prof. Bernanke have created.

What I find most ironic is how the US administration policy on the US dollar is failing; they are desperately trying to avoid weaker US dollar but then they announce policies which clearly puts into doubt the long-term perspective of ever paying this debt back.

The top problem right now, as defined by one of the smartest people I know; Why should foreigners fund long dated agency debt and run the risk when Obama and the US in general, dont play by any rules? Socialising the risk, does NOT get me one Iota closer to getting my money back.

Dont forget agencies has been major chunk of foreign central banks and agencies portfolio as the spread for a long, long time was static at 10-30 bps - now the charts below shows the "explosion higher".

Spread 2 yr Agencies vs US T

The incoming President is business hostile, at least financial, there is not a single person in Obama' economic team with connection to hedge fund industry or market in general. It's like having a NFL team runned by someone with a background in farming! (Nothing wrong with farmers by the way - being a farmers son myself;-)

The most important point though remains: by socialising the risk, the US has not improved the quality of the quasi-supported GSCI's they have decreased it.

I am far more confident in an instititution acting in the free market, with governance rules, the ability to price bad performance; as Bob Rodriguez elegantly puts it: (see story below): ""..one does not reward a borrower with a lower interest rate when that borrower has degraded their balance sheet" -

He was talking about the US, I am talking about the agencies.

Its not random US bonds sold off on Friday, when the market got news of this "bail-out" - the bond holders clearly recognized by introducting the rescue the future value of asset held in bonds decreased.

On top of this we see major bias indicating the market continues to buy the US dollar turnaround story - I do NOT buy this. The bias is one of the biggest I have seen, and it point straight north for the EURUSD.

On the stock market I wanted to rave about how the market continues to "hope" - this weekend press had the highest frequency of people calling for low in place for stocks; Everything from Dow Theory, VIX/VXO ratios, moon phases, and the like is being called on to get this mess stopped. I, for one, remain bearish, this is not the end game, there needs to be blow off.

The blood is not in the street yet, but its getting closer. A full blown US dollar crisis could ignite the final leg, which should see US market fall another 10% (the average peak to trough move in recession is 30% - 20% for non-recession)
I am short untill proven wrong, and the short financial sector remains my favourite; Barclays stands out as best short to me.........

Oh, and some worhtless prediction: EUR will see 1.65 this year....


FX: Long EURGBP, Long EURUSD - short GBPJPY..took off USD.SGD short.......
FI: Long December Euro calls in EDZ9......long calls in bunds.....
EQUITY: Long put on dax, short S&P (from this morning).....
Stocks: long pharma, mining, water,solar..... short financials/big cap....

Finally some links you should try out:

Barclays mess:

Loan origination:

Fannie Mae & Freddie Mae issue excellent : http://www.econbrowser.com/archives/2008/07/fannie_mae_and.html

Roubini interview:

I am returning to the hammock, seems the best place to be in this mess.


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