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Portuguese PM Response To Downgrade: "We Dot Not Need Any Help"

Of course, he will need not only help, but a bailout, in one week when his bonds are trading a 10%+. In the meantime, let the comedy continue.



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S&P Places Portugal On Watch Negative, May Cut A- Rating

This is getting ridonculous: "On Nov. 30, 2010, Standard & Poor's Ratings Services placed its 'A-' long-term and 'A-2' short-term foreign and local currency sovereign credit ratings on the Republic of Portugal on CreditWatch with negative implications. The transfer and convertibility assessment remains 'AAA'." The only that matters: what does Dagong say. Our clown rating agencies are way overdue for retirement watch imminent. If the market is totally retarded, we guess the EURUSD may be whacked on this news.



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China Approves Fund That Will Invest In Foreign Gold ETFs, Opening Avenue For Millions Of Mainland Investors

And here is the catalyst: China has approved a fund that will invest in gold exchange-traded funds outside the country, opening the door to mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation. Beijing-based Lion Fund Management Co. said they received approval from the China Securities Regulatory Commission on Monday to proceed with the fund. Next stop: gold much higher as the bubble mania is really unleased in such ETFs as GLD, UGL and PHYS.



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S&P Relishes In Its Irrelevance, Says "At The Current Time, France Deserves Its AAA Rating"

The escalating series of simply tragicomic news out of Europe continues. Per Reuters, "France deserves its "AAA" credit rating at the current time, the president of Standard & Poor's credit agency told a French business daily on Tuesday. "At the current time, France deserves its AAA rating," newspaper Les Echos quoted Deven Sharma as saying in an advance edition due for publication on Wednesday." As we suggested earlier, France will not be downgraded by Moody's before 2014. That means S&P will last until  France is rebranded the German Vassal Kingdom of Gaul before it notches the country even one rating lower.



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You Can't Make This Up: Europe Plans Fresh Round Of "Secret" Stress Tests To "Restore Confidence"

You really can't make this up: the WSJ reports: "As market sentiment toward the euro zone sharply deteriorates, European
officials are planning a new round of bank "stress tests" that they say
will be more rigorous than the widely discredited exams conducted
earlier this year
." Thank you for confirming the prior stress test, the one which found that not one Irish bank was impaired, was a bunch of bullshit. Of course, this being Europe, it will require another forceful intervention by the uber-propaganda czar Geithner to get European countries in line: "But the tests are already subject to bickering between countries. While
some European leaders are pushing for next year's tests to be broader
and more transparent than last summer's exercise, the agency that will
oversee the tests says it might opt not to publicly disclose the results
at all.
" And all will be proclaimed to be fine. No further comment needed. 

 



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Will The Comcast Internet Toll Test The Netflix Business Model?

As was mentioned briefly yesterday, and all Netflix longs had hoped it would be promptly dead and buried, Comcast has begun imposing a fee on Internet middleman Level 3 Communications Inc., one of the companies that Netflix Inc. has hired to deliver movies and TV shows to Web customers. Bloomberg adds: "Comcast, the largest U.S. cable TV company, has set up an Internet “toll booth,” charging Level 3 whenever customers request content, the Broomfield, Colorado-based company said in a statement yesterday." This could very well be the end to the Netflix business model which so far has had the benefit of near-free streaming content distribution. Of course, this move was inevitable as Netflix is rapidly stealing traditional cable subscribers from precisely the likes of Comcast, whose premium on demand services are unable to compete with the Netflix model (which is based more on marginal churn retention than anything, and as such has very little barriers to entry). Furthermore, traditional distributors of content are also starting to scratch their heads at the cost-benefit analysis of their Netflix relationship. As such, as more and more gates are imposed, and as the cash breakeven suddenly surges for Netflix, what will likely be impaired is not only the firm's cashflow (which as we described recently has been rapidly declining) but to its long-term growth prospects. In a word: nothing good.



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The Next Shoe To Drop: European Insurance Companies - Assicurazioni Generali CDS Explodes

As the idiot market relishes in yet another day of foolish self-delusion that the most globalized market in history can simply decouple between the two largest economies in the world (Europe as a whole is far larger than China), things are starting to stir beneath the surface in Europe. While it is now given that no state will be allowed to default, no market will be allowed to trade down, and no bank will ever be impaired as long until the current flawed economic fundamentalist religion is violently overthrown, the question now becomes (just like it did in the America in late 2008) how far down the foodchain with the global Bernanke put stretch? Case in point: Italian insurance company Assicurazioni Generali (CDS ticker: ASSGEN). The proximal reason - today the company's CDS spread has gone vertical, wider by 34 bps on the day, or about 20%, to 184 bps. Why is this happening? Simple: ASSGEN has total assets of €423 billion, and more worrisome, a fixed income portfolio of €262 billion, of which 93% is European-bond based (Italy 28%, France 22%, Germany 25%). We all know what has happened to Italian bond prices in the past weeks: as of today, Bund spreads have just hit a fresh all time high. But all this is irrelevant since the bank must have a capital buffer to accommodate the losses. After all, what idiot would run a company with almost €300 billion in Euro-facing bond exposure and not factor for deterioration in risk after the events of May... Well the ASSGEN CEO may be just such an idiot. The company's balance sheet as of 9/30 discloses that the firm had a mere €10 billion in tangible capital (excluding €10.7 billion in intangible assets). So let's recap: €262 billion in Euro bonds on.... €10 billion in tangible equity! A 26x leverage on what is promptly becoming the most impaired asset class in the world. We are amazed that it has taken the market so long to realize that European insurers are the next shoe to drop, and doubly amaze that instead of trading points up, ASSGEN is only 184 bps. We give it a week.



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Olli Rehn's Upcoming Executive Diktat To Ireland #2: "Double Your Tax Rate"

If you thought Olli Rehn's "intervention" in Ireland's "democratic" process would end with his yesterday involvement in the voting process, you may be surprised to learn that diktat #2 is coming up. As we speculated last week, the first casualty of the Irish loss of sovereignty will be the country's lowest among the DM countries corporate tax rate. Today we read in the RTE that we are one step closer to being proven right: "A row has broken out in the European Parliament over Ireland's 12.5% corporate tax rate. It has emerged that eight, mostly French and German, MEPs have issued a declaration attacking Ireland's corporate tax rate and calling for a minimum EU wide corporate tax rate of 25%." Furthermore, these are not just any MEPs: "What has heightened the dispute is the fact that the eight MEPs are all co-ordinators for the different political groupings in the parliament and are, as such, representatives for those groupings on an influential parliamentary committee." While it is not a done deal yet, the days of the Irish tax haven may be numbered: "The declaration invites signatures from other MEPs and if it can gather the support of 350 MEPs it then becomes the position of the European Parliament." And here is how the new diktatura will spin its control over the Irish state...



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Surge In GLD December $145 Call Volume

While it is not surprising that 9 out of the top 10 option classes in GLD are calls, what is odd is that the most actively traded call by a substantial margin are the December $145 strikes. In other words, specs are betting that gold will move $60 higher in the next three weeks. Judging by today's 4% move in silver, the less valuable cousin may have a comparable move.



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Presenting The Belgian Donut

Everyone has heard of Belgian waffles. Below we present the Belgian donut, because sometimes a chart is worth a thousand CDS runs.



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US-Europe Decoupling At All Time Record As SovX - Implied Correlation Spread Indicates Historic Domestic Complacency

In last night daily report by BofA's Jeffrey Rosenberg, one chart stands out: the spread between the 12 month S&P 500 top 50 Implied Correlation (generically a proxy of broad US equity risk) and the Sov X, or the blended sovereign risk as indicated by CDS, which recently hit an all time high. In a nutshell: the spread has never been bigger, confirming that US domestic complacency over all things European (and the continuing levitation in stocks) has reached unprecedented levels, as absolutely no fundamentals can stand in the path of the hedge fund levered beta year end rally. In other words the China-US fatally flawed "decoupling" of 2007 has been replaced with a decoupling between the US and Europe. This will also end in tears. And this is happening even as European markets are unraveling, and as the EURUSD is tumbling, guaranteeing a drop in both US exports and the top line for US MNCs. But why worry: as 58 year old Valerie Whelan yesterday summarized it best: "It's capitalism gone mad." Every move in risk assets higher is merely a bet that central bankers can kick the can down the road for one more day. Nothing else. That it is unsustainable is guaranteed. Willem Buiter makes the case all too clearly that Europe will go bankrupt soon. We expect someone to make the same argument about the US very soon, especially if China does in fact commence tightening, leaving the chairman no other choice than to open the liquidity floodgates in one last attempt to preserve the dying economic system, however, this time without the benefit of being able to export inflation to China.



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$6.8 Billion POMO Closes: Brian Sack Monetizes $1.1 Billion Of Bonds Issued Last Week

Today's POMO has closed, with Brian Sack monetizing $6.8 billion of bond. This is a 3.5x Submitted to Accepted ratio as PDs realize various blogs are on their POMO funding needs and thus moderate their Submission amount. Yet what is simply surreal is that the second most monetized bond was PJ3, due 11/30/2015. This is the same issue that was just auctioned off by the Treasury last week! There is no longer even a pretense of avoiding direct monetization. It is time for Bernanke to go out and just buy bonds at auction. A one week turnaround is nothing less than criminal fraud which if anything is unnecessary and pads the PDs pockets. For just holding the bond a whopping 168 hours, PDs made a few million dollars. This is criminal. But who cares. Eric Holder has still to prove that he is anything besides an organ donor. 



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Macro And Market Thoughts From David Rosenberg

David Rosenberg summarizes his latest views on Europe, the EURUSD, risk, volatility, bond curves, gold, geopolitics, oil, a subsidized shopping season courtesy of no mortgage payments, and two years of home inventories.



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Consumer Confidence At 54.1 On Expectations Of 53.0, Prior Revised Lower To 49.9

The propaganda crew is out in full force today, as virtually the entire growth in the confidence number was in expectations. We expect a presidential address on how Americans are delighted that Europe is disintegrating, that Ireland is on the verge of civil disobedience, that jobless benefits are expiring and that one can barter a roll of toiler paper for a house.



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Chicago PMI At 62.5 Vs Expectations Of 59.9, And Previous Print Of 60.6

The Chicago PMI came at 304,955. Not really, but the index whose New Orders came at the highest since May 2007 has about as much credibility as anything out of the BLS these days. US Chicago PMI (Nov) M/M 62.5 vs. Exp. 59.9 (Prev. 60.6), highest since April 2010

PMI Components

  • Employment: 56.3 vs. Prev. 54.6
  • New Orders: 67.2 vs. Prev. 65.0, highest since May 2007
  • Prices Paid: 70.7 vs. Prev. 68.9, highest since April 2010
  • Production: 71.3 vs. Prev. 69.8, highest since April 2005

Yes, the prices paid surging means margings are taking, but who cares. After all, there are headlines to fudge R2D2's fuzzy logic with.



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