Lehman Sues JPMorgan, Claims Dimon Forced Firm Into Bankruptcy; Opens Avenue For AIG Lawsuit Against GoldmanSubmitted by Tyler Durden on 05/26/2010 - 17:32
In October of last year we wrote an extended piece discussing the conflict between the bankrupt Lehman Brothers estate (i.e., its unsecured creditors) and Barclays, in which JPMorgan played a prominent part, as it was the critical tri-party repo clearing bank on all of Lehman's collateral that would subsequently go to Barclays. As we summarized, extortion attempts back then by Barclays only had the adverse effect of making Jamie Dimon very, very angry: "Barclays' attempt to nickel and dime JPM (and the US taxpayers) so infuriated Jamie Dimon that he penned an angry letter to John Varley,
Barclays Group CEO (which CC:ed Barclays' president Bob Diamond),
threatening with litigation in case Barclays is intent on sticking JPM
with Lehman collateral that it thought was without value and not worth
assuming in a time when every single day stock prices were crashing
further lower." As we expected in October, the resolution would most likely involve litigation, as by dint of its collateral clearing position, JPM had unprecedented knowledge about Lehman's affairs: a special status that would likely be abused in a court of law. Sure enough, here is the lawsuit: the estate of Lehman Brothers, desperate to pick another several bps in recovery on their Lehman General Unsecured Claims, has sued JPMorgan, claiming Jamie Dimon's bank pushed Lehman into bankruptcy by forcing it to turn over $8.6 billion in collateral. As Lehman was completely insolvent long before JPM demanded any incremental collateral comfort, claiming that JPM was the catalyst for Lehman's bankruptcy is absolutely the same as saying that Goldman forced AIG's bankruptcy by increasing its collateral demands. While both arguments are ludicrous, should the JPM case proceed to court, it is tantamount that AIG immediately seek legal action against Goldman Sachs on identical grounds.
On a day like today, when the entire CNBC fast momo brigade said it was buying into the close (we would show you the clip of just how worthless intraday trading advice on CNBC is, if only the propaganda station had not pulled the episode), there was just one way for the marker to close: below 10,000. The fight over the 10k barrier, which the traders over at Liberty 33 find important for some reason, was fast and furious, but in the end, reinforced by a deteriorating euro, the bears won, closing at 9974.4, further plunging after hours. The Dow is now at the lowest close of the year, with the only times the Dow has closed under 10k being in a three day brief period between February 5 and 7th. Also, looking at the EUR panel, things are going from bad to worse. Absent China lifting every other offer, which would be confusing in light of SAFE's earlier negative announcement on European bond holdings, we could easily see a 1.20 handle by tomorrow morning, which would solidly push the S&P on its way well into triple digit territory.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 26/05/10
The annual hedge fund "go to" meeting, the Ira Sohn conference, is currently in progress, and 12 hedge funders will discuss their top picks. The place where Einhorn famously declared his Lehman and Moody's shorts, and Ackman announced he was "bearish" on MBIA and Ambac is perceived as the place where HF managers disclose their highest conviction plays, usually leading to major market waves in the ensuing days. The managers presenting this year are as follows:
Congratulations to the lucky, soon to be bankrupt, Petrodollar sovereign wealth fund that was suckered by Morgan Stanley to buy this radioactive piece of gamma decay. We hope for your sake that the US government is successful in postponing the inevitable unwind of Keynesianism until you can sell. Of course, you can just shut down oil deliveries to the US, although soon US refiners will just be able to syphon the stuff from the surface of the Gulf of Mexico.
From Yonhap: South Korea's military was tracking four North Korean submarines which disappeared from their east coast base after conducting naval training in the East Sea earlier this week, a military official in Seoul said Wednesday. Locations of the North's four 300-ton-class submarines have been unknown for two days, the military official said, noting, "We are tracking the four submarines by mobilizing all naval capabilities in the East Sea."
Bank Of Spain Tells Lenders To Take 30% Loss Provisions On Foreclosed Real Estate Held For Over Two YearsSubmitted by Tyler Durden on 05/26/2010 - 15:20
Here comes the latest destabilizing Central Bank "intervention" in Europe. The Bank of Spain, doing what Fed and the Treasury should have done with domestic toxic loans backing worthless real estate, has notified lenders that they should be prepared to set aside much greater loss reserves against assets, "such as real estate, acquired in exchange for bad debts once the holdings have been on their books for more than two years." The staggered loss provision schedule will call for a 10% loss assumption for real estate acquired in foreclosures, 20% for real estate held for more than a year, and 30% for anything held for more than 2 years. Bloomberg reports that Spanish lenders have foreclosed upon property worth nearly €60 billion, which means that very soon Spanish banks, which as we pointed out earlier are already suffering a liquidity crunch as a result of loss of access to Commercial Paper, will have to take an incremental up to €18 billion in asset write-downs, a development which will have a major adverse impact on Spain's banking sector once it funnels through the banking system, and especially once the need for liquidity spikes yet none is found.
The EURJPY has now pushed back below the 110 support even as stocks, which nobody except a few computers, trades any more, fight tooth and nail to give the impression there is buying interest. Hopefully, readers have been prudent enough to stay out of the market since when it broke down terminally, some time in April of 2009, and ridiculous equity moves such as today's will not matter. What should matter, is the ongoing flatenning in the 2s10s, which, as we have claimed previously, is a far more troubling phenomenon, and indicates that between the unending FX carry unwinds, and the Treasury steepener selloffs, liquidations are continuing. That these are not spilling over into the now completely irrelevant stock class is not at all important: stocks are now just for administrative window dressing, and to push the Obama propaganda just how good the economy is, which as everyone knows, is nothing but a lie.
Is China about to start dumping its $630 billion in eurozone debt holdings? Maybe not yet, although the FT reports that China's State Administration of Foreign Exchange, the central bank's foreign reserves manager, has "expressed concern about its exposure" to the PIIGS. Obviously, with China moving away from dollar denominated assets for the past six months would represent a "big strategic shift" as "last year, the Chinese were trying to reduce their exposure to dollar assets by buying eurozone assets. This would be a complete reversal." Additionally a Chinese diplomat noted that, "The euro’s fluctuation will have an impact on China’s thinking, but it’s only one element” in any decision to allow the Chinese currency to rise, He Yafei, a vice foreign minister, said, according to Bloomberg." The question then arises of just what assets China would be comfortable holding? Alas, the only readily available answer we can come up with rhymes it old and has 79 protons.
Howard Buffett Said "Human Freedom Rests On Gold Redeemable Money", Called For Return To Gold StandardSubmitted by Tyler Durden on 05/26/2010 - 14:15
Sometimes the apple does fall very, very far from the tree. A must read essay by Howard Buffett, father of the "legendary" investor who initially was so very much against derivatives then promptly changed his tune, discusses fiat money and gold, and concludes that "human freedom rests on gold redeemable money." In this stunningly simple, straightforward, and flawless analysis, Buffett's father stresses the relation between money and freedom and contends that without a redeemable currency, an individual's freedom and one's access to property is dependent on goodwill of politicians. Buffett also says that paper money systems generally collapse and result in economic chaos. He goes on to observe that a gold standard would restrict government spending and give people greater power over the public purse. Lastly, back in 1948, Howard Buffett, said this the "present" is the right time to restore the gold standard. Alas, 60 years later, his advice has still been largely ignored, and as a result we have a global economy that stands on the precipice of global default with runaway budget deficits across the entire developed world. Key quotes: "Is there a connection between Human Freedom and A Gold Redeemable Money? At first glance it would seem that money belongs to the world of economics and human freedom to the political sphere. But when you recall that one of the first moves by Lenin, Mussolini and Hitler was to outlaw individual ownership of gold, you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty. Also, when you find that Lenin declared and demonstrated that a sure way to overturn the existing social order and bring about communism was by printing press paper money, then again you are impressed with the possibility of a relationship between a gold-backed money and human freedom. His conclusion is eerily prophetic with what is happening with US society currently: "I warn you that politicians of both parties will oppose the restoration of gold, although they may outwardly seemingly favor it. Unless you are willing to surrender your children and your country to galloping inflation, war and slavery, then this cause demands your support. For if human liberty is to survive in America, we must win the battle to restore honest money.""
It is well-known by now that the IMF and EU have no credibility left. What, however, was not known, is that even bankrupt little Greece is now in on this secret. In the latest attempt by the veryrecipient of US and European taxpayer generosity to muscle around the bailout providers, Reuters reports that Greece is now actively trying to renegotiate the terms of its pension reform. The initial focus item: "officials said they wanted the EU and IMF to agree full pensions should be payable after 37 years of contributions instead of 40, as set out in the deal, and allow the reform to be implemented later than foreseen." Of course, should the IMF relent and give in to this, Greece will immediately demand that all Austerity requirements are null and void as they tend to lead to such unfortunate events as stormings of parliament and possible future civil war. Furthermore, with austerity now a pan-European phenomenon, look for increasing back and forth negotiations to begin all across the PIIGS and the core, as, surprisingly, nobody in Europe is all that eager to keep working the second they hit 50 years of age. Look for a plunge in the EUR if the IMF even considers engaging in terrorist negotiations. Which of course is the plan all along.
$40 Billion 5 Year Auction Closes At 2.13% High Yield, 2.71 Bid To Cover Ratio, New Record In Direct Bidder Take DownSubmitted by Tyler Durden on 05/26/2010 - 13:14
- $40 Billion in 5 Year Bonds close at 2.13% High Yield (15.05% allotted at high), compared to 2.54% previously, 2.46% average in last year, 2 bp tail from 2.11% WI at 1:00 PM
- Bid To Cover comes at 2.71, 2.75 previously, 2.58 average
- Direct bidders take down at new record of 15.0%, compared to 14.3% previously, 8.1% average
- Indirect bidders take down 40.6%, comapred to 48.9% previously, 48.6% average
- Primary Dealer Hit Ratio of 24.3%, compared to 20.3% previously, 24.6% average
- Finra fines Citigroup Inc over cemeteries
- Finra says Citigroup pays $1.5 million for failures related to scheme to misappropriate millions in trust funds belonging to cemeteries
- Finra says Citigroup pays $750,000 fine, $750,000 disgorged commissions
- Finra says Citigroup does not admit wrongdoing in agreeing to settle
Buffett's 1982 Letter To John Dingell Warns Sternly That US Market Could Become Precisely What It Is TodaySubmitted by Tyler Durden on 05/26/2010 - 12:53
In reading Buffett's nearly 30 year old letter, we can't help but be stunned by the hypocrisy in the statement made by the man whose multi-billion derivative bet on perpetual ponzi expansion almost caused a liquidity crunch at none other than Berkshire Hathaway in early 2009: "We do not need more people gambling in non-essential instruments identified with the stock market in this country, nor brokers who encourage them to do so. What we need are investors and advisors who look at the long-term prospects for an enterprise and invest accordingly. We need the intelligent commitment of investment capital, not leveraged market wagers. The propensity to operate in the intelligent, pro-social sector of capital markets is deterred, not enhanced, by an active and exciting casino operating in somewhat the same arena, utilizing somewhat similar language and serviced by the same work force. In addition, low-margined activity in stock-equivalents is inconsistent with expressed public policy as embodied in margin requirements. Although index futures have slight benefits to the investment professionals wishing to "hedge out" the market, the net effect of high-volume futures markets in stock indices is likely to be overwhelmingly detrimental to the security-buying public and, therefore, in the long run to capital markets generally." We also find it ironic that everything that Buffett warned against happening as a worst-case scenario, is precisely where the US capital markets find themselves right now. In the meantime, a month ago the NYSE introduced liquidity rebates for the 15 most actively traded contracts.