S&P Downgrades Over 20 Italian Banks, Says Difficult Climate Is Neither "Transitory" Nor "Easily Reversed"Submitted by Tyler Durden on 10/18/2011 - 12:05
Another day, another pervasive downgrade action by S&P. "In our opinion, renewed market tensions in the eurozone's periphery, particularly in Italy, and dimming growth prospects have led to further deterioration in the operating environment for Italian banks. We also think the cost of funding for Italian banks will increase noticeably because of higher yields on Italian sovereign debt. Furthermore, we expect the higher funding costs for both banks and corporates to result in tighter credit conditions and weaker economic activity in the short-to-medium term. We do not believe that this difficult operating climate is transitory or that it will be easily reversed. In our view, funding costs for Italian banks and corporates will remain noticeably higher than those in other eurozone countries unless the Italian government implements workable growth-enhancing measures and achieves a faster reduction in the public sector debt burden. Consequently, we envisage a situation where the Italian banks may well be operating with a competitive disadvantage versus their peers in other eurozone countries. At the same time, we think all banking systems across the eurozone, including Italy, may raise their commitment to reinforcing banks' capitalization."
For every seemingly irrational move in stocks, there is always an explanation. This time we look to Nanex who advises us that concurrent with the latest market surge between 11:35 am and 11:40am, there was a parallel spike in HFT quote churning. Traditionally, this has been associated with market drops in high volume days, although with volume in the past 48 hours nothing to write about, it appears that HFT quote surges tend to translate to market spikes when there is no coordinated high volume activity. Interestingly, this time it is a coincident if somewhat lagging indicator. We will observe how algos will react the next time there is a sharp move either higher or lower in stock to see whether robots are a cause or an effect.
Just out by the only rating agency that is even remotely credible. "Synopsis: Across the valley - GS recorded $2.96B in investing and lending losses and a $378M decline in IB revenues, totaling a $3.34B decline. Hence, the total loss of merely $393M is respectable. Furthermore, given the political pressure, now is not the time to show robust results. The major issues facing GS is the cost of complying with the Volker rule (look for some changes or exemptions from the proposed rule), changes in senior management (to appease Sen. Levin) and a still weak IB and trading environment. However, with the demise of most of its major competitors, GS benefits from the lack of competition, attractive LT trading opportunities, and various forms of federal government support. Other raters might take neg. actions."
Did they find the TOTUS just in time? Anyway, you know the drill: "pass this bill" and "god bless" - 1 shot; "win(ning) the future" - 2 shots; the "99 percent" or the "1 percent" - chug bottle.
A truck carrying President Obama's Presidential teleprompter, seals, podiums and $200,000 worth of audio equipment has been stolen north of Richmond. Worst (or best) case, this means a premature end to the president's "informational" (and mass alcohol poisoning enabling) tour.
All it took to unwind two weeks of rumors and lies were a few factual articles. Such as this one from the AP: "Disagreement between France and Germany may prevent eurozone leaders from reaching a crucial deal on a second rescue package for Greece this weekend, a person familiar with the negotiations said Tuesday....Investors around the world hope a comprehensive plan to fight the debt crisis, including final details on Greece's second bailout, will keep the debt turmoil from pushing the global economy back into recession. Signs that such a plan is proving slower to clinch caused markets to slide on Tuesday. Germany is pushing for banks to accept cuts of 50 percent to 60 percent in the value of their Greek bonds, while France is insisting that leaders should only make technical revisions to a preliminary agreement reached with private investors in July, the person said. France on the other hand has been reluctant to back bigger losses for banks, since French banks are among the biggest holders of Greek government bonds. Its position is supported by the European Commission, the EU's executive. Commission officials said last week that technical revisions to the July deal with the banks are necessary because changed market conditions had made the deal more expensive for Greece and the rest of the eurozone." And so on. Are we the only ones dazed, confused, and tired beyond comprehension with this endless, ridiculous, pathetic, grovelling Groundhog Day bullshit? Stop risking civil and international war just to satisfy your bureaucratic vanity. THERE IS NO MONEY! YOU KNOW IT, WE KNOW IT, THE PEOPLE KNOW IT. ENOUGH!!!
Just as the bottom was about to fall from the market, here comes the ECB cavalry with its tactical ultra short-term bailout in the form of several billion in Italian BTP purchases. Since this is nothing but a liquidity injection which does nothing to resolve deep, structural and solvency problems, we give this latest intervention attempt about half an hour in halflife. And once the market processes the news from the FT that the EU bank on naked CDS shorting will become permanent, look for everyone short sovereigns to unwind synthetic positions and to rotate shorts into cash bonds. Good luck ECB.
Below we refresh the very simple correlation chart showing the EURUSD and the spread between French OATs and German Bunds, a spread which has soared to all time wides now that France is once again the target of vigilantes on fears of an imminent French downgrade. According to this alone, the EURUSD us now about 1300 pips rich, an ES-implied level of just about 1,000. We expect reality to rear its ugly head very soon.
Because The Financial Short Ban Was Not Enough, Europe To Proceed With CDS Short Selling Ban Imminently, Accelerate Terminal UnwindSubmitted by Tyler Durden on 10/18/2011 - 09:49
Just because Europe did not learn any lessons with the financial shorting ban which made everything much worse, here comes this...
- EU LAW TO BAN NAKED SOVEREIGN CREDIT DEFAULT SWAPS WITH COUNTRY OPT-OUT IF RISK TO SOVEREIGN DEBT MARKET -- EU SOURCES
- EU SAID TO BE CLOSE TO DEAL FOR CURBS ON NAKED SOVEREIGN CDS
- NAKED SOV. CDS DISCUSSIONS PART OF TALKS ON SHORT-SELLING LAW
- SCHAEUBLE SAYS COSTS OF NAKED SHORT SELLING OUTWEIGH BENEFITS
This means that cash Sovereign bonds are about to go bye bye as the only recourse will be to short the living daylights in good old-fashioned govvies. And so we move one step closer to the final unwind courtesy of idiot European bureaucrats who are handing free money on a silver platter to the skeptics...
A key reason why a preponderance of the population is fascinated with the student loan market is that as USA Today reported in a landmark piece last year, it is now bigger than ever the credit card market. And as the monthly consumer debt update from the Fed reminds us, the primary source of funding is none other than the US government. To many, this market has become the biggest credit bubble in America. Why do we make a big deal out of this? Because as Bloomberg reported last night, we now have prima facie evidence that the student loan market is not only an epic bubble, but it is also the next subprime! To wit: "Vince Sampson, president, Education Finance Council, said during a panel at the IMN ABS East Conference in Miami Monday that lenders are no longer pushing loans to people who can’t afford them." Re-read the last sentence as many times as necessary for it to sink in. Yes: just like before lenders were "pushing loans to people who can't afford them" which became the reason for the subprime bubble which has since spread to prime, but was missing the actual confirmation from authorities of just this action, this time around we have actual confirmation that student loans are being actually peddled to people who can not afford them. And with the government a primary source of lending, we will be lucky if tears is all this ends in.
Peter Tchir follows up on our original post from July 21 which predicted precisely what would happen in Europe three months in advance: "I expect we will see a "grand plan" soon. It will have a massive headline number. It will have all sorts of bells and whistles. It will have caveats. The headline program will sound huge. The fact that most of it is self-referencing, writing insurance on yourself, etc., won't even be important. It will be the conditions that are attached. It won't be carte blanche, recipients will have to meet set criteria to receive help. It will be phased in. It won't be all available at the first stage. This is because Germany finally realizes, that if it commits the money carte blanche and takes leveraged exposure, it is no longer in charge. The recipients are in charge. Germany gets in. France is still somewhat clueless, but Germany finally gets that the Grand Plan is the Grand Disaster for Germany."