Archive - Oct 31, 2011 - Story

And now for some good old fashioned Bob Janjuah, albeit with proper grammar (damn you Nomura proper English sylesheet... damn you to hell): "No change. Deeply bearish with respect to global growth, and on a secular basis I am very strongly risk-off – my 2012 target for the low in the S&P500 remains 800/900, with the risk of an "undershoot? to the 700s. See my last note for details/targets. I would highlight only my view that the global policy making community, based their "actions? over the last month, are doing a wonderful job in meeting my 2012 "target?. Namely that, in 2012, the current set of developed markets (DM) policymakers will be exposed as "emperors with no clothes on?, and their policy choices over the last few years will be seen as the central problem, rather than as some mystical bazooka solution which can somehow reconcile the chasm between a lack of growth and productivity on the one hand, and the enormous debt and debt servicing costs and unsustainable entitlement culture costs that we face in the DM world on the other." And for the shorter-term: "The implication therefore is that in 2011, the October equity lows MAY NOT be the lows for the year. So based on what I can see now, and with a S&P500 1310 “stop loss” as mentioned above, I am now looking for another major risk-off phase between now and year end, with a December target for the S&P500 back down in the 1100s for sure, and possibly even the low 1000s." In other words, Bob as we love him best: nearing his all time bearish zenith... Or nadir, depends on one's perspective.

10Y US Treasuries have now successfully eradicated all the post-summit losses and are well on their way to last week's low yields as the reality (that we unendingly slammed into people's heads) appears to be hitting managers minds. 2s10s30s has also retraced the entire post-summit shift and the EUR is also getting very close to unch (from pre-summit). This leaves only ES (and credit to a lesser degree) as the odd man out having retraced only 50% of the post-summit euphoria.

The first three CDS ban attempts have failed. So has the coordinated ISDA attempt to make sovereign CDS a product with absolutely no functionality. The fourth time will be the charm though. The EFSF guarantees it! On the other hand, think of the massive EPS profit that Italy will post this quarter as a result of today's CDS blow out courtesy of the DVA accounting gimmick. Surely Dick Bove will imminently upgrade it to Dodecatuple Turbo Buy.

And the winners are.... Moody's Ba2-; S&P: BBB-; Fitch: BB+;  Congratulations to Egan-Jones for once again being the only rating agency worth their money and calling this collapse in advance.

Full bankruptcy filing attached below, where we find that in addition to owing JPM and Deutsche Bank $1.2 billion and $1 billion respectively, as bond trustees, the 7th biggest unsecured creditor with $845,397, is... CNBC? Perhaps that explains the objective reporting the Comcast station has provided on the topic of MF over the past several weeks, considering the caliber and quality of guests invited to opine. It also should be a reminder to all advertising collections offices to never be more than 30 days late on collecting receivables. Of course, this is pure speculation on our behalf. We are confident CNBC will provide a far more rational explanation why it is owed nearly $1 million by MF Global, and just what is the nature of services rendered...

Three years after upgrading Lehman days ahead of its bankruptcy, here is Dick Bove on CNBC last week assuring anyone idiotic enough to listen to him that, you guessed is, MF Gloal is fine and a buyer will promptly materialize. How much longer will the Comcast financial comedy channel tolerate this individual?

Based on the MF Global Proxy statement filed in August 2011, there are rumors that the now defunct Primary Dealer will pay Jon Corzine a severance of $12.1 million. However, is that the full story?

Game Over. And in the meantime, we get the following report from a media source: "CME’s acting like the MF Global thing just happened.  They’re haphazardly locking traders out who clear with MF, blocking access to the floor of not just MF Global employees but people who clear through them.  As a result, nobody wants to leave the floor and nobody who still has access wants to trade just to get locked out."

Time to drag the recession talk back? After three months of the Chicago PMI (a key advance indicator for the ISM), bucking the trend of the other high frequency economic indicators and beating expectations consistently, it is the PMI itself that finally missed consensus, printing at 58.4 on expectations of 59.0, and down from a 60.4 in September. The strength in the report was in Employment, which was the highest in 6 months, while New Orders "erased half of Spetember's gains." Inventories dropped from 60.3 to 54.4, Production was down from 63.9 to 63.4, while inflation returns as Prices Paid rose from 62.3 to 66.0. Look for some cautious wording ahead of the Manfuacturing ISM now that everyone has hiked their Q4 GDP forecasts once again to accompany the S&P ramp, because the stock market is somehow representative of the economy.

Hidden among the detritus of last night's MF headlines and JPY Azumification, Moody's released their Weekly Credit Outlook. The report was rather unsurprisingly (given our perspective on the lack of real news last week) negative on the Euro Summit implications noting that while some positives remain, the negatives at a grossed-up level seem to outweigh the market's exuberance. In most scenarios they see the impact as neutral (for Ireland and Portugal, European banks and Insurers, and the EFSF itself) but they are most concerned at the impact the 'plan' will have on AAA-rated euro are countries and the considerably higher bank recap needs. We can only leave it to the market to decide how self-referencing CDS should be priced.

Remember the European summit that was supposed to not so much bail out Europe, as stop the contagion from spreading to Italy (but mostly to send the ES highest by 40 points intraday at one point)? Well, in the credit markets the summit has failed miserably as already noted previously. Now, we see that it has also spread to the equity of those all important Italian financial companies. As the chart below shows, 3 of the top 4 Italian banks (Intesa, UniCredit, Monte Pasci, And MedioBanca) are now trading below their levels at the time of the bailout. So: rescue half life is what - 48 hours? About in line with our expectations.

Just in case Greece needed one more reason to piss off the angry mob, just waiting to resume its Syntagma square festival, Ekathimerini reports that very soon Greeks will discover that not only are their pension funds about 50% underfunded funded courtesy of the first of many European 'bailouts', but that they will actually have to repay pension proceeds back. Granted, pensions paid out under illegal pretenses, but still, this is money that will have to make its way out of insolvent Greek families that, just like in America, never felt an urge to save, but merely to spend, spend, spend, with hopes of endless crony communism in perpetuity. "Up to eight billion euros have been paid in bogus pensions in the past decade, director of the Social Security Foundation (IKA), Rovertos Spyropoulos said on Monday. Under immense pressure to cut spending and replenish empty state coffers, the Greek government has found out that millions of euros have been paid to deceased claimants. The money is often claimed by fraudulent relatives or, in some cases, it remains idle in banks." What happens when all the other socialist countries in Europe discover the same has been happening there repeatedly and to far greater extents?

As the EUR trades at its lows of the day (having retraced over 60% of the Euro-Summit rally, we wonder how long before the broad European equity markets will take to fill the gap from that wondrous liquidating day. Equities are underperforming credit so far this morning but it is very clear that hedgers/shorts are back in lower cost credit positions as European sovereigns leak wider in yield (cash and CDS). We also note that EFSF is underperforming Bunds (by around 7bps so far this morning) making us wait for the Barroso-Van-Rompuy 'We're gonna need a bigger boat' speech.

Non-hedged Eurosov CDS may be banned, hedged Eurosov CDS may be irrelevant, but courtesy of tens of billions in capital caught up in basis trades which are all about to be Boaz Weinstein'ed very soon, moves wider in cash will drag CDS along with them.