Monday, June 21, 2010

6/21/10 Midafternoon Report: China drops its peg, exposes its growing yuan

The market rallied today in the morning like a chubby chaser with a bottle of crisco on his way to a Peter Paul Rubens exhibit until it faded in the afternoon thanks to common sense and volume.  Rallying the market in the morning was news that China is going to unpeg their currency from the dollar thanks to pressure from global leaders who felt that the currency peg gave China an unfair trade advantage in selling their cheap shit even cheaper.  The announcement comes ahead of the G-20 summit in Toronto this weekend where finance ministers and central bankers from around the world will no doubt descend upon the NSFW Brass Rail and flaunt their ability to negotiate currency while manipulating bottoming assets (of course after the EU's latest bailout, finance ministers will certainly wonder if that is a printing press in EU central bank governor Jean Claude-Trichet's pants or if he is just happy to see them).   While it's good that China is willing to let the renminbi/yuan float (and if anyone can explain to Money McBags the difference between "renminbi" and "yuan," other than several letters, he'll send you a free autographed poster of Gong Li), China has stated that they will do it gradually so as to avoid a potential destabilization bubble like what happened in Japan when the yen was unpegged from the dollar in the mid-1980s or like what happened in Britney Spears' pants after she was unpegged from Justin Timberlake.  With the return of a "managed floating rate," the yuan/renmindbi/johnson rod was up ~40 bps against the dollar to its highest level in five years which means happy endings just got a little less happy for all of us.

In US macro news, less is happening today than on a Bernie Madoff trading desk in 2006 or in a eunuch's pants.  The SEC is going after a firm called ICP Asset Management for manipulating CDOs in ways that would have made even Meggan Mallone blush.   ICP is accused of pumpng up CDO prices to increase the value of their funds, pushing profits to their owners rather than their investors, and being what I believe the SEC called "a bunch of dicks."  In other news, the proposed Durbin Bill which is supposed to keep credit card companies from charging merchants exorbitant interchange fees as a way for those credit card companies to have adequate reserves when their customers charge off due to the high prices the customers have to pay for goods which of course are partly caused by merchants raising prices to make up for high credit card interchange fees (it is the least fun daisy chain Money McBags has ever encountered), is rumored to be losing steam.  News today is that the bill will take out "network fees" from interchange and thus credit card companies will still be able to charge retailers the fuck out of transactions due to a semantics loophole.  The result of all of this is that V and MA shot up at midday while politicians once again do their best to to take the bite out of their bark or the steam out of their cleveland steamer if you will.

In stock news Alcoa ran up today as high frequency algorithmic traders have stumbled on to the phonebook approach and are just buying the first company listed alphabetically (though a smiliar strategy worked for Malachi Constant).  Actually, AA is up as over the weekend their CEO said he expects demand to grow 10% with half of that coming from China and with China releasing their yuan today, demand for imports in China should improve.  In other stocks, BP is down again today because the stock hasn't reached zero yet and Goldman Sachs cut their earnings forecast for banks causing banks to rally as investors realize trading against GS' recommendations and thus WITH GS' ACTUAL BOOK is the best way to make money.  GS front runs and ditches shit to clients once it has appreciated more often than marginal celebrities come out as bisexual (and today it was some singer named Vanessa Carlton who claimed she is bisexual which would have made Money McBags excited if he knew who Vanessa Carlton was and if she didn't look like the man in the relationship).  Anyway, the short GS recommendation, long their actual book trade wins again.

In small cap news a Money McBags favorite KITD was down 9% on no news that Money McBags could find though he wouldn't be shocked if they were getting ready to dilute shareholders another 25% just because they can.  This company is more frustrating than a one-armed man trying to solve a rubik's cube.  That said, Money McBags still believes in the long term growth story so is not sweating their huge Euro exposure and their predilection to raise equity as a daily operating procedure.  Money McBags is short on time today, so no detailed analysis of any small cap names but if the market has topped out here with the sell off in the afternoon (and Money McBags is no chartist, though he will technically analyze Hilary Rhoda's bollinger bands if need be), then he would be selling his illiquid names in to the downturn.

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