Archive - 2015

The US markets are just waking up to the bright red margin calls but the carnage in Switzerland remains. The Swiss Market Index plunged almost 15% on the SNB news (and is bouncing back modestly) to 3-month lows (Bullard lows) before bounciung back modestly. The Swiss yield curve has been crushed 10-20bps lower with yields negative all the way out to 9 year maturity... EURCHF is holding 1.02 for now...

Anyone who continues to believes in the all powerful CB after today is a fool.

Chaos was seen in financial markets today as participants were thrown a curveball with the SNB 'reset'. In just 13 minutes, from 0930 to 0952 BST, the franc collapsed by 30%. Swiss shares fell more than 12% - their largest crash since 1987. Stock markets around Europe fell with investors buying "safe haven" assets such as German bunds and gold bullion ...

The other question is about the cost of today's decision for the SNB, both in monetary and credibility terms. The SNB is holding roughly half of their CHF500bn in euros, which implies a loss of possibly not dissimilar to the CHF38bn that the SNB made in profit last year. The monetary impact might thus be manageable. The credibility impact might be harder to gauge though. Domestically, many economic actors relied on what was seen as a 'promise' to hold the 1.20 floor. Internationally, following the negative rates confusion back in December today's decision might be further undermined the standing of the SNB among investors.

Following disappointing results from JPM and Wells Fargo yesterday, it was Bank of America's turn to "surprise" investors with its disclosure just how bad its quarter was. And with the bank reporting a 50% collapse in its sales and trading from Q3, down $600 million from a year ago to just $1.7 billion in Q4, it should come as no surprise that the bank just reported Net Income, before the usual spate of amusing addbacks, of $0.25 well below the $0.31 expected. And while one may argue whether ot not BofA's EPS deserve non-GAAP adbacks, it was the Revenue of $18.96 billion, which missed expectations of $21.03 billion by over $2 billion (!) and down $2.7 billion from a year ago, that was truly a showstropper and shows that without the Fed's visible hand manipulating markets every day, banks are a ticking time bomb just waiting to blow.

How will the US government fund a sudden additional shortfall of $281 per American per year?

To paraphrase a trader who walked into the biggest FX clusterfuck in years, "it's total, unprecedented market turmoil."  So while the world gets a grip on what today's historic move by the SNB means, which judging by the record 13% collapse in the Swiss Stock Market shows clearly that the SNB market put is dead and the SNB may be the first central-banking hedge fund which just folded (we can't wait to see what the SNB P&L losses on its EURCHF holdings will be), here is what has happened so far for anyone unlucky enough to be walking into the carnage some 2 hours late.

Over a decade ago, George Soros took on the Bank of England, and won. Less than two hours ago the Swiss National Bank took on virtually every single macro hedge fund, the vast majority of which were short the Swiss Franc and crushed them, when it announced, first, that it would go further into NIRP, pushing its interest rate on deposit balances even more negative from -0.25% to -0.75%, a move which in itself would have been unprecedented and, second, announcing that the 1.20 EURCHF floor it had instituted in September 2011, the day gold hit its all time nominal high, was no more. What happened next was truly shock and awe as algo after algo saw their EURCHF 1.1999 stops hit, and moments thereafter the EURCHF pair crashed to less then 0.75, margining out virtually every single long EURCHF position, before finally rebounding to a level just above 1.00, which is where it was trading just before the SNB instituted the currency floor over three years ago.

In what has been the most anticipated bankruptcy case in the past several years, hours ago Caesars Entertainment put its main operating unit under Chapter 11 bankruptcy protection in Northern Illinois bankruptcy court (case 15-01153) even as a splinter group of dissident creditors including Appaloosa and Oaktree, holders of about $41 million of Caesars debt and which allege the company has siphoned off billions in value from creditors, put the company into involuntary bankruptcy in Delaware bankruptcy court on January 12. As a reminder, Caesars was one of the sterling LBOs of the last credit bubble, when in 2008 Apollo and TPG decided to take the company private. The problem, as is always the case: too much debt, especially when combined with a broken business model, as Caesars has lost money every year since 2009.

When the price of crude started its self-reinforcing plunge, such a death would happen whether the petrodollar participants wanted it, or, as the case may be, were dragged into the abattoir kicking and screaming. It is the latter that seems to have taken place with the one country that many though initially would do everything in its power to have an amicable departure from the Petrodollar and yet whose divorce from the USD has quickly become a very messy affair, with lots of screaming and the occasional artillery shell. As Bloomberg reports Russia "may unseal its $88 billion Reserve Fund and convert some of its foreign-currency holdings into rubles, the latest government effort to prop up an economy veering into its worst slump since 2009." "Together with the central bank, we are selling a part of our foreign-currency reserves,” Finance Minister Anton Siluanov said in Moscow today. “We’ll get rubles and place them in deposits for banks, giving liquidity to the economy."

The U.S. now ranks not first, not second, not third, but 12th among developed nations in terms of business startup activity as Gallup CEO Jim Clifton rages, for the first time in 35 years, American business deaths now outnumber business births. Wall Street, Clifton explains, needs the stock market to boom, even if that boom is fueled by illusion. So both tell us, "The economy is coming back." Let's get one thing clear, he exclaims, "this economy is never truly coming back unless we reverse the birth and death trends of American businesses."

The French are disarmed and utterly socialized. Millions of them march in Paris in a display of solidarity, but solidarity behind what solution? Even more government; the same government that created the problem in the first place? Even more centralization? The globalization of despotic security policies? The French have dug their grave, and now they are going to have to lie down in it. Americans do not have to follow the same path. We do not need more government. We do not need more surveillance, more police militarization or more troops on the streets. Make no mistake, many illusions are about to be shattered. You can be caught up in the storm as a helpless spectator and victim or you can become a barrier.

It's Different This Time... (for now)...

For uber-wealthy Russians, "an apartment in Miami, even the most glorious beachfront apartment, is not a priority right now," warns one real estate attorney, as The New York Observer reports Russian buyers no longer felt they had the liquid assets to carry on with the transaction and were looking to break closed real estate contracts. "Your average Russian buyer tends to be someone who works in the $5, $10, $15 million range. Obviously very wealthy people, but also people who are much more likely to feel a pinch given the economic situation and the exchange rate," and with maintenance costs sky-high, the trophy apartments have shifted from 'safe-deposit-boxes' out of reach of sanctions to burdensome drains.

For the 2nd month in a row, home prices in Calgary - corporate hub of Canada's oil industry - have fallen. This is the biggest 2-month-drop in almost 2 years (and comes on the heels of yesterday's news that Suncor is slashing jobs and capex). As Bloomberg reports, Bank of Canada Deputy Governor Tim Lane said yesterday development of the more expensive deposits are threatened by lower crude oil prices. "The dive in energy prices will put pressure on house prices in the Western provinces in the coming months," warns one economist and as the following chart shows, more pain is likely...