Today is a rather bizarro day. The futures opened up strong, and traded ok until midday Europe. We are seeing some pullbacks as the market in Europes heads for the close. People talk about all is fine, now when WSJ, posted a “Germany pro Greece” article. Case Shiller, Consumer confidence etc have all been coming in on the weak side today. We feel there is a dislocation in the market today, and suggest loading up on Vol at these levels. Both SPX and Dax could make some interesting formations if we got some more reversals today. SPX, still in negativ trend and DAX, a possible last shoulder forming, charts below;

Case Shiller takes another dive. Bad news, but today the market is focusing on fire sales to come in the Greek Archipelago. Euro surging, oil, silver and ES futures all surging, while US housing is taking the double dip down.

New York, May 31, 2011 – Data through March 2011, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels.

Don’t forget the long term picture…

It is a RISK ON day today, mainly due to the WSJ report about Germany giving Greece some slack. Athens is surging today, although the index is trading where it was only some days ago. The question is; Are people going to accept all these asset sales and further Austerity? Below from Kathimerini;

The spontaneous protest gatherings in Greece’s public squares that we have seen over the past few days can be defined as being somewhat lacking in cohesion as even the most popular slogans shouted are not to the liking of everyone and not everyone is happy to make rude gestures at Parliament in an effort to let off some steam.

The fact, however, is that it could be no other way given that people reach a state of indignation through the same route (that is the one-way street of the EU-IMF memorandum), but they don’t all see the same exit, if they see one at all. In any case, at these rallies we see a large part of society come together, most of whom will say that they don’t see any of our politicians as being fit to govern in opinion polls and who will opt to abstain from general elections. Their physical presence, even if it is without a statement, is authentically political.

Of equal interest to the actual gatherings is the sense of discomfort they have inspired in Greece’s politicians, who fear that they may not be able to take the heat, especially when it is also coming from their usual allies in the media. They can’t really condemn the protests since they have no overt political agenda, are not violent and do not have a negative effect on business in the city center or really on traffic.

Of course those political parties and media pundits who believe that theirs is the only truth were quick to condemn the slogans at the gatherings as shallow, in an effort to hog all the indignation for themselves. Then there are those who like to assign the gatherings with content, their own kind, through deeply condescending statements.

Where this mass indignation will lead is still open. But the fact that something remains open when everything else looks so dismally shut and decided is a reason to rejoice, as is the peaceful nature of these rallies and the fact the indignant are sticking it out.

Below the latest news of relevance for the Food Prices. We will bring you freshly updated charts directly from FAO, when they post their new Food report. Below some of the most interesting subjects on Food this past month. Courtesy Silvio at FAO.

Here we go, Nokia delivering a huge profit warning. The world’s biggest mobile device company is cancelling all previous guidance, slashing everything there is to slash, and the stock is collapsing. It sure seems Jobs won this battle over Microsoft. Last time the stock traded at these prices, the company was producing tyres and wellington boots and back then phones looked like this. No touchscreen, but you could send text messages…

Selling of those government assets, to the vampire squid creditors, might not pass smoothly. The Greek people are experiencing going from bad to worse, and now they should sell assets at fire sale prices, dictated by the creditors. Whatever happens, Greece needs more money, and people are getting overly angry. Expect the protests to escalate further. Kathimerini reports;

Workers at Greek ports will stage a work stoppage between 11 a.m. and 3 p.m. on Tuesday to protest the government’s privatization plans.

Rallies will also be held in Piraeus and Thessaloniki. Employees of the Piraeus Port Authority (OLP) will march to the Marine Affairs Minsitry.

The government is looking at selling its entire holdings in OLP and Thessaloniki Port Authority (OLTH) by the end of the year and will seek buyers for between 43 percent and 66 percent of other ports in which it has stakes in 2012 and 2013, the Finance Ministry said earlier this month.

OLP reported a first-quarter net loss of 2.9 million euros, compared with a profit a year earlier, as sales slipped 33 percent.

“The total sell-off of all profitable public companies is an incomprehensible and criminal political act,” the Union of Port Workers said in an statement when the sell-off plans were announced.

For those wishing to get a insight into the Greek Dilemma, below is some good reading by Fitch. Irrespective of Germany being the savior for the day, Greece is running out of cash in July, and something needs to be done. New bail out, or why not leave the creditors?

Fitch Ratings downgraded Greece’s Long‐Term Foreign‐ and Local‐Currency Issuer Default Ratings to ‘B+’ from ‘BB+’ on 20 May 2011, and put the ratings on Rating Watch Negative (RWN). The severity of the rating action reflects the scale of the challenge facing the Greek authorities as they prepare to undertake more intensive fiscal and structural reforms to restore sovereign creditworthiness and lay the foundations for sustained economic recovery. Fitch believes that implementation and political risks have risen and that there is a high probability that the IMF‐EU programme, as it currently stands, will cease to be fully funded beyond 2011.

Fitch first articulated the risk of renewed funding gaps emerging in 2012 in January 2011, at the time of an earlier downgrade of Greece’s sovereign ratings to ‘BB+’ from ‘BBB−’. In Fitch’s view, the outcome of the EU Heads of Government Summit in March heightened this risk still further, by raising market perceptions of the inevitability of some form of debt restructuring under the auspices of the newly created European Stabilisation Mechanism (ESM). Investor sentiment towards Greek sovereign risk in the wake of this initiative has deteriorated to such an extent that Fitch now believes that it is highly unlikely that Greece will be able to regain market access during the remaining life of the IMF‐EU programme (May 2013).

Incorporated into the ‘B+’ rating is Fitch’s expectation that substantial new money will be forthcoming for Greece from the EU and the IMF and that Greek sovereign bonds will not be subject to a “soft restructuring” or “re‐profiling” that would trigger a “credit event” and consequently a default rating from the agency. Earlier in 2011 the IMF and EU agreed to more lenient repayment terms on its existing support package, including an extension of maturities. This “credit event” did not affect market debt. However, Fitch reiterates that any extension of maturities on existing sovereign bonds would be treated as a default event and that the Hellenic Republic and its obligations would be rated accordingly.

Full report,

Fitch_Report

Euro and other risk currencies ripping higher today, just like the ES future, on news Germany will “fix” Greece. Remember though, Greece is out of cash within a month or so. We are still getting a lot of political noise of what to do, without any kind of solution clear. The moves in currencies today, is most probably due to the masses being wrong again. After the Euro spec longs hit highest levels since 2007, just about when the Euro topped out, we got that big move in USD, that totally stopped out many Euro longs on the way down. We then saw huge stops in Euro, taking spec longs to neutral, while the USD spec longs even went small long (first in a long time). To conclude, we had the highest Euro spec longs at the top, these positions had to be unwound quickly as the Euro collapsed. With todays move up, and possibly another day or so, the last momos that shorted the Euro at the bottom will be closing their positions. Chart below, coutresey ZH;

Before you go all in today, on this window dressing May Day, here are some 5 yr CDS prices for the peripheral Europe;

PORTUG 665/680 -20

ITALY 160/164 -5

GREECE 1375/1425-50

SPAIN  247/252 -  9

All in all, no great moves on the downside….

Risk ON this morning after reports Germany is now “real” friends with Greece. Euro getting support, as well as other risk ON currencies, such as AUD.

Below article from WSJ getting a lot of attention this morning;

BERLIN—Germany is considering dropping its push for an early rescheduling of Greek bonds in order to facilitate a new package of aid loans for Greece, according to people familiar with the matter.

But some officials in Berlin hope that a short-term fix can be found that would allow a full deal including a bond rescheduling later this year.

Euro-zone officials have acknowledged for weeks that Greece will face a shortfall in financing of around €30 billion ($43 billion) a year in 2012 and 2013—even after a €110 billion bailout agreed last year. But agreement on how those gaps should be filled is proving difficult, thanks to growing political opposition in northern Europe to bailouts of profligate countries such as Greece.

http://online.wsj.com/article/SB10001424052702304563104576355514024153114.html?mod=WSJ_hp_LEFTTopStories

Before we got too exited read below;

Can’t get enough Eurozone crisis? We’ve got you covered with the most recent commentary from Stephen L Jen, the former Morgan Stanley currency guru who’s know running SLJ Macro Partners.

We summarize:

• The PIIGS — or GIPS as he refers to them — are not vaguely competitive on a global scale. They’re not even competitive in Europe, lacking both the proper institutions or the cultural mindset to become competitive.

• There is a limit to how much more in aid they can get from core countries. It’s getting to the point, where if the GIPS were to default on loans from the European Stability Mechanism, it would put the sovereign debt rating of France at risk. Money from the core is not unlimited.

• Meanwhile, the ECB owns 50 billion EUR worth of Greek bonds, and has loaned 90 billion EUR to Greek banks. A Greek default would compromise the balance sheet of the ECB.

• Even if an EU-wide fiscal union were formed, it may not be AAA-rated.

His full comment on the situation at the ECB is worth digesting in whole:

The ECB possesses around EUR50 billion worth of Greek bonds, and has lent around EUR90 billion to Greek banks.  In the event of a default by Greece, not only would the ECB’s balance sheet be compromised, but the ECB would need to make a decision on whether Greek and other GIPS bonds would be accepted as collaterals.  This was the very fear of Mr Weber, and the very reason why he objected to being forced to undertake quasi-fiscal operations.  The threats from Messrs Stark and Bini-Smaghi that the ECB would stop accepting defaulted Greek bonds is not 100% credible, as that would certainly trigger a collapse in the Greek banking system.

The ultimate gist, really: Even a political solution may not work, especially given the threat to the ECB/France, etc.

(businessinsider)