As was leaked earlier today, so it would be:
- MOODY'S CUTS 16 SPANISH BANKS AND SANTANDER UK PLC
- MOODY'S CUTS 1 TO 3 LEVELS L-T RATINGS OF 16 SPANISH BANKS
- MOODY'S DOWNGRADES SPANISH BANKS; RATINGS CARRY NEGATIVE
In summary, the highest Moodys rating for any Spanish bank as of this point is A3. But luckily the other "rumor" of a bank run at Bankia was completely untrue, at least according to Spanish economic ministry officials, so there is no need to worry: it is all under control. The Banko de Espana said so.
Finally, we can move on:
- FACEBOOK SAYS 421.2 MLN SHARES PRICED AT $38-SHR
Now, all that Facebook needs are those elusive +/-25 billion users to "grow" into its "valuation." We only have four outstanding questions:
- What is Ben Bernanke's IPO allocation?
- Does the CIA use tax or cost basis accounting?
- When do the puts start trading?
- What is the fair value of Like relative to intrinsics and is Bruno Iksil long or short it?
Now its getting interesting. 30Y yields fell the most in 5 months today back to 5 month lows, 10Y yields crashed to all-time closing lows, and Gold surged by its most in 4 months (and 2nd most in 7 months) as stocks started to accelerate lower. Gold is unch on the week now as 30Y is -21bps and 10Y -14bps to 1 1.69% handle - incredible. Between the Philly Fed's confirmation of deceleration in US macro data and Europe's increasingly crescendo-like implosion, is it any wonder that the decoupling thesis has given way to reality. S&P 500 e-mini futures repeated the early rally late fade pattern of the last 8 days but this time it was more aggressive as ES pushed towards 1300. CAT was a dog today accounting for 25% of the Dow's losses and AAPL tumbled further - heading towards a 20% retracement off its highs. Financials tumbled further with Citi inching very close to red YTD (and JPM falling rapidly). Credit markets, which led the selloff, continue to slide but this time with equities in sync. Equities went out at their very lows of the day at 1300.50 (at 3.5 month lows) as VIX soared over 24% to close at its highest in 5 months.
Update: JPMORGAN SAYS DIMON TO AGREE TO TESTIFY TO SENATE. Ummmm, there was an option?
As everyone (or at least Zero Hedge) long expected, JPM's prop trading debacle just got political and senators are about to demonstrate to the world just how little they understand about modern IG9-tranche pair trades. Expect to hear much more about JPM's "shitty" prop deal.
Because the proper trade is to respond only after JCP blew up proving that the US consumer is finished, here is Goldman finally joining the bandwagon of shorting the terminally tapped out all buying, all eating, all charging Joe Sixpack.
Jeff Gundlach discussed mortgages, models, math, and moronic delusion with Tom Keene on Bloomberg TV this morning. Starting with why Europe matters to US Treasury and mortgage markets, the DoubleLine boss goes on to address whether banks/hedge-funds have become too math-centric. "I don't believe in models" is how Gundlach begins his diatribe on the over-confidence in math and empirical relationships. Jeff believes there is no reason to hold any investment grade bonds that are inside of 3 years (and perhaps even 5 years) because they "just basically have no yield" and further, it is non-sensical to think that short-term interest rates are going up in the US. As Socrates said, Gundlach echoes the fact that 'one should not try to know everything; but respect the things that one cannot know' - don't delude yourself - which seems like good advice for all those with such high convictions of sustained reality. Towards the end he discusses his already-infamous short-AAPL, Long-Nattie trade - adding that the trade has 'monster legs' and the biggest mistake investors make is exiting winners too early.
It seems so bizarre that a country once regarded as the freest, most economically enviable in the world would treat its productive citizens with such hostility. This is where Eduardo Saverin comes in. The Facebook co-founder, who finds himself a few billion dollars richer this week, recently renounced his US citizenship. And, to the intelligentsia, it’s not ‘fair’. ‘Saverin needs to pay his fair share! He owes America more,’ they whine, completely ignorant that the 30-year old is already forking over a $500+ million exit tax (which may end up in the billions). Apparently it’s not good enough that the company Saverin co-founded has created tens of thousands of jobs, spawned entire industries, and produced oodles of new millionaires. Oh yeah, it’s also made things damn easy for the CIA, NSA, and FBI. You’d think Uncle Sam would pin a medal on his chest. But no. Saverin left behind a lot of value and decided to move on to greener pastures in Singapore. Now the do-gooders in Congress are cooking up new legislation (the EX-PATRIOT Act) designed to permanently bar ‘renunciants’ like Saverin from re-entering the United States.
As many already know, earlier today Senator Schumer announced the cleverly named Ex-PATRIOT act, which seeks nothing short of exile for anyone who effectively declines their US citizenship for tax avoidance purposes. So far so good. We have, however, one simple question. In light of recent media reports of rampant abuse of various international tax loopholes by US corporations (recall the Double Irish with a Dutch Sandwich), but much more importantly, the glaring abuse of offshore tax shelters by hedge funds - organization such as Paulson & Co., RenTec, York Capital, etc., and financial institutions, such as Lazard, Blackstone, and Credit Suisse, can Senator Schumer please rep, warrant and guarantee that none of his corporate sponsors, i.e., his Top 100 Contributors, have ever engaged in any form of explicit or implicit tax avoidance, tax offshoring, and tax shelter. To facilitate his checklisting, we have presented his top 100 contributors below. Because if he can't, one may be left with the impression that his whole anti-tax tirade and legislation is, you know, hypocritical.
The business cycle ought to be thought of as a series of discrete phases, each one quite distinct from the other, rather than as a smooth and uninterrupted process through time. This is how Goldman Sachs describes what is a compelling view of the dynamics of macro acceleration-and-deceleration and expansion-and-contraction and how these separate phases of their so-called 'swirlogram' can be mapped into asset class performance. This means that unlike traditional business cycle momentum jockeys and the extrapolating 'rulers' of the world, trade positioning should depend not only on the current state of the cycle but also on the near-term phase transition. As the cycle turns, so do assets; economic acceleration serves as an early indicator of looming shifts. Hence, vigilance in monitoring the business cycle with an eye towards identifying cyclical turning points is instrumental to a disciplined investment process. These lessons are timely too. Back in March, the business cycle peaked. The GLI shifted from the Expansion phase to the Slowdown phase; growth remained positive but acceleration turned negative. More ominously, April GLI growth was quite modest, with downward revisions to the last few months of data too. If the current downbeat data trajectory is extended, current GLI readings may prove to be overly optimistic. And should acceleration remains negative (which today's Philly Fed will drive), there is not much of a growth buffer to prevent the cycle from slipping into the Contraction phase, where the message for asset markets is clear and sobering.
- From March 13: Fitch upgraded Greece's credit rating by one notch to B- following a successful debt swap finalised this week that erased some €100 billion from the country's crippling debt
- From May 17: Fitch Ratings-London-17 May 2012: Fitch Ratings has downgraded Greece's Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'CCC' from 'B-'. The Short-term foreign currency IDR has also been downgraded to 'C' from 'B'. At the same time, the agency has revised the Country Ceiling to 'B-'. The downgrade of Greece's sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union (EMU). The strong showing of 'anti-austerity' parties in the 6 May parliamentary elections and subsequent failure to form a government underscores the lack of public and political support for the EU-IMF EUR173bn programme.
It would be laughable if it wasn't so... nevermind, it is laughable.
John Maynard Keynes, Charlie Munger and Warren Buffett all said or implied that gold was a barbarous relic. But what’s the barbarous relic? The precious metal that shows prices without a veneer of manipulation, or the paper currency that smudges the true state of supply and demand through money printing, thus misleading markets and society? Charlie Munger says gold is not for civilised people, but in reality gold may be the most civilised currency of all — because it allows civilised people to purchase insurance against the risk of civilisation failing.
'Don't Fight The Fed' is the mantra that is repeated day-in and day-out by so-called investment professionals around the world. In this world of extreme monetary policy and a market hungry for its next fix of fiat liquidity, this may well be the case - though even then, the actions are having less and less effect on both the real economy and market each time they roll the dice. However, it does seem that the ECB's approach to encumbrance as opposed to just unlimited printing is absolutely what should be faded. As we noted earlier, equity and credit markets have turned negative for 2012 now, but without doubt the cleanest and best performing trade of the first half of 2012 (and likely the git that will keep on giving) is the LTRO Stigma. With the spread between banks that took LTRO loans and those that did not now more than triple its early-February tights (and very close to record wides - with little or no excess collateral to revive LTRO3 hopes for those that need it), our recommendation back in early February to initiate this decompression strategy, calling out Draghi as a liar for disingenuous comments on the implicit encumbrance of the ECB's actions, has performed admirably (and we expect it to continue - though taking some profits up here and leaving a runner may well be warranted).
On Monday, May 14, something happened that hasn’t happened since Dec of 2008. Two successive near-month precious metals futures contracts were in backwardation at the same time. To oversimplify, backwardation is when the price of a futures contract is lower than the price in the spot market. It should not be possible for it to happen in gold and silver.... Because the next successive contracts are not in backwardation (in silver, all contracts from Jul 2015 on are backwardated), it is not a collapse of trust. I think that it is a lack of unencumbered metal. The markets for precious metals, silver more than gold, have become quite tight.
European financials dropped for the 12th day in a row today on heavy volume with its biggest 5-day drop in six months and plunging back to their worst levels in over five months (just 5% off last November's swing lows which would take us back to March 2009 lows). European equity and credit markets are all negative now YTD having given up all their gains and heading back to pre-LTRO levels. Sovereigns continue to bleed wider - especially Spain and Italy, with the former getting closer to the 450bps LCH Margin Hike level by the day. Spanish bond spreads are 165bps wider year-to-date - well done Draghi - and while Italy and Portugal are still tighter on the year, they have decompressed significantly in the last few weeks as we also note the all-saving EFSF is also a dramatic 14bps wider on the year. Europe's VIX jumped even higher near 35% - remaining very high relative to US VIX.
With CDX and credit indices being such a topic of conversation, we took a look at the 1 month changes as of May 12th. We selected U.S. and European Credit Indices that had NET position changes of $1 billion during that 4 week period. We also included some with smaller changes where it made sense to me as either part of “normal” roll flows or the now legendary “whale” trade. The overall reduction in HY and XOVER is interesting. Also, even in financials, the riskier sub index experienced a net decrease. I’m not sure what it means. Complacency? Increased volatility forcing smaller position sizes? JPM cutting HY short and shorting IG18 against IG9? The off-the-run data is a bit more interesting, especially in light of all the “whale” questions. IG9 tranche net actually increased in the period, though outright index dropped off. Is that a sign that it was hard to get out of tranches? IG9 with that special place in everyone’s heart, does seem strange. It looks like positions in European indices got reduced pretty dramatically. In any case, all these products need to be moved to an exchange. Look at the huge differential between the gross and the net? That would go down. Yes, banks would have to unwind offsetting trades, but who cares? Banks would have to post collateral, possibly on longs and shorts, but again who cares?