Greek Cash-CDS Negative Basis Spread Hits Record, CDS Implies 33% Chance Of Eurozone Collapse
Submitted by Tyler Durden on 04/23/2010 - 10:50
Another glaring example of how broken the Greek funding market is, is the record negative basis spread in Greek 5 Year Cash-CDS, which as of today is almost -200 bps (see below). As a reminder, the basis trade's massive inversion in the days after the Lehman collapse is among the primary reasons for the implosion of Merrill, and the spectacular blow up of Deutsche's prop trading desk. What the primary implication of this observation is that the market is essentially saying that the imminent Greek bankruptcy will likely be in the form of a voluntary restructuring, which will not trigger CDS, although that is not the full story. The risk/return scenario, as Credit Trader points out, is assuming a 200bps upside to bond spreads, or a 400 bps downside to an inline level with the rest of Europe, in essence a 33% chance of a free fall bankruptcy, whose implication would most likely be the collapse of the Eurozone, as the EMU would be defunct if a member country escalates into an uncontrollable bankruptcy.
- Comments: 31
- Reads: 6,085
Guest Post: The Case Against The AUD
Submitted by Tyler Durden on 04/23/2010 - 10:06In our last quarterly we said that Australia could be one of the unexpected victim of the next downturn. We received plenty of questions on the subject so we have decided to write an ad hoc research on the subject which you will find attached. The Australian Dollar is the most overvalued G20 currency and we feel that the economy is mainly dependent on the continuation of the nascent Chinese credit bubble and an increase of domestic leverage and real estate prices. The later being nearly 50% above fair value they will sooner rather than later mean-revert. The Chinese connection makes its resources sector a good proxy to express potential negative view on China. - Damien Cleusix
- Comments: 33
- Reads: 7,255
In Light Of The SEC's Pornography Fetish Revalations, Bill Singer Proposes A Simple SOP Checklist
Submitted by Tyler Durden on 04/23/2010 - 09:46By now it is well-known that the bulk of the SEC's budget is spent on maintaining internet bandwidth to ensure that its 80286-based computers can cope with the terabytes of daily internet porn downloaded by its employees. In light of the need by the SEC to buckle up in preperation for the critical lawsuit against Goldman, which will make or break the agency, Bill Singer of Broke and Broker has come up with a simple list of several Standard Operating Procedures that the agency's employees must adhere to if they hope to have a job next year.We agree with his recommendations wholeheartedly.
- Comments: 46
- Reads: 4,393
Even Goldman Is Sick Of The Recurring Greek Deja Vu All Over Again Stupidity, Says Sell Euro
Submitted by Tyler Durden on 04/23/2010 - 09:29Overnight we duely got the tech break and printed a fesh low of 1.3201 . The move seemed to be stop loss driven rather than on the back of fresh negative news . With hindsight it would appear that the market piled into shorts on the back of the technical break. A short market, much better IFO and news that Greece is to activate EU aid mechanism led to a very sharp rally to 1.3347. In parallel euribor sold off , Greek cds and spreads improved notably. But this still strikes me as a repeat of the type of news flow and price action which has been a defining feature of this whole episode. I don’t think this solves the sustainability issue and I think we will see the euro come under pressure again. The market has again cleaned out the weaker shorts and I think we will now struggle to sustain bounces.
- Comments: 19
- Reads: 2,233
The European "Subprime" Contagion Arrives: Portuguese, Belgian And Spanish Bank CDS Rout
Submitted by Tyler Durden on 04/23/2010 - 09:03Forget Greece: the European "subprime" contagion is spreading. The biggest daily movers in CDS land are now not some irrelevant Greek banks which the world has now given up on, but Portuguese Caixa Geral de Depositos, S.A. (+32 bps, 12%), Belgian Fortis NV (+8 bps, 11%) and Spanish Banco de Sabadell SA (+20 bps,8%) and Banco Pastor SA (+23 bps, 7%). But. But. GDP is only 2% of GDP? (more like -5% when EuroStat is done with them). But it's all good - the IMF's Strauss-Kahn, who is always on top of stuff, sees no threat of contagion. Buy the pre-bankruptcy dips. Or is that DIPs?
- Comments: 44
- Reads: 4,545
Templeton's Mark Mobius: "Let Greece Fail"
Submitted by Tyler Durden on 04/23/2010 - 08:55Mark Mobius, at least smi-hypocritically, joins the camp of those who still dare live in reality. Bloomberg reports that the Templeton Chairman said Greece should be allowed to go bankrupt as that would be the best way to sort out its finances. “If we pour piles of cash into a country where corruption extends to top government officials, we won’t see any reforms,” Mobius told the Ljubljana based paper. “There is no other solution than to stop financing Greece with creditors taking responsibility and suffering damages, so countries should help them, not Greece, limit those damages.”
- Comments: 20
- Reads: 3,153
Frontrunning: April 23
Submitted by Tyler Durden on 04/23/2010 - 08:48- Jim Grant op-ed: The best financial reform? Let the bankers fail (WaPo)
- Goldman gambles as lawyers say bank should settle with SEC (Bloomberg)
- What Chinese Wall? Goldman role in Lloyds deal in spotlight (FT)
- Probe of Goldman director turns to Buffett deal (WSJ)
- Goldman 'doing god's work' (National Post)
- Soros: America must face up to the dangers of derivatives (FT)
- Durable goods down, on 67% plunge in demand for commercial aircraft (Census Bureau, Bloomberg)
- Big bonuses are back. Backlash isn't (Fortune)
- Comments: 11
- Reads: 1,927
So Much For The Rescue: Greek Bund Spreads Bounce From 540 bps Back To 570 bps
Submitted by Tyler Durden on 04/23/2010 - 08:20After tightening to 540 bps, Greek-German 10 Year spreads are now back to 570 bps. The final outcome at this rate would still be a sovereign bankruptcy, but one which would have the US algos smiling all the way to the bank as they surge on every piece of good news and ignore the bad (a Greek Chapter 11 means billions in advisory fees for Wall Street - buy). At least the global market has said that at this point a Greek bankruptcy is a certainty. All those covering EUR shorts may want to reconsider.
- Comments: 13
- Reads: 2,681
Greek Non-News Of The Day Comes Just In Time To Spike Futures
Submitted by Tyler Durden on 04/23/2010 - 08:12The biggest non-news of the morning, that Greece has formally requested aid, which of course manages to spike idiotic US stocks as per usual, was that Greece formally requested aid. Yeah, nobody saw that coming. The issue is this proves absolutely nothing, with the EURUSD moving a tad higher and with Greek bonds still in the 8% range. What the futures gunners don't care about is that the activation mechanism remains unchanged and still needs the formal approval of Germany, which as we pointed out yesterday has now seen major opposition political parties step ahead of the process, in essence blocking the entire rescue. But who cares: the dollar is slightly weaker and all the carry traders are going nuts, so buy, buy, buy.
- Comments: 12
- Reads: 1,780
Daily Highlights: 4.23.10
Submitted by Tyler Durden on 04/23/2010 - 08:04- Euro, Asian finance stocks fall on Greece concerns.
- Eurostat agency suggested Greece's debt crisis is worse than investors believed.
- Geithner harnesses G-20 behind Yuan push as India, Brazil raise pressure.
- Greece may seek Euro-region bridge loan as $11.3B redemption looms.
- Japan's bank minister not too keen on financial regulation.
- Air China swings to profit in 2009 of $709.4M on fuel hedging gains.
- Amazon.com's Q1 profit jumped 68% to $299M on a 46% rise in revs to $7.13B.
- Comments: 2
- Reads: 1,019
RANsquawk European Morning Briefing - Stocks, Bonds, FX 23/04/10
Submitted by Tyler Durden on 04/23/2010 - 08:01RANsquawk European Morning Briefing - Stocks, Bonds, FX 23/04/10
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Another Goldman Lawsuit Imminent? From The Mail Bag: Lehman To Sue One Or More Big Banks Over Derivatives "Fraudulent Transfer"
Submitted by Tyler Durden on 04/22/2010 - 23:26A week ago we disclosed the unredacted Volume 5 of the Valukas report, in which the full details of the Lehman derivative portfolio were presented, as well as the names of "white knights" who stepped in in the last moment to onboard Lehman's holdings at a firesale valuation. Furthermore, it was Valukas' conclusion that Lehman may have a claim to sue the counterparties for fraudulent transfer. It appears this is precisely what is about to happen. We just received the following tip:
Lehman Holdings will be filing a lawsuit against one or more major banks in regards to the valuation of derivatives. This will occur tomorrow or Monday. It is the first such lawsuit (valuation dispute) of its kind by Lehman. Some of the counterparts to Lehman's existing trades weren't willing to play nice, so the "estate" felt it necessary to rack up another few thousand billable hours and take this battle to court.
- Comments: 26
- Reads: 3,377
Are Bank Purchases Of 10 And 30 Year Treasuries Indicative Of Trouble?
Submitted by Tyler Durden on 04/22/2010 - 21:49One of the notable observations in recent Treasury auctions has been the increasing participation by commercial banks in taking down 10 and 30 Year Treasury auctions - traditionally two parts on the curve banks have historically avoided like the plague. We present some observations on why this may be happening as well as some troubling conclusions, both of which indicate trouble, namely that liquidity is and has been the name of the game for the past 13 months, and that commercial banks, or presumably some of the smarter money around, are seeing economic distress ahead.
- Comments: 41
- Reads: 10,553
Euro Plunges With Alarming Speed As Stop Losses Kick In, Below Year Lows
Submitted by Tyler Durden on 04/22/2010 - 19:45World markets are beating the victory drums that finally the idiots in America have shut down the algos and everyone else can get back to reality. The first effect: after closing north of 1.33, the euro is now in free fall mode, plunging to 1.3216, slicing through every imaginable stop like butter as the world has said "enough" to the bullshit market action out of the US, which, like a petulant child, refuses to acknowledge anything and everything negative. All the stops at 1.3250 just got taken out causing a 50 pip drop in seconds. The next level of stops at 1.315 will likely be tested as Asia opens, but these are weak and any real resistance will be found below 1.31. The all critical Euro-Yen pair is down to 123.6 from 124.4 late on Thursday when the math Ph.D.'s had the market firmly under control. The DXY continues surging. Expect world market weakness overnight, translating into a drop of ES until just before the US market opens and the fume melt up resume again as America is now decoupled from every world market.
- Comments: 110
- Reads: 8,375
Guest Post: Nazarbayev’s Successful Diplomacy In Kyrgyzstan Signals Deeper Strategic Shifts
Submitted by Tyler Durden on 04/22/2010 - 18:22The recent crisis and instability in Kyrgyzstan, highlighted the fragility of security and the potential weakness of the political systems throughout the region and exposed new dimensions in the conduct of Kazakhstan’s foreign policy that may well prove pivotal for US energy interests in the Caspian Sea region. These complexities, often disguised or downplayed by the national governments in the region, attest to the deep political fault lines running through Eurasia as well as the potential for events in one state to ignite potential cross-border discontent and instability elsewhere.
- Comments: 2
- Reads: 1,507
