We have been informed by sources in the US Army Corps of Engineers, Federal Emergency Management Agency (FEMA), and Florida Department of Environmental Protection that the Obama White House and British Petroleum (BP), which pumped $71,000 into Barack Obama's 2008 presidential campaign -- more than John McCain or Hillary Clinton, are covering up the magnitude of the volcanic-level oil disaster in the Gulf of Mexico and working together to limit BP's liability for damage caused by what can be called a "mega-disaster." Obama and his senior White House staff, as well as Interior Secretary Ken Salazar, are working with BP's chief executive officer Tony Hayward on legislation that would raise the cap on liability for damage claims from those affected by the oil disaster from $75 million to $10 billion. However, WMR's federal and Gulf state sources are reporting the disaster has the real potential cost of at least $1 trillion. Critics of the deal being worked out between Obama and Hayward point out that $10 billion is a mere drop in the bucket for a trillion dollar disaster but also note that BP, if its assets were nationalized, could fetch almost a trillion dollars for compensation purposes. There is talk in some government circles, including FEMA, of the need to nationalize BP in order to compensate those who will ultimately be affected by the worst oil disaster in the history of the world.
In a historic development, we may be on the verge of the Senate passing amendments that will bite off the Wall Street hand that has fed the Senate, Congress and all politicians for decades. The Huffington Post reports that "Harry Reid will make sure that an amendment to break up megabanks and cap their size comes up for a vote, the Senate majority leader said. He added that he was leaning heavily toward voting for the amendment, cosponsored by Sens. Sherrod Brown (D-Ohio) and Ted Kaufman (D-Del.). Reid will also support an amendment from Sen. Bernie Sanders (I-Vt.) that will authorize an audit of the Federal Reserve." In an ironic twist, the president may be the last party remaining to protecting Wall Street's interests, as democrats wholesale turn their back on their former masters. Should the critical Brown/Kaufman and Sanders amendments pass it will be game over not only for Goldman Sachs and the Federal Reserve, but to the entire financial oligarchic/kleptocratic status quo that has controlled this country for decades. The next inevitable logical progression is the passage of the McCain amendment which essentially returns Glass-Steagal. Should that happen, look for all fin stocks to trade at about 25% of their current levels.
What is uglier than a bunch of momentum chasing quants fleeing in "orderly" fashion from a burning theater: a bunch of prop carry traders doing the same, especially once they have been informed the margin calls are coming in. Now that the fate of the eurozone is sealed, save for 6-9 months of political rhetoric as those responsible for the single biggest monetary failure in recent decades finally realize the folly of their "all for one, and one for all" ways, the question of how Bernanke will export dollar weakness abroad, and thus boost the Export-led renaissance, becomes very glaring. We expect American politicians to learn nothing from the European debacle, and to double their efforts for a CNY revaluation as US exports now become even more expensive, which will achieve nothing, but merely antagonize China potentially to its breaking point, and throw the world in a trade vacuum. But at least China has the worker, the resources and the middle class to beself sustainable for much, much longer than the US possibly can. And don't forget all those Treasuries that China can and will sell in the open market. The endgame is approaching.
Was this it for the bear market rally? The new new normal, same as the old normal: Risk and Carry off, Gold on...Meanwhile, the panic over at the Eccles building can be felt all the way in Europe.
In the past two weeks, borrowings under the ECB's "discount window" equivalent, the Marginal Lending Facility, have jumped substantially. Where on April 25th just E2 million was outstanding, it has subsequently jumped all the way to 2.6 billion on May 3 (yes, for Americans these sums are paltry, but for European, and especially Greek banks, half a billion could mean the difference between life and death). And with the O/N-3M repo spread blowing out, the ECB could be once again becoming the lender of first and last resort. One of the rumors for the jump in borrowings has been that Greek Piraeus bank was on the verge in the last days of April after a full blown bank run, and only a last-minute MLF borrowing helped it stave off bankruptcy. The MLF dropped to E1.3 billion yesterday, although this could be merely a liquidity shift from one source to another. Keep a close eye on the ECB's daily MLF report to determine if there is a backdoor bailout occurring of one of the more troubled European banks. We will also provide details later on today, when the data becomes available, on whether the Fed has disclosed any FX swaps having taken place in the prior week.
Listening to ECB President Jean-Claude Trichet who said default is not an option for Greece while the single currency attacked the $1.27 figure at the moment when he called it a safe store of value I cut my observations of the ECB council meeting here. Mr. Market seems to have a differing opinion. BTW, interest rates are on hold despite the latest uptick in inflation to 1.4%.
I stumbled upon this ECB legal document that runs to the contrary and strangely has found no media attention.
While promoting the Euro as a safe store of value the ECB opts for tight limits on cash transactions in Greece, limiting the role of cash Euros as a medium of exchange, one of the fundamental functions of a currency.
Stating the objective to limit tax evasion the ECB recommends that all business transactions above €3,000 and all consumer expenses above €1,500 Euros shall be paid for in all other forms than cash. - Toni Straka, The Prudent Investor
“I’ve been talking to lawyers and rival CEOs just trying to ballpark it at this point…there is no number, but people are ball parking, and these are CEOs and lawyers, between $1 and $5 Billion. And that’s what they are saying. And these aren’t people that are necessarily trying to keep negative stuff on Goldman Sachs. These are both analysts that are positive on the stock, but those are the numbers that they are talking about.”
“And it depends on a lot of things. For all I know, the SEC can come in and say give us $100,000,000 if Lloyd Blankfien gets fired. That’s a possibility.”
Europe is dead. The European nations are the victors, and the way ahead will be one hell of a mess. Without taxing and borrowing power, there is no way to square the inter-euro trade balances between the countries except ‘internal devaluation,’ which means years of deflation and poverty for the voters – and protestors – of the deficit countries. Our pencil pushers and Excel experts have made lots of projections on the Greek situation and can find almost no possibility of success. The EU/IMF team projects Greek debt at 149% of GDP when this rescue ends, but their nominal GDP estimates are incredibly optimistic when salaries and jobs are cut dramatically. We see a 20% decline over the three years as a good outcome, the debt would stay the same, and the ratio goes to 186% of GDP. Almost like Japan, but foreigners own the Greek debt – no way! This rescue reminds us of Bob Rubin’s rescue of Russia in July 1998, which lasted about one month before the whole house of cards collapsed. We knew that one couldn’t work, and this one can’t either. It might take longer, but the euro is finished. Goodbye euro, hello drachma, peseta, lira, and the others. The world had hoped for more, none more than the Europeans themselves, but now we are all left to pick up the pieces. - John Taylor, ultra EURUSD bearish, and thus very rich, CIO of F/X Concepts, world's largest FX hedge fund.
Numerous European Banks And Re/Insurers Identified With Tens Of Billions In Greek Failed Repo ExposureSubmitted by Tyler Durden on 05/06/2010 - 08:33
BNP, Commerzbank, HSBC, SocGen, Natixis, BNP, CA, AXA, ING and Rabobank all identified as banks with massive Greek repo exposure. The next question: will writedowns on these now illiquid and, as the Greek bond market is effectively shut down for a second day running, untradeable positions be taken, or will Europe follow the US in pretending tens of billions in valuation gaps will be filled by Hopium? Also, as bankingnews.gr reports, and as we first highlighted, a variety of French re/insurers are about to get whacked.
European Corporate CDS Blowing Out Wider, Xover At 505, HiVol At 152 bps, Public Funding Crisis Becoming Private AgainSubmitted by Tyler Durden on 05/06/2010 - 08:26
The greatest fear of central banks, that the "isolated" sovereign contagion could spill right back into the private sector, is starting to be realized: now in Europe and soon in the US. Market News reports that high beta European CDS names and indices are all blowing out as fears of a funding/liquidity crisis are becoming prevalent. From MNI: "The CDS market has seen another session of sharp widening in many sectors, taking its cue from falling Eurozone peripheral government bond prices rather than stocks which are more stable today. Greece and other widening government bond spreads continue to drive sentiment, with the CDS market seeing underperformance in places, with high beta cyclicals, TMT and basic materials dragging the market wider." Corporate have so far been relatively spared from the deterioration in sovereign spreads, however if the risk perception in the public arena spills right back to the private sphere, then the entire private-to-public risk transfer episode will have been for nothing. And if corporate funding costs shoot higher, with no sovereigns to back them out (themselves in need of a bailout), well then our thesis that only Mars could possibly bail out the world's bankers will be all too real.
- Crude oil little changed after falling to six-week low on stronger dollar
- Nigerian President Umaru Yar'Adua Dies, Aged 58
- Oil spill threatens price for jumbo crab cakes at top-ranked U.S. eateries
- U.S. retailers may report smallest monthly sales increase since November after shutting it because of a leakage on May 2.
- Alcatel-Lucent shares plunge after quarter's loss is double estimates
- BNP Paribas 1Q net rises 47% on fortis assets and lower provision
- BP plans to lower containment dome on to seabed of gulf of Mexico
We are in the third gold war since the Second World War – the US (and other western countries/institutions, notably the IMF) lost the first one in the late-1960s to the French and the second one in the late-1970s to the Arab nations. In the report, I’ve used declassified documents from the US State Department to show how on those occasions the US authorities believed they could
defy economic gravity right up until the moment when they were overtaken by events, how they falsified economic data to support the dollar and how they negotiated secret deals to stop other governments buying gold. Food for thought I think.
Finally what we have been saying for weeks is starting to filter through to the broader population and even the politicians... Too bad Americans are too apathetic to even pretend to care that their money is being sued to fund the continued and massively mismarked existence of a few French, German and UK banks. Then again, with American Idol hitting its lowest ratings since 2002, a revolution may just be what the doctor ordered.
Barely did we have time to read the previous bearish note on the EURUSD, that we just got this latest piece from the masters of the universe: "Inverse-EURUSD overlaid with 10-year Eurozone-Periphery/-Core Spreadbasket– Continues to imply much lower levels for EURUSD" The euro will be lucky to hold 1.2700 today. 1.2400 target within a week. Some other vol pair related observations: "1-year EURUSD/USDJPY implied vol. spread– EURUSD vol. looks set to rise significantly further versus USDJPY - In the current environment it would seem reasonable to assume higher EURUSD vol. would be associated with lower-EURUSD"