FX EUR/USD Commentary March 1, 2012
Its looking like the decoupling theory is coming back folks. We had better than expected GDP numbers from the US, better Chicago PMI, Consumer confidence and lets not forget good old helicopter Ben said all is well in his testimony for Congress yesterday. Just before he got a tongue lashing from Ron Paul. You cant help but enjoy those moments.
I truly hope that this theory holds and the US can somehow push forward and start the process of digging a way out of our hole rather than dig it deeper but I still see cards that have yet to fall and will have to be dealt with in the near future. For starters who out there is aware that there is a commercial property bubble that is waiting to burst that has the potential to rock the credit world as bad or worse than the residential housing fiasco. The truth is they have been holding their breath on this one for 3 years and last year finally changed the rules back to where the banks have to mark to market these distressed properties and start taking the hit. The fact is commercial property defaults were snow balling just like residential properties until they changed the rules in 2010. However in mid 2011 the FASB finally had enough of the BS accounting and issued an Accounting Standards Update (ASU) that went into effect for all periods after June 15, 2011called Clarifications to Accounting for Troubled Debt Restructurings by Creditors. Essentially, if a lender is involved in a troubled debt restructuring with a debtor, including a forbearance agreement or a workout, the property MUST be marked to market.
This is from a recent interview with Andy Miller, cofounder of Miller Frishman Group, His company deals with distressed commercial real estate. This segment of his business was booming in 2009 and into the middle of 2010. Then magically, there was no more distress as the rules were changed to buy time.
“All of a sudden, right after Thanksgiving in 2011, the floodgates opened again. In the last six weeks we probably picked up seven or eight receiverships – and we’re now seeing some really big-ticket properties with major loans on them that have gone into distress, and they’re all sharing some characteristics in common. In 2008 and 2009, these borrowers were put on a workout or had a forbearance agreement put into place with their lenders. In 2009, their lenders were thinking, “Let’s do a two- or three-year workout with these guys. I’m sure by 2012 this market is going to get a lot better.” Well, 2012 is here now, and guess what? It’s not any better. In fact I would argue that it’s still deteriorating.”
Not to be a total gloom and doomer I am happy to see some things are getting marginally better but do you really believe things are so much better that the economy can withstand another default shock that may be larger than the residential housing collapse? Time will tell the story on that one.
In the news today the most important release I see scheduled is the EU summit. However remember that the ISDA will be releasing their conclusion on a Greek default due to the subordination of Greek bonds by the ECB. The meeting is set for 11am GMT and the release will be soon after. Other than that there is Unemployment claims and Bernanke testimony again during the US session again. Along with manufacturing PMI data. As long as these are better than expected then I expect the decoupling scenario to continue.
Looking at the charts the EUR/USD did pull a fast one on me yesterday. Of course I followed my plan and went long. All was well until Bernanke opened his mouth LOL. My long went 30 pips before coming and hitting me break even. The fact is even the Smart Money gets it wrong sometimes. The daily is looking very bearish after the 170 pip drop from the highs and now is forming level 2 of the SM trend. I will be looking for the trap on the 15 minute chart to the upside today to short from. Most likely around yesterdays NY lows. Of which also corresponds with the break out level on the daily chart at 1.3370 and is the daily low from Tuesday.