November 21st, 2012
The Telegraph reports that George Osborne thinks big banks are good for society. Why would Osborne want to see more of something which requires government bailouts to subsist? Because that is the reality of a large, interconnective banking system filled with large, powerful interconnected banks. Under a free market system (i.e. no bailouts) the brutal liquidation resulting from the crash of a too-big-to-fail megabank would serve as a warning sign. Large interconnective banks would be tarnished as a risky counterparty. In the system we have (and the system Japan has lived with for the last twenty years) bailouts prevent liquidation, there are no real disincentives (after all capitalism without failure is like religion without sin — it doesn’t work), and the bailed-out too-big-to-fail banks become liquidity sucking zombies hooked on bailouts and injections.
“Ban” in the San Francisco sense....
When it comes to government bailout case studies, the past four years have plenty. One among them is the financial company jovially called Ally - a name which well-paid nomenclature consultants were convinced would inspire confidence and trust. And to an extent they were right - after all we are talking about a firm which several years ago had a far more unpleasant name: GMAC, short for General Motors Acceptance Corporation. It was GMAC which, as one of the various entities on the receiving end of involuntary taxpayer generosity in 2008/2009, received a $17.2 billion bailout. The reason for GMAC's Ally's collapse is that the firm was loaded up to the gills on various subprime and other NINJA auto-financing loans used to purchase cars made by that other spectacular collapse: General Motors, maker of such external combustion vehicles as the Chevy Volt. Over the past several months the Ally CEO, Michael Carpenter, decided to little by little start paying taxpayers back, having sold a Canadian unit to RBC in October for $4.1 billion, and its Mexican Insurance business to Ace Ltd for $865 million. Moments ago the firm just announced it would be selling its international auto-finance businesses, including its operations in Europe, LatAm and a 40% stake in its Chinese JV (a business it previously said it would not seek to divest), for a total of $4.2 billion. The buyer? Another previously bailed out company, and one which still counts the government as its biggest shareholder: General Motors. And so the vendor financing circle is now complete, with GM finally reuniting with its old captive finance units, or at least the international part of them, which were fully owned until GM sold 51% of it to Cerberus in 2006, after which everything went to hell.
2012 was a tough year for some European government bond markets (Spain +100bps). Even with the rallies of the last few months, we remain dramatically wider than at the beginning and primary issuance is becoming increasingly reliant upon domestic bank reacharounds and/or ECB handouts. UBS expects 2013 to be similar in terms of gross supply to 2012 (around EUR 772bn) and aggregate net supply to fall slightly to EUR 208bn. However, these modest improvements overall (driven by drops in France, Germany, and Holland gross issuance) hide the biggest concern. Spain's gross (and net) issuance is likely to rise to EUR 124bn in 2013 (up 20% over 2012!) and Italy's net supply will rise notably next year (even with significant redemptions). Portugal, also faces a very significant increase in net supply in 2013.
Occasionally history repeats. Sometimes history rhymes. Just One Year Ago, the market world was saved... Happy Thanksgiving (and Hope-taking)
S&P 500 futures saw the lowest non-holiday trading day volume of the year and the lowest average trade size of the year also but capped a four-day win streak (biggest in four months) with small gain. The overnight plunge in futures (on EUR weakness following the Greek #Fail) was entirely retraced - slowly but surely but once Europe closed, the US was dead. Treasury weakness and EUR strength (JPY weakness) were the correlated drivers of equity exuberance today, oil flip-flopped in its non-believing 'cease-fire' way (recoupling with gold on the week); Silver surged; and credit tended to track stocks but HY modestly outperformed (though HYG closed red). VIX traded with a 14 handle briefly but ended +0.3 vols at 15.4%. Stocks (especially the big bellwethers) tracked VWAP all afternoon as all but Johnny-5 had left the building. HP Bonds cracked, AAPL green, SPY green, HYG red, VXX green, volume negligible - that is all.
Massive Social Media War
- HOSTESS JUDGE APPROVES MOTION TO WIND DOWN COMPANY
- HOSTESS WINS APPROVAL TO CLOSE AND BEGIN SELLING ASSETS
Next up: the Twinkie economy.
For anyone interested, here is the presentation that Autonomy and its infamous banker, Frank Quattrone (currently of Qatalyst - a bank best known for "borrowing" the templates and stylesheets of the investment banks its current employees previously worked at - and previously of "extended Wall Street sabbatical" which was cancelled so he would bring such quality deals as the sale of Palm to HPQ and, of course, Autonomy to HPQ) used to pitch Autonomy to Oracle, which led to a less than hospitable response by multi-billionaire Larry Ellison.
Few would argue that markets are almost entirely apathetic to even the worst and most negative of headlines in this post-crisis world. As we noted earlier, it seems we are 'shell-shocked' at a 'recovery' that UBS describes as 'not exactly an uplifting experience' – global growth went straight from 'collapse' to 'mid cycle' without ever enjoying the healing properties normally associated with a one to two year recovery process. For economists, one interesting question is whether this 'new normal' is unduly influencing economic sentiment. We would somewhat expect traders/managers to be behaving in an increasingly agitated manner; jumping at sudden noises, overreacting to shifts in economic data and generally exhibiting signs of stress, economic hysteria, and volatility. In reality, both consumers and businesses have become quite blasé about the economy. Sentiment is actually a lot less volatile than the economic circumstances would normally suggest it should be, and so (via UBS) we present 'The Indifference Indicator' to track just how 'subdued' regions have become.
The Latest Greek "Bailout" In A Nutshell: AAA-Rated Euro Countries To Fund Massive Hedge Fund ProfitsSubmitted by Tyler Durden on 11/21/2012 15:06 -0400
What is the latest state of play that has the biggest support from all parties? It appears that the plan which is now back in play, is one which Greece had previously nixed, namely a partial Greek bond buyback of the private bonds at a discount to par: with numbers currently rumored anywhere between 25 cents and 50 cents on the euro. And even if Greece agrees with this proposal, there is a question of where Greece will get the money for this distressed debt buyback? After all Greece is completely broke, and any new cash would have to be in the form of loans, as not even the most nebulous interpretation of the Maastricht treaty would allow an equity investment, or to use the proper nomenclature, "a fiscal investment" into Greece. But the kicker is when one traces the use of funds. Because what is will happening is a payment not to Greece, obviously, but to its creditors: entities which for the most part are hedge funds, and which have bought up GGB2s in the mid teen levels as recently as 4 months ago (recall Dan Loeb's major position in Greek bonds).
A mass exodus from ignorance and organized opposition to tyranny is the dream of every freedom loving person within the Liberty Movement today. We would like nothing better than to put an end to the expanding establishment police state in the most peaceful manner possible. The reason why peaceful and popular activism almost never occurs successfully falls not only to the establishment elites who seek out and abuse power; there are others who share in the blame. Regardless of the age, the culture, or the social conditions, there is ALWAYS a percentage of the general populace that embraces the totalitarian dynamic. They are not only useful idiots; they are conscious participants in the process of pacification and enslavement of their own society. During the blackest moments of mankind, they are the willing tools of oppression. As America faces down wave after wave of fiscal difficulties, a government gone rogue with false left/right politics, and policies that disregard civil liberties for the sake of centralized authority, so the statist thugs of our time will soon flow out of the dark recesses of our society. We all know them when we see them, but do we really understand what makes them tick? Here are some common psychological attributes of the overzealous statist; the failings and inadequacies that make him what he is...
Following yesterday's news that the Hostess mediation with its workers has collapsed, formalized earlier today, we get the next update which will likely make for a less than happy thankgsiving for a whole lot of former workers:
- HOSTESS CEO SAYS MUST TERMINATE 15,000 EMPLOYEES TODAY
We wonder if this surge in initial claims reported next week will also be attributed to Sandy?
A funny thing happened in the fall of 2010. Global equity markets went from the relatively 'normal' reflection of fundamental trends in earnings to an entirely disconnected 'keep equity valuations high at all costs' centrally-planned environment divorced of fundamental support (no matter how many times we are told 'stocks are cheap'). What happened and who broke the markets 'saved the world'?
And the Israeli update: ISRAEL HAS AGREED TO TRUCE IN GAZA, BUT WILL NOT LIFT BLOCKADE -ISRAELI SOURCES
* * *
This is not the first time we have had rumor of a ceasfire between Hamas and Israel, but this one may be for real. If only briefly. From Reuters:
- CEASEFIRE BETWEEN HAMAS AND ISRAEL AGREED -PALESTINIAN OFFICIAL WITH KNOWLEDGE OF TALKS
Oil appears unwilling to wait for any confirmation from the Israeli side and promptly slides.