Archive - Apr 21, 2010

Eariler today there was an auction of €3 billion 30 Year Bunds that failed to attract enough demand to cover the offer: only €2.752 billion in bids were collected, with just €2.458 was sold. This is the first failed bond auction in Germany in over a year. This puts into question the entire premise of entities like PIMCO who believe that German bonds are the go-to flight to safety. Of course, this could be a temporary blip in light of the uncertainty of how Germany will handle Greece now that German opposition has said it would not bail out the troubled PIIG - in many ways this in itself is a game changer for the EMU, or just an artifact of the maturity of the 30 Year: presumably the "flight to safety" sweetspot is focused in the 3-7 year range. On the other hand, peripheral weakness should have generated incremental demand for Bunds if conventional wisdom is correct. What is certain is that auction weakness was instrumental in facilitating weakness at countries like Portugal, and Greece. Although the latter certainly does not need the help.

The bottom is about to fall out for Goldman. First Reuters reports that Deutsche CEO Josef Ackerman will be asked to testify in relation to the near-collapse of German IKB, a bank that has gained sudden notoriety for being implicated in the alleged Goldman CDO fraud as a dumb buyer of anything pitched to it. As Deutsche Bank has previous been blamed for the near-collapse of IKB by its former CEO Stefan Orstfein, would not be surprised if Josef takes this chance to join the "blame Goldman" bandwagon to deflect attention from himself. Ironically, Deutsche Bank is certainly not without blame as its CDO-desk managed by just departed Greg Lippmann was one of the powerhouses in arranging Abacus-type deals in the 2005-2007 time period. And inseparate news, again Reuters notes that France is the latest, after Germany and the UK, to "mull" a Goldman probe. Whether British, French and other German companies will follow in BayernLB's footsteps and stop trading with Goldman remains to be seen. Certainly, there is an element of politics to all such actions, and political players in Germany and the UK are most in need of populist electoral boosts, while France not so much, at least for the time being.

As we can see on the VIX/S&P chart the market this morning re-tested the reversal level in VIX now support around 15.60 and has so far bounced off it. This corresponds to a retest by the S&P of the resistance line joining the tops since last fall. We keep our bearish preference here despite the slight excess above 1,207 (not during the NY session). Keep an eye on the resistance line for equity futures, and the 15.58 support on a daily close. - Nic Lenoir

ATC enthusiasts can now track the air traffic over most of western and central Europe live, and interactive, via flightradar24.com. Clicking on individual flights will give you all the details on the flight, as well as the origin, destination and flight path. Hours of fun.

More divergence in opinions between our team and the reporting of the MSM! Failing to provision for loan losses is not the same as making money, is it???

Tomorrow, the European Commission's EuroStat agency, which recently was proven to be merely yet another totally incompetent European bureaucracy after the disclosure of how Goldman hid various countries' debt through assorted swaps and fooled everyone and especially EuroStat, will release its 1st notification of General government deficit and debt. The issue here is that this will be the first glimpse into the Greek situation from outside Greece. And the differential should prove to be simply hilarious... not to GGB holders though. The last thing Greece needs as it scrambles to prevent bankruptcy (or to accelerate it... who knows - Goldman may have taught them well) is for the world to uncover that its ~13% deficit was really double that.

The FRBNY released its 2009 audited financial results today. The biggest bank of the Federal Reserve Board did not report anything unknown, and as for the things that should be reported, well those of course will never be known until there is something akin to a peasant revolt. Instead we paid particular attention to the language from the auditors (no, not E&Y this time), Deloitte, who signed off on the report. Some memorable phrases uncovered: "FRBNY's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the FRBNY; (2) provide reasonable assurance that transactions are recorded as necessary... and that receipts and expenditures of FRBNY are being made only in accordance with authorizations of management and directors of FRBNY; and 3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of FRBNY's assets that could have a material effect on the consolidated financial statements." And here is the boilerplate understatement of the millennium: "Because of inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis." Now we know when the lawsuits are flying in a year or two, just what line will be Deloitte's saving loophole phrase.

And so the real fallout begins. From Reuters: " German landesbank BayernLB
[BAYB.UL] said on Wednesday it cut ties to Goldman Sachs in response to U.S. regulatory action against the Wall Street
bank, the first sign of a loss of business in Germany."

A spokeswoman for Goldman Sachs declined to comment.
BayernLB's action comes days after the Securities and
Exchange Commission accused Goldman Sachs of defrauding
investors by failing to say that a prominent hedge fund manager
bet against a Goldman subprime debt product that he helped
design.

Germany warned it would do this. It is doing it. It took them 24 hours. German efficiency.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX - 21/04/10

The Q1 2010 corporate lobbying data from the House Office Of The Clerk has been released and it shows that Goldman's lobbying efforts have really taken off: after donating "just" $670,000 in Q1 2009, the firm doubled its political campaign donations to $1.15 million for the first three months of 2010. The bulk of specific lobbying issues focused on Dodd's Wall Street Reform act, HR4173. Among other lobbying activity were issues relating to housing finance reform, issues related to financial services taxation, issues related to carbon pricing and renewable energy, issues related to ERISA and Build America Bonds. A primary lobbyist for Goldman is Joyce Brayboy, former chief of staff for Mel Watt - one of the primary opponents to Ron Paul's Audit the Fed proposal. Well, now you don't have to wonder why. Most importantly, as Reuters reports, according to data by the Federal Election Commission, Goldman has now turned Republican, having donated more to republicans over democrats in 2010, a reversal from 2009.

A (totally unconfirmed so far) rumor has surfaced on the Professional Pilot Rumor Network that a British Airways 747 flight has suffered a twin engine failure over north UK, and was forced to divert for an emergency landing in Ostende, Belgium.

Goldman Sachs claims great risk management skills, while it shirks responsibility for its role in the near collapse of the U.S. economy. The former is a myth, and the latter is a dodge. [1] As taxpayer wealth was destroyed, Goldman exploited the financial crisis it helped cause, while the U.S. was (and remains) at war.

Goldman Sachs released its 2009 annual report today showing it made net revenues of $45.17 billion with net earnings of $13.39 billion. In its shareholder letter, Goldman says it repaid TARP money, but did not mention the massive new taxpayer subsidies it continues to enjoy.

"Goldman did not and does not operate or manage our risk with any expectation of outside assistance."

Yet due to the influence of highly placed Goldman Sachs former officers, Goldman received--and continues to receive--enormous assistance from taxpayers.

The one critical piece to a successful Greek bailout (if one can call 10 year Bond spreads at 8% any indicator of success) has been the implicit assumption that the proposed rescue package can pass the critical approval of the German parliament in order for it to become legislatively valid. Reuters reports that in a new, pre-electionary development, Germany's main opposition party, the Social Democrats (SPD) have now decided to block Angela Merkel's plans for a Greek bailout, all but dooming the incipient Greek rescue even as G-Pap finally realizes that he will need to ask for assistance in the next several days.

Judging by Ben Bernanke's recent abnormal behavior, we are quite confident the Fed forgot to add at least three zeroes to the latest version of the Benjamins. Here is how the government is spending money to recreate old money, just so it can print even more money.

Dear Investor,

Many of you have asked questions in the past few days about Paulson & Co.'s ("Paulson") participation as an investor in mortgage securities from 2005 through early 2007, and specifically about our investment in a synthetic collateralized debt obligation ("CDO") which is the subject of a civil complaint by the Securities and Exchange Commission ("SEC") against Goldman Sachs. We wanted to provide you with accurate information and context regarding the decisions we made during this time to preserve and enhance our clients' capital.