Moody's Reports January Increase In CMBS Delinquency Rate To 5.42% Is Largest On Record

The January Moody's CMBS delinquency rate hit a record at 5.42%, after posting the largest one month increase (50 bps) in history. While the deplorable state of CMBS is not a secret to anyone following RealPoint's monthly delinquency data, getting confirmation from a procyclical firm such as Moody's should be enough to wake up some of the optimists that even thought "everyone is talking about the commercial real estate" collapse, nothing is being done to actually fix the underlying causes. Anyone recall "contained" Dubai and its freshly record CDS spreads?

The Sick Men Of Europe: The Definitive Guide To The European Crisis

It might seem odd that Greece is surfacing questions about European public debt and the sustainability of the European Union. After all, Greece is only 2% of EU GDP. But what’s in play here is an idea: can a region with very different economic and cultural characteristics form a durable monetary union? Bear Stearns was only 2% of broker-dealers and capital markets banks1, but its failure set in motion the end of a different idea: that very highly leveraged entities could own risky, illiquid assets and rely on wholesale funding rather than more stable customer deposits. We must explore as investors whether the end of an idea is dawning in Europe. The point here is not to engage in idle speculation, but to consider the un-thinkable, something that has been very worthwhile to do over the last decade in markets history.

We wrote in December 2009 that we believed that the dollar’s decline vs. the Euro was over; that we are overweight U.S. equities vs. European equities; that we pulled in our OECD bond durations; and that we are generally taking less risk in portfolios than normal at a time of rebounding global corporate profits and manufacturing. None of these positions has changed, and are reinforced by the latest round of uncertainty coming from the European Union." - Michael Cembalest, CIO JPM Private Banking

The Latest Spin In The GSE "Take From The Poor And Give To The Rich" Saga: The Reverse Robin Hood Construct

"Let’s place pencil to paper. Public documents point to about $221 billion of UPB loans that are 90+ days delinquent. Assuming an average 6% net coupon, the two GSEs are ultimately forwarding $1.11 billion each month to the holders of Passthrough bonds whose underlying loans are delinquent. If the GSEs were to buy out all of these loans, they could in theory fund it somewhere near 20bps running or roughly $3.7mm a month. As such, by not buying out these loans, the GSEs are overspending by about $12.8 billion annually.

Since the GSEs are under conservatorship with a large credit backstop from the US Treasury, they are for all intents and purposes owned by the taxpayers. And since the average taxpayer is by definition average, he is therefore not “rich” since “rich” tends to be defined as possessing well above average wealth. Furthermore, the mere fact that bondholders have funds to invest in such bonds disqualifies them from being categorized as “poor”. Although not all bondholders are “rich”, those who have such substantial excess funds that they can invest in bonds are probably closer to rich than average. Taken altogether, one could consider the fact that the GSEs are using taxpayer funds to advance a 6% coupon to bondholders when they could be funding this cost in the public markets at 20bps to be in essence a “Reverse Robin Hood” situation." - Harley Bassman, Merrill Lynch

Rumor Of Sovereign CDS Ban Picking Up Steam, Lifting Market

As reported earlier, some more CDS trader talk:

I m hearing and being asked from a few sources that the CDS markets in the sovereign (Greece, Dubai. Etc) nations are going to “banned “ from trading to avoid a BSC or LEH like collapse. I personally have no idea if there is any truth to the story  but it seems to be just going around in the last half hour. Obviously Greece is on the forefront of traders minds and I don’t know if a “ban” in trading this stuff is a good or bad for the markets  (trades seem to think would be a huge positive)…. But I would appreciate any insight.

Of course, the fact that the mechanics of this "ban" are so inconceivable as to make the rumor beyond ridiculous, is precisely why everyone is terrified it will be true. After all this is precisely the kind of galactic stupidity/insanity we have grown to expect out of the 3 neurons shared between Bernanke/Bair/Shapiro/Geithner.

Swiss Bank Intervenes Again

Pop quiz: you are a Central Bank and everything is slipping out of control. What do you do? Correct answer - whatever you can, better known as market manipulation. The SNB just killed the CHFEUR. Every country is now on its own as it tries to kill its currency first. It puts the currency in the basket or it gets the revolutionary hose again.

Art Cashin Early Thoughts

An announcement from European leaders of a commitment to assist Greece boosted the Euro and dinged the dollar. That in today’s Pavlovian world sent gold, oil and stocks higher. It was entertaining to watch pundits on TV trying to invent a stimulus or two for the rally. A couple even tried to attribute the rally in stocks to movement on financial reform.

Duh! What would make the Dow rise 100 points, gold jump $20 and oil to move up nearly a dollar? The answer fairly jumps off the page. It was the pullback in the dollar – er…..more directly, the dollar basket (DXY).

The relationship between the dollar and other assets is clearly evident by looking at the minute by minute charts. We presume the pundits look for other causation simply to fill up air time. - Art Cashin

Frontrunning: February 12

• Must read from the master: Lehman justice isn't blind, it's unconscious (Bloomberg)
  

  There’s been much talk the past two years about moral
  hazard, which is the risk that companies and their investors
  will behave more recklessly when they believe the government
  will bail them out. Less has been made of a similar hazard: The
  danger that powerful companies won’t follow the law when their
  executives believe the government won’t hold them to it. The latter risk threatens not only our economy, but our
  democracy. There’s every reason to believe both kinds are
  growing.

• China raises bank reserve requirement to cool economy (Bloomberg, Reuters)
• EU leaders deploy "Bazooka" to repel attack on Greece (Bloomberg)
• Goldman Sachs, Goldman Sachs, clicking in the votes? (Guardian)
• Evans-Pritchard: Will markets call EU bluff on Greek rescue? (Telegraph)
• Blackstone IPOs show barriers to returning fund cash (Bloomberg)
• Rise in retail sales brightens recovery picture (Reuters)
• Totally not out of leftfield post of the day: Steve "Busted IPO" Schwarzman: Lawmakers rush to punish banks threatens recovery (WaPo)