Archive - 2012

To those who woke up on Saturday to images of a massive cruise liner keeled over following a very peculiar Friday night accident off the coast of Italy, no, this was not a prop for the latest James Cameron movie: it is the Carnival Corp's Costa Concordia, which carried over 4,200 passengers and crew, and foundered after hit a submerged rock off the Tuscan  island of Giglio in very calm conditions. At last count 11 passengers and 6 crewmembers were missing, with at least 6 confirmed dead as of last night. Here is what is known as of right now.

First we had news that out of the blue, the Western embargo against Iranian oil exports would be delayed by 6 months, and now, in the aftermath of last night's developments out of Iran which blamed the CIA for the murder of its nuclear scientist we get this (from Bloomberg):

• ISRAEL, U.S. POSTPONE MILITARY EXERCISE, ISRAEL RADIO SAYS
• JOINT EXERCISE POSTPONED FOR BUDGET REASONS, RADIO SAYS
• U.S.-ISRAELI EXERCISE PLANNED TO BE BIGGEST EVER, RADIO SAYS
• EXERCISE WAS TO TAKE PLACE IN NEXT FEW MONTHS, RADIO SAYS

And just so it doesn't look like a total cave in:

• ISRAEL SAYS JOINT U.S. MILITARY EXERCISE STILL UNDER DISCUSSION

As a reminder Iran made it very clear an escalation in joint US-Israel war game cooperation would be met with yet another miliary exercise out of Iran.

Why aren't the deciders in D.C. thinking about "out of the box" ideas like this?

While on one hand we get news from Nigeria that the government and the labor unions have failed to end a labor strike, raising the prospect of a halt of all production in the country which produces 2.4 million barrels of oil per day or roughly the same as Iran exports, we now find out that the US attempt at de-escalating tensions with Iran (following Thursday's news of an extension in the oil embargo deadline by 6 months - one would almost think Obama realized $5.00 gas may be an issue with the election looming) may have failed massively, and it is now Iran's attempt to score political brownie points knowing well it has all the advantage. As EA WorldView reports, instead of backing away from last week's sensitive issue of the assasination of a nuclear scientist, Iran has ripped the scab right off the wound and its foreign ministry has boldly proclaimed that it has "reliable documents and evidence that this terrorist act was planned, guided and supported by the CIA. The documents clearly show that this terrorist act was carried out with the direct involvement of CIA-linked agents." So the ball is now squarely back in America's court, and any further attempts at appeasement, such as the embargo extension was perceived as being, will merely serve to make US foreign policy appear even more toothless. Which Hillary will hardly stomach. So we may well be back at square one (only this time with two aircraft carriers in the Arabian Sea instead of just one).

Periodically refreshed without commentary.

When back in August, Europe declared a short selling ban of any financials (here we are willing to channel Romney, and make a $10,000 bet with anyone that said ban will never be lifted), and which as we predicted has had no favorable impact on bank stocks which have since tumbled, we suggested that the next step will also be the final one: the passage of laws prohibiting sales of any kind. As usual we were partially joking. And as so often happens, we are about to be proven right again. As the FT reports in its headline article today, whose gist is simple enough, that Europe is on the verge, it is the tactically-placed final paragraph that is of particular curiosity. It says the following: "Speaking on the fringes of a start-of-year retreat of her Christian Union lawmakers in the city of Kiel, Ms Merkel said she would consider calls from her party colleagues for legislation to bar institutional investors such as insurance companies from selling bonds when ratings were downgraded, or fell below investment grade." Allow us to recopy and repaste the key part: "legislation to bar institutional investors such as insurance companies from selling bonds."

When these two agree, look out!

Coffee Banned!

For anyone convinced that yesterday's S&P two notch downgrade of Spain to A is the last one for a while, we have some bad news: in Q4 Spanish unemployment soared by the most since the Lehman collapse, hitting what new PM Mariano Rajoy called an "astronomical" 5.4 million. This compares to 4.978 million people unemployed at the end of Q3 2011. Since the official number is not yet public and will be released on January 27 we will take his word for it. In which case it becomes clear that in Q4 the Spanish economy experienced a Lehman-like collapse, losing more than 400K people, or the most since the bankruptcy of Lehman brothers. In percentage terms this means that Spanish unemployment rose by a ridiculous 2%, or from 21.5% to 23.3%, in one quarter! And since Spain is a country of the Keynesian persuasion, we can only assume the number includes a whole bunch of meaningless birth/death and seasonal adjustments, but we'll leave it at that. Incidentally, it means that by the time the mean reversion exercise, with cost-cutting and what not is complete, Spanish unemployment will be well north of 30%, and 2 out of 3 people aged between 16 and 25 will be out of a job, if ot more. It also begs the question just what the real unemployment picture in the US, which lately has put the Chinese Department of Truth to shame, would be if reported on a realistic, unadjusted, and not "workforce contracted" basis. The chart below shows you everything you need to know.

In an interview with Italian newspaper Milan Finanza on Saturday, JP Morgan CEO Jamie Dimon said that he could lose up to $5 billion from the firm's exposure to the PIIGS countries. As Reuters reports, "Dimon said the bank was exposed to the five countries (PIIGS) to the tune of around $15 billion. "We fear we could lose up to $5 billion ... We hope the worst won't happen, but even if it did happen, I wouldn't be pulling my hair out," he said. Dimon said Europe was the worst problem for the banking sector. "But the EU and euro are solid even if the states will have to be financially responsible and do all they can to develop common social policies," he said." While it is admirable of JPMorgan to disclose some of its dirty laundry, as this was a topic that received hardly any mention in the firm's prepared quarterly release, and is predicated surely by the fact that its Basel III Tier 1 Common of $122 billion dwarfs this possible impairment, there are some questions left open. Such as what happens if and when Greek CDS, now most likely before March 20, were triggered? And the logical follow up - what happens when Portugal, Ireland, Spain and Italy, and who knows who else (Hungary?) follow suit and decide that a coercive restructuring is actually not suicidal, even though it most certainly is once a given threshold is reached. In other words, how long can Europe tolerate the same two-tiered sovereign debt market that S&P warned about so explicitly yesterday? Finally what happens to JPM's Tier 1 Common when the European dominos impact not only the directly exposed PIIGS nations, and specifically their bonds, but all those other banks, insurance and reinsurance companies, whose current viability makes up the balance of JPM's remaining $117 billion in Tier 1? Because in its essence, stating that JPM is "fine" even if Europe were to collapse is analogous to Goldman telling Congress it would collect on its AIG CDS if and when the CDS market were to implode absent the government bailout of AIG, which itself was accountable for over $2 trillion of the entire CDS market itself.

More reasons why quality blogs should be staple fodder for those who are serious about real information and analysis. Now reporters, editors, bankers, analysts, managers, politicos & regulators frequent blogs. Do you wonder why?

Pres. Barack Obama has launched new international diplomatic poker with “a trailing hand”. It is impossible to exaggerate the forces at play, economic as well as political, foreign and domestic, and their interplay.

Hope is soaring. But the toughest creature out there, the one no one has been able to subdue yet, has other plans.

Are countries which want to trade in their own currencies or to own their own central banks getting spanked ?

All your questions about the historic European downgrade should be answered after reading the following FAQ. Or so S&P believes. Ironically, it does an admirable job, because the following presentation successfully manages to negate years of endless lies and propaganda by Europe's incompetent and corrupt klepocrarts, and lays out the true terrifying perspective currently splayed out before the eurozone better than most analyses we have seen to date. Namely that the failed experiment is coming to an end. And since the Eurozone's idiotic foundation was laid out by the same breed of central planning academic wizards who thought that Keynesianism was a great idea (and continue to determine the fate of the world out of their small corner office in the Marriner Eccles building), the imminent downfall of Europe will only precipitate the final unraveling of the shaman "economic" religion that has taken the world to the brink of utter financial collapse and, gradually, world war.