Archive - Jul 1, 2010

By this point only ECB commissioners can not see the death spiral that Europe is currently in. Earlier today, Spain issued €3.5 billion in 5 year bonds with terms markedly worse than even the most recent prior auction. The yield came in at 3.657%, up from 3.532% previously, with a dramatic slide in the Bid To Cover, which plunged from 2.35 in May to just 1.7. And to guarantee that the next bond auction will barely clear 1.0 is Moody's, which just downgraded 5 Spanish regions, Castilla-y-Leon, Extremadura, Madrid and Murcia to Aa2 from Aa1 and
Castilla-La-Mancha to Aa3 from Aa2. This is even as the rater is about to cut Spain by about 3-5 notches to the single A category if not lower. Elsewhere, Germany once again threw Europe into a general state of discord by announcing that it does supports banks' refusal of full stress test releases. As Market News reports, "Bundesbank President Axel Weber is supporting German
banks in their opposition of a complete and uncontrolled disclosure of
stress tests, German business daily Financial Times Deutschland (FTD)
reported Thursday citing sources. Weber promoted the partial release of stress test results. Yet, he
opposed the plan to let the European association of financial
supervisors CEBS decide alone how much of the stress tests will be
released, FTD said." This is in stark contrast with the Geithner approach of complete doctoring and fudging of even the stress test framework, to make sure no banks ever fail the stress tests. Once again Germany is showing Tiny Tim the middle finger.

Many people have asked me how SRS and REITs share prices can defy gravity the way they have given the abysmal state of commercial real estate (CRE). Well my opinion is that the equity and the debt markets have allowed agent and principal manipulation to the extent that it materially distorts and interferes with the market pricing mechanism.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 01/07/10