The silence out of E&Y over the past two weeks was very odd. Some speculated that just like corrupt Arthur Anderson, a disgraced E&Y was quietly folding its business now that the "independent auditor" is one only in name. Others believed that its was merely a smart media ploy to not touch the issue until everyone gets tired of discussing the endless criminality in our daily lives and be content with late night TV, as the middle class fights for whatever remaining scraps the Goldman bankers allow it to have, even as the kleptocracy knows all too well that behind the scenes, trillions of dollars are siphoned away from America's working class (because in ten years when the country is bankrupt, the only thing that matters is who has the biggest gun and can shoot the straightest). Anyway, E&Y surprised us all (and the holders of 5 Times Square paper: CMBX 4 deal WBCMT 07-C31 specifically, who were ecstatic they would be next in line for taxpayer bailouts) by releasing the following list of rebuttals on a point by point basis, first reported by our friends at re:The Auditors and followed up by Reuters.
Earlier today, John Mack was interviewed by Fox Business' latest addition Charlie Gasparino, as well as Brian Sullivan. And where we discussed in the prior post how absolutely nothing has changed between the days right before the credit bubble burst in 2006, as exemplified by the Bear Stearns Credit Conference notes, and today, John Mack is living proof that if left on their own, bankers would simply revert to the old failed model, keep getting paid tens of millions per year, and wait until the next taxpayer bailout some time in late 2010, early 2011 (we are now on an accelerated schedule - just as the bounce from the lows has been torrid, so the collapse will be amusingly fast), only to hit restart courtesy of whoever is Fed chairman at that point and do the rinse/repeat cycle one more time. In a nutshell, Mack sees no risk, not a hint of danger on the horizon. In fact, it was nobody's fault. And next time it will be nobody's fault all over again.
Ah, the halcyon days of 2006, when the bubble was cranking, rates were stable and rising, Bernanke was brand new and few realized he would was yet to become the destroyer of capitalism, when subprime was only known to a select few future billionaires, when Bear Stearns was alive and well and was organizing credit conference at the Waldorf Astoria (instead of arranging credit for itself in advance of going bankrupt in 2008) during which nobody said anything relevant (that includes Bear's then chief economist David Malpass) and where participants merely reinforced each other's fallacious groupthink, capped by Peyton Manning as keynote speaker of all people. Companies presenting were all the current and future LBO hits (which would soon undergo Chapter 22 and in some cases 33). We are only amazed that Bear hasn't risen from the dead to recreate the credit conference below, coupled with full bubble frothiness and all other bells and whistles.
Xinhua reports that Google has "violated its written promise" and is "totally wrong" by stopping censoring its Chinese language searching results and blaming China for alleged hacker attacks, a government official said early Tuesday morning. The official in charge of the Internet bureau under the State Council Information Office made the comments hours after the online search service provider announced it has stopped censoring its Chinese-language search engine Google.cn and is redirecting Chinese mainland users to a site in Hong Kong.
A must read presentation for the reflexive and reflective traders/investors in all of us. For the crux of the presentation please turn to slides 43-47 which provides a wonderful counterargument to why every time you hear some "expert" on CNBC say you should buy a stock because it is cheap, consider the following just as logical alternatives: 1) fraud, 2) value trap, and most relevantly for our current market situation 3) bubble market.At least $10 trillion in household wealth may have been saved if people followed these three simple observations at the peak of the last credit bubble in 2007. Of course, this time it is different.
Bank Of Greece Had Warned About Exploding Credit Spreads In February 2009, Says Administration Is Again Overly Optimistic On EconomySubmitted by Tyler Durden on 03/22/2010 - 17:09
It turns out that the massive credit spreads that Greece is currently experiencing (300+ bps over Germany and what not) have nothing to do with CDS speculators and other scapegoats, and all to do with the administration's complete avoidance of warnings issued a year earlier by the Bank Of Greece which previously said in its 2008-2009 Monetary Policy Report that it "warned about everything that is happening today – stressing,
in particular, the possibility of a rise in the cost of borrowing. As
that Report stated, 'a widening of the yield spread would increase the
future burden on taxpayers'." Furthermore, in the just released Monetary Policy Report for 2009-2010, the Bank of Greece is warning that things in Greece are about to get much worse once again, and is debunking the administration's still overly optimistic and rosy expectations. "In 2009, as the Bank of Greece had warned, the
general government deficit reached 12.9% of GDP and public debt stood
at 115% of GDP." Keep in mind that the G-Pap administration noted the deficit would be "just" 12.7% of GDP in 2009. Surely this is just another thing to blame the speculators for. What's worse, the BofG now says the GDP decline in 2010 will be -2%, also more dire than the government's rosy -1.7%. The conclusion which nobody will heed again until it is too late: "The Greek economy has fallen into a vicious circle with
only one way out: the drastic reduction of the deficit and
debt." Most damning is the proposed (lack of) way out: "Because of the low level of
private savings in Greece, the public debt cannot be financed from
domestic sources, resulting in a widening current account deficit and a
rising external debt." Oddly, blaming CDS speculators for the earth's roundness was nowhere in the Bank's report, and instead it notes that it is "most important, [that] Greece must
eradicate the patterns of behaviour, attitudes and policies that have
brought us to the present crisis situation." Once again, we hope that the BofG does not expect anyone to read this 2009-2010 100 page + report, once it is released, cause that would mean the government would have to do the right thing for once.
Disclosure Of The Fed's Primary Dealer Credit Facility Warehousing Of Worthless Collateral Goes MainstreamSubmitted by Tyler Durden on 03/22/2010 - 15:51
Ten days ago we penned "How Lehman, With The Fed's Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit Facility" in which we described in minute detail how the Fed agreed to collateralize borrowings in its Primary Dealer Credit Facility, basically lending facility of last resort, with paper that other rational parties, when engaged at arms-length negotiations, qualified as "bottom of the barrel" and "junk." Today, thanks to Ryan Grim, this topic finally gets a much broader mainstream exposure. As we have long argued, the collateral backing most if not every form of liquidity provisioning, not only by the Federal Reserve of the US, but by Central Banks globally, is likely totally and utterly worthless, which implies that the US taxpayer is on the hook for trillions of dollars should there be another risk flaring episode (which is an inevitability as the entire financial system is based on a house of corrupt cards), and all the collateral is exposed for the worthless garbage it is. In the meantime, the money the banks get by pledging worthless assets to the Fed is used to stage short squeezes in various equities, to gun the Dow to 36,000 in a straight line, and to keep the Treasury curve at its record steepness, thereby hoping to stimulate inflation so that bank balance sheets can be absolved of the 20% by some estimates of bad loans that still exist on bank books, and which make the entire US banking system insolvent in its current state. All this is happening with Ben Bernanke's blessing, which would be considered an act of treason... if only there was some way to confirm these virtual certainties. Which, of course, there isn't, as the Fed will first self-destruct before it opens up its book to the general public.
Moody's Warns Of Upcoming Bank Downgrades If Dodd Bill Passes, BofA, Citi And Wells At Greatest RiskSubmitted by Tyler Durden on 03/22/2010 - 15:33
Moody's says that if the Dodd bill passes in the substantially proposed form, the rating agency will likely need to cut various banks due to the elimination of assumptions about systemic support as some from a resolution authority is introduced. The banks that would suffer the most are: Bank of America- 4 notches from the current HoldCo Sr rating of A2, Citigroup and Wells Fargo both at 3, from A3 and A1, respectively, Morgan Stanley two notches lower from A2, and one notch for each of the following: BoNY (Aa2), JPM (Aa3), Goldman (A1), SunTrust (Baa1), and Regions Financial (Baa3).
Sure explains the rip in GOOG stock over the past few minutes: Goldman is still learning how to let a piece of bad news go without inciting a historic short squeeze in the process.
Update: Google advises this is merely a way to provide legal, uncensored data access. The company warns that China's government can now cut access to Google at any minute. Which should be, indeed, any minute.
Either we are going to get hyperinflation and all tangible assets will explode 100 pct or more to the upside, gold will be at $5000/oz and paper money is history. Or we are getting Japan in the ‘90s with no chance of inflation because consumers will save, not spend no matter what the politicians do and all markets will be down 50/80 pct from here. Pay your money and make your choice. - Ebullio Capital Management
Somehow we don't think that the evil hedge funds that were excluded from participating in Greece's most recent round of issuance are spending their nights weeping over this snub. The 6.25% bonds maturing in 2020, which priced at 98.942 are now trading at their lows of 98.36, with a corresponding yield of almost 6.5%, compared to the issuance yield of 6.35%. Due to the perception of yield "stickiness" in the eyes of investors, and as any new issuance will likely have to contend with the stigmata of resulting in underwater status within a few weeks of the break, we fully expect the next round cash coupon to be about 6.5%. Unfortunately, even as Greece does all it can to prevent over 10% of its GDP being paid out to foreign lenders in the form of bond interest, it will have no choice but to price the next bond issue in the mid 6% range, making its economic predicament increasingly more dire. And the worst thing is Greece is running out of both time and options, a ticking time bomb very much appreciated by savvy bond investors who can tell the underwriters during interest inquiry that anything below a 6.5% yield is a non-starter.
Jean-Claude Trichet Makes A Moody's Downgrade Of Greece Irrelevant, Says ECB Will Ease Collateral Rules In That CaseSubmitted by Tyler Durden on 03/22/2010 - 13:26
Presented is the full text of speech by ECB head Jean-Claude Trichet before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels. While the speech itself has nothing new to say, further entrenching the bubble mentality of the Bernanke Put, some of the comments by JCT in the Q&A are rather relevant, namely that the ECB will once again look at the "collateral issue" of government bonds. Just in case Moody's grows a conscience, here is how the ECB will deal with it: "The European Central Bank does not expect Greek government bonds to be downgraded again, but if they are it might have to reconsider its plan to revert back to pre-crisis collateral rules at the end of this year." This is amusing because earlier today Alphaville posted a research note by UniCredit which shows just how increasingly impaired by "rubbish" the collateral provided by European banks to the ECB has become. This is inline with extended disclosures provided on Zero Hedge about how our own Fed has recently allowed total crap to be lent against in both its discount window and the Primary Dealer Credit Facility. Another amusing soundbite: "High government bond spreads don't justify emergency loans." Oh, so the CDS speculators won't be summarily executed after all, even despite all the disclosure by BaFin and everyone else that CDS speculators had no impact whatsoever on blowing up bond spreads? What an anticlimactic development.
The trader turned economist turned philosopher has just released a brand new post script chapter to his blockbuster "Fooled By Randomness" - Chapter 1. A First Lesson in the Epistemology of Fat Tony: the Grand
Demarcation Between Sucker and NonSucker, with the following subheader: No use for Nero –Tony is not the elephant – On the difference between sucker and nonsucker – Introduction to social epistemology – The bigger the mistake, the better – Reading for 9,000 years --Don’t buy a coffee machine – Beware the gorilla – Is epistemology the sucker-nonsucker problem? An entertaining read after a quick casual perusal, with the emphasis on the distinction between market-trend followers (i.e., those the "suckers" that all get slaughtered eventually) and the few who do not succumb to this distinction (and instead hope they can hit the sell button and find a buyer at exactly the same time as everyone else is selling - good luck).
Everyone's favorite openly interventionist central bank (no, not the Fed: Bernanke is all about covert market manipulation) the SNB is about to pull the mother of all Swiss Franc dumps, as the CHF has just hit an all time high against the euro. And when that happens, the one currency that everyone loves to forget is about to get some seismic shocks. Also Mr. Bigglesworth (aka Ben Bernanke) gets upset, and tress die. It is perfectly logical that Soros-lites all over the world are currently loading up on cheap CHF straddles in anticipation of a UK 1990's redux. The race to the currency bottom is now in the second lap.
Say goodbye to China's "export economy" paradigm. In a stunning development for trade hawks, and pretty much anyone who follows the biggest liquidity bubble in history, China Daily has announced China is about to announce a record trade deficit (yes, not surplus, deficit) for March. This makes the whole CNY undervaluation debate pretty much moot, as even China now moves into the ranks of net importers. From China's official daily newspaper: "The country will probably see a "record
trade deficit" in March thanks to surging imports" and "will "fight
back" if Washington labels China a currency manipulator." Perhaps this finally explains where all the excess liquidity has gone: with China now not exporting to the US consumer, it has instead refocused on its own "middle" class. This means that Chinese administrators are much more focused on maintaining a stable economy, and will be much more concerned about economic overheating, which goes in line with the recent indications of material liquidity tightening out of Beijing. Market News reports that the actual deficit will come in at $8 billion for March, the first deficit since April 2004, when the gap was $2.26 billion. Maybe Albert Edwards will just have the last laugh with his iconoclastic prediction of a CNY devaluation.