September 12th, 2011
It is not often that you can look at stock futures implying an open of down more than 1% and wonder why they are so optimistic. European credit can be summed up as "the horror, the horror, the horror". XOVER hit 808 or 35 wider on the day. Main is at 202, or +11. Financials are a mess - Fins Snr is 315 or +22 on the day. All are back to near their wides. SocGen stock is below 16 and DB was down almost 10% and 46% on the year. And that was the good news! Greek bonds are dropping again. Yield is largely meaningless for Greece, but it is still eye-catching to mention that Greek 1 year bonds yields more than 100% at a price of 53.5% of par. With the 10 year bonds at 45% of par, the yield inversion is almost over, and the next phase is for the market to create a rumor that Greece is going to be trading "flat" (trading with no accrued is the final step before default).
In the chart below, for all intents and purposes, green means red. Also, the probability of Greek default according to at least one data service is a little over 100%.
Can the NYSE Boerse merger close quicker so some of that vaunted German engineering can finally come to the NYSE Liffe and it stops breaking every 5 minutes when the market drops?
There has been a sharp increase in risk aversion with the euro and stocks internationally falling sharply due to concerns about the coming Greek default and the real risk of contagion in the Eurozone. The euro got off to a rocky start in Asia, falling to fresh six-month lows against the dollar and a 10 year low on the yen as downside momentum picked up after several key technical levels gave way recently. Gold could see weakness today due to dollar strength and the possibility of margin calls for leveraged players on the COMEX. However, bargain hunting bullion buyers are present at these price levels and gold is likely to be supported above $1,800/oz. While dollar strength would normally result in gold weakness it is very possible that both the dollar and gold could rise together in the short term. This would result in gold making sharper gains in pounds, Swiss francs, euros and other fiat currencies. France’s largest banks by market value, BNP Paribas SA, Societe Generale SA and Credit Agricole SA, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of their Greek holdings. Officials in Merkel’s government are debating how to shore up German banks in the event that Greece defaults. Merkel is due to hold talks on the debt crisis with European Commission President Jose Manuel Barroso today. The risk of contagion in the Eurozone sovereign, banking and entire financial system is very real and will result in continuing safe haven demand.
Holy Shitshow: Recordathon In French Bank, European CDS Following Atriocious Italian Bond Auction, Dexia Bail Out, Libor ExplosionSubmitted by Tyler Durden on 09/12/2011 07:19 -0400
As we speculated on Friday, Europe has opened, and it is ugly. In fact, Europe has never been closer to a bank and market holiday than it is right now. Why? Let's go down the list...
How good is ECB at buying Eurozone Bonds? First couple of days, they are in the money, but.....
After a brief push back above Friday's lows, ES is back down to the early overnight lows (-17) just in time for the opening of Europe. Early runs on ITRX Main show +10bps at 198/200bps, XOver breaking 800bps (+35bps), and SovX +23bps to 333bps - not pretty (and worse than simply catch up to late Friday's demise). Financials continue to bear the brunt but non-financials are getting dragged out now more and more.
HSBC's David Bloom: "Gold Is The Only Safe Haven Asset That Will Not Do QE, Put In Capital Controls Or Complain"Submitted by George Washington on 09/12/2011 00:25 -0400
Barbarous relic, ftw ...
Let's be clear!
Let us speak in praise of flexibility, and avoid the siren songs of false precision and certitude. Let us confess that the situation globally and in Europe is unprecedented and thus intrinsically unpredictable; predictions based on the past or models plucked from the ether may prove to be not just inaccurate, but disastrously misleading to all those who put store in them. A flexible outlook avoids the temptations of zealotry, which in these times often takes the form of stating what is "impossible" (i.e. near-zero probability) and what cannot possibly happen--even if it has already happened. The only realistic prediction that can be made about the next few months is that events will be unpredictable. What we see, think and believe as near-certainties now may be undermined by events and new data. The greatest assets going forward may well prove to be flexibility, adaptability, humility and openness to low probability events suddenly transpiring despite previous estimates of their relative impossibility.
Looking at the weekly chart on Gold (vs. USD), the sell-off from two weeks ago at the rejection of $1900 was impressive not so much in how much it dropped in a single week, but on how well it recovered. The following act in the next week was a solid weekly gain of 3.4% from an opening price of $1822 - 1864 closing towards the highs suggesting buyers were holding into the weekend and thus not taking profits. The following week was a sell-off but very mild in nature and a third week of price rejecting off the weekly lows. Three weeks of selling and three weeks of strong rejections off the lows clearly communicating to us anytime the shiny metal is sold off, buyers are eager to come back in. And each time, they are doing so with more confidence because every time, they are buying at a higher price suggesting they are happy to take any dips as an opportunity to buy (or invest/hold) more gold.
Like a Swiss watch, Goldman's Jim O'Neill, who refuses to acknowledge that decoupling between the US and the BRICs not only never existed, but was always a flawed premise to begin with, has released his latest dose of Kool-Aid, in which he bets the horse track on, you guessed it, Chinese decoupling.... Sigh. Then again what can one expect: just like Bernanke will keep trying QE until QE succeeds (it won't) or the market breaks; and just like the Krugmanites will keep pushing for an ever bigger fiscal stimulus (because the last one is never big enough, regardless of how big it is), why should one expect the latest addition to Goldman's biggest loss leader (GSAM) be any different. And what makes this particular episode not only tragic but very much comic, is that the former "Red Knight" now sees the Chinese launch of a fully convertible and floating Yuan by 2015 as the panacea to the US stock market, and Goldman bonus doldrums (because when one cuts to the chase, that's really what it's all about). Little does it bother the BRICer that the advent of a new reserve currency would have a devastating impact not only on existing risk markets, but on so-called risk free ones as well. Remember that 0.000% yield on last week's 4 week bond auction? Yeah... that would not come back. Ever. Anyway, with the upcoming week sure to provide significant tears, especially to European readers, here is at least some comic relief (yes, O'Neill does in fact "applauds" the move by the pegging move by the SNB - apparently loading up the asset side of your balance sheet with toxic paper which may or may not exist post the Greek expulsion is considered prudent when one is a Goldman partner) to start it off with.