Archive - Nov 2011

Wait, what's that? CEO leaving after his CDS-(non) triggering determination practices brought down the Eurozone? What a stunner:

• ISDA CEO STEPPING DOWN
• ISDA SAYS VOLDSTAD WILL BE REPLACED AS CEO BY PICKEL

Luckily, since this is a voluntary action, no CDS written on Voldstad will be triggered and thus no severance will be due and payable. Right? In all seriousness, this means that the idiotic no-trigger determination will be reversed right? We can't wait for the snarky post on the ISDA blog explaining this debacle.

If we scrape away the ever-hopeful headlines predicting a new figurehead lackey or another vote will magically fix Greece, Italy, the euro, Europe's crumbling banks, etc., the global stock markets can be distilled down to one chart. And here it is: a see-saw with the U.S. dollar on one end and the euro and equities on the other. I know the mind rebels at such simplicity, and so does the entire buy-side Wall Street edifice: if it all boils down to this, then there really isn't much value added by the endless reams of fancy reports and analysis, is there?

So much for the half life of the latest European recovery rally. After the ECB is rumored to have bought €1.7 billion in Italian (70%), Spanish and Portuguese bonds this morning, spreads across the continent stabilized... however briefly. Since then, confirmed speculation of an Austrian downgrade and an unconfirmed rumor that Egan Jones and/or other rating agencies will put France on downgrade review has just sent the French(OAT)-Bund spread to new record highs. And so, the ECB just used up even more firepower to achieve absolutely nothing, especially since the market will now expect Draghi to buy double or €3.4 billion tomorrow, or else it will get very, very angry. In the meantime, we urge the ECB to promptly buy all French bonds it can. Wait, what's that, the ECB can't buy French bonds (yet)? Oh... Oops.

The EURUSD is heading lower once again (back under 1.36), OATs are back near the wides of the day at 161bps, and BTP spreads to Bunds are 15bps off their best levels of the day as the Bundesbank jabs a stick in the spokes of the print-fest that seems to be the meme-du-jour for risk assets.

*BUNDESBANK SEES NO SIGNS OF CREDIT CRUNCH IN GERMANY

*BUNDESBANK SPOKESMAN SAYS NO ECB CRISIS MEETING TODAY, TOMORROW

Not exactly the talk we would expect from the ECB-proxy about to embark of regime-changing transactions.

Remember Austria: that "other" AAA-rated country, whose megabank Erste recently made headlines for covering up its sovereign CDS exposure? It appears that AAA rating, which means Austria is still eligible to fund the EFSF, may soon be cut, putting even more pressure on Germany and, of course, France, and thus concerns for ratings downgrades there, to bear the brunt of what is an increasingly impossible bail out plan for Europe. It also means that the market will now be fearing not only a kneejerk reaction to the perpetual French downgrade terror threat courtesy of S&P and Moody's, but can now add not only Hungary and Belgium but also Austria to the list of countries due for some inverse rating agency love trim. As for the catalyst: "In two weeks, Moody's analysts to come to Vienna to assess the situation on the ground. Felderer considers it possible that Austria would put on negative outlook in this review." Alas, it appears that the Grinch is about to steal AAAustria's vaunted rating for Christmas, and push the direction of contagion into a whole new direction.

Missing customer funds might be those of MF Global itself.  Also, JPM gets to keep any and all collateral and cash it seized in return for $8 million?

European Central Bank policy makers said the bank can’t do much more to stem the region’s sovereign debt crisis, suggesting they are reluctant to significantly ramp up bond purchases to lower Italy’s borrowing costs.

For anyone who thinks that the ECB is some pristine virgin which has barely been touched in that special monetary printing place, we, or rather JP Morgan's Michael Cembalest, has some news for you: "To-date, that’s what the ECB has done: of the 1.1 trillion Euros extended to European banks and governments (through sovereign/covered bond purchases and repo), 970 billion has been given by the ECB." So anyone demanding that the ECB print even more outright (which incidentally we are certain will eventually happen - our thoughts are identical to those of Dylan Grice from two months ago: "ECBCTRL+P: The Next Steps In The European Implosion") should probably keep this in mind. It will also explain why German members of the ECB are dropping like flies, and why Germany, which better than anyone else, most certainly proponents of modern reincarnations of failed Keynesianism, knows what happens when central banks have gone wild, is certain that the ECB proceeding to move from €1 to many, many more trillions of explicit monetary support, will mean nothing short of hyperinflation.

The miracle that is a global economy in which everyone is looking for export growth has been discussed here at length along with the simple math that makes it nonsense. Today's 'wonderfully' positive improvement in the trade deficit data for the US - which will be extrapolated into a spike in GDP growth and why the S&P should be at 1500 by month's end - does seem a little odd given all the uncertainty. Sure enough, thanks to Sean Corrigan of Diapason Securities, we have our answer. A massive spike in Exports to - drum roll please - Hong Kong!!A 76% rise in exports to this once glorious colony. The US trade deficit fell by $1.8bn thanks to a $2.5bn rise in exports (of which $2.03bn was to Hong Kong). Has Hong Kong become the channel-stuffing center of the world? It appears so since China's exports to Hong Kong have remained extremely high.

The overwhelming majority of media content being created now in 2011/2012 (film, television & music) is being BLINDLY financed with hopes that NEW reliable and profitable media streams will emerge quickly before the "old" income streams completely dry-up.

The failure of the Eurozone and the European monetary union looks increasingly likely. This has incredible political, economic and monetary implications for the world and could lead to shockwaves akin to or surpassing that seen after the collapse of the Soviet Union. Given the scale of the crisis, we continue to amazed at the lack of animal spirits in the gold market – both from media coverage and from public participation. The majority have no idea of the ramifications of these momentous geopolitical developments. The public knows the developments are negative but most are resigned to their fate and many are like deer in the headlights failing to join the dots and realize the ramifications for their investments, savings and financial wellbeing. While demand in Asia has fallen from the very strong levels seen recently - demand continues and Chinese New Year should see Chinese demand pick up again in the coming weeks. Western investment demand continues as seen in increasing allocations to the SPDR trust.

• Former ECB vice president Papademos will be the interim Greek PM. Meanwhile, media reported that the Italian PM Berlusconi may step down by Sunday
• Market talk that the ECB is buying in the Italian and Spanish government bonds. Also, market talk that in an emergency meeting today, the ECB may decide to purchase the Italian government debt in unlimited amount
• News emerged that the ESM may not be operational in mid-2012 as Germany and France clashed on bond loss provisions
• ECB's Knot said that the ECB can keep buying bonds as long as sterilization works, adding that the central bank can speed up bond purchases. He further said that the ECB can keep purchased bonds until maturity. However, he also said that the ECB should only buy bonds when markets are panicking

The only question we have is how much higher will this week's 390K number be revised to next week in continuing the BLS one trillion sigma tradition of revising every prior number higher and never lower. As it stands, the 390K is the lowest since April, and a drop of 10K from both the previous print and expectations. In other news Non-seasonally adjusted claims increased by +29,106 to 398,753: this is the second highest number since July. What was also notable is that those on EUCs and Extended Benefits rose by 43K in the past week, an odd reversal to the now persistent issue of 99'ers hitting the cliff. In other news, the previous continuing claims number was revised worse by 24k from 3,683K to 3,707K which means today's 3,615K number will also see a downward revision soon. Regardless, no matter how one looks at this, the Claims number confirms there is no net job creation, and considering the bloodbath on Wall Street that will occur over the next month which will affect very high paying jobs, the bottom is about to fall out where it hurts the most: tax collections, which means the government will once again be forced to do what it does best: print paper, with the Fed firmly in tow to monetize it. Same old song.

Those of us who have supported Ron Paul since his presidential run in 2008 (and some who supported him long before that) have come to expect an astonishing array of mainstream media tricks, lies, and censorship when it comes to the “journalistic” examination of the good doctor. This doesn’t mean, however, that we have ever or will ever come to ACCEPT this consistent trend of deception and disinformation as a forgone conclusion of our political lives. We will never throw up our hands and walk away from the mess the MSM has deliberately created, because that is exactly what they would like us to do; give up, shut up, go home, vote for Romney (an establishment crony with the creepy grin of a pedophile), and watch him lose to Obama (yet another establishment crony) in 2012. With this stated up front, it was brought to my attention that CNBC was running a poll asking readers who they thought won the recent Republican Presidential Debates in Michigan. Now, as in many polls in 2008, the name “Ron Paul” has been rising to the top of the charts in 2011 despite all efforts by media lapdogs to dissuade the public from even considering such a candidate. CNBC did not fail to play its roll this time around either. Ron Paul won by a substantial margin, and of course, their response was to take the poll down!

This morning brings the latest, or the third, in the ongoing pitch book of Italian bonds by Goldman's Francesco Garzarelli, in which the strategist hopes that third time will be the charm for calling the bottom to the BTP collapse (sold to you, Goldman client). What apparently has Goldman confused is how its former employee Mario Draghi has let BTP spreads hit the record and unsustainable levels they did yesterday. To wit: "We were actually quite surprised not to see more forceful intervention by the central bank in secondary markets after the LCH announced it would raise initial margin requirements (and wrong in assuming it would have helped keep the Italy vs. AAA spread close to 450bp – it closed yesterday at 500bp over, but is now back at 450bp)." Here Goldman confirms what we suggested on Monday: that the ECB is now nothing but a policy enactment and dictator overhaul tool: "In this context, Italy still has to comply fully with the ECB’s ‘requests’ dated August 8, while Greece’s commitment to more austerity in exchange for financial support has continued to sway (at the time of writing, news that former ECB no. 2 Papademos would take the helm is encouraging)." Even so, the future to Goldman is quite cloudly :Granted, one positive collateral effect of market tensions has been to precipitate a political shakeup in Italy. But the collateral damage created by the price shock in Italian bonds to the stability of the EMU project (aggravated by explicit talk of countries being expelled from the single currency) is high and quite lasting. It will probably take a leap forward into deeper forms of fiscal risk-sharing (Prof Monti is a long-time proponent of Eurobonds) to get the market properly functioning again." OTOH, Barclays has done the math, and as we pointed out a few days ago, is not surprised.