Archive - Sep 14, 2011

We hardly needed confirmation that a) Bank of America is a den of criminals and thieves, that b) its toxic $1.3 trillion mortgage division, better known as Countrywide, is an even scarier and more putrid den of criminals and thieves, and that c) it retaliates against anyone who dares to remind the bank that there are such things as laws, and the aforementioned criminals and thieves actually have to follow these. Yet this is precisely what we just got after the Department of Labor said that it must pay $930,000 to an employee who led internal probes of abuses at its Countrywide Financial unit and was fired in violation of whistleblower protections.  Bloomberg reports "the employee, who also must be reinstated, had claimed that people who tried to report fraud to Countrywide’s employee- relations department suffered persistent retaliation, the agency said today in a statement. He was fired after Charlotte, North Carolina-based Bank of America’s 2008 purchase of Countrywide, according to the statement." So is it possible that the general public can now get the documentation that said whistleblower was fired for attempting to bring to his retaliating superiors' attention? And just how damaging will this development be to a bank which is already embroiled in litigation with virtually every single entity that has every transacted in mortgages both in America, and now abroad?

The fact that stocks keep reacting more positively to Greek news, than Greek bonds is scary.  It is somewhat reminiscent of 2008 when stocks kept rallying on allegedly good news even when debt struggled to perform on the news that was supposed to impact it most.  And for all the talk that Greece is priced in, the reaction after the erroneous headline about Austria approving EFSF shows that is unlikely true.  Stocks hit 1163 on that news and the decline only stopped because the correction was printed.  That is over 2.5% lower than we are right now, so I don't think Greek default is priced in.  Stock futures are up a full 3% from their overnight lows.  Crazy and broken moves.  The truly scary thing is we haven't even had the full "Eurobonds announced" rally.  Where does that take SPX?  1230 again?  I just can't convince myself that long is the right trade right now.  Ironically, strong stocks may be their own worst enemy, as they give some European politicians the strength to do what they want - and not provide more funds to bailouts.  Now I'm clutching at straws, but hey, what else to do as stocks march higher.  I have checked the newswire several times while writing this.  Expecting to see some new comments or twist on the comments that justifies this push in stocks, and I just can't see it.  And I really don't see a strong reaction in the credit markets either. Even BAC cannot seem to rally back to Warren's strike price, let alone where they got in the immediate aftermath of his headline grabbing, stock spiking, investment.

"We are not going to have a Lehman Brothers" --Timmah quoting Mutti [Reminder: What Lehman day is tomorrow?]

Three years ago today, my best friend called me and told me to turn on my television. I remember the way he described it– “Lehman is finished.”  The TV showed guys packing up their desks on Sunday afternoon, moving out of their offices forever. That was the precipice from which financial markets plunged the following day, taking the global economy along for the next three years. We appear to be at that moment once more. Greece is out of cash. Again. The Greek Deputy Finance Minister said on Monday that his country only has enough cash to operate for a few more weeks. As I write this note, French, German, and Greek politicians are all on a conference call, feverishly trying to figure out a way to avoid default.  Everyone seems to understand the consequences at stake… given the chain of derivatives out there, a Greek default will completely dwarf the Lehman collapse. Unfortunately for the bureaucrats, dissent against the Greek bailout plan is spreading across Europe… and leaders can no longer ignore the growing wave of opposition in Finland, the Netherlands, Austria, and Germany.

The Donald takes delivery of 3 Kilos.

Three things are sure in life: death, taxes, and betting against the calls of Goldman's Thomas Stolper. Sure enough:

• We lower our EUR/$ forecast path slightly but keep the same upward-sloping trajectory.
• Our new EUR/$ trajectory is 1.40, 1.45 and 1.50 in 3, 6 and 12 months, from 1.45, 1.50, 1.55 previously.
• The recent increase in the Euro area’s fiscal risk premium is likely to persist.
• Very large short EUR/$ positioning is likely to last in the near future.
• But the underlying Dollar downtrend should drive EUR/$ higher over time.
• We discuss the CHF and safe-haven currencies after the SNB’s commitment to intervene.
• Our new EUR/CHF forecasts are 1.21 flat in 3, 6 and 12 months.

Reuters is reporting that according to a press report released to reporters in Athens, a Greek government spokesman has said that despite rumors, all have agreed that Greece will remain part of the Eurozone. And from Bloomberg: "Greece is an integral part of the euro area and recent decisions to meet budget targets will help shield the economy, the Greek government said in a statement today following a call between Greek Prime Minister George Papandreou, German Chancellor Angela Merkel and French President Nicolas Sarkozy." Well, at least Greece has agreed to not blow itself up. Now... if only enacting this theory into practice was as easy as releasing a statement.

In conjunction with Eurobonds, EU officials have been working on plans to create Euroteams for the Olympics, World Cup, and the Eurovision Song Test. Officially, the effort is supposed to solidify the fiscal union that will have to occur to make Eurobonds the success the market has already decided they would be. Off the record, at least one official felt that letting Brussels be in charge of the Euroteams would make their jobs more important. Reaction so far has been swift and vehement. One London Olympic Organizer was heard to say "We finally invite them to invade us, and they can't even get that right!" Trading floors across the city and the rest of Europe are in a state of pandemonium. "Utter Rubbish" says one British trader. "They are just doing it so we won't ever win the world cup again, they just never got over that we kept our own currency" lamented another. French traders were dumbfounded, yet adamant that Les Bleus would never agree to a combined team. Spanish traders have attacked the plan, saying "it is one thing for you to give us money and support our caja's, but to try and steal our glory as World Cup Champions, well that is another thing entirely!" German traders put it more succinctly "Nein". Dutch citizens took it all in stride, while enjoying a leisurely smoke at a coffee house, one supporter mentioned, "We never win it on our own, so maybe this is a chance for us".

We are delighted to bring to you this wonderful news:

DAVID BIANCO NO LONGER WORKS AT BOFA, SPOKESWOMAN SAYS

Which means that in the pantheon of brain dead, lemming, Koolaid Permabulls, there are now just four. It probably also means that the latest paperweight to come out of Bianco, his upgrade to the S&P from 1,400 to 1,450 has been retracted. In other news, we are confident Bianco will find the economy far less hospitable from the wrong side of the unemployment line.

You know it: the chief Nobel prize winner in Oration and Teleprompting is out and about and has already threatened that unless Congress acts, the middle class will see a tax hike. And by act he means "passing this bill." That's right: after half our readers were hospitalized with alcohol poisoning yesterday, the challenge is back for the second day in a row. The rules are known: a shot must be taken every time Obama says "You must pass this bill."

The latest headline is in, and judging by the swoon in the EURUSD it is not pretty. Sure enough, this one has nothing to do with the Coneheads coming to rescue the world, and everything to do with an EU document which says that the shit is about to hit the fan. Yep: the EU is now holding the gun against its head and threatening to shoot. Furthermore, the document warns ministers this week about the threat of a renewed credit crunch as a "systemic" crisis in sovereign debt spills over to banks, according to EU documents. In one a series of bluntly worded reports prepared by officials for a meeting of EU ministers on Sep. 16 and 17, they warn: "While tensions in sovereign debt markets have intensified and bank funding risks have increased over the summer, contagion has spread across markets and countries and the crisis has become systemic."

In the past week, any and every move higher in the market, which is a direct consequence of the EURUSD seeing an uptick, has been as a consequence of rumor or statement or outright innuendo that China may either buy European bonds or European assets, but generally bail out the now ridiculously insolvent continent (and with Greek 1 Years at 150%, it is pretty clear what will happen). Yet, once again the conventional wisdom leaves much to be desired. Such as the answer to one very simple question: China just may buy up a whole lot of Greek and Italian bonds, and even EFSF issuance, but... who will bailout China. Wait, China is in trouble? Why yes: from Marketwatch: " China’s real-estate market may face an escalating credit crisis, with industry data for August providing clues that big developers are running short of cash, according to Credit Suisse analysts. The unfolding situation heralds a perfect storm for China’s home-building industry, and China’s deteriorating credit backdrop should be viewed by investors with alarm, the Credit Suisse analysts said." That's ok, by the time China is insolvent, Chinese stabilization of Europe will be complete, and Europe can boldly step up and rescue China in turn. And so on... And so on... In the wacky, wonderful, ponzi world of ours.