Debtenomics

Well, you could hardly say it was a surprise that UK has come out with a disastrous budget today. What did catch people's attention is the amount of new gilt issuance - an incredible £175bln.

In spite of some politically rewarding token tax measures on the rich, a glance at the so-called "red-book" behind the speech shows that forecasts remain insanely at odds with reality. 3.5% growth within 2 years? Absolute fantasy.

The surprising thing is that sterling hasn't dropped even further, or the gilt/stock market for that matter. Perhaps everyone is looking away?

Citi spin - part II

With the help of the US Government, Citi stumbles on! Having finally finished reading their Q1 earnings announcement, I'm slightly shaken. OK, I got the timing on their demise wrong...they're stills tumbling on. Yet I remain convinced that they will need yet another helping of aid (unless they get Lehmaned).

Anyway, when you take out some of the tricks that Vikram and his chums in their plush (newly refurbished!) executive office, it starts to get scary. From that $1.6Bln headline "profit", I've so far taken out nearly $1.1Bln, mostly one-off gains and rather flagrant accounting tricks. Considering the decimation of some of their opponents, the profit suddenly looks thin. Also, those credit loss prediction levels seem woefully low.

Citi is running on (government funded) fumes, so watch the upcoming quarters with interest (the academic type...you don't get much interest from a Citi deposit these days!).

Circular capital

What goes around comes around. A few years ago, eBay was congratulating itself on buying Skype for a whopping $2.6Bln. At the time, even analysts (!) were saying that they had greatly overpaid. The transaction was eBay at its worse levels of hubris and misguided manifest destiny. A capstone to the awful leadership of Meg Whitmann, who know seeks to wreak political damage in California.

Now the news is out that Skype is back on the block. The rationale for flogging it is that there are "limited synergies" - a shame eBay didn't think of that a few years ago. Due diligence anyone?

Treasury Iceberg

I know I've been raving on about the bubble in US treasuries (add UK Gilts to the mix). Once Bernanke and his merry men break the printing presses, expect a severe shift upwards in yield. Although I wouldn't quite go as far as the Mad Trader just yet, all the signals are pointing to a government rapidly running out of options and ammunition. Hard to tell when this will snap, but I'd run a mile from government bonds.

Liquid hope

I'm not a huge fan of "chart of the day" on Bloomberg, as you run the risk of people data mining the past to fit a novel idea. Yet today's post highlights an interesting side effect of the large amount of cash sitting on the sidelines.

According to the article, this large amount of liquidity is a foundation to sustain the recent stock market rallies. Well, theoretically perhaps - but let's remember why that cash appeared in the first place. A greater cause for concern is that the fact that earnings season will soon be upon us, and it's a fair bet that results will be, in many cases, totally ghastly.

Still, I think there might be a bit of froth left to go in the market (with the caveat that my short timing is far from perfect). Yet at some point the realisation will dawn on investors that we're in for a painful and slow crawl, not a "snapback" recovery. Wells Fargo was a blip, not a green shoot of recovery. Come on, in this market, any bank left standing SHOULD be announcing great earnings - after all, any loans being written will be at very healthy margins (shame about the 2006-2007 loan book though!).

Shamwreck Banks

Ireland's banking woes are now well known, even though fairly little scrutiny has taken place so far on the extent of their property lending operations. For example, if you want to see a grandiose example of that hubris, head to the north of England, where dozens of half-finished apartment blocks are starting to fray. The speculative developments that the Irish banks got themselves into (no doubt to partner with their friends the property developers) are a sight to behold.

Now the scale of the damage is forcing the Irish government to drastic measures. Strange that such a mid-sized country is the first to go full throttle on the toxic bank road - in this case, the toxic bank is the government, as it will buy up debt from their ailing banks.

Granted, rating agencies are hardly the sharpest market participants, but even they smell trouble down the road, hence the first (of many?) downgrades today.

Double up or quits!

Like an alcoholic with someone else's bar tab, Colony Capital is going after more gaming resort assets with their intent to provide a loan to MGM Mirage. MGM was recently sued by its partner Dubai World, and faces covenant waivers expirations next week. Just to show how crazy the situation is, MGM has hired Morgan Stanley to advise (!) it on bids for some of its non-Vegas casinos.

Yes, that's the same Colony whose recently home runs have included Stations Casino (RIP). You can't fault Tom Barrack's hubris, but talk about not learning the lesson first time round. Still, every one who has touched this situation seem to be financial morons - would you have Morgan Stanley advise you on real estate, after their recent disasters with MSREF VI?