Archive - Nov 28, 2012

Greece and the grand machinations of the European Union came to mind as it occurred to me that all of the fine points aside; Greece had become a ward of the State. The math doesn’t even add up so it can be said that it was a poor attempt at hide-and-seek but we suppose it was the best they could do given their skill-set these days. As you watch the antics of the politicians in Spain you realize that they are first cousins to the Greeks. Prime Minister Rajoy and his merry band of henchmen are playing the same tunes as we have all heard before. The reasons that Spain has not come begging for alms yet is not too complicated. They don’t want to be audited by the Troika, God forbid, they want no one peering at the actual state of their Real Estate market, they don’t want anyone but paid flunkies examining their banks. The ECB will save the world subject to the decisions of Europe’s political leaders. Saving the world is a good thing and keeps getting promised by virtually every religious leader for the past several thousand years; the second Spanish Inquisition is about to begin and the zealot may be found wanting.

Where will the €10bn for the buyback come from? This is far from clear but it is hard to imagine it being found anywhere other than the bailout funds, meaning a new transfer of around €9bn will be needed. This again poses significant political problems as leaders in Germany, the Netherlands and Finland (to name but a few) try to convince their parliaments (and public) that this is not more money into a black hole. It has been suggested that some of the other mechanisms mentioned below could be used to fund the buyback, but this looks impossible since they are being tapped to fill the existing funding gap. These substantial obstacles to a successful debt buyback are crucial since the IMF has already stated its on-going participation in the Greek bailout hinges on this policy. The likes of Finland and the Netherlands have also previously stated that IMF involvement is requirement if they are expected to continue to aid Greece. With a plan on the buyback expected to be in place by 13 December, to allow for the release of the next tranche of bailout funds, this deal could hit a wall even sooner than many expected.

It turns out the topic of today's much expected conference call originating at 72 Cummings Point Road Stamford, is what many already knew yesterday, namely that the SEC has warned SAC that after years and years of pursuits, the enforcer is finally getting close in for the kill, and has sent a Wells Notice, usually a first step before civil charges are filed.

• SAC SAID TO TELL CLIENTS IT GOT WELLS NOTICE FROM SEC LAST WEEK

The notice will be filed against the holdco, implying Cohen himself will be implicated, instead of just the CR Intrinsic OpCo where Martoma worker. Usually the SEC does not file Wells Notices without sufficient backing, so this may finally get interesting. But we are not holding our breath. One needs to simply recall how the SEC bungled its CDS insider trading case vs Millennium and Deutsche to see how the endgame here could well be another epic humiliation for the soon to be Schapro-less regulator.

Harry Reid’s publicly displayed dismay at the lack of progress in the fiscal cliff negotiations finally injected a dose of realism into the process after investors threw caution to the wind and seized on the optimism offered by the Senate Majority Leader and Speaker Boehner on November 16.  We view yesterday’s sound bite as more negative than the aforementioned statement on the White House Lawn, for we now sit 11 days closer to the New Year’s deadline.  Despite this asymmetry, equities suffered only moderate losses giving up just a modicum of the gains from last week. The relative lack of a response to the comments seem puzzling given the price action from the prior several days; however with month end looming, enough buyers kept stocks from selling off violently. My November 13 “Missive” outlined a game theory exercise that suggests this rancor will continue until very late into December and/or the capital markets dislocate thereby ensuring either a falling over the cliff or a band aid solution to avoid the crisis temporarily.  Both parties unfortunately may assume that by agreeing to postpone the tough decisions, they will have prevented a rout in equities; however, the August, 2011 precedent of raising the debt ceiling out of desperation hints otherwise.

Presented with no comment...

Currency wars are set to intensify as the US Senate is considering new sanctions against Iran that would prevent Iran getting paid for its natural resource exports in gold bullion. The new sanctions aimed at reducing global trade with Iran in the energy, shipping and precious metals sectors may soon be considered by the U.S. Senate as part of an annual defense policy bill, senators and aides said on Tuesday, according to Reuters. The sanctions would end "Turkey's game of gold for natural gas," Reuters reported a senior Senate aide as saying, referring to reports that Turkey has been paying for natural gas with gold due to sanctions rules. The legislation "would bring economic sanctions on Iran near de facto trade embargo levels with the hope of speeding up the date by which Iran's economy will collapse," the aide said. Last week Turkish Deputy Prime Minister Ali Babacan has revealed a critical detail about a widely discussed Turkey-Iran gold trade boom, disclosing that the Islamic republic was exporting gas to Turkey in exchange for payment in gold bullion. It is also reported that Iranians are buying Turkish gold with the Turkish Lira, which is deposited into their bank accounts in exchange for Turkey’s natural gas purchases, the deputy prime minister said at midnight Nov. 22 during a parliamentary session. Iran cannot transfer monetary payments to Iran in U.S. dollars due to U.S sanctions against the country’s alleged nuclear weapons program. Iran has been forced to shun the international financial system and the petrodollar as means of payment and turn to the international gold market to ensure it gets paid for its natural resources in order to prevent absolute economic collapse.

• Egypt protests continue in crisis over Mursi powers (Reuters)
• Greece hires Deutsche, Morgan Stanley to run Greek voluntary debt buy back, sources say (Kathimerini)
• Executives' Good Luck in Trading Own Stock (WSJ)
• Hollande Presents Mittal Nationalization Among Site Options (Bloomberg)
• Eurozone states face losses on Greek debt (FT)
• Spain's rescued banks to shrink, slash jobs (Reuters)
• EU Approves Spanish Banks' Restructuring Plans (WSJ)
• At SAC, Portfolio Managers Are Treated Like Stocks (BBG)
• China considers easing family planning rules (Reuters)
• European Court to Rule Over ECB’s Secret Greek File (BusinessWeek)
• And another top tick indicator: Asia Funds Buy London Offices in Bet Volatility Is Past (Bloomberg)
• Harvard Doctor Turns Felon After Lure of Insider Trading (BBG)
• Zucker Is Lead Candidate to Head CNN (WSJ) - it's not true until CNN misreports it
• Iran "will press on with enrichment:" nuclear chief (Reuters)

It seems like it was only 24 hours ago that Europe bailed out Greece for the third time and everything was "fixed", with a resultant desperate attempt to validate this by pushing the EURUSD above 1.3000. Sadly, as always happens, Europe, and especially Greece, refuses to be fixed, because as we will not tire of saying: you can't fix debt with i) more debt, ii) hockeystick projections or iii) soothing words of platitude and an outright bankruptcy, just like that which Argentina is about to undergo, will be needed. If that means the end of the EUR and the delusion that the Eurozone is a viable monument to the egos of a few technocratic career politicians, so be it. As a result, this time around the halflife of the latest bailout was precisely zero, as was that of the latest Japanese QE episode, as the entire world is now habituated to the lies emanating from Europe, and demands details, which in turn are sorely lacking, especially as relates to the question of just where will Greece get the money desperately needed to fund the Greek bond buyback. But at least Kathimerini was kind enough to advise readers that said buyback must take place by December 7 in time for the euroarea finmins to approve the payment of the next Greek loan tranche at the December 13 meeting, something which will likely not happen, especially if Germany's SPD party delays the vote on the Greek bailout until the end of December as was reported yesterday. We can't wait to learn the details of the buyback package, which will come in the "next few days" per ANA, and especially where the buyback money will come from, especially with the FT reporting that various European countries will already lose money next year on the latest Greek bailout.

This EU juggler simply has too many balls in the air...

Every country with a central bank is by definition and without exception a currency manipulator.
Every country that devalues its country to boost exports is a currency manipulator.
Every country that bails out banks is a currency manipulator.
Every central bank purchase of treasury securities, mortgage-backed securities or equities is currency manipulation.
Every central bank that inflates away treasury debt is a currency manipulator.
And that is why America would look clownish and absurd to label China a currency manipulator, when China can throw back the exact same accusation even more forcefully. China holds trillions and trillions of dollar-denominated assets.

As we hear more and more pundits talk about the soaring consumer confidence, the "recovery", and how the fundamentals are improving, keep in mind that retail investors are still not in equities