Archive - Nov 28, 2010

"The federal government is subsidising state and local debt servicing costs with their BAB program. The Fed is subsidising the federal government’s debt servicing costs with “security purchases” (aka QE2). While the US political and financial establishment is desperately trying to distract Americans with as many overseas “crises” as they can contribute to, the fiscal situation in the US careens towards the cliff." William Buckler, with his Privateer report, once again establishes that in the pantheon of newsletters, he and Kiril Sokoloff are untouchable at the very top. In his latest piece, Buckler deconstructs geopolitics, finance, economics and explains the plutocrats' behavioral modeling in a way fre else seem capable of doing. For anyone confused what all the recent events out of Korea, China, Europe, and the US mean, read the following.

Everyone expected a number between 5% and 6.7% on the Irish rescue interest rate. However, when one considers that the NPRF, which will serve as a source of capital in the rescue package has a zero interest rate (Ireland will not be paying interest to itself), and amounts to 20% of the total bailout figure, it appears that the blended rate of new money is actually 7.25%. From politics.ie: "Presumably the pensions reserve funds are at 0%, as its already our
money. They form about 20% of the total amount. If one fifth of the
amount is at zero percent, and the average is 5.8% - what is the
interest on the rest of the money? I calculate 7.25%"

So here is the Irish bailout in a nutshell: senior bondholders impairment: zero; Irish pensioners impairment: about 100%. Olli Rehn just confirmed during the press conference that senior bondholders will not be impaired. Irish taxpayers and pensioners to be overjoyed. Additionally, the maturity of the Irish IMF loan will be 7.5 years. This also means that the maturity of the Greek loans will likely be extended. Club Med will now exist indefinitely on life support, or until the euro is dissolved, whichever comes first. Lastly the pathologically lying sociopath just said that Europe will rerun its stress tests again next year... And as many times as needed until faith in Europe is restored, and 300 million austere Europeans finally believe their corrupt, thieving, fat ass politicians.

The State’s contribution to the €85 billion facility will be €17½ billion, which will come from the National Pension Reserve Fund (NPRF) and other domestic cash resources. This means that the extent of the external assistance will be reduced to €67½ billion.
...The facility will include up to €35 billion to support the banking system; €10 billion for the immediate recapitalisation and the remaining €25 billion will be provided on a contingency basis. Up to €50 billion to cover the financing of the State. The funds in the facility will be drawn down as necessary, although the amount will depend on the capital requirements of the financial system and NTMA bond issuances during the programme period. If drawn down in total today, the combined annual average interest rate would be of the order of 5.8% per annum. The rate will vary according to the timing of the drawdown and market conditions.

Turning 60 stinks, and the joy of 65 appears to be slipping away...

Follow along as we track the news avalanche:

• Official release from ECOFIN as paraphrased by the CEU: Euroarea financial support will be provided to Ireland.Three pillars: 1) an immediate strengthening of the banking system, 2) an ambitious fiscal adjustment to restore to fiscal sustainability, 3) growth enhancing reforms in the labor market, to allow return to sustainable growth.
• Financial package will cover needs up to €85 billion: €10 billion for immediate recap measures, €25 billion on a contingency basis for banking system support, and €50 billion for budget needs. €17.5 billion will be financed by an Irish contribution from banking system and its pension fund (the NPRF). The remainder €17.5 will ceme from EFSF, UK, Scandinavian countries, and the IMF. 
• Interest rate at about 5.8%
• Precise interest rate to be in line with standard IMF pricing practices, and will be come next week
• Olli Rehn: "Senior debt of bank bondholders will not be involved"

The Europen Union Economic and Financial Affairs Council has prepared yet another webcast of the decision over Ireland which was supposed to start about 30 minutes ago. If prior delays are any indication we expect this session to start with an about 3-4 hour delay. Elsewhere, we are receiving rumors that Germany and France have suggested that bondholders suffer a haircut on their senior holdings, and "do not expect bondholders to accept the two countries' haircut proposal." What that means translated in any language we have no idea. Additional as per French finmin Lagarde, the only open item on the agenda is the interest rate to be paid out. As we speculated earlier, 6.7% if out of the question as it would mean revolution.

Zero Hedge readers already know that in the latest week the insider selling to buying ratio hit unprecedented levels. Obviously, corporate officers and insiders have decided to take advantage of the artificial wealth effect and bail, especially since it is still unclear whether capital gains taxes will be the same in the following year. However, it is not only insiders who see between the lines. As the following charts demonstrate, the smart money is now either bailing from the stock market in droves or hedging for a market crash like never before...

What DID happen with this?

There's the Left Bank, kids.--Russ, I bet you can't guess what bank is on the right.--The Bank of America...