Archive - Dec 19, 2012

A few days after divesting its stake in the firm that started it all, AIG, and at a profit at that (ignoring that the risk has merely been onboarded by the Fed whose DV01 is now $2+ billion as a result), the US Treasury continues to divest of all its bailout stake, this time proceeding to GM, where the channel stuffing firm just announced it would buyback 200MM shares from the US government at a price of $27.50. More importantly, the "Treasury said it intends to sell its other remaining 300.1 million shares through various means in an orderly fashion within the next 12-15 months, subject to market conditions. Treasury intends to begin its disposition of those 300.1 million common shares as soon as January 2013 pursuant to a pre-arranged written trading plan. The manner, amount, and timing of the sales under the plan are dependent upon a number of factors." Assuming a price in the $27.50 range, this implies a nearly 50% loss on the government's breakeven price of $54. So much for the "profit" spin. One hopes all those Union votes were well worth the now booked $40+ billion cost to all taxpayers.

For those curious why many people are scratching their heads how the market cap of Bank of America has nearly doubled in the past year, here it is: "Bank of America Corp. has amassed $64 billion of mortgages that are at least six months delinquent and have yet to enter foreclosure, more than twice the amount held by its four largest competitors combined." $64 billion is more than half the market cap of Bank of America as of this moment. 

• Republicans put squeeze on Obama in "fiscal cliff" talks (Reuters)
• Inquiry harshly criticizes State Department over Benghazi attack (Reuters)
• Banks See Biggest Returns Since ’03 as Employees Suffer (BBG)
• Italy president urges election be held on time (Reuters)
• Bank of England Says Sterling Hurting Economy (WSJ) - there's an app for that, it's called a Goldman BOE chairman
• China slowdown hits Indonesian farmers (FT)
• China dispute hits Japanese exports (FT)
• Market to get even more monopolized by the HFT king: Getco wins Knight with $2 bln sweetened offer (Reuters)
• MF Global Cases Focus on 'Letters' (WSJ)
• UBS fined $1.5 billion in growing Libor scandal (Reuters)
• Spotlight swings to interdealer brokers (FT)
• China Widens Access to Capital Markets (WSJ)
• With Instagram, Facebook Spars With Twitter (WSJ)

Those curious why the EUR is back to highs not seen since April, it appears the reason is because Europe's currency is once again directly collateralized by such money good assets as Greek Sovereign bonds. At least the farce that is the "temporary" indirect bailout of Greece via the ELA can finally end.

Blah blah Fiscal Cliff blah. Blah blah blahdy blah Cliff. Cliff blah blah republicans blah democrats blah blah blah blah. Blah blah blah blah, blah blah, blah blah blah blah blah, blah blah, Cliff. Blah blah blah blah, blah blahdy blah.... Blah.

This week's pattern remains intact. The US dollar continues to trend lower against the European currencies, but is firmer within the dollar-bloc and against the yen. Spanish and Italian bond yields are lower, while the long-end of the Japanese curve is heavy. Equity markets are finishing the year with a firm note, with board gains in Asian, with the notable exception of Shanghai and Jakarta, and in Europe, with the exception of Stockholm. The euro is at 7-month highs today, pushing toward $1.3300. The next target is near $1.3385. Sterling has been bid to near the year's high set in late September just above $1.6300. There is little chart resistance until closer to $1.6500. The dollar's slide against the Swiss franc has extended to CHF0.91 and appears headed for CHF0.9000. The dollar-bloc is not participating in this move against the greenback. This week, for example, the New Zealand dollar has fallen as almost as much as the yen (1.03% and 1.08% respectively). The Australian and Canadian dollars are off 0.04% and 0.57% respectively. There are a few macro-developments to note:

Investors in the TBTF banks need to understand that the business model for this industry has changed.  Thank Liz Warren