Goldman's David Viniar is currently being grilled in the second day of the FCIC's hearings by Brooksley Born, who is asking the smartest questions of the CFO we have ever heard on TV. The webcast can be seen here. The main question being hammered again and again is why and how did Goldman profit twice on AIG, first by being bailed out by taxpayers, when the firm received a par payout on its collateral exposure with the insurer, and secondly, and much more importantly, how and why the firm made a profit of $1.2 billion by buying and selling CDS on the insurer, which comports with Lloyd Blankfein's previous statement that the firm was fully insured against an AIG collapse. This is a topic Zero Hedge has covered since March of 2009. Much more important at this point is the tangent of the circumstances surrounding the AIG CDS sale: we harken back to our post from January 2010, titled "Did Goldman Sell Its $2.5 Billion AIG CDS While In Possession Of Material, Non-Public Information?" in which we speculated that not only did Goldman receive an unfair second profit via the CDS, but that in fact it sold this insurance while potentially in possession of material non-public information. Now that this topic has finally surfaced to the broader population, we would like to once again bring attention to it, and we hope Brooksley Born has a chance to follow up on it.
EUR Surging As Banks Scramble To Cover Liquidity Needs With 30 Day Euro Repos Hitting One Year HighsSubmitted by Tyler Durden on 07/01/2010 - 11:51
An ongoing topic discussed recently is the slash and burn ongoing in Europe as banking counterparties have exactly zero confidence (and less with each passing day) in their counterparties. The backstop by the ECB of everything (for now) is the only thing keeping the system from collapsing. Yet with the ECB now at over $1 trillion in backstop funding for European banks, there will be a point beyond which not even the central bank's "credibility" will be enough. Today, we are seeing a spike not only in Libor and Euribor (both EUR denominated), but most notably in the 30 Day Repo rate. The result is a scramble to fund EUR positions. Whether the catalyst was this morning's 6 Day ECB liquidity providing market operation at this point is immaterial: the outcome is one of the biggest surges in the EURUSD in the history of the pair, which at last check was fast approaching $1.25. This EUR surge is nothing more than a liqiuidity scramble and should in fact be interpreted as EUR adverse and is indicative of an even worse funding pictures in Europe and among European banks.
As if one needed additional fears about the Chinese bubble popping, with overnight reports that various Chinese provinces are rising minimum wages to quell social unrest, following last night's surprising decline in the China PMI, here comes CEBM with a very scary outlook on China trade in general, and exports in particular. Well, if nothing else it will sure help the US push its world's worst trade deficit a little higher now that it will have much less to import. From the report: "Our CEBM China export leading indicator has already peaked, indicating that China’s exports are likely to peak soon. Our export model suggests that China’s exports may decelerate from 3Q due to weakening domestic and foreign demand." And here are some bad news for Obama's plan to double US exports in the next 5 years: "As the government has unofficially adopted normalization strategy away from the stimulus we are likely to see property, infrastructure, and manufacturing investments lose steam in the second half. The deceleration of FAI may put downward pressure on China’s imports." Have no fear - with its record budget spending, NASA will soon discover intelligent and wealth life on Mars, which will be more than glad to import all of America's financial innovation and three other things we export.
Moody's Downgrades Miami $35 Million ULT Notes To A1 From Aa3 And $235MM LT Notes To A3 From A2, Outlook NegativeSubmitted by Tyler Durden on 07/01/2010 - 10:54
And this is even without the BP oil getting caught in the loop current and washing on the private beach of the Delano. And yes, buy the MCDX. "The negative outlook reflects Moody's expectation that Miami's financial operations will remain strained over the medium-term horizon as the city grapples with reduced reserves and budget pressures while trying to implement a recovery plan. Ultimate long-term credit standing is dependent on the ability of officials to re-establish budgetary structural balance and restore reserves to prescribed policy levels in an adverse economic environment that impedes revenue growth. Improvement of financial condition appears to require either significant city cuts or infusion of one-time revenues or some combination of both."
Turn out there was an app for that after all (and it was in fact designed by a bunch of Princeton Ph.D.). Not one to rest on his laurels, Steve Jobs is already getting people in line for the next generation, the iPlunge, while the FoxConn suicide team is hard at work on the iMonkeyhammered prototype.
Another big leg down into the recognition that i) the recession was really a depression all along and ii) we are smack back in it. The ISM Manufacturing index came at 56.2 on expectations of 59, previous was 59.7. And the stunner - the prices paid index came in at 57 on expectations of 70, with a previous read of 77.5. The crash in margins will be surreal and companies will have no choice but to raise prices. And just so there are no mistakes that the Great Depression 2.0 is here, pending homes sales plunged a massive 30% on expectations of -14.2, and a previous read of 6%. This was the biggest MoM drop on record. Deflation is here, as is a full blown economic contraction, coupled with the complete pull out of the US consumer, who, absent government subsidies, will contain purchases solely to the iPad. Ben Bernanke has no choice but to print money now, or it is game over.
- Must watch: "A gigantic ponzi scheme, lies and fraud" - Howard
Davidowitz on Wall Street (TechTicker)
- The fanatics turn on their guru: Apple sued over new iPhone reception problems by consumers (Bloomberg)
- Shocker - Fed acquired shit assets from failing banks and completely misrepresented these under oath. (Bloomberg)... Um, we kinda warned about this in October of last year.
- BP oil spill cleanup work hampered by hurricane (Reuters)
- More theatrics from AIG's Benmosche who threatens to quit unless Harvey Golub quits (Bloomberg)
- Jim Willie - Path to gold backed currency (Market Oracle, h/t John)
- The stimulus is now over - global manufacturing slowdown shows weakening from China to Europe (Bloomberg)
Jobless claims were a disaster, coming in at 472k, on expectations of 455k. Prior was revised, surprise, surprise, higher to 459k from 457k. What is scariest is that between extended benefits and EUC, now that Congress has turned off the perpetual insurance spigot for the unemployed, dropped by -158,155 and -217,513. This is almost half a million people who just lost their weekly governmental stipend to buy Apple's latest app, iTimberrr. Full report here. RIP Recovery: the economy has now entered the "total freefall" area. And in the meantime, the 2.90% on the 10 year is now implying the FV of the S&P just dropped by another 8 points to about 740. And as a reminder, Goldman's NFP expectation for tomorrow is -100,000.
Libor-OIS Surges After ECB's €111 Billion 6 Day Operation Indicates Nothing Is Fixed, ECB Deposit Facility Usage SpikingSubmitted by Tyler Durden on 07/01/2010 - 08:14
After yesterday's €132 billion euro 90 day LTRO seemed to indicate that all is well for European banks and that up to €310 billion of liquidity could be withdrawn, today's stunningly bad result in the follow up 6 Day liquidity providing fine tuning operation, in which another 78 banks bid for €111.2 billion worth of reverse repo cash, at the same rate as yesterday's 90 Day, or 1%, indicated that all is, after all, bad for European banks, who further more can't seem to realize that when given the opportunity to luck up funds for 90 days versus 6 days, you always go for the former. In other words, the liquidity crunch in Europe is just as bad as everyone had feared.
- BOJ Tankan key sentiment index better than expected - first time in two years.
- China’s manf index declined for a second month, falling to 52.1 from 53.9 in May.
- China's stock index declines for seventh day; Commodity producers retreat.
- Disappointing Chinese economic data send stocks lower across Asia.
- German retail sales down 2.4% in May on year.
- OPEC crude output fell in June from a 17-month high, Bloomberg Survey says.
- Retail sales growth in Australia weakened in May, Building approvals drop.
Another Deteriorating Spanish Auction, Another Moody's Downgrade, More German Dissent, More Failed BanksSubmitted by Tyler Durden on 07/01/2010 - 07:55
By this point only ECB commissioners can not see the death spiral that Europe is currently in. Earlier today, Spain issued €3.5 billion in 5 year bonds with terms markedly worse than even the most recent prior auction. The yield came in at 3.657%, up from 3.532% previously, with a dramatic slide in the Bid To Cover, which plunged from 2.35 in May to just 1.7. And to guarantee that the next bond auction will barely clear 1.0 is Moody's, which just downgraded 5 Spanish regions, Castilla-y-Leon, Extremadura, Madrid and Murcia to Aa2 from Aa1 and
Castilla-La-Mancha to Aa3 from Aa2. This is even as the rater is about to cut Spain by about 3-5 notches to the single A category if not lower. Elsewhere, Germany once again threw Europe into a general state of discord by announcing that it does supports banks' refusal of full stress test releases. As Market News reports, "Bundesbank President Axel Weber is supporting German
banks in their opposition of a complete and uncontrolled disclosure of
stress tests, German business daily Financial Times Deutschland (FTD)
reported Thursday citing sources. Weber promoted the partial release of stress test results. Yet, he
opposed the plan to let the European association of financial
supervisors CEBS decide alone how much of the stress tests will be
released, FTD said." This is in stark contrast with the Geithner approach of complete doctoring and fudging of even the stress test framework, to make sure no banks ever fail the stress tests. Once again Germany is showing Tiny Tim the middle finger.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 01/07/10
Was AIG, In Addition To Being The Riskiest Company In The World, Also A Precious Metals Manipulator?Submitted by Tyler Durden on 06/30/2010 - 23:46
A little under two years ago, there was a big debate in the precious metals community, in which two groups of individuals were arguing for and against possible silver market manipulation, via arbing the COMEX and the OTC. On one hand you had such distinguished economists/bloggers as Mish (here and here) and Jon Nadler of Kitco (here) claiming there is no such thing as a COMEX-OTC arb because markets are ultimately efficient, and the second a trade is effected in one market, it implicitly affects all other markets, making spread arbing, and thus "manipulation" impossible. On the other hand, you had C.Loeb making precisely the opposite argument (here). After a brief flare up, the debate died down, with a partial win acceded to Nadler, who ended the debate with the following rhetorical statement: "Also, by the way, why not NAME the sinister manipulative banks in question? Why not ask them outright as to the motives behind their positions (or better yet, who their clients were) and whether or not they acted in a "willfully nefarious" manner? Conclusion: One can take any database and make it suit their conspiracy argument. That, however, does not make for proof of any kind." In other words, Mr. Nadler was asking for a bank to confirm it was arbing the COMEX-OTC spread, which in turn would unwind his defense argument, and lend credence to the claim that some players, due to their massive scale or otherwise, succeed in manipulating the silver (or gold) market by profitably spreading the legs of the trade in two completely different markets and arbing this spread. For the longest time people looked exclusively at JPMorgan for clues. Boy, were they wrong... and are they about to be surprised that in addition to almost blowing up the world, AIG FP has admitted that it itself, as the defacto risk mastodon and suicide bomber under Joe Cassano, with "$426 billion in total on and off balance sheet risk equivalent delta," was precisely just this spread manipulator. But don't take our word for it. Take AIG's.