Archive - Apr 9, 2010

It's one thing to hear fringe bloggers raving breathlessly against the collision course that the US economy is on. It is something else to see the Bank of International Settlements call for the baseline projection for US debt/GDP to hit over 400% by 2040. And this excludes the bankrupt GSEs, bankrupt Social Security, and the soon to be bankrupt Medicare. In a must read report, the BIS (of the central bankers' central bank) provides the much needed segue to the work of Reinhart and Rogoff, and in not so many words confirms that the entire developed world is now bankrupt on a discounted basis. With Debt/GDP ratios for virtually everyone expected to jump to over 400% in the bank's baseline scenario, it is no surprise why the Dow may well hit 1 quadrillion on nothing but Weimar and Zimbabwean ponzification, before it crashes instantaneously to zero. We exaggerate about the quadrillion, we do not exaggerate about the sovereign default. The current and previous administrations have doomed this country, just as all other administrations of the developed world have done the same, in order to bail out the banking system, in the greatest fatally flawed private-public risk transfer experiment ever attempted. Those who will walk out of it with virtually infinite wealth are about 0.1% of the US population (the same people who tell you now that all is well, and that their bonuses are fully justified). Those who won't, and will end up doing bad things to the aforementioned cohort, is everyone else. And the "everyone else" is getting angrier by the day, as they realize just how massive the wealth transfer scam truly is... if only they could tear themselves away from the iCrap, watching Tiger Woods' nonsensical Nike ads, or glower in schadenfreude as Simon Cowell rips another wanna be singer from head to toe.

Reuters confirms that ECB is refusing to comment on any details on the size or shape of Greek loans, or the role for the ECB in general. ECB also refutes Erik Nielsen's information we posted earlier that it would hold a conference call to discuss to latest developments.

Recently we posted a terrific interview of Kathryn Welling with LTCM's former General Counsel, James Rickards. The lawyer turned economist, who is now a director of Omnis, posts the following stunner on the implications of the endless sovereign debt glut and the Keynsen abortion that every developed economy has undertaken. As the man who survived (and, well, created) the original market "systemic" event, Rickards should certainly be heard by all those who believe the government can sustain the latest, and by all measures, last iteration of the global reflation Ponzi. Not surprisingly, Rickards is the latest to jump on the fiat alternative bandwagon, seeing gold at $5,500 as a fair price for the precious metal.

Observe the exponential volume spike at 10:30 when news of the Fitch downgrade hit. And, as always happens, there was smoke coming out of the windows of Liberty 33 following the much necessary stick save. And after that, as volume plunged, the algos took over. Because as everyone knows, If Volume Crap Then Buy, Buy, Buy. At this point if you are in this market, you are on your own and soon to go broke.

Many have asked why all the consternation about the IMF bailing out Greece. After all, as Bob Pisani claims, it is headed by some woman called Dominique Strauss-Kahn? That name sure doesn't sound like it came from Alabama. So what is the big deal?

According to Bloomberg, the ECB has called an extra-ordinary GC meeting tonight to “discuss latest developments”.

I don’t have any concrete information, but in my opinion there are two possibilities:

1.       A Greek package will be sorted this weekend.  I’ll give this less than 5% probability.  I have spoken with people in Athens this afternoon (I am all over the papers there today with my note from yesterday that they’ll have to go to the IMF) – and the message continues to be that there is a huge hurdle to climb before they’ll ask the IMF for help.  Also, the key IMF people are still in Washington at this time.

2.       A serious banking problem is about to emerge and a safety net has to be provided before Monday morning.  This could relate to Greece – or it could be another of these cross-country unclear cases, like Alpe Hypo, where Trichet had to step in. 

Stay tuned – will be back if and when we learn more

 
Erik F. Nielsen

The IMF, realizing it had a catastrophe on its hands, has caved in and according to Reuters will provide US taxpayer money to Greece at vastly below market rates of the SDR rate plus 300 bps plus a 50 bps service charge. With the SDR rate at 0.26%, this comes out to a ridiculous 376 bps, or massively below where Greece could possibly borrow at market. And guess who takes the first loss risk on a pro rata basis? That's right US taxpayers - you. At least when Greece bankrupts eventually, which it will, and the debt is equitized, the US, well more like Lloyd Blankfein, will become owner of the Cyclades at zero cost. Win win for everyone except 99.5% of America.

RANsquawk 9th April US Afternoon Briefing - Stocks, Bonds, FX etc.

Consensus – Greek crisis still festers but the big funding rollover deadline is still more than a month away. Nevertheless, stocks will dance to the Euro tune. Have a great weekend and stay very nimble. - Art Cashin

Total. Soap. Opera. Rumors of a Moody's Upgrade to AAAAA+++ vastly exaggerated

Fitch Ratings-London-09 April 2010: Fitch Ratings has today downgraded Greece's Long-term foreign and local currency Issuer Default Ratings to 'BBB-' from 'BBB+'. The Outlook is Negative. The agency has simultaneously affirmed Greece's Country Ceiling at 'AAA' and the Short-term foreign currency IDR at 'F2'.

Even as the carry trade just went ballistic, with the yen last seen buying a 10 gallon vat of vaseline at your nearest corner drugstore, stocks are not in triple digit gain mode yet. We are giving it a few seconds for the Ph.D. to recalibrate their upward bias models. In other news, FX traders - with this kind of volatility, we hope you are sitting near a defibrilator.

Gold is accelerating its move in the upchannel as it seeks to recapture early December record highs of $1,226 quite soon. When a Greek bailout is announced over the weekend, we fully expect a massive spike in Gold as the EMU experiment is pronounced dead and buried. In the meantime, with Liberty 33 unwilling to risk a, gasp, downprint...ever... the overnight ramp job could not be any less obvious.

Banks are busted, all of the big guys were doing the Lehman thing, and it gets worse. I take a look under the hood of the big boys to see what they were hiding. On a side note, as I type this the story is breaking all over the place. Is this the return of true, investigative reporting? I hope so!

• China failed bond auction - Zero Hedge, Greek 3 Months at 21% - Zero Hedge, the entire US financial system is broke - Zero Hedge, yet we have this "Stocks Advance on Speculation of Greek Bailout; Yen Weakens" (Bloomberg)
• No seriously - you give a rat's ass about more news after the preceding?
• Fine
• China may post trade deficit, undermining yuan case (Bloomberg)
• As Greek bond rates soar, bankruptcy looms (NYT)
• The wax melts (Economist)
• Balkans scared of Greek default - Belgrade, yes Belgrade, is terrified of what Greek royal flush will mean (Die Presse)
• The risk premiums for Greek government bonds are higher than ever, ratings agencies are sounding the alarm, and the EU is worried. Only Greece itself is convinced: "We are not broke." (Focus)
• Spain combines Greece and Subprime 2.0 (Infokrieger)

If this information is correct, it is all over. Bloomberg calculates the yield on the Greek 3 Month as determined by the bid, or where investors are willing to buy it, based on BVAL sources at 21.3%. In all honesty the bid/offer market in the 3 Month are all over the place. HDAT gives it as 99.650x99.840, BVAL is at 99.470x99.773. The HDAT bid implies a yield of 14.049%, which is still game over for Greece. Another way to see the carnage is the Greek CDS curve: 3M-5Y is at -185 bps!