Archive - Apr 2010

Gee, what a shock - the country which is most on the hook should Greece blow up is now issuing ultimatums. What is funnier is that the object of the ultimatum is none other than France wartime buddy Germany. From Reuters: "The European Union must immediately implement its previously agreed 30 billion euro ($39.96 billion) aid package for debt-stricken Greece, French Prime Minister Francois Fillon said on Wednesday. "We must immediately put in place the 30 billion euros," Fillon told France's lower house of parliament. He added he had "no doubt" that German Chancellor Angela Merkel would adopt the same position as France, concerning Greece." France has about 75 billion reasons to be terrified that Germany will leave it in the dust. Hey Birnbaum: we are better buyers of French CDS in size. We don't care if Goldman is on the other side of the trade.

It's Official: Greek Bailout Expanded To €100-€120 billion over three years (40 billion a year) according to Strauss-Khan, which would eliminate Greek funding needs for the next 3 years via a primed DIP funded by Europe and the US. German contribution to be no less than €25 billion. IMF role will likely be at least €25 billion if not more. At about 20% US contribution to the IMF, the US taxpayers just got hit with a $7 billion bailout fee to make sure French and German banks don't have to Mark-to-Bankruptcy their Greek exposure. This is definitely not a done deal: Germany's SPD says they will not vote for the aid, which according to preliminary rumors will make all eurozone member states subordinate creditors to the new "DIP" facility. All those buying this rally are assuming that Germans will go quietly with the new proposal even though they threw up all over the old "only" €10 billion demand. Oh, and wait until Greeks realize what the "austerity" terms of the new IMF package are. We are sure the Greek airforce will just call in sick for the rest of the century at that point.

As Bruce Krasting disclosed yesterday, Goldman's Josh Birnbaum "slipped" when disclosing the firm's prop equity positions, in listing the companies his firm was actively shorting. We hope none of these were naked shorts as that would not reinforce the case of prudent risk management by Goldman's discount window-accessible hedge fund (in other words, the entire firm). Today, via the full exhibit list, we learn that in addition to Bear Stearns, in July 2007 the firm, via Josh, was also actively shorting a variety of other mortgage-related firms at the Structured Products Group via puts, which in addition to Bear, included Moody's, National City, PMI,WaMu , and Capital One. The firm only had a micro S&P long offset. As the list demonstrates, the firm had a big delta short in fins offset with no financial longs, thus refuting Josh's testimony that this was a "hedge" when in reality this was nothing than a directional short bet on fins. What is more troubling is that Josh was planning on expanding the list to a whole slew of other firms, and specifically competitors, most of which eventually going under: including Lehman, Merrill, and Morgan Stanley.

• Greece official: IMF loan boost possible (WSJ)
• Greece bondholders may lose $265 billion in default (Bloomberg)
• Stocks drop as sovereign-debt crisis spreads, Greek bonds slump (Bloomberg)
• First quarter GDP is history, beware of a 2011 slowdown (Barrons)
• China is undermining the dollar by the back door (FT)
• Hedge-fund bust will bear Goldman's fingerprints (Bloomberg)
• Mexico issues travel warning for Arizona over law (Bloomberg)
• Goldman grilled: A ghastly day on Capitol Hill for Goldman Sachs’s top brass (Economist)

• Asian shares were sharply lower on Wednesday, as renewed concerns over Greece.
• BOJ Board said to increase resistance to more stimulus as economy recovers.
• Concerns over Greece and a stronger yen hurt Japanese exporters, Nikkei fell 2.8%.
• Fed likely to sound confident note on recovery, signs grow economy is strengthening.
• German Chancellor Merkel to meet head of European Central Bank, IMF amid Greek debt crisis.
• Greek collateral concerns trigger surge in bank swaps.

With its CDS at 875, today, Greece is riskier than dictatorical (but Fed Free) Venezuela and perpetually bankrupt Argentina. All the hedge funds who went long Greek bonds with or without protection are getting destroyed. And some very prominent names did. We are waiting for the latest HSBC report to confirm this.

Country         Spread       CPD

• Greece:       874.22      50.66
• Venezuela:   841.28     44.57
• Argentina:    832.50     43.17
• Pakistan:      708.40     38.22
• Ukraine:       601.41     34.24

RANsquawk European Morning Briefing - Stocks, Bonds, FX 28/04/10

"What could go wrong? In the short term, I can think of two serious risks: First, a collapse of the Greek financial system, e.g. via a run on banks. If that were to happen, I would expect an immediate guarantee by the government and recapitalisation of the banks, as necessary, implicitly underwritten by the ECB. Second, a sudden dramatic political shift in Greece away from the present policy towards one of confrontation with its creditors. In that case, the international support becomes obsolete, of course, and we’ll be heading straight towards debt restructuring. In the longer term, all the same risks that I have discussed for months remain, including the government’s ability and willingness to carry through the necessary reforms. The required cocktail of tough fiscal measures and structural reforms aimed at restoring competitiveness has long made me think that the odds are against them making it longer term." Goldman Sachs - can you say unfilled axes?

Any time a country has to stoop to the level of the US, implicitly or explicitly, you know it is game over. Today the Greek securities regulator banned short-selling on the ASE (Athens Stock Exchange) until June 28. Well that should surely fix everything. From an official statement: "The Capital Market Commission, having considered the extraordinary conditions in the Greek market, has decided to ban short selling on the Athens stock exchange. The rule will be in effect from April 28 until June 28." In the meantime, the European Commission just threw cold water on hopes of a trillion dollar expanded bailout package, saying it is not changing the amount of money to be provided to a short-free Greece. It appears the IMF will be on its own.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 28/04/10

Help those most in need
Yes, you read that correctly! Greece killed its own banks. You see, many knew as far back as January (if not last year) that Greece would have a significant problem floating its debt. As a safeguard, they had their banks purchase a large amount of their debt offerings which gave the perception of much stronger demand than what I believe was actually in the market. So, what happens when these relatively small banks gobble up all of this debt that is summarily downgraded 15 ways from Idaho.

Improving California state finances make its municipal bonds a “buy.” With California in the heat of primary elections, this is good news no one seems to want to talk about. Inconvenient ties to the “vampire squid.” With taxes about to skyrocket everywhere, tax free municipal bonds are about to become more valuable. What’s this movie, "Fight Club", all about, anyway? (VCV), (NCP), (NVX).

The CDS market, as always, is prophetic to the dot: after main deriskers in the past two weeks were Spain, Portugal and France, so far the spread blow out in these markets has materialized like a Swiss watch. Which is why Ambrose Evans-Pritchard better be looking at this week's DTCC data, because the credit market is flashing a bright red warning light over his favorite bankrupt country - the UK (incidentally, the week's largest net derisker, just after Goldman Sachs). Second in order of sovereign implosion - Ireland. The British Isles, at least according to CDS traders who time after time prove they have far more sense than their equity equivalents, are about to become a hotbed of credit activity, and not in a good way. The other countries that fill out the top 10 deriskers in the prior week: Brazil, Germany (yeah, failed auctions do that), Argentina (yeah, persistent threat of default does that too), Mexico (yeah, living next to a money printing terrorist does that), Ukraine, Korea, Belgium and China.

My thoughts on the Goldman hearings. Behind the circus show, there were important themes that need to be underscored.

Recently the general public had the unpleasant experience of seeing what the real face of Warren Buffett looks like when it comes to derivative reform: a man ready to maim and kill to prevent even a minor loss when it involves controlling what he previously called "weapons of financial mass destruction." Sigh - yet another another hypocrite unmasked. However the battle over derivatives is just beginning. As the attached presentation from erdesk.com indicates, the big banks are not about to let a $55 billion annual revenue stream go away without a massive fight. And despite what Blanche Lincoln thinks, with Financial Reform suddenly stalling hopelessly in yet another indication that Chris Dodd's many years of robbing the middle class blind need to end yesterday, derivatives are not going anywhere in a hurry: with $11 billion in IR, $22 billion in FX, $10 billion in Credit, $10.5 billion in commodities and $1.5 billion in mortgages, most of it split between Goldman, DB, CS, MS and JPM, for anyone to think that the firms who run the world will cede such a core part of their business to the exchanges is naivete defined. We recommend the attached simplified overview to anyone who has a passing interest in not only the fascinating $600+ trillion world of OTC derivatives but of ongoing (futile) attempts to reform it.