Archive - Apr 11, 2010 - Story

First, the gold manipulation story that Zero Hedge and select others have been beating a drum over for months, had finally made inroads into the broader public, first via the Huffington Post, and earlier today via the NY Post. It has also gone global thanks to the Melbourne Herald Sun, the largest newspaper in Australia, whose column by John Beveridge "More bull than bullion" is reproduced below, courtesy of the GATA. Most importantly, Zero Hedge will soon disclose some very stirring details on the manipulated gold market courtesy of yet another whistleblower, and add a new twist in the greatest precious meals fraud saga of all time. Stay tuned.

The just released minutes from the March 16-17 policy-setting meeting by the Bank Of Japan indicate that dissension to global ZIRP, and its mutant step brother, Galactic Moral Hazard (we can't wait for Goldman to LBO Uranus, with $1 of taxpayer equity and a 0.001% perpetual PIK loan from the Federal Reserve), is growing: the vote to double the BOJ's 0.1% interest lending facility to Y20 trillion saw a final tally of 5 to 2, with two opposing. It is no surprise that as time goes by, ever more rational people will emerge at most central banks, and join such vigilantes as Tom Hoenig in expressing that extremely rare CB quality - unbribed common sense. Yet what is more notable in the last sentence is that Japan just increased the amount of funds to be injected to cover 3 month cash needs among commercial banks, and not only that but that the BOJ will also double the frequency of the new operation from once to twice per week. In summary: the fiscal tragedy discussed earlier by Koo is starting to once demonstrate the powerlessness of monetary policy when you are dealing with a defunct state. Yes America, this is coming here too. Here's why - the reason for all of this newfound excess monetary flooding: "To encourage a decline in longer-term interest rates." Because that is just what Japan need - more deflation.

Goldman's take on the bailout: "Sure it is concessional, so we’ll probably see some interesting court cases if the loan gets disbursed." Look for the lawsuits in Germany to start flying at 9 am. We expect these to derail any prompt disbursement of capital especially once Greece throws in the towel and recognizes what everyone knows is the sad reality of its default condition. We expect this to make Tuesday's Bill issuance problematic and has resolved very little for any future Bond issuance at acceptable rates.

Here is what happens when you green light Moral Hazard - in less than two hours after the videoconference in which the EMU announced €30 billion in aid for Greece, a Greek senior official has already come up and said that they were only kidding about needing just €40 or so billion (with the IMF's 10). The full amount will actually be double that, or €80 billion, for the three year period. Look for Portugal, Spain, Ireland, Bulgaria, Hungary, Latvia, and Lithuania to come knocking in the next 45 minutes.

Someone please explain to us how these two paragraphs do not directly contradict each other?

“In order to set incentives for Greece to return to market financing, Euro area Members States loans will be granted onnon-concessional interest rates.

and

“The pricing formula used by the IMF is an appropriate benchmark for setting Euro area Members States bilateral loan conditions, albeit with some adjustments. Variable-rate loans will be based on 3-month Euribor. Fixed-rate loans will be based upon the rates corresponding to Euribor swap rates for the relevant maturities. A charge of 300 basis points will be applied. A further 100 basis points are charged for amounts outstanding for more than 3 years. In conformity with IMF charges, a one-off service fee of maximum 50 basis points will be charged to cover operational costs.

Nomura's Richard Koo, whose work we have previously discussed extensively on Zero Hedge, is out and about presenting the case for unbridled deficit spending as usual. Amusingly, the big question according to Koo is "why are we not seeing more bubbles." Well, when oil hits $90 on Monday, coupled with 20% underemployment, hopefully the market will answer Mr. Koo's question. Also, Dow at 36,000 in 200 days should pretty much put an end to that debate. Some more practical observations: demand for loans is below zero (which is not news to anyone) i.e., demand for fund is still contracting even with zero interest rates. As always, Koo parlays this in a parallel with Japan, and how nothing has really worked for over 10 years. His key observation - if companies don't want to borrow when rates are zero, they should just return their equity capital to shareholders.

On a sunny weekend in September 2008, a bunch of CDS traders were summoned at noon with the advance knowledge that Lehman was filing that midnight and to trade out of Lehman counterparties positions asap. On a sunny weekend in April 2010, a bunch of fat European bureaucrats were summoned to a videoconference to bail out Greece (for the 4th time) and achieved absolutely nothing new (for the 5th time). The latest episode in the Greek tragicomedy adds exactly no information to what was expected to be a firm bailout package: hold on a second but we knew the last weekend of March that should Greece demand help it would be bailed out by the ECB - so just what is new here? Ahh, anything to create the illusion of forward progress. In continuing to munch the non-austerity cake and have it too, the package is not really operational until Greece demands it. Which they won't until creditors put them in involuntary bankruptcy after coupon non-payment. Presumably the final rate agreed upon is 5% for a three year loan: how some bureaucratic soothing words can hope to push the entire Greek curve down by over 200 bps will be very fun to watch. Then again, as the curve will likely continue to be inverted, we dont expect much normalization for the 10 Year, as the country will most certainly be bankrupt by 2020. Lastly, to show just how serious the ECB is this time, any coordination with the IMF will not begin until tomorrow. We sure feel bad for all those traders who are now told by their superiors to buy the Greek €1.2 billion in 6 and 12 month bills on Tuesday, as any hope of return of capital now rests with whatever new insanity Brussels can cook up next. Paulson's gun is now firmly in control of the Greek/ECB, and is now thoroughly empty after repeated own-foot shootings. And while we are on the topic of IMF-assisted suicide, the next full day of Greek strikes is now set for April 22, when Greek civil servants will walk of the job for 24 hours according to an ADEDY union official.