And the hits just keep on coming, with the Greek government now just one vote away from total collapse
- ONE GREEK RULING SOCIALIST LAWMAKER QUITS PARLIAMENTARY GROUP - STATE TV MORE - RTRS
- GREEK MP'S MOVE REDUCES PM PAPANDREOU'S MAJORITY TO 152 OUT OF 300 DEPUTIES - RTRS
As a reminder 151 votes are needed to pass a vote. But that's not all:
- Senior member of Italian opposition says party has asked president Giorgio Napolitano to form new government before G20 summit in Cannes
Oh yes, Italy, the one place everyone was terrified about before Greece stormed back to center stage with a bang. Result:
- ITALY 2-YR BOND YIELD SPREAD VS GERMANY HITS NEW EURO LIFETIME HIGH ABOVE 500 BPS
It was almost funny how quiet he was at the summit. It seems like he sat back, got the best deal he possibly could for Greece and now Greece can decide if it is good enough. The IIF and their NPV calculations. The ECB and their paid in full demands. The EU and their austerity and controls and demands over which Greek assets can be sold to whom? Debt to GDP of 120% by 2020. How about debt to GDP of 10% by year end? How about some nice asset sales to China at premium prices not only to get some immediate funds but to develop a nice long term relationships with deep pockets and a great trade partner. Not sure where IMF fits in. All along I have argued it was Greece's choice to default or not and that it was in their best interest to do it. He played it far better than I could have. He holds the cards. He is putting his people and national interest above Europe. Merkozy must be in a panic.
- China PMI in surprise fall, lowest since 2009 (Reuters)
- Fury in Germany after Greek referendum call (Reuters)
- Europe Debt Crisis Threatens Asian Growth (Bloomberg)
- Gang Forms Inside US Debt Panel in Quest for Deal (Reuters)
- Italy's crisis deepens on eurozone slump, bail-out doubts (Telegraph)
- Greek vote would be on euro membership: Finnish minister (Reuters)
- President Hu confident in Europe (China Daily)
- New invoice system to further regulate rare earths industry (China Daily)
- Ministers fear steep rise in job losses(FT)
- Concerns surrounding the Greek debt situation resurfaced after the Greek PM called for a referendum on the new EU aid package, and news that the Greek government is planning a vote of confidence this Friday
- Lacklustre manufacturing PMI data from China dented appetite for risk
- GBP came under pressure following weaker than expected manufacturing PMI data from the UK, however did recover some strength after higher than expected UK’s third quarter advanced GDP reading
- The RBA cut its benchmark interest rate overnight by 25 basis points as expected
The futures are tumbling with U.S. futures falling in sympathy with plunge in European stocks; Italy’s FTSEMIB index down 5.3%, DAX down 4.4%, CAC down 4.3%, Spain’s Ibex down 4.1%, FTSE down 2.9%. But here is the true reason why Europe already needs another bailout, or the promises thereof, courtesy of those so vile CDS which no matter how hard it tries, Europe just can't kill:
- Italy CDS Rise 45.5 bps to 491; update +53 495/505
- France CDSs rise 14 bps to 190; update + 17 191/196
- Spain CDSs rise 33.5 bps to 374.5; update + 41 375/385
- Portugal CDSs rise 57 bps to 1,028; update + 71 1015/1055
The reason? Why Greece of course: the same referendum decision that it took the market yesterday 45 minutes to process before the sell off began.
China Manufacturing PMI prints at 50.4, down from 51.2, when consensus was expecting an increase to 51.8. This is the lowest print in 32 months, and the lowest since February 2009. But wait, before concluding that this is very bad news, uh, ahem... well, sorry, we haven't taken the CNBC spin school yet. It's bad news and the hard landing is coming. We leave the spin to the professionals. Oh wait, yes, China will go ahead and ease immediately if not sooner. Because the PBoC has surely completely forgotten how much fun it was to see pork prices rise by triple digits year over year, and because it knows all too well that no matter what it does the Fed will never, ever print, and thus export metric tons of inflation straight across the Pacific. How's that for spin?
Say you are the head back office guy at MF Global, it is the close of trading on Thursday, the firm has already completely drawn down on its revolver, and all the resulting cash in addition to all the firm's cash at your disposal in affiliated bank accounts, up to and including petty cash, has been used to satisfy margin demands due to declining collateral value, yet the collateral calls just won't stop, and impatient voices on the other side of the phone line demand you transfer even more cash over immediately or else risk default proceedings commenced against you within minutes. What do you do? Do you go ahead and tell your superior that the firm is broke even though the co-opted media is trumpeting every 5 minutes that "MF Global is fine", knowing full well you will be immediately fired for being the bearer of bad news, or do you assume that courtesy of your uber-boss being the former head of the Vampire Squid, and thanks to infinite moral hazard which after Lehman made sure nobody would ever fail ever again, that there is simply no way that you will be left without some miraculous rescue, if only you can last one more day, and as a result proceed to "commingle" some client funds with the firm's cash. It turns out that at MF Global you do the latter... over and over... until you have literally stolen hundreds of millions from the firm's client accounts in hopes that the miracle rescue will come on Friday... then over the weekend... and then you realize no miracle is coming, partly because your actions have been exposed, partly because miracles only exist in fairy tales. The next thing you know, your firm is bankrupt and hundreds of clients are about to learn that all their money is gone. Poof. This is not a fictional tale. This is precisely what very likely happened at MF Global in the past 72 hours. And someone has to go to jail. That someone, if indeed this criminal act is proven to have taken place, should be none other than Jon Corzine himself.
As in life, so in death. Reuters reports that "U.S. regulators are unhappy with the failure of MF Global Holdings Ltd to provide them with the required data and records, a source close to one regulator told Reuters on Monday. "So far they've been very disappointed with the cooperation in the fulsomeness of records and data from MF," the source said, noting regulators have been working with the firm since late last week. "They were supposed to be able to show us their books and they're supposed to be able to tell us what's what and where their customer funds are and how they've been segregated and protected and to date we don't have the information that we should have," the individual told Reuters." Seriously, as Erin Burnett would say, you are already bankrupt. Just how much worse is it if you even in death you still are hiding secrets? And at this point it should be obvious to everyone: whatever MF is hiding is not something that will hurt it or much less its stakeholders for which the management team obviously never cared one iota. After all the company is already dead. Whatever is on its books has huge impacts to those either behind the corporate veil, read Mr. Corzine, who may or may not have regulatory issues arising from 10(b)-5 "concerns", or more probably, to other banks and Primary Dealers. And with even one simple affidavit still to be filed in Bankruptcy Court, the panic behind the scene is palpable.
Euroskeptic think thank Open Europe once again appears on the scene with one of the first more extended reactions to what the possibility of a Greek referendum, which according to the Guardian will take place in January, means for Greece, the Eurozone, and the latest bailout (which according to Williem Buiter, who reiterates to the FT something we said 2 months ago, needs to be €3 trillion). One thing we would like to point out is that if indeed the popular vote on the future of Europe will take place in January, then kiss the year end rally goodbye as the uncertainty around the market will be insurmountable by anything the bureaucrats can throw at the concern that Europe is on fast-track to political suicide. From the source: "This could be big turning point in this crisis. The EU should move quickly to come up with plans to mitigate the fallout of a no vote, specifically how to handle a rudderless and broke Greece, which would probably include plans for allowing it to exit the euro. A yes vote would be far from a solution, at best it would buy some time for the Greek government and the EU to enforce some necessary reforms thanks to a fresh mandate. As with any referendum it may come down to the phrasing of the question. Let’s hope the Greek government and the EU do a better job of communicating the issues at hand than they have done so far in this crisis."
While much was made of the MF Global news today, we suspect that the tipping point for risk assets was more likely driven by the plethora of reality-based analysis of the situation in Europe combined with the afternoon news that Greece is facing a referendum and a lack of demand for the EFSF issue today. Heavy volume arrived into the close to the downside, suggesting asset allocation rotation from equities to bonds, which helped propel TSYs even further down in yield. The entire complex flattened notably with 30Y outperforming -24.5bps, the largest single-day yield move since March 2009, as the much-watched 2s10s30s butterfly has retraced all of last week's increase. ES closed at its lows (down over 2.5%) only to extend those losses in the evening session as we post as IG and HY credit tracked notably wider once again.
While we have shown this series of images by Bulgarian modern artist Yanko Tsvetkov previously, now that the question of European "unity" is more debatable than ever, and with a Greek referendum in effect guaranteeing the collapse of the Eurozone at least in its current framework, it makes sense to refresh on these pictures which straddle the thin line between reality and satire, which these days is one and the same. But no matter what, the important part is that everyone is hedged. Just ask MF Global... and MS.
More from our Bank Exec friend, this time on MF Global after we tried to lay blame on Rubin, Thain and Corzine for blowing up their firms: "MF Global. They named that company right. You probably didn't see it first hand but Lehman, Bear and Merrill were doing the dumbest real estate deals "ever" in the run up to the implosion. Every real estate veteran saw it, and while AIG's CDS exposure gets airplay, bad real estate lending is at the center of the disaster. So, Merrill was toast before Thain showed up. He was just the funeral director. Citi (with its 14 off balance sheet SIV's @ $1 trillion) was an abomination in progress before Rubin arrived, the Enron of banking and each and every officer and board member should go to jail. But they won't because they are all too powerful and very politically connected."
Joining US TSYs, BTPs, and SPGs, the EUR has now retraced the entire post-summit rally in a mere 3 days, and is down 300 pips today alone. It also seems the actions in Greece are starting to get reactions in US financials and broad risk assets. We also note that EURJPY has retraced over 75% of the intervention in 18 hours...perhaps Azumi will let the market be now?