Goldman's take on the bailout: "Sure it is concessional, so we’ll probably see some interesting court cases if the loan gets disbursed." Look for the lawsuits in Germany to start flying at 9 am. We expect these to derail any prompt disbursement of capital especially once Greece throws in the towel and recognizes what everyone knows is the sad reality of its default condition. We expect this to make Tuesday's Bill issuance problematic and has resolved very little for any future Bond issuance at acceptable rates.
And The Proverbial Moral Hazard Foot-Shooting Ensues: With Ink Not Dry On First Bail Out, Greece Already Demands Another €50 BillionSubmitted by Tyler Durden on 04/11/2010 - 13:09
Here is what happens when you green light Moral Hazard - in less than two hours after the videoconference in which the EMU announced €30 billion in aid for Greece, a Greek senior official has already come up and said that they were only kidding about needing just €40 or so billion (with the IMF's 10). The full amount will actually be double that, or €80 billion, for the three year period. Look for Portugal, Spain, Ireland, Bulgaria, Hungary, Latvia, and Lithuania to come knocking in the next 45 minutes.
Someone please explain to us how these two paragraphs do not directly contradict each other?
“In order to set incentives for Greece to return to market financing, Euro area Members States loans will be granted onnon-concessional interest rates.
“The pricing formula used by the IMF is an appropriate benchmark for setting Euro area Members States bilateral loan conditions, albeit with some adjustments. Variable-rate loans will be based on 3-month Euribor. Fixed-rate loans will be based upon the rates corresponding to Euribor swap rates for the relevant maturities. A charge of 300 basis points will be applied. A further 100 basis points are charged for amounts outstanding for more than 3 years. In conformity with IMF charges, a one-off service fee of maximum 50 basis points will be charged to cover operational costs.
Nomura's Richard Koo, whose work we have previously discussed extensively on Zero Hedge, is out and about presenting the case for unbridled deficit spending as usual. Amusingly, the big question according to Koo is "why are we not seeing more bubbles." Well, when oil hits $90 on Monday, coupled with 20% underemployment, hopefully the market will answer Mr. Koo's question. Also, Dow at 36,000 in 200 days should pretty much put an end to that debate. Some more practical observations: demand for loans is below zero (which is not news to anyone) i.e., demand for fund is still contracting even with zero interest rates. As always, Koo parlays this in a parallel with Japan, and how nothing has really worked for over 10 years. His key observation - if companies don't want to borrow when rates are zero, they should just return their equity capital to shareholders.
On a sunny weekend in September 2008, a bunch of CDS traders were summoned at noon with the advance knowledge that Lehman was filing that midnight and to trade out of Lehman counterparties positions asap. On a sunny weekend in April 2010, a bunch of fat European bureaucrats were summoned to a videoconference to bail out Greece (for the 4th time) and achieved absolutely nothing new (for the 5th time). The latest episode in the Greek tragicomedy adds exactly no information to what was expected to be a firm bailout package: hold on a second but we knew the last weekend of March that should Greece demand help it would be bailed out by the ECB - so just what is new here? Ahh, anything to create the illusion of forward progress. In continuing to munch the non-austerity cake and have it too, the package is not really operational until Greece demands it. Which they won't until creditors put them in involuntary bankruptcy after coupon non-payment. Presumably the final rate agreed upon is 5% for a three year loan: how some bureaucratic soothing words can hope to push the entire Greek curve down by over 200 bps will be very fun to watch. Then again, as the curve will likely continue to be inverted, we dont expect much normalization for the 10 Year, as the country will most certainly be bankrupt by 2020. Lastly, to show just how serious the ECB is this time, any coordination with the IMF will not begin until tomorrow. We sure feel bad for all those traders who are now told by their superiors to buy the Greek €1.2 billion in 6 and 12 month bills on Tuesday, as any hope of return of capital now rests with whatever new insanity Brussels can cook up next. Paulson's gun is now firmly in control of the Greek/ECB, and is now thoroughly empty after repeated own-foot shootings. And while we are on the topic of IMF-assisted suicide, the next full day of Greek strikes is now set for April 22, when Greek civil servants will walk of the job for 24 hours according to an ADEDY union official.
Presented without commentary, cause it's really all pretty self-explanatory.
CPM's Jeffrey Christian opens his mouth (again), tries to defend his recent "foot in the mouth" acrobatics, hilarity ensues. To wit: "I've worked with major banks and these guys are incredibly conservative, risk averse people. Banks make their money at the margin. They borrow from so and so at 75 bps and they lend it out at 85 bps. They've made a tenth of a percent and they are very happy." The real punchline - according to his bio, the only major bank he has worked at, is Goldman Sachs.
Moments after China's $7.2 billion March trade deficit was announced, the Chinese Ministry of Commerce was blasting away at critics of the CNY peg. According to Market News, the MofComm stated that "the recent steady decline in China's trade surplus and the trade deficit post in March again show that the yuan exchange rate is not the key determinant in the country's foreign trade balance." He has a good point - what is, is the endless printing of paper money by China used to keep its residential sector screaming ever higher, while at the same time taking advantage of the same generosity from Ben Bernanke across the Pacific, which in turn benefits China just as much as it does the US. The reason is simple - continued destruction of the dollar, which will commence shortly, will benefit China as well, further facilitating its export economy, while its own printing goes straight to boosting imports. In this way, the confrontation of Chinese and US monetary policy can be seen nowhere better than in the Chinese balance of trade: and judging by the increasing trade deficit, the Fed's influence is starting to wane. Soon enough, when the Fed's marginal impact on the CNY is negligible (via dollar printing and via the CNY peg which is not going away any time soon), China will truly have no other option but to rely on its own consumer class, even as it still seeks to reap the benefits of increasing exports. Our belief is that the deficit will drift slowly higher, however what will become evident will be the ever greater absolute amount of both imports and exports in China.
David Kostin summarizes the paradox of the rally: "S&P 500 has returned 7% YTD but most investors trail the index. Hedge funds have suffered from short positions and returned 2% in 1Q. Core mutual funds returned 5% reflecting underweight positions in Consumer Discretionary which surged 14% in two months, twice the market rebound." Well, not the Fed. The Fed is ahead of everyone. Although, once it becomes legal to sell again, the dash for trash may finally end. Then again, the modern market is, as John Taylor puts it, nothing but Alice in Wonderland...
After 70 Months Of Trade Surpluses, China Records A $7.2 Billion Trade Deficit In March: Detailed Summary Of March Trade DataSubmitted by Tyler Durden on 04/10/2010 - 15:18
In March China recorded its first trade deficit after 70 straight months of trade surpluses, which has occurred even despite global calls that the Renminbi needs to be revalued by about 20%. The primary reason for this was that in March China imported a total of $119.4 billion worth of goods - the single greatest amount recorded in history. This was offset by $112.1 billion of exports, well below the record exports China was pumping out in late 2008 in the mid $130 billion range, and the $130.7 billion exported in December of 2009. Below we present a summary of the key highlights of China trade balance over the past 3 years.
Crude oil prices ended the week virtually unchanged from a week ago as optimism about demand warred with trepidation about historically high inventories in both crude oil and gasoline.
The benchmark West Texas Intermediate contract settled at $84.92 a barrel on Friday, only 5 cents ahead of the previous week’s Thursday close after surging above $87 a barrel early in the week and then declining for three straight sessions.
Bears noted that oil seemed unable to stay above $87 a barrel level, while bulls said that oil had tested the $84 level going down and found resistance.
Given that the stated amount of gold in the GLD Trust has grown to over 850 tons, it appears that a lot of investors believe and trust that investing in GLD is the same thing as buying physical gold bullion. A close reading and analysis of the GLD Prospectus, however, reveals that investing in GLD is drastically different from owning gold. This analysis will show why GLD is nothing more than another form of a derivative security which is loaded with counter-party default risk. Ultimately, the value of the GLD Trust, and the price of its stock, has the potential to experience substantial loss. Under certain circumstances GLD could be worthless. As an investment advisor, I do not recommend that anyone use GLD instead of buying physical gold because it is not an investment in gold and the legal structure of GLD is such that unsuspecting investors could end up losing all of their money. Furthermore, because the risks embedded in GLD are documented in the GLD Prospectus, investment advisors who recommend GLD and use it in client portfolios are exposing themselves to the risk of negligence lawsuits.
Edolphus Towns Says Fed Officials Were Unhappy About Friedman Waiver To Buy GS Stock, Were OverruledSubmitted by Tyler Durden on 04/10/2010 - 11:27
One of the most botched cases of conflict of interest abuse by a Federal Reserve official will forever remain the purchase of Goldman Sachs shares by Goldman Board Member, and FRBNY Board Member (the squid likes to keep its Federal Reserve puppets closely supervised) Stephen Friedman: an act strictly forbidden by the Fed itself. The action was so indefensible it led to Friedman's quitting shortly after disclosure of his transgression leaked. Yet the reasons why Friedman managed to effect this purchase of 37,000 shares of GS on December 17, 2008 is because he was granted a "waiver" by the Fed. A month ago, Chairman of the House Oversight Committee, Edolphus Towns sent a rather angry letter demanding an explanation from Ben Bernanke why he had allowed this blatant case of semi-insider trading to occur at the highest echelons of shadow government. Today, we find out that Towns is unhappy with the production provided by the Fed, and concludes "that senior officials had misgivings about granting the waiver but were ultimately overruled" and that "we believe a closer examination of this issue is necessary, especially when Congress is considering increasing the Fed’s powers. In the coming weeks, we will continue our investigation of this matter and will schedule a hearing to learn more from Mr. Friedman and senior Fed officials about how he was permitted to make windfall profits by trading stock in a company he had a role in regulating." We are not so sure there is any room for confusion - after Goldman told its pseudo employees at the Fed to bail it out at the cost of tens of billions in taxpayer money, why is it in any way surprising that those same FRBNY Goldmanites will not be allowed to profit from Goldman's bailout as well? The is nothing than a clear cut case of power and political capture at the very highest level of the country, by the two most collusive entities, whose sole purpose is the confiscation of middle-class wealth, or whatever is left of it, before the administration decides to hike middle-class taxes to a Socialist country appropriate 99%.
In a tragic accident, Polish president Lech Kaczynski, his wife Maria, the head of the Polish central bank Slawomir Skrzypek, the Army Chief Staff and 92 other people were killed as the airplane carrying a Polish delegation was landing in Smolensk, in Russia to commemorate the thousands of Poles killed by Stalin in Katyn in 1940. The crash appears to have been an accident due to atmospheric conditions and there are no signs of foul play. First video clip from Russia Today on the plane crash attached.