Commerzbank Pulling Greek Repos, Lehman Deja Vu As Greece Shifts To Full Blown Liquidity Crisis ModeSubmitted by Tyler Durden on 04/07/2010 - 11:04
And so the Greek funding crisis shifts to a liquidity crisis yet again. Bankingnews.gr reports that Commerzbank, among many others, is now pulling its repos with Greek banks, essentially killing liquidity in the entire financial system. Cue Lehman Brothers and Sunday CDS trading. At least it's not Friday so OTC traders don't have to worry they will be pulled from their Hamptons retreat. The Greek website is reporting that according to sources, Commerzbank which is one of the biggest repo counterparties to Greek institutions, was dumping bonds in yesterday's sell off. Not only that, but it is now pulling repos, in essence starting a cascade of asset liquidation, in which banks, already experiencing a depositor run, will be forced to sell assets at any prices they can get just to fund their operations for one extra day.
The curve below indicates that bond investors now believe that Greece will likely default in under 6 months, or at least the EMU will realize that Greece is a lost cause and cut it off, despite all rhetoric to the opposite. Actually, with the 3 month trading at a mindblowing 4%+, which we are fairly confident is a record for any country, let alone a EU and EMU member, one can claim that the country will not see July in its current political form. The 3M-6M spread of nearly 300 bps is an all time record for a developed country. Past the 6M point, you can see all the way to the Pacific. Note the curve shift from April 2009, when the 3M was trading at just over 1%. At this point the only question is whether the 3 Month will join the other points on the curve in the 7% ballpark.
There is still nearly $2 trillion in subprime out there? Good thing the FASB has allowed all this worthless paper to be carried at par or else we might all realize just how the market trades on vapors, myth and lots of hope. But at least Obama's campaign was based on a promise of transparency. Instead we are getting a Value Added Tax. Moody's $1.826 trillion downgrade (release below) involves 18 RMBS tranches issued by BNC Mortgage Loan Trust. The collateral backing these deal primarily consists of first-lien, fixed and adjustable-rate subprime residential mortgages. In other moves Moody's also downgraded nearly another $30 billion in other RMBS tranches issued by entities such as First Franklin, Citigroup Mortgage Loan Trust, Park Place, First NLC,RASC, and RAMP, .
MBA Announces Average 30 Year Fixed Rate Mortgage Surges From 5.04% To 5.31%: Highest Since August 2009Submitted by Tyler Durden on 04/07/2010 - 10:15
A few days ago we demonstrated the spike in Freddie 30 Year Fixed Rate Mortgages which hit a near 2010 high of 5.08 after being as low as 4.93% a few weeks prior. We speculated that the end of QE is starting to be felt much earlier than anticipated. Today's release of the Mortgage Brokers' Association of the Weekly Application Survey confirms this: the MBA discloses that the average contract interest rate for the 30 Year Fixed Rate Mortgage has surged from 5.04% to 5.31% - the highest 30-year rate recorded in the survey since August of 2009. Discussing this event, the MBA said:"“Mortgage rates jumped last week as the Federal Reserve completed their
purchases of mortgage-backed securities. Refinance application
volume dropped as mortgage rates reached their highest level since
August 2009." With rates surging on the back of the recently breach of 4% in 10 year rates, this has pretty much made sure the Fed will soon need to get involved again. A 1% rise in mortgage rates is equivalent to a loss of a few hundred billion in household net worth. Just as the bond vigilantes are calling Greece's bluff (and winning soundly) so the mortgage vigilantes are stirring.
Art Cashin Reveals An Aborted Goldman Attempt To Sell Greek Debt, Morgan Stanley On Tap To Underwrite Greek US-Denominated DebtSubmitted by Tyler Durden on 04/07/2010 - 09:45
In this morning’s Option Investor, Jim Brown makes an interesting comment on Greece’s attempt to move some of its bonds in the U.S. market. Here’s what he wrote:
If you don't want to bid for U.S. debt you could walk on the wild side and bid on up to $10 billion in Greek debt being sold in the U.S. sometime over the next 2-3 weeks. Morgan Stanley is the likely candidate to sell the debt after a Goldman Sachs effort fell apart from lack of bidders. Greek finance minister George Papaconstantinou will lead a U.S. road show sometime after April 20th in an effort to drum up interest. Greece is trying to sell itself as an emerging market, Balkan country and thus investors will get a higher yield from emerging market debt. I guess that is a good ploy if they can sell it but I think U.S. investors may be a little more intelligent than that. Secondly, if Goldman could not sell the debt I doubt Morgan Stanley can either. Greek 10-year debt yields rose over 7% intraday today.
We had not heard of the earlier Goldman attempt. This could get interesting.
Greek Debt Hits New Fresh Record Of 410 Bps, National Bank Of Greece Tumbles As Greece Now Seeks Arab MoneySubmitted by Tyler Durden on 04/07/2010 - 09:32
How long will this charade continue? The whole world is fully aware that Greece is done, and now even the traditional long-term holders have thrown in the towel: the entire Greek curve has melted up more than our own S&P - Bloomberg now notes that even US accounts whose risk memory is non-existent, may not be willing buyers of Greek debt. What's worse Greece is out of diplomatic and political ammo - the CDS scapegoating is finished, which is quite ironic - as shown below CDS are lagging Bund spreads by an unprecedented amount. This implies, as we have claimed all along, that CDS were never the marginal driving force in the spread explosion, but that it all came from cash selling. Additionally, the paradox is that the inability and unwillingness to hedge has left cash spreads blowing in the wind - now virtually nobody is willing to trade in Greek CDS, so Greece has once again shot itself in what is left of its feet. Of course Greece can join the SEC in blaming the shorts, but that's an old tune. And to top it all off, G-Pap has repeated that the EU/IMF support deal "has been a great success and the situation is manageable." Don't tell that to shareholders of the National Bank of Greece whose stock is down 10% in just two days. And the biggest and most supreme irony, bankingnews.gr reports that Greece is now seeking emergency capital from Abu Dhabi and other Arabic sources... As if they didn't have a Dubai of their own.
The delusional Mr. Greenspan testifies this morning before the FCIC. The hearing can be seen live and commercial free here. Below are the testimonies of all participants at today's hearing.
- Criticism against the lame duck stupidity mounts - The Dodd bill: bailouts forever (WSJ)
- Volcker pushing for Value Added Tax (Post)
- Greece may find lukewarm U.S. response to dollar bond (Bloomberg)
- Greenspan's delusions get worse with age (Bloomberg)
- EU Commission: No knowledge of changes to changes in Greece deal terms (MNI)
- So long capitalism... and then some (IBD)
- Back from the brink of a US-China trade war (Cumberland)
- Bank of Japan keeps benchmark rate at 0.1%, says recovery remains intact.
- China said to consider Yuan trading versus Ruble, Won, Ringgit.
- China said to sell three-year bills in signal interest rates may soon rise.
- Euro-zone March composite PMI 55.9 vs. 53.7 Feb.
- Fed sees inflation slowdown tempering need to reverse stimulus.
- Greece may find lukewarm US reception to dollar bonds on deficit concern.
- Oil declined from an 18-month high.
RANsquawk 7th April Morning Briefing - Stocks, Bonds, FX, Etc
Greek website bankingnews.gr reports that today's breach of 400 bps in spread to bunds on the 10 Year GGB is a very critical level, and that if spread widening continues, Greece "risks completely losing control" of its funding situation. The critical level in the 10 Year GGB spread to bunds beyond which all hell will break loose is 450 bps at which point "everyone will unload bonds and then control will be completely lost." (pardon our translation) Odd - no mention of CDS speculators having blown up Greece today: instead it is bond selling... How novel. The site also notes that while today's actions "should be a reasonable response and should reduce the spread, if that does not happen then Greece will completely lose control and very soon." This is likely the worst mistake that Greece could have done. By giving bond holders a bogey the target spread will become a self-fulfilling prophecy and will likely be breached in a matter of days. In addition, bankingnews.gr reports that 450 is a "milestone in the bond market as it represents a level beyond which the state will not be able to borrow."
Guest Post: The Great Imbalance: A Critique Of The Recession Of 1920-21 - Causes, Responses And InsightsSubmitted by Tyler Durden on 04/06/2010 - 19:22
Abstract: Many attribute our current recession to the evils of unbridled capitalism. In response, our leaders have embarked on the typical Keynesian recession prescriptions in order to stimulate the economy and lead the nation out of the economic doldrums. Unbeknownst to most Americans however, prior to the Great Depression, policymakers used different tools to help guide the country out of recessions. Herein we examine the causes, responses and insights gleaned from the Recession of 1920-21, the last downturn in which leaders relied on the age-old policy of laissez-faire, combined with massive reduction in government and encouragement of deflation.
Cramer just can't catch a break these days: SEC investigations, plunging ratings, and now, adding insult to injury, a lawsuit filed by Generex Biotech which seeks $250,000,000 from TheStreet and Adam Feuerstein in damages for business defamation, product disparagement, and injurious falsehood. The reason for the lawsuit are this and this Op-Eds by Adam Feuerstein. Among the quotes used by Feuerstein: "I think Generex is a total bust" and "As I burrow into Generex, it becomes apparent almost immediately that the company is using science and the quest to develop an alternative insulin delivery method not to actually help diabetics but as a ruse to perpetuate a 15 year-long stock promotion scheme." We are not sure where opinions end and libel (or is that slander) begins, but this one may be a close call. Especially if Adam's statements are groundless. But that will be up to a jury to decide.
Every generation scolds the next one down the line and blames society’s ills on the guy up at bat. Considering past policy decisions, this common perspective doesn’t make much sense. Just look at the Great Depression generation, both known for its great character as well as the worst policies of the century. Clearly, older generations did not always make the best decisions.
One of those bad decisions, Social Security, still haunts America today like the grim reaper waiting to take his harvest. It’s strange to think the same men who courageously stormed the beaches of Normandy didn’t have the political courage to dismantle this ticking time bomb. If it wasn’t for WWII veterans, many believe that this article would be written in German. That might be true. But due to an exploding national debt and that generation’s failure with Social Security, we’ll be speaking Chinese sooner than German.
The lack of political will isn’t surprising since most past retirees were net gainers from Social Security while new retirees are net losers. Older folks love bemoaning runaway spending, welfare queens, and handouts. But often they don’t consider their own gains from the welfare state.
As Social Security taxes increased over time, so did the benefits. Essentially, previous generations paid into the system when taxes were low and retired when the benefits were high. A retiree’s maximum tax loss from Social Security in 1940 was $923 in today’s dollars. Compare this to the current maximum of $13,243.
Spreads were mixed in the US with IG worse, HVOL improving, ExHVOL weaker, and HY rallying. IG trades 10.9bps tight (rich) to its 50d moving average, which is a Z-Score of -1.4s.d.. At 84bps, IG has closed tighter on only 6 days in the last 326 trading days (JAN09). The last five days have seen IG flat to its 50d moving average. Indices typically underperformed single-names with skews mostly narrower as IG underperformed but narrowed the skew, HVOL outperformed but narrowed the skew, ExHVOL intrinsics beat and narrowed the skew, HY's skew widened as it underperformed. 4.8% of names in IG moved more than their historical vol would imply as higher vol names underperformed lower vol names by 0.36% to -0.4%. IG's vol is around 4.38% per 1 day period, which leaves 95 names higher vol and 30 lower vol than the index. The names having the largest impact on IG are Altria Group Inc (-10.75bps) pushing IG 0.08bps tighter, and Universal Health Services Inc (+7.25bps) adding 0.06bps to IG. HVOL is more sensitive with International Paper Company pushing it 0.23bps tighter, and SLM Corp contributing 0.21bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Altria Group Inc (-10.75bps) pushing the index 0.11bps tighter, and Universal Health Services Inc (+7.25bps) adding 0.07bps to ExHVOL.