Sovereign Default Time Capsule: What People Were Saying In Real Time As Debt And Currency Crises Played OutSubmitted by Tyler Durden on 03/04/2010 - 19:41
From the unthinkable, to the possible, the unavoidable, the actual and finally, the patently obvious
"I kept thinking about prior sovereign events I lived and invested through, and how the “unthinkable” eventually became the “possible”, the “unavoidable”, the “actual” and finally, the “patently obvious”. This week's Sovereign Default Time Capsule shows what people were thinking and saying in real time as sovereign debt and currency crises played out. This is not meant to say that Greece is Argentina; there’s a big difference between Mercosur and the European Union, and it looks like the First Act of the EMU drama will be a bailout for Greece. But it’s instructive to remember how politicians, markets, investors and analysts can underestimate the depths of a problem". - Michael Cembalest, CIO, JP Morgan, Global Wealth Management
A few months ago, Dennis Santiago from Institutional Risk Analytics catapulted from financial tech wizard to media celebrity. Dennis was tapped by The Huffington Post team to mastermind an effort to help disgruntled bank customers move their money to local banks or credit unions. I caught up with Dennis to get an update on one of the most explosive grassroots movements of 2010 …
Lipper FMI has reported that bank loan mutual funds saw $179 million in inflows, while HY funds increased their capital by $314 million in the week ended March 3. This compares to inflows of $228 million and $470 million in the prior week, and HY outflows of $1 billion for two weeks running in the weeks prior to this. If HY bond and loan mutual fund flows track the market, one would have expected a more spirited appearance from HY investors this past week.
Today Greece priced €5 billion in 10 year bonds, and much was said about the resulting imminent renormalization of European debt capital markets. That's excellent, because as the following chart (which is a summary of bond issuance compilations demonstrated previously on Zero Hedge) demonstrates, Europe will need it- the continent is facing the highest net ($422 billion) and gross (€1 trillion) issuance in the past decade (and that excludes Greece). We wish Europe all the best.
Don't say the SEC doesn't work hard for its billion dollar budget. The syndicate endorsing corruption (and not even worthy of capitalization), has released a press release indicating it is now pursuing enforcement action against a "known" psychic "who fraudulently raised $6 million after telling investors he could predict stock market highs and lows." Uhm, so does that mean that the SEC is now after every single pundit on CNBC as well? To be sure, while there are many more egregious cases of market manipulation out there, this one will surely make the late night comedy circuit.
LTCM General Counsel: "The U.S. Stared Near-Catastrophe In The Eye, With LTCM, And Decided To Double Down."Submitted by Tyler Durden on 03/04/2010 - 16:51
Must read interview by Kathryn Welling with James Rickards, former General Counsel of Long-Term Capital Management. His observation that the financial system is now as risky as it was back then is something that modern bankers will hear and thoroughly forget immediately, only to be reminded once everything collapses once again: "What strikes me now, looking back, is how nothing was changed: no lessons were applied. Even though the lessons were obvious, in 1998. LTCM used fatally flawed VaR risk models. LTCM used too much leverage. LTCM transacted in unregulated over-the-counter derivatives instead of exchange traded derivatives. So risk models needed to be changed, or abandoned. Leverage had to be slashed. Derivatives had to be traded on exchanges or cleared through clearinghouses. Regulatory oversight needed to be ramped up... The government did just the opposite. Glass-Steagall was repealed in 1999, so that banks could become hedge funds. The U.S., in effect stared near-catastrophe in the eye, with LTCM, and decided to double down."
Is Abnormally Profitable Recent Performance On "Mutual Fund Mondays" Indicative Of Market Manipulation Or Just Herding?Submitted by Tyler Durden on 03/04/2010 - 16:01
Zero Hedge has previously discussed the bifurcation in market performance when comparing regular hour trading with that of the afterhours session, noting that in the September through December 2009 period, the market would have been flat if one were to strip away the benefit of gains after the market closed. Today, we take a look at a different set of data, namely observing a very peculiar market phenomenon associated with the term coined as Mutual Fund Mondays, especially over the past 6 months. Whereas on a long-enough timeline, the market performance on any given Monday (or, more specifically on any given first day of the business week), has averaged to about a 50% win/loss ratio, this is certainly not the case in the September 2009 - March 2010 period. In fact, during this time period, when the broader market has risen by only 10%, the positive contribution from Mondays has been 20%, implying that on all other days of the week the market has, on average, lost 10% in the past 6 months. Furthermore, the win/loss ratio for the first trading day in the last 26 weeks has been 85%: a nearly 3 standard deviations from the norm outlier. Let's dig in.
Goodbye David Paterson? Governor's Top Aide Holds Emergency Meeting With Entire Staff, Topic Unknown (But Likely Guessed)Submitted by Tyler Durden on 03/04/2010 - 14:55
Update: Nope. It's not what everyone expected. MSNBC reports this is the resignation of the director of communications. It appears Patterson is sticking until the bitter end.
Is this the end for troubled New York Governor David Paterson? The Wall Street Journal has just reported that "his top aide is convening an emergency meeting of the administration's entire staff Thursday afternoon. Larry Schwartz, the governor's chief of staff, alerted the staff about the 2:30 p.m. EST meeting by email on Thursday, but didn't specify what would be discussed." One thing is certain: the New York governor, presiding over a state which recently was declared to be out of cash as early as March (so, well, now), will likely be all to happy to hand over the baton to his replacement, most likely current AG Cuomo.
New Greek €5 Billion 10 Year Bond Prices At 300 Over Midswaps, 326 bps Over 2020 Bund, Comes With 6.25% CouponSubmitted by Tyler Durden on 03/04/2010 - 13:40
The Greek 10 year bond issue priced at a reoffer of 98.942; It came with a 6.25% coupon, and priced at 300 over midswaps or 326 bps over the January 2020 Bund. The bond pays annual interest: what are the InTrade odds that even one coupon gets made on this issue?
Traders said that amidst all the rumors, market sources have cited a Fannie Mae business change that was said by sources to involve Fannie Mae restricting its non-US-bank lending in the fed funds rate market to the following list of 10 banks (US banks not
changed): Deutsche Bank, ING, BNP, Barclays, Lloyds, RBS, Scotia, Ntl Bank of Canada, RBC and Toronto Dominion. Thus it would be "substantially reducing" its list of banks by "what was thought to be dozens" of banks, said a trader; it appeared there was no reason given.
Yesterday we had the Cleveland Fed posting videos complete with the Ben Bernanke doodles of 3 year olds explaining how the Fed should (but does not) work. Today, we have a much more entertaining (and thus sure to go viral) 10 minute long, easily digestable summary of the firm that took the face of humanity, inserted its blood-sucking proboscis, and sucked (to borrow an allegory). Now that Goldman has added blogs and other web-based media as a risk factor in its 10-K, we wonder if next year's version will also include references to viral YouTube videos disclosing "unsubstantiated" facts about the firm. And for a somewhat more somber look at the real headwinds facing Goldman's PR department, we urge readers to read Jonathan Weil's piece today: "Goldman's Reputation Is Blankfein's Job No. 1."
Marc Faber's latest thoughts on the euro (not good), on Greece (also not too good), and gold (good to quite good). "I don't think it will work out, and I think other countries like Spain and probably Portugal (and Italy) will then also have to be bailed out eventually, and it will lead to more monetization in Europe, one of the reason the euro has been so week... The pain of the austerity will be very, very burdensome on Greece, and eventually the economy can not grow with the kind of budget they will have to enact, and under these conditions their currency is way overvalued (they are in the euro). And so without the ability to grow, their ability to pay the interest and repay the debt will actually diminish.... I think everybody should accumulate some gold over time. I would recommend people to buy every month some gold for ever."
Barely had we finished bashing Deutsche Bank in our prior post, that we noticed that Moody's had just notched Deustche Bank not once, but twice, from Aa1 to Aa3. Now where the hell are those pesky shorts who are #*$!ing up the grand German uberplan of trying to mimic the US in its don't ask/don't tell plan of financial gayness. From Moody's: "The rating agency believes that Deutsche Bank's capital ratios are likely to face further pressure from pending acquisitions, potential increases in loan-loss provisions and higher regulatory capital charges."
Yesterday CDS speculators, today financial shorts, tomorrow the world. German regulator BaFin has learned absolutely nothing from America's 2008 brush with the short sale ban, and has announced that it is tightening disclosure rules on short-selling as related to ten financial company shares, saying it "wanted to ensure the stability of the financial system" is preserved. Ah, the old "if-the-world-is-threatened-by-vicious-speculators-you-must-acquit-of-irresponsible-fiscal-policies-and-mismanagement" defense. Additionally, BaFin, which is still trying to figure out just who it was that got cremated on the most ridiculous short squeeze ever (i.e., Volkswagen) said that the move was made necessary "by the need for the regulator to be informed quickly to take "targeted action" should such activity pose risks."
From the rumor bag:
Not too sure what to make of this, but this rumor is around on Chicago area short term rate desks
Just heard that Fannie has cut off up to 10 European banks in the short-term funding mkt (not hearing why), meaning that they will have to borrow elsewhere going forward, thus being blamed for the movement down in price in Fed Funds mkt & Eurodollar mkt (expecting LIBOR to be higher tmrw & next few days b/c more people will need to borrow). That movement is being blamed for the 2yr selloff / curve flattening & thus impacting the long end as well (just not as
Setting aside the implications for european short-term funding, it may be time to take a look at Libor futures once again.