Archive - Nov 2011

Corzine's permanent expatriation plans may have to be delayed as Corzine is called in to explain why he didn't leak news of MF Global's demise to Congress ahead of time so the 435 insider traders could profit on the outcome.

• MF GLOBAL TRUSTEE LEARNED OF $1.2 BILLION SHORTFALL AT WEEKEND
• HOUSE PANEL WILL HOLD HEARING ON MF GLOBAL FAILURE ON DEC. 15
• CORZINE CALLED BY HOUSE FINANCIAL SERVICES OVERSIGHT PANEL

In the meantime, the theft at MF Global is getting more and more staggering by the minute.

It seems from our initial take on the minutes from the last FOMC meeting that there was a lot of talk about how to tell us mere plebeians what they are not capable of doing as opposed to actually doing anything. Maybe, given Bernanke's recent comments and subtle suggestions towards the need for fiscal policy, all the Fed has left is jawboning and their new policy of talking about potential policy. Goldman's rather less pessimistic perspective sees a communications policy aimed at explicit rate paths and they note the unusual inclusion of a 'risks and uncertainties' section - no longer then perhaps Bernanke's '100% sure' view of his actions.

cough ... Ron Paul ... cough

We have vociferously discussed the secondary bond buying by the ECB, specifically highlighting when a lack of intervention allows the real-world risk appetite to sneak through. Bloomberg's Businessweek ties a rather nice bow in the total futility of this effort as since August 12th, the ECB has spent almost EUR 255bn on Italian, Spanish, and French debt (with perhaps a sprinkling of Belgian, Austrian, and Portuguese for good measure) and achieved nothing as every one of those nations yields (or costs of funds) is now higher - some dramatically.

Something tells us that Mohamed El-Erian is aware of the bulls' last bastion of "growth" and "decoupling"- the dip in Initial Claims below 400K. Even so, his appearance on Bloomberg TV was full of sound and fury, and some quite memorable soundbites, starting with this one: "Let me tell ou what I find most terrifying: we’re having this discussion about a risk of recession at a time when unemployment is already too high, at a time when a quarter of homeowners are underwater on their mortgages, at a time when the fiscal deficit is 9%, a time when interest rates are at zero. These are all conditions coming out of a recession, not going into a recession." The Newport Beach dweller is spot on: the situation is getting worse by the day, and the only option left is to do more of what has already failed so many times, and which only makes non-dilutable transitory monetary equivalents that much more attractive (with the mandatory liquidation which may bring them to triple digits first of course).

We would call the following just released chart of the Swiss monetary base a black swan, if not for two reasons: i) since this is precisely what Philipp Hildebrand demanded it is not unexpected and is in fact perfectly in line with a central banker's wet dreams, and ii) it looks far more like a Loch Ness monster. And while for the time being the monster is tame, thanks to what Kocherlakota said earlier, namely that "the old and familiar link between increased bank reserves and higher inflation has been broken," if ever the global economy were to actually improve, somewhat paradoxically, then the trillions in cash currently parked with banks the world over (assuming they are not secretly being used to plug trillions in capital shortfalls, to borrow, pun intended, an approach from MF global which commingled client capital; why should global banks not commingle central bank capital?), will immediately spill out into the street. What happens next will be amusing to quite amusing.

Things for Obama, whose ratings tumble to new record lows with each passing day, are just going from bad to worse...

While the FOMC Minutes have not yet been officially released by the Fed, it appears someone has broken the embargo. Here are the headlines.

• A FEW FOMC MEMBERS BELIEVED OUTLOOK MAY WARRANT MORE EASING
• FED OFFICIALS AGREED TARGETING NOMINAL GDP NOT ADVISABLE
• A FEW FOMC MEMBERS FAVORED TIME PERIOD FOR INTEREST-RATE PLEDGE
• A FEW FOMC MEMBERS BELIEVED OUTLOOK MAY WARRANT MORE EASING
• A FEW FOMC MEMBERS FAVORED TIME PERIOD FOR INTEREST-RATE PLEDGE
• FED OFFICIALS BACKED IDEA OF OFFERING MORE DATA ON RATE PATH
• US RECOVERY SUBJECT TO SIGNIFICANT DOWNSIDE RISKS

In other news - nothing substantially different from the statement or the conference that followed.

Following yesterday's record high 2 Year Bond Auction Bid To Cover, we now get another record, this time in the just completed $35 Billion 5 Year auction whose yield priced for the first time ever below 1%, or 0.937% specifically, well inside of the 0.95% WI at 1pm. And the Bid To Cover was no slouch either: at 3.15 this was the second highest BTC, runner up only to May's 3.20. The take down was distributed normally, with Directs, Indirects and PDs accountable for 9.6%, 45.3% and 45.1%, respecitvely, more or less in line with LTM average. Needless to say, when the world is imploding, the only safe fiat location remains US paper. As for the safety of fiat itself, when the world's biggest economic block and specifically its banking sector which had double the "assets" of America, needs daily rumors to stay afloat, we leave that to others.

And here is Egan-Jones again: "Synopsis: Unsustainable, in our opinion - JEF needs to raise equity (i.e., $1B) AND deleverage to reduce its 9.5+% LT yield. JEF's total debt to capital is 90.4% vs. 67% for IBKR, 62% for RJR and 43% for GFIG. GS and MS have ratios near 88% but they are significantly larger and should have some federal support via their banking charters. Furthermore, MF's freezing and shortchanging client funds have increased scrutiny of other medium-sized brokers. Raising $1B in new equity and reducing assets by $5B would reduce total debt to capital to only 86%. Email us for a more granular liq. analysis showing a 77% recovery for the sen. debt. Watch the recent rise in int. exp. relating to an acq. and the cost and avail. of funding. We will cut without a major deleveraging."

The IMF move is just a backdoor bailout that the Powers That Be are hoping the public won’t notice. None of the IMF backers were willing to commit money at the G20 meeting last month… so why are they willing to do so via the IMF now?

Now we all get to wince once again watching Greenberg trying to get his final Fat Cat licks in.

And here comes Uncle Sam:

• IMF APPROVES CREDIT LINE PROGRAM CHANGES TO PROVIDE LIQUIDITY
• IMF CREDIT LINE CREATES NEW SOURCE OF FUNDS FOR MEMBER NATIONS
• IMF ADDS EMERGENCY FUNDING TOOL TO ASSIST COUNTRIES IN CRISIS
• IMF NEW CREDIT LINE AVAILABLE FOR SIX MONTHS TO TWO YEARS
• IMF CREATES PRECAUTIONARY AND LIQUIDITY LINE
• IMF SAYS ACCESS UNDER 6-MONTH LIQUIDITY LINE COULD BE UP TO 500% OF MEMBERS QUOTA

And here is the math: Italy's quota is 7,882.3SDR; Spain is 4,023.4 SDR. Multiply by 5 and you get 40 Billion and 20 billion SDRs respectively, which  translates to $61 billion and $31 billion. A total of $91 billion in additional capacity? And that's it: enough to fund Italy and Spain for... two months. This is the best the regime can come up with?