Unadjusted Case-Shiller data for February indicated that on a sequential basis the decline in home prices is accelerating. And this is even with every stimulus imaginable thrown at the problem. We can't wait to see what happens with the latest round of homebuyer subsidies runs out. As the press release states: “Existing and new home sales, inventories and housing starts all show tremendous improvement in their March statistics. The homebuyer tax credit, available until the end of April, is the likely cause for these encouraging numbers and this may also flow through to some of our home price data in the next few months. Amidst all the news, however, we should also pay heed to foreclosure activity, which have reached their highest level in at least the last five years. As these homes are put up for sales, we may see some further dampening in home prices. ” While we obviously disagree with the first sentence (see chart below for confirmation) the rest of the press release is somewhat accurate. February unadjusted data came in below July 2009 levels. The double dip in housing is firmly here now.
Because we all know rumors are always false. Bankingnews.gr admoinishes its readers (courtesy of crude Google translation) to "not be carried by rumors of bankruptcy bank - is completely unfounded." With the entire Greek airforce calling in sick, could Goldman just be a smokescreen to the Persian invasion?
Italy Next? €9.5 Billion Bill Auction 2 bps Away From Failure, 6 Month Bill Yielding Higher Than Spain'sSubmitted by Tyler Durden on 04/27/2010 - 09:11
All of Europe is scrambling to issue new debt and refinance in advance of what more and more are seeing as a credit crisis soon to envelop not only the European periphery but its core as well. We all know what is happening in Greece and Portugal. It appears Italy may be next: the country sold €9.5 billion in 6 Month Bills at 0.814%, up dramatically from 0.568% just a month ago, on March 26. What is scariest is that the Bid To Cover on the auction tumbled from 1.56 at the previous auction to a just barely above passing 1.02. At this rate Italy will be unable to find bidders for its next Bill auction. And if it can't sell Bills, it can't roll the easiest part of its curve. Also, unlike Germany, Italy does not have the "flight to safety" appeal. Keep in mind that Italy, just like Greece, dipped freely in the Goldman debt/GDP swap "adjustment" mechanism. We are confident that as contagion fears grip Portugal, Italy is sure to be next. And confirming that the market is seeing Italy as an even greater risk than Spain, the country sold 1.7 billion euros of six-month securities to yield 0.736%, up from 0.482 percent on March 23. On the other hand, Spain has to sell €150 billion in euros in 2010: it has so far only sold 26% of this amount. We wish them best as they scramble to fill the quota.
- Mortgage deals under scrutiny as Goldman faces senators (NYT)
- Stocks drop (not here though, we should go green the second European markets close) on European debt-contagion concerns (Bloomberg)
- Vince Reinhart: The deflation club (The American)
- Volcanic ash crisis cost airlines GBP2.2 billion (Telegraph)
- Senator Dodd's carve out for cronies (Post)
- Ukrainian opposition hurls eggs and smoke bombs in parliament (FT)
- Tim Sykes and Kaja Whitehouse sued by SpongeTech for $43 million (HFN)
- Squids of a feather: Warren Buffett and Prince Alwaleed's secret letters (Telegraph) even as Alwaleed says he'll go on working with Goldman (BLoomberg)
For those wishing to watch the full 10:00am Goldman hearing live and commercial free we suggest the following C-Span link. The witness panel for today's hearing is presented. We will update this post with all Goldman-relevant news as the day progresses.
- Brazilian policy makers poised to raise borrowing costs at the fastest pace since 2003.
- China may use capital requirements for developers as policy tool to cool property market.
- Cost of insuring Greece's debt against default soared to a new record.
- Portugal suffering Greek debt contagion puts pressure on EU's bond markets.
- Republicans joined in the Senate to block Democrats' overhaul of financial regulation.
- Shanghai shares down 2.1%, with real estate stocks down on policy concerns.
- Trend in U.S. home prices may have been positive for first time since 2006
Greece 5y CDS now at a meaningless 762bps, which is the highest non-upfront CDS spread for any sovereign. This alone should be enough for another monster day in the decoupled algo-driven US markets. And Portugal is now where Greece was just a few weeks ago: its own CDS just hit 350 bps (40 wider), as its 10 spread widens by 17 bps to 235 bps. While the Greek negative basis is still about 250 bps, Portugal is still less pronounced. We expect the Portuguese basis to hit negative territory soon. According to CMA the biggest wideners are all Spanishand Portuguese entities: Enel SpA at 137.07(+16.04), Banca Monte dei Paschi di Siena SpA (SUB) at 215.22 (+23.25), Banco Popolare SC at 164.46 (+15.67), Banca Monte dei Paschi di Siena SpA at 122.64 (+10.82). As for Greece, it's too late: Germany says country may have to leave the Eurozone, as we suspected was Germany's intention all along.
RANsquawk European Morning Briefing - Stocks, Bonds, FX 27/04/10
Goldman's Erik Nielsen On Why US Taxpayers Will Soon Burn Tens Of Billions To Delay The Greek BankruptcySubmitted by Tyler Durden on 04/27/2010 - 00:11
A very much downcast Erik Nielsen shares why the soon to be revised IMF/EU 3 year €150 billion (up from €40 billion) Greek bailout will be a waste of taxpayer money. And here is why American taxpayers will soon have to pony up to make sure Greeks can retire at 61. "I suspect that some haggling is now going on between the IMF and the Euro-zone on the burden sharing of a bigger program, but I rather doubt that the Europeans can do more than the already announced EUR30bn for the first year. If so, I suspect that the IMF will have to settle for something like a 12-months fully funded program worth a total of EUR50-55bn (or could it be an 18-months program worth some EUR80bn?)." Yet, as even Erik points out, this is just more US money thrown out. "even a fully funded program for 12-18 months imply important risks and could lead to debt restructuring. First, while the government will be fully funded, the private sector, including the banks, maybe still find financing at affordable rates difficult to come by. Second, there is a risk that the government will not meet the performance criteria and hence lose the promised official financing, and third, what comes after the fully funded program? If the situation is unsustainable now, it’ll take one heck of a policy program to make it sustainable in three years following more debt at interest rates well above the likely nominal GDP growth rate." All is good though - remember the Bernanke Directive #1: If an action results in the imminent weakness, suffering, pain or death of the dollar, with (preferably) or without the elimination of the US middle class, pursue such action with enthusiasm and vigor, in perpetuity.
With less than 12 hours left to the once-in-a-generation cruentus calamari roasting, here is a primer for all those who will be listening in and hoping to understand any of the guttural noises coming out of the beaks of the those doing god's work on the Senate witness stand. Below is a must-have dictionary for all who seek to speak the divine (or is that brine?) dialect of the Goldmanites, courtesy of Bloomberg's Jonathan Weil.
"When public support of a government falls below 30%, it means that the government is in a bad way," writes a renowned analyst in Asahi newspaper. The euphemistic expression implies that the Japanese government appears close to collapse: an investigation conducted by the same newspaper on April 18, shows that the popularity index of Prime Minister Yukio Hatoyama stands at 25%, only seven months ago, when the Democratic Party of Japan (DPJ), of which Hatoyama is president, opened its government, the popularity index was 71%: one of the highest enjoyed by any previous government. Is it simply a case of precarious public opinion? Not really. Sometimes, comments another analyst, popular opinion is "brutally honest". Most of the media indicate the reason for the drop in public support for Hatoyama in his inability to govern. It seems that the prime minister’s indecision is only the cause of the crisis. The reasons which reveal its significance and unfortunately, its severity are political in nature: in the last 10 years, both the political class - and opposition – as well as the people themselves did not realize that Japan was changing rapidly both in internally and in its international relations, responding effectively.
Goldman Sees A $10.8 Trillion Budget Deficit In Next Decade, Focuses On Subpar Tax Receipts Net Of RefundsSubmitted by Tyler Durden on 04/26/2010 - 22:42
Yesterday Goldman was saying that the quadrillions in soon to be issued Federal debt is nothing to worry about. Today the firm's rapidly self-discrediting economic team shifts its eyes to the deficit, which for the Projected 2010 is now estimated to be a blowout improvement: "$1.575bn (10.7% of GDP) from $1.64bn (11.2%) previously." Well, that's a great comfort. Oh wait, it isn't. "We have not made a formal change to our projection that the deficit will total $10.8 trillion (trn) over the next ten fiscal years given the comparatively small size of the change for FY 2010 and the considerable uncertainty inherent in the longer-term view." $11 trillion deficit. But at least somehow the national debt is nothing to worry about...While we reproduce the full note in its entirety below for those who feel like laughing, we point out Goldman's observations not only on tax receipts, but on tax receipts net of withholdings, a concept which according to some of our colleagues makes no sense. We'll be sure to let Jan Hatzius know asap. "Personal income tax revenues appear to be on the verge of noticeable improvement. Over the first six months of the fiscal year, personal income tax receipts net of refunds are actually down significantly – 8.4% versus our assumption of nearly a 10% decline. Reflecting last year’s sharp drop in personal income, final tax settlements on 2009 returns are running about 11% below year-earlier levels, and refunds (as reported in the Daily Treasury Statement) have been up about 5%. However, withholdings of personal income taxes have improved noticeably in the past two months. [uhm, March yes, April no. see here] While some of this is due to calendar effects (March 2010 had one more business day than March 2009), the underlying trend appears to have moved from deeply negative through January to mildly positive since then [again, no - true for March, false for April]. As the economic recovery continues, we project that this trend will remain positive – between +5% and +10% – over the balance of the fiscal year. This assumption adds $56bn to our estimate for personal income tax receipts, trimming the expected year-to-year setback by nearly two-thirds, to about 3.5%." Ah yes, and just as UBS wishes 2011 will be the new "new revenue story" so do 10 million drunk Irishmen see a pot of gold at the end of the rainbow. Goldman - meet Unicorn ranch.
If Goldman Sachs wanted to reduce its exposure to subprime mortgage investments, why didn't it simply sell the assets it owned? Two reasons: First, those large sales would have sent a signal that something was terribly, terribly wrong, and thereby pushed prices down further. That's how supply and demand normally works. Second, Goldman professed to be market maker, which uses its trading book to instill confidence. It ostensibly bought, sold and inventoried mortgage securities to provide stability and liquidity to the marketplace. Of course, we now know that such market confidence was entirely misplaced. To sidestep these issues, Goldman and other major banks found a solution that subverted the laws of supply and demand, and escaped the price discovery of a transparent marketplace. They fabricated synthetic CDOs, such as Abacus 2007 AC-1. These toxic assets, invented out of thin air, made the meltdown worse than it otherwise would have been.
We are going through the March 2007 prospectus, with an emphasis on the Risk Factors section. We are convinced Timberwolf will feature prominently during tomorrow's questioning of Tom Montag. Another question: will Tannin and Cioffi appear as surprise witnesses. We have yet to encounter any discussion of how and why Abacus may have been involved in this deal, or why, as Montag so eloquently put it, it was "one shitty deal."
Cramer Changes Tune On Goldman, Says Charge Is Not "Frivolous" And Firm Will Have To Settle Or Pay $2-3 Billion FineSubmitted by Tyler Durden on 04/26/2010 - 19:23
What a difference a day makes. First Cramer was firmly planted in the Steve Liesman camp, who in turn for the past week has been moonlighting as the semi-official Goldman PR manager, in "leaking" every piece of useless "absolving" information (a job only secondary in worthlessness to that of worst financial stock analyst ever Dick Bove who has been buying Goldman all the day down from $185), however now after actually doing some thinking, the troubled theStreet.com owner who himself is no stranger to SEC investigations, has diametrically changed his tune. In this morning's edition of "Morning Joe" on MSNBC, Cramer said: "What makes this worse than most situations is that it’s entirely possible this young guy, who’s now holding the whole firm hostage, Fabrice Tourre – it’s entirely possible that he sold it fraudulently. If he did, then Goldman has no defense. So, what I would emphasize at this particular moment is that this guy is way too powerful. The hearings are going to go badly. Goldman knew they were going to have a Wells Notice, knew they were going to get prosecuted. They didn’t reveal it. It was totally material. Again they did that wrong.” But we thought that according to "GAMECHANGING" information which you yourself Jim broke, Goldman was ok: after all they lost "money on the deal", a conclusion so moronic it immediately led to derisive ridicule from fringe blog Zero Hedge. That said, we are pleased to bury the hatchet - after all even former Goldmanite and seasned CNBSer Jim now agrees that the vampire squid is in deep shit.