• ilene
    01/28/2015 - 19:33
    Suppose you could print up counterfeit dollars, euros or yen that were identical to the real things. Fun, you think? Here's how it plays out. 

Tyler Durden's picture

Frontrunning: October 19

  • CFTC approves new caps on speculators (FT)
  • Europe Banks Vow $1 Trillion Shrinkage as Recapitalization Looms (Bloomberg)
  • Banks’ Files Are Seized (WSJ)
  • Major China Stimulus Is Not Needed as Growth Is ‘Sound,’ PBOC Adviser Says (Bloomberg)
  • UK recovery off-track, says King (FT)
  • Yen Erases Gain as Nikkei Says Japan to ‘Form Team’ on Currency (Bloomberg)
  • Fed’s Plosser: No worries on inflation in short term (Reuters)
  • French warning to euro summit (FT)
  • Ireland May Seek to Transfer Allied Irish Rescue Cost to EU (Bloomberg)

Tyler Durden's picture

The Morning After (The CDS Ban)

Sovereign CDS is tighter and SOVX is a lot tighter. I'm not sure by exactly how much as that products is heading the way of EDS's (equity default swaps) and binary bonds (100% payout after a Credit Event) or TRS on high yield bond indices. Sov CDS will not look like other interventions. Those typically seem to work for awhile and then the market returns to normal. I expect Sov CDS volumes go dwindle as naked short ban hits home, as the EU attempts to avoid a CDS credit event at all coats reducing their practical use to any bank that actually cares about risk managed returns, and finally the likelihood of some form of EFSF or ECB selling. The market will move on. SOVX is a relatively new product and until recently CDS on sovereigns were dull. At some point people will hang on to CDS because there will be a time all the contagion caused by EFSF (linking all the countries to the weakest fits any normal definition of contagion) will create a negative momentum that the EU and ECB can't manipulate around. I for one will not be watching Sov CDS for meaningful insights into the market in the meantime.

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Nassim Taleb On #OccupyWallStreet And His Updated Views On The Global Banking System

There was a time when Nassim Taleb media appearances were a daily thing. Then he decided to take a sabbatical from the public's eye, and literally fell off the face of the planet. And while over the past year or so, he has gradually resurfaced, his extended discussions on various topics are still almost as rare as a double digit move in the Dow Jones Industrial Average. Tonight he broke his vow of silence, and joined Bloomberg TV's in discussing the "Occupy Wall Street" protest, which he expects to devolve into class warfare, as well as his view of the global banking system. And an interesting tangential discussion to develop is his observation of applying the principles of the "Hammurabi's Code" to the banking system.

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So While Every Bank Is Defending PrimeX, Here Is What Fannie Mae Really Thinks

Remember when it was your job to be cheerful and optimistic if creating forecasts for insolvent and nationalized entities, whose entire pseudo-business model is predicated upon the return of the housing bubble and the overall Ponzi resuming? Apparently not, especially if one has read the following forecast from none other than Fannie Mae. So while we have Barclays, Deutsche, JPM, TCW, and any other axed bank , you name it, defending PrimeX which is nothing more or less than a bet on the "safe" tranche of US home price prospects and housing overall, here is the one entity with more mortgages on its books than any other organization, telling us how it really feels.

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RBS Joins Citi In Blasting "EFSF As A First Loss Insurance Guarantee" Plan

First it was Citi's turn, when earlier, via Willem Buiter, it explained in granular detail, how the EFSF's latest incarnation as a 20% first loss insurance fund, will be not a bazooka but a "peashooter." Now it is the turn of RBS' Harvinder Sian (yes, yes, the same guy who in February 2010 accused Zero Hedge of falsely concluding Greek banks are insolvent... ahem) to mock and ridicule the Guardian's blatant attempt to lift the EURUSD just so momos and piggybackers provided a convenient receptacle for assets that French banks were offloading beginning at 3pm courtesy of this bogus plant, since refuted by Dow Jones. Seeing how Harvinder works for RBS (and was protecting his bank's Greek bond exposure last year...how did that work out), don't expect much original thought. After all, the specter of no Christmas Party must put what few employees the bank has in a perpetually ill mood. That said he does provide a convenient echo chamber for those who have already said the original things ahead of him.His conclusion is sufficient: "If this is delivered alongside more detail on a harder Greek PSI and an early ESM adoption, then expect the crisis to get more elevated and seriously engulf the early-stage stressed Belgian and French markets.  In the meantime, such news headlines will make for choppy price action and destroy low conviction trading positions." Hear that momos? This Bud's for you.

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Guest Post: Who’s Right About Commodities: Bears Or Bulls?

In the last few weeks a slow slide in commodity prices – metals in particular – has turned into a full-scale nosedive. All through 2011 copper had remained essentially between US$4 and $4.50 a pound, but on September 11 it dropped below that range and didn’t really stop falling until October 4, when it bottomed at $3.05. Aluminum gained ground in the first half of the year to reach $1.24 per lb. in April, but after losing 10% in the last 30 days it is back below that, at $0.96. The spot price of nickel lost 19% in the last month; zinc prices fell 17%. Precious metals were not spared either: The price of silver shed a whopping 33% in 30 days, while gold is currently down 15% compared to its price on September 6. Grouping the commodities together really shows how rough the last few months have been. The Standard & Poor’s GSCI – an index of raw materials that tracks 24 commodity prices – is down 24% since April, when it hit a 32-month high. On October 4 it touched 572.92, its lowest level since November 26, 2010. Falling metal prices were the main culprit: Silver closed at its lowest price since February, and copper saw its cheapest settlement in 14 months.

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Deutsche Bank To The Rescue: "Will PrimeX Deliver The Next Big Short Miracle Many Of Us Missed In 2007?"

From Deutsche Bank: "The PrimeX indices have experienced a sharp decline since the beginning of October despite an 11% rally of the Standard & Poor’s 500 Index, the biggest two-week rally since 2009. The price drop can be viewed as a catch-up to the overall market selloffs following investors’ growing fear over the sovereign debt crisis in Europe, increasing likelihood of a global recession, and a weak US housing market. The Fitch’s report on the prime RMBS sector published on October 5 and a subsequent article by ZeroHedge on October 7 fueled the panic selloffs in the last few days, during which we have received far more inquiries about PrimeX than the combined inquiries about PrimeX and ABX over the last two years. It appears to us that many investors have suddenly turned their attention to the PrimeX. Investors from around the world have been wondering whether the PrimeX of 2011 will repeat the ABX miracle of 2007."

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Apple Total Cash Hits $81.6 Billion, Over $5 Billion Increase In The Quarter, $22 Billion Increase In 9 Months

While the verdict of whether Apple's operations may or may not have peaked, one thing is certain: its cash is growing. In the past (Q4) quarter, AAPL increased its cash, short and long-term investments from $76.2 billion to $81.6 billion (which, however, skeptics will point out was only half the cash growth rate from Q2 to Q3). In 2011 alone, the company that Steve Jobs built generated $22 billion in total cash. Ironically, that is precisely how much the company's market cap is lower by in the after hours session. If AAPL is unsure what to do with all that cash, which would make it the world's biggest hedge fund, it could hire all the stock experts on Twitter, and become the best funded trading operation in the world, which would naturally be buying its own stock all day long (and, if it were to hire a few JPM/BofA/MS traders, buy CDS on itself). Alas, for the CDS plan to work, it would need to issue some debt: the company is still completely debt free.

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Moody's Downgrades Spain Two Notches To A1, Outlook Negative

Since placing the ratings under review in late July 2011, no credible resolution of the current sovereign debt crisis has emerged and it will in any event take time for confidence in the area's political cohesion and growth prospects to be fully restored.... Moody's is maintaining a negative outlook on Spain's rating to reflect the downside risks from a potential further escalation of the euro area crisis. The rating agency expects that the next government to emerge after Spain's parliamentary elections on 20 November will be strongly committed to continued fiscal consolidation. Spain's rating would face further downward pressure if this expectation did not materialise. On the other hand, the implementation of a decisive and credible medium-term fiscal and structural reform plan coupled with a convincing solution to the euro area crisis would trigger a return to a stable outlook. In Moody's view, Spain's sovereign rating is more adequately placed in the A rating category than the Aa category given the potential for contagion from further shocks and the domestic fragilities. Long-term economic strength -- a key input into Moody's sovereign methodology -- is no longer considered to be very high but only moderate given the expectation of a lengthy economic rebalancing process. Moody's also notes that most sovereign issuers with a Aa3 rating have much stronger fiscal and external positions than Spain, including very low public debt, sound public finances and a net creditor status vis-a-vis the rest of the world. This constellation renders them far less vulnerable to a confidence-driven funding crisis than Spain.

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Apple Misses

The inconceivable just happened:

  • APPLE 4Q REV. $28.27B, EST. $29.60B                  
  • APPLE 4Q EPS $7.05, EST. $7.31                        

And for the first time ever, Apple is a mortal company, and instead of sandbagging forecasts, now projects more than the consensus:

  • Looking ahead to the first fiscal quarter of 2012, which will span 14 weeks rather than 13, we expect revenue of about $37 billion and we expect diluted earnings per share of about $9.30
  • The street: Revenue at $36.776, EPS at $9.017


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France Refutes That "Blue Horseshoe Loves €2 Trillion Bailout Fund"

Complete, and total, idiocy

  • DJ EU Source: No EFSF Deal Til Friday, EUR2T Number 'Simplistic'

Beyond words.

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Guardian Report That Europe Has Agreed On EFSF-As-Insurance-Policy Sends EURUSD Surging

And here we go again. Wondering what caused the surge in the market? Nothing short of this latest rehash of all the previous rumors, this time focusing on the EFSF as an insurance policy, only this time with the added twist that Europe has agreed on implementation (of something which as analyzed previously just does not work). From the Guardian, (and please note the bolded word in the middle): "France and Germany have reached agreement to boost the eurozone's rescue fund to €2tn as part of a "comprehensive plan" to resolve the sovereign debt crisis that the eurozone summit should endorse this weekend, EU diplomats said. The growing confidence that a deal can be struck at this Sunday's crisis summit came amid signs of market pressure on France following the warning by ratings agency Moody's that it might review the country's coveted AAA rating because of the cost of bailing out its banks and other members of the eurozone. The leaders of France and Germany hope to agree a deal that will assuage market uncertainties or, worse, volatility in the run-up to the G20 summit in Cannes early next month. France would now have to pay more than a full percentage point – some 114 basis points – more than the price paid by Germany to borrow for 10 years as the gap between the two country's bond yields widened to their highest level since 1992." Said otherwise - this is simply the last ditch "plan" proposed by PIMCO parent Allianz to use the EFSF as a 20%-first loss insurance policy, which as we already demonstrated using arcane concepts such as mathematics, DOES NOT WORK. But hey, it is Groundhog Day all over again.

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Bank Of America Forces Depositors To Backstop Its $53 Trillion Derivative Book To Prevent A Few Clients From Departing The Bank

Bank of America, which today reported a big bottom line loss net of one-time beneficial items, did something quite tricky and extremely devious last month: it shifted anywhere up to the total of $53 trillion of the total derivatives it held as of June 30 (as Zero Hedge previously reported) on its books at Q2 from the Holding Company, which was downgraded last by Moody's from A2 to Baa1 (the third-lowest investment grade rating) to its retail bank, which was downgraded to the far more palatable A2 (from Aa3). The reason for the transfer? Bank customers who were uneasy with the fact that suddenly the collateral backstoping the operating entity handling their counterparty risk was downgraded to just above junk, demanded that said counterparty risk be mitigated by the bank's $1 trillon in deposits. In other words, as Bloomberg first reported when it broke this story, anywhere up to the full $53 trillion (we don't know for sure how much so we assume the worst case) is now fully and effectively backstopped explicitly by the bank's $1,041 trillion (as of September 30) deposits. Pardon, we meant the people's deposits: the same deposits which caused the bank's website to be inoperative for several days in a row after it was rumored that there was an electronic run on the bank. Why? Just so Bank of America can appears whatever remaining clients it has so they decide not to take their business to another derivative counterparty. And who is exposed to this latest idiocy? Why you. But that's not all: the FDIC, which is the entity backstopping the deposits in a worst-case scenario, is not happy with this move for obvious reasons. Yet even it is hopeless to override the Fed, which as Bloomberg reports, "has signaled that it favors moving the derivatives to give relief to the bank holding company." And so, once again, we see just how much more important to the Federal Reserve are interests of US taxpayers and savers, over those of the banks that effectively run the Fed.

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