Archive - Jan 24, 2012

The USS Europa Discorida story just gets more and more surreal.

• ITALY PROSECUTORS WIDEN RATINGS AGENCY PROBE TO FITCH, UNDER INVESTIGATION FOR MARKET ABUSE, INSIDER TRADING - INVESTIGATIVE SOURCE
• ITALY FINANCE POLICE SEARCHING FITCH OFFICE IN MILAN, ANSA SAYS

S&P maybe? Sure. But piss off the French rating agency? As if anyone even trades in collusion with the completely unmoving announcements by the most irrelevant of the NRSROs? This is just the definition of irrational Italian scapegoating which will do nothing to help Italy-French relations, but at least it will provide "justification" for Fitch's evil downgrade when it comes - after all it was obviously in retaliation for the Italian police just doing its job. Finally, how long would an Egan-Jones office in Milan stand before it was burned to the ground: 1 week? 1 day? 1 hour?

All you need to read.

The Chairman of the Fermentation Committee takes the fizz out of the market once again.

Just a week over the last time S&P said Greece would likely default any second, it reminds us once again why we should care.

• GREECE IN ALL LIKELIHOOD WOULD QUALIFY AS A DEFAULT: CHAMBERS
• S&P'S CHAMBERS SAYS IT'S NOT GIVEN THAT GREECE DEFAULT WOULD HAVE DOMINO EFFECT IN THE EURO ZONE

Perhaps just as irrelevant if notable is that S&P basically said just that back on May 9, 2011. As for Greece, it is a given that if the country proceeds with CACs it will default. Period. And yet that is just what will happen. However a far bigger question, as we touched on yesterday, is what happens next, when Portugal decides to follow the same framework of "deleveraging" only to find that courtesy of having strong creditor protection bonds it can't? Or when the Troika figures out that due to strong negative pledges, the country's balance sheet can not be primed and thus subordinated, and thus is ineligible for secured financing. And what happens when Europe realizes that Portugal is ineligible for saving in the conventional sense? Or Spain? and so forth.

Just when one thinks American crony capitalism couldn't hit new lows, here comes Warren Buffett and his personal puppet, the president, proving everyone wrong once more. Because if one thinks there is no (s)quid pro quo for all that "sage" advice that Buffett has been giving to Obama on extracting as much wealth as possible from future wealthy Americans (before they decide they have had enough with this crony shit and leave the country for good), one would be fatally wrong. As it turns out, it is not just natural resources and aquifer purity that Obama had in mind when sealing the fate of the Keystone XL pipeline. No - it appears there were far more relevant numerial metrics that determined Obama's decisions. Such as the bottom line number of Buffett's Burlington Northern, which according to Bloomberg, is among U.S. and Canadian railroads that stand to benefit from the Obama administration’s decision to reject TransCanada Corp.’s Keystone XL oil pipeline permit. '“Whatever people bring to us, we’re ready to haul,” Krista York-Wooley, a spokeswoman for Burlington Northern, a unit of Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc. (BRK/A), said in an interview. If Keystone XL “doesn’t happen, we’re here to haul." And quite delighted to reap the windfalls of unfounded populist fears she forgot to add. Because while the whole "carbon-credit" multi-trillion top line expansion scheme for Goldman under the pretense of actually caring for the environment may have collapsed, it is not preventing others from trying and succeeding where even Goldman has failed.

Despite German and French Manufacturing and Services PMI data outperforming expectations, European equity indices are trading down at the mid-point of the European session on extended concerns over the still-not-settled Greek PSI agreement.  Further downward pressure on German markets came from Siemens’ earnings report earlier this morning, with the company missing their revenue targets and foreseeing a difficult economic environment for them in Q2 of this year. In UK news, despite an unexpected fall in government spending, UK debt has topped the GBP 1tln mark for the first time.

Investors are waiting on the outcome of a 2 day Federal Reserve meeting which ends on Wednesday.  Here they are following any signs that interest rates will remain low, as that could put pressure on the U.S. dollar. The Tokyo Commodity Exchange, December, gold contracts climbed as high as 4,167 yen/gram, its biggest gain since mid-December. The gains initially propelled cash gold even though trading was slow during the Lunar New Year break. Japan has been notably absent in the gold market in recent years. This may be changing as concerns about the Japanese economy and continuing debasement of the yen may be leading to Japanese diversification into gold.  The scale of domestic savings in Japan remains enormous. This would be a new and potentially extremely important source of demand in the gold market which could help contribute to much higher gold prices. 

 RED ALERT TO EVERYBODY INTERESTED IN THE ESM: THERE IS NO CURRENT VERSION OF THE ESM TREATY AVAILABLE!!! Europe's most important treaty on the European Stability Mechanism (ESM), which will lead the EU into a financial dictatorship, has been pushed through by EU finance ministers late Monday evening. But the latest version of the ESM cannot be found on English and German EU websites. A link on consilium EU only leads to a 'file not found' message and the German EU website "Europa von A - Z" does not mention the ESM at all. This reminds one of the secrecy around the Federal Reserve Act, that was pushed through in 1912. Is the EU Commission now playing the same fishy game 100 years later? Significant changes have been made, a few media reported. The capital of the ESM will now be only €80 billion instead of the €700 billion proposed in the only available draft version from July 2011 (see treaty text below). The finance ministers also agreed to bring the ESM into existence one year earlier by July 2012, putting national governments under immense pressure to ratify the ESM treaty without sufficient public discussion.

• Fears Mount That Portugal Will Need a Second Bailout (WSJ)
• EU to Have No Deadline for End of Greek Talks (Bloomberg)
• Japan economy predicted to shrink in 2011 (AFP)
• Japan’s Fiscal Pressure Intensifies as Tax-Boost Plan Insufficent: Economy (Bloomberg)
• Berlin ready to see stronger ‘firewall’ (FT)
• Obama Speech to Embrace U.S. Manufacturing Rebirth, Energy for Job Growth (Bloomberg)
• EU Hits Iran With Oil Ban, Bank Asset Freeze in Bid to Halt Nuclear Plan (Bloomberg)
• China's Oil Imports from Iran Jump (WSJ)
• Croatians vote Yes to join EU (FT)
• Japan’s $130 Billion Fund Unused in Biggest M&A Year in More Than Decade (Bloomberg)
• Buffett Blames Congress for Romney’s 15% Rate (Bloomberg)

There was a time, about 4 weeks ago, when the overnight session was assumed by default to mean lower futures just because it was "the time of Europe." Then markets took one glimpse at the ECB's balance sheets and realized it had grown by more in 6 months than the Fed's during all of QE2, and decided that the central bank will not let the continent fail, and despite how ugly the European interbank market continues to be, Europe was ironically a source of optimism, no matters how ugly the actual news. In other words, a carbon copy of January 2011. Alas, January 2011 ended, and so is the currency phase of Risk On on everything European. Which explains the shift in overnight sentiment. As Bloomberg explains, the First Word Cross Asset Dashboard shows sentiment retracing from early European session rise, with commodities, FX, equities lower after Greek debt negotiations hit snag, according to Bloomberg analyst TJ Marta. EU finance chiefs balked at private investors’ offer of 4% coupon for new Greek bonds; EU wants lower; IIF’s Charles Dallara to hold press conference at 8:30am EST; EU equity indexes lower, led by OMX -1.6%; U.S. futures moderately lower, led by S&P -0.5%; US$ outperforming on risk aversion; Commodities generally modestly to moderately lower. Finally both Portugal, and thus Spain, are once again back on the radar screen. Only this time the Greek "deleveraging" model will not apply, as Zero hedge first noted, and as MUFJ picked up on in its overnight note: "It would likely be more difficult for “Portugal to restructure its private-sector debt than for Greece,” Bank of Tokyo-Mitsubishi UFJ’s Lee Hardman says, without necessarily noting where he got the idea. A higher share of Portugal’s outstanding debt is governed by English law which offers greater protection to creditors vs 90% of Greek government bonds covered by local law. Finally, Hardman says that Eurozone lacks a credible firewall to ensure contagion from eventual default in Greece. That may be the case until the ECB does some gargantuan LTRO on February 29, as those in the know already expect.

Back on December 30, we noted that a little known name in the US, but very well known in Europe, PetroPlus is having significant solvency issues as banks froze a $1 billion revolver. Less than a month later the situation has proceeded to the next evolutionary step, as Europe's largest refiner by capacity has announced it will file for bankruptcy protection. And while operations should not be impacted, the fact that this comes just as Europe imposes an oil embargo on Iran, virtually guarantees that the continent's gasoline prices, already among the highest in the world are likely to set off even higher, paradoxically even as end-market demand is at lows. The bankruptcy will also guarantee that European initial jobless claims will plunge, especially if the BLS opens a Brussels office and applies its own very unique brand of "logic" to Europe.

As of Q3 2011, the citizens of less than 20% of the countries involved in Nielsen's Global Consumer Confidence, Concerns, and Spending Intentions Survey were on average confident in their future economic confidence. Not surprisingly, Nic Colas of ConvergEx points out, six were in Asia, the least confident were in Eastern and Peripheral European nations, and furthermore overall global consumer confidence remains 9.3% below 2H 2006 (and 6.4% below Q4 2010) readings as the global economy still has a long way to get its 'mojo' back. Colas points to the fact that 'confidence is an essential lubricant of any capitalist-based system' and one of the key challenges that worst hit Europe (and other regions and nations) face is capital markets that are assessing the long shadow of the Financial Crisis of 2007-2008 and the ongoing European sovereign debt crisis impact on the world's Consumer Confidence.