Archive - Apr 2010 - Story

"And then the Volcano. Needless to say, at this early stage it is very difficult to say anything meaningful about the effect on the European economy, but here are my very preliminary thoughts (surely subject to possibly significant revisions): First, if the disruption to air traffic is contained to a week or less, then I think the total effect will be minimal. My guess would be that the effect on Q2 GDP would be within a rounding error (of 0.1pc) around our +0.8pc qoq forecast. Off the top of my head, air transportation is no more than some 0.1 pc of European GDP, and one would assume that a lot of what's been lost in the air will be made up in coming weeks. Also, ground transportation is having a field day, as illustrated by the fact that all trains out of Florence was fully booked for the next 3 days and none of the car rental companies had cars available for the next 9 days." Erik Nielsen, Goldman Sachs

A day before the GS news broke, we pointed out that the market is poised for a correction at least based on Fib. Sure enough, the ludicrous non-stop rally from the February lows topped at exactly a 61.8% extension of the previous sell-off (1211.6). Was the Goldman news predicated by the SEC's religious following of Fibonacci signals? Is the 100% Fib retracement next (1144)?

Watch volcanic ash diffusion in super slo-mo, as EuroControl reports: "At the current time, air traffic control services are not being provided to civil aircraft in the major part of European airspace. This includes Austria, Belgium, Croatia, the Czech Republic, Denmark, Estonia, Finland, most of France, most of Germany, Hungary, Ireland, northern Italy, the Netherlands, Norway, Poland, Romania, Serbia, Slovenia, Slovakia, north Spain, Sweden, Switzerland, Ukraine and the UK."

"[Goldman] designed something intentionally complex that's basically a mechanism of transferring money from you to John Paulson. John Paulson, it is true, has not been charged with anything. But he was involved in designing the security. For all we know right now it was probably his idea and if he walks away without being charged, it shows how broken our system is." This is Simon Johnson discussing the Goldman fraud charges on Friday night with Bill Maher. Could the public's attention now be shifting ever more toward those top performing hedge fund managers who year after year made billions, and instead of praising them for their acumen, are now seeing a sentiment shift toward one of wealth merely as a result of massive criminal collusion between the hedge funds and the big banks... well big bank, cause Goldman is really all that's left of the traditional broker/dealer complex. Which once again invokes our long-standing point: the DOJ should immediately break up Goldman Sachs into many smaller entities, due to the firm's unquestionable (allegedly) criminal monopolistic impact on the marketplace. Christine Varney - wake the #&$* up! And whatever happened to that FBI investigation into SAC? Will Stevie Cohen be next as the mid-term elections approach and the public demands blood from someone?

As expected, the line of people preparing to sue Goldman is now longer than the posers who bought the iPad on launch day. Reuters reports that British Prime Minister Gordon Brown, who himself has been in hot water over his much lamented decision to sell UK's gold despite protests from the BOE and likely under the guidance of Goldman and JPM, wants an investigation into the Goldman affair by the FSA, and is saying that impacted UK banks will be considering legal action. Furthermore, GB slammed Goldman after the TimesOnline reported that Goldman will pay $5.6 billion in bonuses for just three months work, including 600 million pounds for London-based staff. Among other things, the ratings-strapped politician, who as recently as ten years ago was doing the bidding precisely of Goldman and its cronies when dumping the gold stash, accused the bank of "moral bankruptcy." We assume is referring to Chapter 11. Of course, that would imply that Brown's hypocrisy should be sufficient for immediate Chapter 7 liquidation proceedings.

Romania, Azerbaijan, and Georgia on April 13, 2010, took a major step toward the implementation of a substitute energy distribution network to substitute for the US-backed Nabucco strategic gas pipeline complex.

Azerbaijan Minister of Industry and Energy Natik Aliyev, Romanian Minister of Economy, Commerce and Business Environment Adriean Videanu, and Georgian Energy Minister Alexander Khetaguri met in Bucharest to sign a new agreement in the gas sector. The new agreement constitutes an expansion of the late February agreement that was limited to LNG exports to Romania. The new agreement set forth modalities for exporting LNG to the rest of the European Union (EU) via Romania. The new project will now be known as the Azerbaijan-Georgia-Romania-Interconnection project (AGRI).

The April 13, 2010, agreement also included specific modalities for the joint construction of two terminals to transport natural gas from the Caspian Sea to Europe across the Black Sea, as well as the setting up of an AGRI headquarters in Bucharest in the next few months.

CDS traders were prescient in snapping up Greek and Dubai CDS long before anyone else realized the risk these countries are in (well, more like Goldman selling CDS to some very close clients, wink wink). In exchange for figuring out what it took cash bond holders months to understand, these 'speculators' made a lot of money and in the process got branded as quasi-sovereign terrorists. Well, Greece can sleep well: according to the latest DTCC CDS data (for the week ended April 9), CDS specs have completely deserted Greece, which saw the single biggest amount of Net Notional CDS decrease, to just over $8 billion, a reduction of $367 million in the prior week (which means all the widening in Greek spreads is now, and has been, just cash bond sales, precisely what Zero Hedge has claimed all along). CDS traders are now focusing their attention on the one country which has so far slipped under everyone's radar, yet which we disclosed is more on the hook in terms of Southern European exposure than even Germany: France, with $781 billion in total claims. Should Greece topple the PIIGS dominoes, France will implode. And this is precisely what CDS traders are betting on now, taking advantage of absurdly tight France CDS levels. Also, just in case they are wrong on France, Spain and Portugal, not surprisingly, round out the top three names in which Net Notional saw the largest increase. Also not surprisingly, Japan rounds out the top 5 deriskers.

"The cycles and very simple fundamentals are enough to predict that 2011 will be worse than 2008. The medium-term cycles tell us that there is a very high probability of a serious bout of risk aversion beginning in the next five trading days and continuing into the week of May 3. This is likely to be most apparent in Europe, but it should also impact the equity and commodity markets around the world. The stream of strong economic and corporate news, plus continued benign inflation outside of Asia should assure us of a further risk rally, starting in May and running through July and possibly into early August. This decline after the August peak should be far more serious and we believe it will be the start of a major market rout continuing into the middle of 2011, at a minimum. The deflationary recession that will accompany this market collapse, at least in the developed world, will put extreme pressure on the Eurozone and the EMU structure. The second half of this decade will witness a very different world." John Taylor of FX Concepts, biggest currency hedge fund in the world

Even as Bank of America is preparing to restart securitization and thus provide the single greatest gift to creditors the world over, as this is merely the first step in wiping out/transferring yet more trillions in private sector debt, it has done the public a bigger favor by compiling the following list of key terms for all those lost in the current labyrinth of definitions,acronyms and euphemisms. Since following the Goldman legal plight will require a facility with some heretofore quite complex constructs, the following catalog is a must read for all financial novices.

Bank of America Merrill Lynch is looking forward to your participation in the first annual US Securitization Research Conference. The conference will feature panel discussions, presentations, and breakout sessions. This conference is by invitation only. Clients interested in attending the conference should contact their BAML representative.

The Pandora's box of the SEC's action against Goldman, which if validated in court will effectively make the issuance of every hybrid CDO product quasi-illegal, will lead to an explosion of lawsuits against virtually any bank that was active in the structured finance space during the housing boom, adding to a fresh round of "non-recurring" charges to bank income statements. Case in point - Welt am Sonntag reports that the German government is considering suing Goldman Sachs, and has asked the SEC for information in its fraud case against the firm. According to the WSJ a spokesman for Angel Merkel said earlier: "First we must ask for the documents, then evaluate [them] and then decide about legal steps." The action stems from the SEC's disclosure the German IKB may have been illegally "taken advantage of" through Abacus, and probably other CDO transactions, leading to losses of $150 million. In 2007 IKB had to be bailed out by the German government, in what some claim was the preamble to banking crisis that is now enveloping Europe (not sure if the sovereign catastrophe facing the EMU can also be blamed on Goldman's CDO transactions, although Goldman will surely also be sued for that sooner or later). We have seen how eager Europe has been to scapegoat "speculators" and other Wall Street actors. We are positive that Germany will surely pursue action against Goldman as it will now provide a vent to pent up popular hatred of how the government has handled the crisis. At the end of the day, even if the SEC's overture is nothing but a pr stunt cleverly orchestrated by Emmanuel Rahm, the unexpected fallout may well be where the real action is.

Dear Lucas,

Since I haven't been able to get you or anyone from Goldman Sachs to appear on my show in months, perhaps we can just try corresponding in writing. Thank you for your press release. I have submitted my follow-up questions in bold...

By Dylan Ratigan

Yesterday we praised two NYT reporters for having uncovered the mess of the Goldman CDO scandal first, and we concluded, erroneously now it seems, that the SEC merely piggybacked on their disclosure to file charges against Goldman. However, as Reuters' Matt Goldstein reports, Goldman had received a Wells Notice from the SEC as far back as "six months ago", which predates the Morgenson and Story December 24 story. And as the SEC case would likely have taken at least one year to build up, we are confident that the SEC began their investigation into Goldman and Paulson well prior, likely in 2008 if not earlier. For those unfamiliar, a Wells is basically an advance warning that the recipient will be a target of an SEC  investigation. We do not anticipate that anyone aside from Tourre (who, being just 27 at the time of the alleged transactions, in no imaginable way acted alone) and Goldman's legal counsel was aware of this development, although with allegations that Goldman was dumping various security holdings in advance of the announcement one can never be certain. One key line of questioning has emerged as a result of this disclosure: why was there no official notice anywhere in the public record of this Wells Notice receipt? The precedent is murky when it comes to corporations responsibility to report Wells Notice receipts: certainly, Goldman had no mention of this even in its March 1 10-K.  What is however without question, is that Fabrice Tourre, who as we reported yesterday, is a registered broker dealer, has a responsibilty to modify his/her U-4 within 30 days of the Wells Notice receipt, yet as of yesterday there was still "no disclosure of any event about this broker." Assuming Goldman received the Wells 31 days ago or more, it begs the question did the firm, by allowing Tourre not to report the Wells Notice, break Finra regulations, and just why it believes it has the facility to do this?

With the topic of shorting real estate once again all the rage, we take this opportunity to remind readers that the next substantial event in real estate (in addition to the multi-trillion CRE maturity roll) will be in the continuously worsening Prime RMBS data. To capitalize on this inflection point MarkIt recently introduced the Prime ABX index (which we initially discussed in July 2009) which will "allow investors to synthetically gain exposure to Prime RMBS collateral." A brief summary of the key index features according to MarkIt: "In addition to creating sub-indices by vintage and collateral, Markit will create and administer an aggregate ABX.PRIME index combining all 6 sub-indices; ABX.PRIME.AGG will trade via CDS contract and will serve as a macro indicator for the entire asset class; Each relative sub-index will be equally weighted in the aggregate, sub-weighting will be applied in the same manner." As we reported recently, the lack of any cash offers in corporate loans is forcing the investment community to seek derivative exposure for yield chasing. We expect Prime securitization to explode soon as the Fed still continues to rule over capital markets with an iron fist and guarantee all sub-5% returns, cutting marginal loss risk by about 50%. The question is now that banks are doing reverse inquiry into Prime ABX participation, which hedge funds, allegedly like Magnetar and Paulson, are creating Prime portfolio structures that will be hedged by this new index? Inquisitive investigative reporters - take it away

The latest update from EuroControl confirms that ongoing European air travel closures will likely have dramatic economic consequences. According to today's update from the flight control agency expects approximately 5,000 flights to take place today in European airspace. Normally, 22,000 are expected. (17k cancelled). Airspace restrictions have impacted most Northern and Central europe, including: Austria, Belgium, Croatia, the Czech Republic, Denmark, Estonia, Finland, most of France, most of Germany, Hungary, Ireland, northern Italy, the Netherlands, Norway, Poland, Romania, Serbia, Slovenia, Slovakia, Sweden, Switzerland, Ukraine and the UK. EuroControl also notes that approximately 600 trans-Atlantic flights still take place each day, 300 in each direction. 73 flights arrived in Europe this morning. We are confident economists around the world are working furiously to estimate the GDP impact on the Eurozone as a result of this material outlier. First Easter, next Cesar Chavez day, now it is only logical that natural earth processes will be used to blame for the failings of Keynesianism.