Archive - May 2010

May 31st

European Cross Country Bond Spreads

As we embark on what will likely be another painful week for European markets, here is where all the cross country spreads are as of this moment. As compared to the stable German 10 year benchmark, the worst 5 continue to be the PIIGS, in the following order - Greece, Ireland, Portugal, Spain and Italy. The tightest spreads are for Finland, Holland, France, Austria, and Belgium. We anticipate some further divergence between the PIIGS and the rest of Europe by the end of the week.

Bank Of International Settlements Warns To Ignore Banker "Doomsday Scenario" Fearmongering And Racketeering

Over the past two years, the one strategy that has elicited the greatest amount of anger in the general population has been the traditional resolution to the "lowest common denominator" strategy of fearmongering or racketeering by the financial elite, any time it was faced with a status quo extinction event. The primary example is the Fed and Clearinghouse Association's threat that should the Fed be forced to disclose the details of its bailout of various banks (as two courts have already ordered it to do), the result would be the greatest run on US banks in history: "If the names of our member banks who borrow emergency funds are publicly disclosed, the likelihood that a borrowing bank's customers, counterparties and other market participants will draw a negative inference is great." This is nothing but the patronizing of the broader population by those who seek to preserve their millions in bonuses, while disguising their hypocrisy in bluster, and hoping that the topic will be promptly forgotten. Curiously one entity that has decided to take on this "fire and brimstone" head on and to warn the general population to ignore the bankers "doomsday scenarios" is the bankers' bank, the BIS. As the FT reports, according to a soon to be released report by the bank's Chief Economic Advisors Stephen Cecchetti, "Banks are exaggerating the economic effects of the regulations they are likely to face in the coming years." While his focus is on the implications of the passage of the Basel III treaty, and to preempt counter lobbying by the bank themselves, his argument can be extended to ever instance in which banks present scenarios of collapse should they not get their way: as Cecchetti points out: "the banks’ “doomsday scenarios” were based on their assuming “the maximum impact of the maximum change with the minimum behavioural change.” This is a huge point, as it means that even the failure of the TBTF banks could have been mitigated in the context of a controlled (and even uncontrolled) bankruptcy, and the only reason they were bailed out was to preserve the equity interests and the existing management team, period. This also means that the Fed and Treasury are nothing but vehicles for perpetuating Wall Street's status quo, as we have claimed from the very beginning.

Presenting A Dutch Proposal To Stop GoM Oil Spill "Within Days"

The Netherlands has experience with controlling water: 2,000 miles of dykes preventing the sea from flooding the country's nether regions have taught the Dutch a thing or two about hydroisolation and spillover control. Unfortunately, as the last 40 days or so demonstrate so amply, neither the US nor the UK have the faintest clue how to stop the GoM oil spill which is now entering into the realm of the surreal. Which is why it may be time to learn from those who do know something about the matter. Zero Hedge has received the following proposal from Van Den Noort Innovations BV, which asserts it can get the GoM oil spill under control within days, and it doesn't even involve nuking the continental shelf.

Jeff Gundlach Warns Massive Asset Managers Like PIMCO And BlackRock Are Greater TBTF Risk Than Citi

In this brief interview with Morningstar, Doubleline's star MBS analyst, and the bane of TCW's existence, Jeff Gundlach, points out the glaringly obvious: i.e., that "if Citigroup was too big to fail, then so much greater is the risk for asset managers at a multiple of that market cap." Obviously the mortgage expert here is contemplating asset manager behemoths such as PIMCO and BlackRock, which have quietly become even more institutionalized within the fabric of the financial markets, than some of the TBTF banks. And without access to the Fed's discount window, liquidity threats to firms like PIMCO are exponentially greater than even for a bankrupt POS like Citigroup. No wonder Gross was offloading European sovereign debt with gusto as of last check. With total assets of over $1 trillion, saying that a failure by PIMCO, and by extension its Fed-unmoderatable counterparty risk, would have huge implications on the US financial system, is so obvious, that it is completely understandable that there is not one single provision in the Senator from Countrywide and the Congressman from Fannie's FinReg proposals on how to tackle this most recent threat to capital markets.

Greek Police Fire Teargas At Anti-Israel Protestors

Greece siding with Turkey - the end is nigh. Reuters reports: "Greek police fired teargas on Monday at demonstrators protesting outside the Israeli embassy in Athens over Israel's storming of a Gaza-bound aid flotilla and the killing of pro-Palestinian activists. "Dozens of protesters tried to break a police cordon, and police responded with teargas," said a Reuters witness. About 2,500 protesters rallied outside the embassy, police said, chanting "Hands off Gaza".

"A Brutal Ambush At Sea" - The Spin Begins

"Our Navy commandoes fell right into the hands of the Gaza mission members. A few minutes before the takeover attempt aboard the Marmara got underway, the operation commander was told that 20 people were waiting on the deck where a helicopter was to deploy the first team of the elite Flotilla 13 unit. The original plan was to disembark on the top deck, and from there rush to the vessel’s bridge and order the Marmara’s captain to stop...During the commotion, another commando was stabbed with a knife. In a later search aboard the Marmara, soldiers found caches of bats, clubs, knives, and slingshots used by the rioters ahead of the IDF takeover. It appeared the activists were well prepared for a fight. Some passengers on the ship stood at the back and pounded the soldiers’ hands as they attempted to climb on board. Only after a 30-minute shootout and brutal assaults using clubs and knifes did commandoes manage to reach the bridge and take over the Marmara. It appears that the error in planning the operation was the estimate that passengers were indeed political activists and members of humanitarian groups who seek a political provocation, but would not resort to brutal violence. The soldiers thought they will encounter Bilin-style violence; instead, they got Bangkok. The forces that disembarked from the helicopters were few; just dozens of troops – not enough to contend with the large group awaiting them." Ron Ben-Yishai

ECB Conducts Third Sterilization Procedure, To Withdraw Another €35 Billion In Liquidity

The ECB just can't make up its mind these days. First it launches a preemptive form of QE, then its directors write lengthy essays against those (cough, Germany, cough) who say its policies are flawed and inflationary, and now after flooding the market with cash, it continues to rush to take the extra liquidity out of the market. As announced earlier on its website, the ECB will withdraw another €35 billion in liquidity in the form of a one-week variable-rate tender capped at 1%, to be conducted on June 1 at 11:30 am. This is the same as the amount of government bonds purchased by the bank in the prior week, thus undoing all temporary QE benefits in the span of 7 days. This is the third and so far largest "sterilization" tender conducted in the past three weeks: the first and second were for €16.5 and €26.5, respectively.

Israeli Defense Forces Release Video Of Violence Aboard Turkish Ship

The Israel Defense Forces (IDF) - Naval Forces has released a recording, and their summarized version of events that transpired in real-time on board the assaulted Turkish ship early this morning. Obviously, this is just one side of the story - we would certainly appreciate Wikileaks' or some other independent arbiter's perspective on how the other side was interpreting the situation as it was developing, and resulting in over 16 casualties so far. One wonders how many Israeli soldiers were killed during the clash? Warning: video is graphic.

German President Resigns Effective Immediately

Someone sure isn't drinking the 63 out of 63 trading days Crissy in East Hampton on this sunny morning. Spiegel reports that German president, and former IMF head, Horst Kohler has resigned effective immediately, "a shock announcement that comes as the latest in a series of blows to Chancellor Angela Merkel." The cause for the resignation is the fierce criticism of comments he made about Germany's military mission in Afghanistan. More importantly, this will merely add to the instability in an otherwise already politically ravaged Germany. Got Bund, Bobl and Schatz?

Global Community Condemns Israeli Actions As Crowds Of Protesting Turks Scream “Long Live Global Intifada”

Things for Israel are getting from bad to worse. The Israeli attack on 6 Turkish ships carrying aid to Gaza, which has left 19 dead and 36 wounded according to latest estimates by Israel's Channel 10 TV, has drawn a wave of global outrage, resulting in "widespread international condemnation of Israel, with Israeli envoys summoned to explain their country’s actions in several European countries" according to the NYT. Additionally, Turkish website World Bulletin has formally branded Israel's attack "privacy" (no, not another stab at Google killer du jour Facebook, but a reference to government authorized attack on foreign shipping). Turkey's foreign minister Ahmet Davutoglu has said he will create an international legal case against this case of piracy and that "Israel's attitude has hurt the conscience of all humanity." Also, Turkey has joined the bandwagon of countries condemning the Gaza blockade, and is now openly supportive of the Hamas cause: "We hope that Israel learns lessons from this incident. Israel's blockade on Gaza is against laws and is not legitimate, Davutoglu said." Prime Miniter Erdogan also voiced in, saying: "by attacking innocent civilians, Israel displayed to the whole world its disregard of human values." The head of the Turkish Grand National Assembly’s Foreign Affairs Commission said, “We are going to see in the following days whether Israel has done it as a display of decisiveness or to commit political suicide.” Making a strong case for the latter, minutes ago Reuters reported that Israel PM Netanyahu has canceled plans to meet president Obama on Tuesday as was previously scheduled.

Pick The Odd One Out

Well, even Bloomberg apparently gets it a little off sometimes. Pick the odd one out...

A Polar Bear for Every Zoo and a Drug Free Parliament by 2020

Just occasionally there are those stories comprised of such self-evident moment (and perhaps more than a touch of such deliciously placed absurdity in the form of a Tina Turner theme song) as to render any attempt at comment redundant at best and destructive at worse. This, dear readers, is one of those occasions.