Archive - Feb 2010 - Story

Yesterday we reported on "concerted hedge fund attacks" rumors involving Greece. Today, via Alphaville, it appears that the mysterious hedge fund cabal strikes again, this time in Spain, and, more relevantly, this time there are names associated. If indeed these are the actors set on setting the world ablaze, they are more than likely the same ones who are involved in Greece, Portugal, Dubai, and elsewhere. Presenting: Moore Capital, Brevan Howard and Paulson & Co... Oh and JP Morgan and, ahem, Goldman Sachs.

Headlines only so far:

09:11 02/09 EU ALMUNIA: SERIOUS RISK OF GREEK SPILLOVER ELSEWHERE IN EMU

09:10 02/09 EU ALMUNIA: SITUATION IN GREECE MATTER OF COMMON CONCERN

09:13 02/09 EU ALMUNIA: GREECE MAY NEED TO TAKE MORE MEASURES

09:12 02/09 EU ALMUNIA: SOME SIGNS MARKETS BELIEVE GREECE CAN SOLVE PROBS

09:11 02/09 EU ALMUNIA: COMMISSION FULLY SUPPORTS GREECE

"After not having written at all since early Nov, I am now onto my 3rd note in less than a mth. Apologies for this. But no doubt you will all have figured out that I don't have much value to add whenever the whole world is busy gorging on yet another phase of policymaker sponsored & excess liquidity enabled 'buy fest', which is YET AGAIN designed to fool us into mistaking YET ANOTHER Ponzi Bubble for a real, genuine, sustainable and broad-based economic recovery." Bob Janjuah

• Traders make $8 billion bet against euro (FT, h/t Daedal)
• Greece says call for aid would send "worst signal" (Bloomberg)
• ECB says Trichet travel change due to logistics (CNBC)
• Portugal plans 10 year Euro-denominated benchmark bond issue (MarketWatch)
• Judge promises to rule on SEC, BofA settlement (Yahoo, h/t Daedal)
• US Losing AAA is way to rein in Pelosi, Reid (Bloomberg)
• Death knell? UBS reports higher client outflows, return to profit (UBS)
• Overbought conditions: Junk Bonds show ebbing distress on record sales (Bloomberg)

"Hark! Do I Hear A Bugle? Is That The Cavalry Coming? – The Euro is rallying this morning and, thus, so are U.S. stock futures. The catalyst appears to be an announcement that ECB President, Jean-Claude Trichet, is leaving a meeting in Sydney early to return to Europe. The presumption is that he is returning to help set up some kind of rescue package for Greece. Since it’s a long plane ride, we don’t expect any hard news soon. That could keep the rumor alive." Art Cashin

• Abu Dhabi is set to award almost $2B in onshore oil service contracts.
• Most Asian stocks decline as European deficit concerns increase.
• China's January surge in lending probably exceeded fourth quarter's total.
• Copper imports by China may halve from last year’s record.
• Dow closes below 10,000 for first time in 3 months.
• ECB may be forced to delay exit of emergency lending measures amid Greece concern.

07:46 02/09 GREECE SPREAD MOVE FOLLOWS MARKET SPECULATION EU BAILOUT TALK
07:46 02/09 GREECE 10-YEAR VS BUND SPREAD TIGHTENS 18BPS TO +345BPS

and yet

08:22 02/09 ECB NOWOTNY: GREECE HAS TO SOLVE ITS PROBLEMS ITSELF
08:23 02/09 ECB NOWOTNY: NUMBER WAYS COOPERATE ON GREECE USING STRUC FUNDS
08:23 02/09 ECB NOWOTNY: GREECE HAS CREDIBILITY PROB - DUE STATS MISREPORT
08:20 02/09 FRANCE FINMIN: WILL WATCH GREECE PROCESS VERY CAREFULLY
08:20 02/09 FRANCE FINMIN: CONFIDENT GREECE WILL DELIVER ON DEFICIT PLAN
08:19 02/09 ECB LIIKANEN: DECISIONS ALWAYS BASED ON CURRENT SITUATION
08:17 02/09 GERMANY V-CHANCELLOR:NOBODY KNOWS HOW GREECE SIT. TO EVOLVE

RANsquawk 9th February Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 9th February Morning Briefing - Stocks, Bonds, FX etc.

As we look forward, we ask, who now determines the variation margin on Greek CDS (and Portugal, and Dubai, and Spain, and, pretty soon, Japan and the US), the associated recovery rate, and how much collateral should be posted by sellers of Greek protection? If Greek banks, as the rumors goes, indeed sold Greek protection, and, as the rumor also goes, Goldman was the bulk buyer, either in prop or flow capacity, it is precisely Goldman, just like in the AIG case, that can now dictate what the collateral margin that Greek counterparties, and by extension the very nation of Greece, have to post on billions of dollars of Greek insurance. Let's say Goldman thinks Greece's debt recovery is 75 cents and the CDS should be trading at 700 bps, instead of the "prevailing" consensus of a 90 recovery and 450 spread, then it will very likely get its way when demanding extra capital to cover potential shortfalls, since Goldman itself has been instrumental in covering up Greece's catastrophic financial state and continues to be a critical factor in any future refinancing efforts on behalf of Greece. Obviously this incremental margin, which only Goldman will ever see, even if the CDS was purchased on a flow basis, will never be downstreamed on behalf of its clients, and instead will be used to [buy futures|buy steepeners|prepay 2011 bonuses|buy more treasuries for the BONY $60 billion Treasury rainy day fund].

In essence, through its conflict of interest, its unshakable negotiating position, and its facility to determine collateral requirements and variation margin, Goldman can expand its previous position of strength from dictating merely AIG and Federal Reserve decision making, to one which determines sovereign policy! This is unmitigated lunacy and a recipe for financial collapse at the global level.

"With respect to financial market infrastructures, the Federal Reserve is working with a broad range of private-sector participants, including dealers, clearing banks and tri-party repo investors to dramatically reduce the structural instability of the tri-party repo system." - Oh, so it is structurally unstable. All this, and many more remarks of the "I say X, but really mean Y" variety in the attached speech.

Marc Faber discusses America's unsustainable debt load in this interview with Margaret Brennan on Bloomberg TV. An amusing observation: the GDP growth from each $1 of new total debt has dropped from $0.25 to -$0.60. Also some much deserved Bernanke and Krugman bashing. Why it is so difficult to realize that the only way out of the crisis is to cut corporate and sovereign debt, we don't understand. Ah yes, because for that to happen,equity values across virtually all of the US economy would be wiped out... And that would destroy the myth that there is any real equity value in America.

The choice selections from today's Art Cashin comments.

Attempts by carry traders to redeem some P&L after a month of agony crashed and burned promptly, accelerating into the close as the Yen funding unwind killed not just the carry pairs but broader equities. Of particular note is the hurt experienced by AUD longs funded with either USD or JPY. It is officially time for Goldman to enter the stop losses on its various carry trades. The pain for the (leveraged) BZLJPY trade has now become unbearable.