Evening Reading – January 6, 2010 – XXL Bear Edition

Trouble in bull paradise allover news-flow:

FT Alphaville: Burdensharing for bank bondholders is here!

It’s arrived! Straight from the European Commission — the much-anticipated consultation paper on haircuts for (dum dum dum) investors in future bank debt.

FT Alphaville: President Trichet are you watching?

Because it looks like it might be time to fire up the Securities Markets Programme again.

FT Alphaville: The Belgians are still waffling

It’s Day 207 in the Big Belgium waffle house…

FT Alphaville: Shadow inventory backlog still growing

Because of the volume of distressed homes either on the market or waiting to be remarketed for sale, our estimate for how long it will take to clear the backlog continues to grow. At the end of the third quarter, we estimate that the principal balance of these distressed homes amounted to more than $450 billion, representing about one-third of the nonagency residential mortgage-backed securities (RMBS) market currently outstanding.

FT Alphaville: What the China risk is

The reform process has now entered a critical phase, perhaps requiring a leadership reshuffle in 2012 or an unexpected crisis to generate the momentum necessary for any meaningful change. We think certain groups such as local governments, the centrally-controlled SOEs, banks and property developers are too influential, which makes life difficult for the central government.

And when life gets difficult for China… it gets difficult everywhere.

FT Alphaville: Lowering claims, lowering expectations

Another day then and another round of jobs numbers to put the cautiously into cautiously optimistic.

There’s more — and it gets slightly more exciting. Goldman offers four, less tech-y reasons for caution…

FT Alphaville: Japan: land of rising contrasts

Japan’s top government spokesman said the country’s fiscal situation is “approaching the edge of a cliff,” underscoring Prime Minister Naoto Kan’s call for a national debate on raising the 5 percent sales tax.

FT BeyondBRICs: Brazil: another currency salvo

Brazil’s new government has said it will do everything it can to stem the appreciation of its currency, the real, and it’s just taken another step by moving to discourage short selling of the dollar.

The Big Picture: Volcker Resigns

Former Federal Reserve Chairman Paul Volcker is ending his term as chairman of President Barack Obama’s economic advisory panel next month.

File this under “Yet another missed opportunity by the Obama administration.”

The Big Picture: Can Banks Foreclose on Mortgages They Do Not Own?

“The record in this case reflects how mortgage lending changed in recent years and how the industry failed to ensure that its new business model conformed to state law. . . Having profited greatly from practices regarding the assignment and securitization of mortgages not grounded in the law, it is reasonable for them to bear the cost of failing to ensure that such practices conformed to Massachusetts law.”

-Massachusetts Attorney General Martha Coakley wrote in a brief supporting the borrowers.

The Big Picture: SPX Index Secular Markets (1900-2010)

We’ve taken many longer term looks at the markets (See, for example, this, this, this or this) but the following chart from UBS Technical Analyst Peter Lee really tickled my fancy…

Macro Man: 2011 Non-Predictions 3 – Rates

8) The Bank of England will NOT continue to ignore upside inflation surprises.

9) 10yr US Treasuries will NOT beach their 2010 yield lows, but will also NOT rise above 4%.

10) Spanish 10yr yields will NOT hold below their 2010 highs, but Spain will NOT need a bailout.

The Slope of Hope: Weekly Commitment of Traders Report – Week Ending 12/28

For about six months now I have been downloading the weekly CFTC report and crunching the numbers into an Excel spreadsheet.  It’s been more educational in terms of how certain markets work but as I understand these reports more I am realizing there is a lot of good data to be had.  For those new to the COT report, traders are categorized into three categories Commercial, Non Commercial, Non Reporting. Commercial traders for example would be Starbucks buying coffee for delivery through the futures market.  These are the traders that know what’s going on and the ones where the most can be gained by studying their positions.

So the charts below focus solely on the commercial traders and their net position (long minus short).


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