Now that moral hazard has been adopted everywhere, and the fate of the entire western world is determined by the successful issuance of hundreds of billions of dollars each and every month (we have gotten to the Maginot line where even a hint of a failed US auction would immediately blow up the global capital markets), it is prudent to take a detailed look into a topic that few have covered previously, namely what does the auction demand curve imply. We refer to the distribution of the Low-Mid-High yield break points in each and every treasury auction and whether they can provide some addition insight into the demand picture behind US sovereign debt.
"Last year I wrote about how the leaders in America were essentially fiddling as Rome burned. This fiddling has become an all out dance party and many investors have been dragged onto the floor one more time due to money printing, an inherent desire to be optimistic, a plethora of propaganda and rising asset prices. However, this is the last dance folks. Our corporate and political leaders have destroyed us. Chuck Prince would be proud." Mike Krieger
With no risk left on the table courtesy of the long-suffering but consistently nonchalant US taxpayer, there is no surprise what is going on in the carry trades around the world. Everyone is shorting the Yen, the Euro is stronger pretty much across the board, and the dollar is slowly entering the third lap of the devaluation race, currently in last place but starting to really pick up speed (stronger only against the CNY today most amusingly).
German Fin Min: Crisis Largely Over In Europe and Germany
German Fin Min: If Greek Budget Consolidation Succeeds, No Tax Money Will Be Lost
German Fin Min: Without Consolidation In Greece We Will Have Unforeseeable Market Consequences
German Fin Min: Failure With Greece Would Put Euro In Question
German Fin Min: Cannot Throw Greece Out Of Eurozone
It's over - the excess debt/GDP terrorists have won, and Moral Hazard is now a global phenomenon. There will be no more failures anywhere. In other words, all your stock profits will come straight from your taxes.
Good thing the ECB (and the IMF) no longer cares about what the Geiger counter reading on its collateralized assets is any longer. The rating agency which also has the last A-rated Greek rating is reviewing the Greek sovereign rating for further downgrades. Mortgage covered bonds of NBG, Alpha, Marfin and EFG Eurobank downgraded to A1. All on review for further possible downgrades.
Remember that bit about how the Fed only holds the highest quality debt (we forget if it was Tweedledum or Tweedledee who said it)? It appears that's just the latest lie in the Fed's endless catalog of misrepresentations. According to TREPP, 11 properties held by Red Roof Inn hotels saw foreclosure actions initiated on them by CMBS special servicers, and are now being sent to the auction block. Guess who is most impacted by this action? Why, the Federal Reserve of course.
Erik Nielsen said one week ago Greece would need €120 billion. Today the IMF announced it would provide €120 billion. Coincidence? Read all about it straight from the horse's mouth.
"Recently value has been more difficult to find, but not impossible. The run-up has left the S&P 500 with an expected return over the next 7-10 years in the 3-4% range. With that expectation, coupled with the issues discussed at the outset of this letter, we are being very discerning about when and how we add risk exposure."
Zero Hedge fully endorses David Rosenberg's latest call: Ban The Bailout
First we have governments bailing out banks (and auto companies and mortgage providers), homeowner debtors, and now we have governments bailing out governments. When does someone finally say — enough is enough!
Look, Greece is not going to “fail”. They are going to default. There will be a debt restructuring. And there will be some recovery. Bondholders will take a haircut — why shouldn’t they? Why should Angela Merkel care if German banks own Greek bonds? Greece has been in default in its recent 200-year history almost half the time. So has most of Latin America come to think of it. What about Russia?
- Must read: Lombard Street believes that the major if not only buyers of the current rally are investment banks themselves, perpetuating biggest "pulling oneself out by the bootstraps" con game in history (FT)
- As Basis Yield Alpha Fund seeks compensation over its Timberwolf losses, Goldman pressed for CDO settlemetn (FT)
- FTW: European confidence improves to two year high (Bloomberg) on what? Expectations of EMU unraveling
- Greenwich Street Capital refused to be "first" ACA, saw Paulson deal as too risky (WSJ)
- Already holding junk, Germany hesitates (NYT)
- Baidu says sales to beat estimates on Google China "semi exit" (Bloomberg)
- Simon Johnson: To save the Eurozone: $1 trillion, ECB reform, and a new head for the IMF (Baseline Scenario)
- Fed can't delay market storm (MarketWatch)
- So as expected it was all just a ploy to get more porn download bandwidth: SEC Schapiro touts Goldman suit while seeking funds (Bloomberg)
In breaking all ties with reality, the IMF has decided that not only will US taxpayer money be freely abused to rescue a profligate Greece, but that money will be effectively junior to existing claims, in essence making it some MC Escher DIP reverse DIP nightmare. Basically US taxpayers will be Last In, Last Out, and will recover any proceeds only after existing creditors get paid out. Pardon us, but this is bloody ridiculous. When will someone in the mainstream media start focusing on this??? Americans are getting the short end of the stick, and nobody in this country knows or cares about it.This is more billions that will be promptly paid and never recovered.
- Asian currencies gain, bond risk drops after Fed pledges to keep rates low.
- Asian stock markets little lower, on concerns of a spread of sovereign debt risk in Europe.
- Australia raises excise duty on tobacco by 25%, ends advertising.
- Australia poised to force tobacco companies to sell cigarettes in plain packs, a world first.
- Brazil lifts benchmark rate to 9.5% from 8.75%.
- European stocks rise after the IMF promises to increase the aid for Greece to 120B euros.
- Fed restated their intention to keep benchmark interest rate near zero for “extended period”.
- Global stock markets mixed as European debt crisis continues to unsettle investors.
RANsquawk European Morning Briefing - Stocks, Bonds, FX 29/04/10
One day after the Goldman hearings, we were left with the warm and fuzzy impression that the whole Goldman farce was for nothing, and that everything the firm had been doing for the past 5 years was perfectly legitimate. The prop trading abuse, the discount window generosity, the endless abundance of flow and prop inventory commingling, the endless client rape...All these allegations must have been for naught. Which is why we were thoroughly disappointed when our sense of sudden enlightenment that we may have been wrong all along about Goldman, vanished promptly and without a trace once we had a chance to read the 2007 self-evaluation of Goldman Managing Director Michael Swenson. The line penned by Michael, who incidentally was the least like of the three Goldman SPG MDs testifying on Tuesday based on peer feedback, that broke our collective heart is the following: "Once the stress in the mortgage market started filtering into the cash market, I spent numerous hours on conference calls with clients discussing valuation methodologies for GS issued transactions in the subprime and second lien space [redacted] is prime example). I said "no" to clients who demanded that GS should "support the GSAMP" program as clients tried to gain leverage over us. Those were unpopular decisions but they saved the firm hundreds of millions of dollars." Alas, we find that all of Goldman's sincere hypocritical lies before the Senate committee were... precisely just that.
A freak leak of the Spanish unemployment number by the National Statistical Institute (INE), the equivalent to the DOL, was captured by Spanish daily ABC.es, according to which for the first time since 1997, the unemployment rate in the country that was notched by S&P today, will surpass 20%. This number was supposed to be under embargo until Friday. According to the temporary leak which was subsequently promptly removed, the number of unemployed in Spain increased from 4.3 million to 4.6 million between the end of 2009 and March 31, 2010. What's worse is that the unemployment among Spain's youth is reaching epidemic proportions: "the unemployment rate for those under 25 years in the first quarter of 2010 was 40.93% and 18.02% in those over 25 years. In the group of 16-19 years, the rate is 59.79% and 13.1% among the unemployed aged 55 and older." Dealing drugs is probably a more lucrative job than working for the government anyway. No taxes either.