Archive - Oct 2011 - Story

Summarizing the Troika'a statement, with some gratuitous commentary

• Sixth tranche depends on Eurogroup, IMF approval: the use of Greece as a passthru vehicle for Eurobank funding will continue until morale and bank CDS improve
• Troika says Greek recession to be deeper than anticipated, 2011 fiscal target no longer within reach: the 50% negative revision in deficit to GDP in the past month has been duly noted
  
• Recovery only expected from 2013 onward: when it will be Bundesrepublik Griechenland
• Privatization revenue below expectations: must sell more islands to the Chinese, more gold to Qatar
• Additional Greek measures likely needed; essential more emphasis placed on structural reform - back in the day "freefall bankruptcy preparation" was not called "structural reform"
• Greece needs additional measures for 2012, 2014 - must be certain future penetration can proceed absent lubrication
  
• Greece overall made important progress - riotcam viewership is now PeyPerView and is used to pay for G-Pap's 3rd winter vacation

• Market participants keep a close eye on the outcome of the EFSF ratification by the Slovak parliament. In the latest news, Slovak lawmakers have adjourned the EFSF session until 2pm local time
• The Troika Commission said Greece will miss its 2011 target, however it will get the new aid tranche when the Eurogroup and IMF approve results of their review, most likely in early November
• According to sources, haircuts of 40%-60% on Greek bonds are under consideration, however the debate is over whether the haircut should involve the ECB and EU governments
• ECB's Nowotny and Trichet said that the EFSF will not be leveraged with ECB funds
• Strength in the USD-Index weighed upon EUR/USD, GBP/USD and commodity-linked currencies

• New bankruptcy ripples may emerge in tough economy (Reuters)
• Europe’s banks may get €200bn bailout (Independent)
• US to unveil criteria for picking “systemic” firms (Reuters)
• China Props Up Bank Shares (WSJ) as reported yesterday
• Europe warned of systemic crisis over debt (Reuters)
• US Voters Will Weigh Ballots Focused on Budgets, Higher Taxes (Bloomberg)
• Regulators stand up for new capital rules (FT)
• Jobs Panel Pushes Help for Start-Ups (WSJ)
• Dutch favour tough stance for Eurozone (FT)
• BIS Report Aims to Debunk Banks’ Criticisms on Capital Rules (WSJ)

Update: Slovakia’s Lawmakers Delay European Bailout Fund Vote, WSJ Says. WSJ reports that Repeat vote on EFSF may be held later this week; unlikely to take place Wed. as more time for political talks needed, WSJ reports, without citing anyone. Govt expected to lose confidence vote, paper says. However, the confidence vote is expected to still pass, or rather, fail. Which would lead to a government reshuffle into a configuration that will pass the EFSF vote. All speculation.

In terms of binary events on today's docket, the most important for the euro and eurozone by a wide margin is the Slovakian EFSF-ratification vote which is set to begin shortly, and where hopes have faded that a favorable resolution can be reached, at least in the immediate horizon. Those who want to follow developments in real time can do so courtesy of the following live blog at sme.sk updated every several minutes.

A week ago our post announcing that the Greek deficit target was going to be revised higher once again, from 7.6% to 8.5%, started with the following sentence: "As the Greek parliament meets to finalize huge public sector job cuts, Reuters is reporting that Greece will miss the deficit targets set in its EU/IMF bailout this year and next... We would say "again" but at this point "as usual" makes far more sense." Guess what: it is time to "as usual" re-re-revise it once again.

Physical demand for gold in Shanghai has been “extremely strong” this week following the week-long Chinese holiday, Mitusi note in their morning report. UBS are more circumspect but note that physical demand in China appeared to be “quite decent” in the first trading day after the Golden Week holiday. They note that combined volumes for the SGE Au9999 and Au9995 contracts surged to the highest since February 14th. Year-to-date volumes are now 11% higher than 2010 levels. UBS “expect demand to remain strong until the Chinese New Year holidays in late January 2012.” A further sign of the significant scale of demand from Asia and from China in particular is seen in the news today that China has installed its first gold vending machine. More importantly, China and Chinese banks are planning to roll out another 2,000 gold ATMs nationwide. Each ATM can hold up to 200 kilograms of gold bullion in varying denominations at once.

The world is about to peak in global silver production. This will not occur due to a lack of silver to mine, but rather as a result of the peaking of world energy resources, declining ore grades, and a falling Energy Returned On Invested – EROI. The information below will describe a future world that very few have forecasted and even less are prepared. This is an update to my previous article Peak Silver and Mining by a Falling EROI. In my first article I stated that global silver production may peak in 2009 if we were to enter a worldwide depression. We did not have the global depression as massive central bank printing and bailouts have thus far postponed the inevitable.

The next time someone tells you that political party X is not entirely purchased by Wall Street, specifically Goldman, Merrill (aka Bank of Countrywide Lynch) and Morgan Stanley, or that Barack Obama is not the most "gifted" politician in history, show them the following infographic...

Can you guess the year? Some notable quotes, announcements of government "fixes" and an SPX chart are provided for your assistance.

Following up to his must read September 20 presentation from the CLSA economic forum titled "Darkness on the Edge of Town" in which the core topic was the upcoming cliff in the capacity of monetary intervention to impact the economy (something which apparently did not prevent the BOE or the ECB to announce further monetary easing in the subsequent weeks, and which in our opinion will have no impact on the Fed as it eventually sets off on its own merry LSAP path), is the following interview given to Bloomberg TV in which the strategist, previously known for his bold S&P at 400 prediction, in which he defines the new regime as one where supply and demand no longer matter, and all is determined by centrally planning governments across the developed world. The conclusion is that while as a result of failed government policies the developed world stagnates, and the market tumbles, as a result of "earnings not holding up and thus driving stocks lower", it is Asia where any potential growth remains, and as such investors should take their dollar holdings and dump them in India (for example). One last topic was the imminent nationalization of numerous European banks (over and above what happened with Dexia, and the follows up from earlier today, Greek Proton and Danish Max). In some ways, Napier put his finger on today's market pulse when he said that investors will paradoxically like a bank nationalization as it will remove uncertainty if only in the short-term. "It is a very negative long-term thing for Europe" he says, but adds that "speaking to investors at the CLSA economic forum they are so convinced the euro is going to collapse that when it doesn't collapse, the market will probably go up." That said he concludes, "this is a major structural turning point and a bad thing for return on capital in Europe." Oh well, who cares about a year, or a month, or even a week into the future. Career risk is here and it is right now, and one must do precisely whet everyone else does.

As long-term readers recall, the observation of Goldman's dominant presence in the NYSE's weekly program trading reports by Zero Hedge back in early 2009 was one of the key drivers that set in motion the backlash against algorithmic trading and HFT which back in 2009 was the pinnacle of fringe topics and has since become a daily talking point and market scapegoat du jour on days when stocks are down (but never up). It also drew attention to Goldman's prop trading division which Zero Hedge was the first and only vocal opponent of, and has since been demolished courtesy of the Volcker Rule, an event which both Moody's and Alliance Bernstein now say could cost the bank dearly in top and bottom line, yet which Goldman told us on the record "represents approximately 10% of this year’s reported net revenue." Guess it was more, huh... Yet the same NYSE weekly program trading update indicates that Goldman, up until now a monolith in NYSE program trading, has just lost its crown in that field as well. The new king. A firm called Latour Trading, which in the last week traded 484.6 million shares in principal strategies. Which begs the question: just who is this Latour Trading which dares to upstage the firm that does god's work on earth. Alas, their website has been less than forthright. Inquiring minds certainly want to know.

On October 7, 2011 beginning at 12:03:39.950, a massive surge of quotes in SPY, IWM, DIA and other market index ETFs, along with many symbols in the Dow Jones Industrial Average, caused an overload in CQS that lasted several seconds. This, in spite of a 25% increase in CQS capacity just 3 days earlier to a whopping 1.25 million quotes/second. During this event, Nasdaq quotes into CQS became delayed at least 800 milliseconds (800,000 microseconds). Other exchange quotes feeding into CQS also became delayed. We found many symbols with trade executions that appeared several hundred milliseconds before the quotes that could have produced them. How does one ensure trade-through price protection if the price being protected hasn't even occurred yet?  Given the evidence from this event, we have to conclude that Reg NMS must have been secretly rescinded: at least the part that talks about trade through price protection, the NBBO (why is it still being computed?), and the importance of keeping the feed affordable.

A few weeks ago it was Siemens pulling money out of French banks, then it was the Chinese, now it is EADS' (Airbus parent European Aeronautic Defence & Space) turn to warn about French bank liquidity. From Dow Jones: "French banks are experiencing difficulties providing financing for aircraft purchases by airlines, a market that is largely dominated by dollar transactions, Louis Gallois, chief executive of European Aeronautic Defence & Space Co. (EAD.FR, EADSY), said Monday. "French banks clearly have problems financing aircraft purchases," he said, speaking on the sidelines of an event to launch a new French think-tank to promote the French industry. Mr. Gallois's comments come as French banks have indicated that they were planning to cut back on dollar financing, as raising dollars has become increasingly difficult." Not like any of this will come as news to anyone who does not get their news from the mainstream media, but it is something different to see it in practice. Net result: we now finally see why companies are hoarding so much cash on their books - in lieu of an insolvent banking system, they are all becoming their own vendor and customer financing providers! Luckily, a government subsidized EADS is not as insolvent as its peer banks: "EADS is cash rich, and is not faced with any problem when it comes to buying parts in dollars, he said. "We aren't experiencing any dollar shortage," he said, adding that "we know how to deal with it."