Merkel Speaks, Good Cop/Bad Cop Charade Continues

Merkel's 1pm GMT speech disclosed that Greece can pretty much surrender all hope of funding prior to Germany's May 9 elections. The chancellor said that not only must Greece show it can return to a sustainable budget path, but that further savings measures are needed. Sell that to the Greek people who, courtesy of paradropped Kindles, have had a chance to finally figure out what Austerity 1.0 means. They can look up version 2.0 at their leisure. Lastly, Merkel said she "feels an obligation toward stability of EUR." Look for the EUR to sell off on this latest political non-news.

Frontrunning: April 26

• Computerized front running: how a computer program designed to save the free market turned into a monster (Web of Debt, h/t MF)
• Even after failing to keep Citi above $5, US Treasury to sell 1.5 billion shares of Citi stock (Bloomberg)
• Dodd accepts ban on bank derivatives business (AP)
• But hold on: this would hinder the billionaire's plans to become a trillionaire: Berkshite presses lawmakers to roll back proposed curbs, avoiding potential hit... and we can't have that now can we (WSJ)
• Rogoff says Greece may not be Europe's last bailout (Bloomberg)
• Bill Gross: "In order to pay the interest and the bill when it comes due, we'll
  simply have to issue more IOUs. That, to me, is Ponzi-like. It's a game that can never be finished." (WaPo)
• Do you have any reforms in size XL? (NYT)
• AXA Rosenberg finds cording error in risk program (Reuters)

Bob Janjuah: "We Are Trapped In Some Sort Of Horrendous Keynesian/Monetarists' Nightmare...."

"We are trapped in some horrendous Keynesian/monetarist nightmare, where policymakers, aided/abetted/advised by their buddies in the media, in the lobbyist cabal and in financial system, have YET AGAIN decided to go down the route which merely delays the problem/pushes it down the road, but which virtually guarantees that when the NEXT bubble collapses (I assume it will be the Global Government Debt/Bond Bubble and/or the Global Fiat Money/Paper Money/FX Bubble), there is NO pleasant way back. When this next bubble collapses, those of us living/working in these problem economies will realise, too late of course, that WE are the new emerging markets. And no, I don't mean the next China, instead my reference is to Argentina back in the late 90s/early 00s!. So if (as it seems to me) - even though we are agreed on the weak sustainable grwth outlook for the UK US Japan & Europe - that I WAS wrong and that Kevin is right on Austerity and the Reflation Trade, that policymakers will simply keep on behaving recklessly by loading on more debt and blowing more and bigger bubbles until the point of market and/or taxpayer revulsion, then this has some very clear 'asset allocation', and other implications" Bob Janjuah

Portugal CDS At Record As Bond Markets Refuse To Undergo GE-Sponsored Lobotomy

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CDOs For Dummies (Yes, Congress, We Are Looking At You)

Every now and then, congressmen (and their staffers) have a knack of taking a terrific opportunity to investigate the alleged criminality at the apex of Wall Street (such as Tuesday's hearing with Darth Blankfein), and blow it by 1) pursuing personal agendas that have nothing to do with the matter at hand and 2) having no understanding of the matter at hand. And when the matter at hand is something as complex as CDOs (just ask Lloyd or Ben Bernanke - both will tell you that only Goldman understood these products well enough to trade them, and that only the Fed is smart enough to regulate them),televised embarrassment is sure to follow. Which is why we have prepared some bedside reading for all those who intend on grilling Lloyd on Tuesday.

A Detailed Look At Goldman's Mortgage Trading Strategy In Late 2006 And 2007; The Goldman "Directive"

One of the key topics over the next week will be just what was Goldman's exposure to the mortgage industry in 2006 and 2007, and was the firm actively short mortgage exposure or was it merely, as it claims, just a market maker without any active positions on its prop desk. Courtesy of Carl Levin's recently declassified Goldman emails and presentations we get an extensive glimpse into Goldman's net exposure, its DV01, its counterparties, as well as how the firm was planning on interfering with the market when it needed liquidity to offload legacy positions. We also get a rare glimpse into the contributions from Tourre's mentor, Jonathan Egol. Let's dig in.

Guest Post: On The Brink Of An Asset Explosion, II

Let me start off by saying the market should be correcting. Sentiment has reached ridiculous bullish extremes, the kind of extremes that led to the January /February correction. That correction separated the second leg of the bull from the third. But let’s face it, sentiment has been in this condition for several weeks now and the best we could muster was a minor correction of 30 points on the news the SEC was filing charges against Goldman Sachs for fraud.
We’ve had three opportunities to “sell the news” with the April jobs report and recently with INTC and AAPL earnings. None of them have panned out. The market could use the Greek excuse as a downside catalyst, the same as it did in January. And now Greek short term bonds are tanking as the EU waffles about writing that check in front of the German elections in May. All in all it boils down to the market has had every chance to correct and it has failed to do so. Last month I speculated that we were On the Brink of an Asset Explosion. Well, we may not be on the brink anymore. We may very well be moving into the heart of the explosion right now.