Archive - Nov 2011 - Story

It appears we may have hit a modest coalligned snag:

• GREEK MAIN OPPOSITION LEADER SAMARAS REPEATS CALL FOR ELECTIONS
• SAMARAS SAYS PAPANDREOU REFERENDUM GAMBIT MADE MATTERS WORSE
  
• SAMARAS SAYS PAPANDREOU REFERENDUM GAMBIT BLOCKED 6TH TRANCHE
  
• SAMARAS SAYS ASKED FOR TRANSITIONAL GOVERNMENT
  
• SAMARAS SAYS ASKED FOR PAPANDREOU TO STEP DOWN
  
• GREEK PRESIDENT TO SEE GREEK MAIN OPPOSITION LEADER TOMORROW

So according to Europe a cabinet between the socialists and the right wing populist LAOS (to be politically correct) is still considered satisfactory? And even if G-Pap does step down, which we still believe is highly improbable, who will be he replacement? Say hello to L-Pap, the lateset Fed puppet in Europe

Earlier today we received the following email from a reader: "RBS systems are down today - ALL of them. I asked whether they knew that HSBC was down yesterday - replied yes - I suggested that they might do well to make an announcement to stop people from getting the right idea 8). The reason for the outage was given as "an update which did not go as expected"  Some update - took out ALL their systems I was told. Pongs worse than the old Billingsgate fish market." We now have confirmation this is the case. From BBC: "RBS and NatWest customers have been unable to check accounts online because of problems caused by maintenance work, the Royal Bank of Scotland has said. Problems arose after the maintenance work went wrong and meant account balances were not updated overnight. Some accounts have not been credited when they should have been and there have been problems for some customers making withdrawals from cash machines. In a statement, the bank apologised for "any inconvenience caused". The Royal Bank of Scotland hopes to resolve the issue within hours." We find it odd how not only one but two banks are down on a Saturday, the same day that is incidentally Bank Transfer Day. So: who will be doing "maintenance work" next?

Update: Here is the full two page list

Yesterday, when Jefferies CEO Richie Handler issued his 3rd, and probably not last, public promise that "the firm is fine", he also promised to release granular level detail of every single European holding it has via a complete CUSIP dump. To wit: "These are fragile times in the financial market and we decided the only way to conclusively dispel rumors, misinformation and misplaced concerns is with unprecedented transparency about internal information that is rarely, if ever, publicly disclosed,“ said Richard Handler, Chairman and CEO of Jefferies. “Later today, after the markets are closed in Europe and we have completed our inventory control accounting, we will post on our web-site our day-end, CUSIP-level holdings in the securities of these countries. We care for our clients, shareholders, bondholders and employees and want to allay any concern that may have arisen. As was the case yesterday, the facts about our sovereign debt exposure and other matters are straightforward and easily understood. We encourage all market participants and interested parties to review our public filings that contain extensive disclosure of the nature, extent and financing of our assets. Our firm stands on a solid foundation of over $8.5 billion of long-term capital and we look forward to continued success." This was yesterday. Now, we can only assume we simply are unable to navigate the company's news release section quite efficiently, because it is now tomorrow, and all those clients, shareholders, bondholders and employees of the firm are quite curious just why the firm still has not released what it has promised. Just as they are curious why the firm's public net European exposure fluctuates materially in 48 hours.

Update: Based on unofficial statements by the CME, it appears that the exchange has gone the way of inviting more risk by lowering Initial to meet existing Maintenance margin across the board. We will likely only know for certain on Monday. We suppose the proposed explanation will be to minimize margin exposure for onboarded MF positions. Of course, that this is very much counterintuitive at a time when risk is spiking and vol readings per SPAN are soaring, and instead is inviting even more risk, is apparently irrelevant to the exchange.

The most important news announcement of the day was not anything to came out of Cannes  (as nothing did), nor from Greece (the merry go round farce there continues unabated). No, it was a brief paragraph distributed by the CME long after everyone had gone home, and was already on their 3rd drink. It is critical, because not only is this announcement a direct consequence of what happened with MF Global several days ago, but because also it confirms one of our biggest concerns: systemic liquidity is non-existanet. We confirmed interbank liquidity in Europe was at an all time low earlier today, and can only assume the same is true for US banks. But what is very disturbing is that this is just as true at the exchange level, where it appears the aftermath of the MF collapse is just now being felt. What exactly was the announcement. Unless we are completely reading it incorrectly, it is nothing short of a margin call for tens if not hundreds of billions worth of product. Because as of close of business on November 4, today, the CME just made the maintenance margin, traditionally about 26% lower than the initial margin for specs, equal. For everything. Which means that by close of business Monday, millions of options and futures holders will be forced to deposit billions in additional capital to the CME just so they are not found to be margin deficient, and thus receive a margin call. Naturally, since it is very unlikely that this incremental amount of liquidity can be easily procured in one business day, we anticipate the issuance of hundreds of thousands of margin calls Monday, followed by forced liquidations of margin accounts across America... and the world. Just like when Lehman blew up, it took 5 days for Money Markets to break. Is this unprecedented elimination in the distinction between initial and maintenance margin the post-MF equivalent of the first domino to fall this time around?

Is Wall Street confused by this latest act of political treachery by G-Pap who had promised to collaborate with the New Democracy opposition only to back out in the last minute (just as he backed out of his promise for a referendum) and end up in a coalition government with the socialists and the far right? You betcha. Courtesy of Reuters, here is the knee jerk reaction by so called experts who see this as either bullish or bearish. The bottom line is that until G-Pap actually does something he has previously promised to do, he will continue to lie and cheat in order to simply remain in power and soak up Europe's funding (which is of course used merely to repay Europe).

And so G-Pap manages to fool everyone once again, and will now usurp power either directly or via his puppet Venizelos.

Update: Greek Parliament Begins Voting on Papandreou Confidence Motion

The latest out of the Greek parliament, where G-Pap is proving he is not a man of few words, is that he will commence with the formation of a new government tomorrow, and in which he hopes to have a leadership position.

• PAPANDREOU TO BEGIN TALKS TOMORROW WITH PARTIES ON GOVERNMENT
• PAPANDREOU SAYS NEEDS TO AGREE TARGETS, TIMETABLE FOR ACTIONS
• PAPANDREOU TO DICSUSS POSTS, PEOPLE, EVEN HEAD OF NEW GOVT
• PAPANDREOU TO PROCEED WITH NATIONAL UNITY GOVERNMENT
• GREEK NEW GOVERNMENT MUST PURSUE OCT. 26 PACT, PAPANDREOU SAYS
• PAPANDREOU SAYS NEEDS TO AGREE TARGETS, TIMETABLE FOR ACTIONS
• PAPANDREOU WILL SEE PRESIDENT TOMORROW

And more such can kicking. In essence the prime minister, whose family has ruled Greece for generations will do anything to pass the vote of confidence, and then will most certainly usurp power once again, saying that it is for the country's stability that he be in charge at least until the 7th bailout tranche is paid, then 8th, then 9th, and so forth.

Tired of G-Pap not making any sense in Greek? Here he is sumlcast with English translation... and still making just as little sense.

As a follow up bonus from the Artemis presentation earlier, we present this chart which answers the age old question: what is the true value of money? It does so in quite a literal fashion, and explains why Kyle Bass is such a fan of nickels...

Credit markets were far less sanguine into the close than equity markets as ES managed to get back to day session highs (and beyond). IG and HY credit markets closed much nearer their lows of the day and while broad-based risk assets rallied off the morning lows, the late day surge in stocks was entirely idiosyncratic! HYG outperformed HY while HY secondary bonds were much more balanced (net buying to selling) today than in recent days. It certainly appeared credit market participants were much less comfortable holding into the Greek vote and uncertainty of the weekend than equity players. The USD was noisy all day but rallied into the close (as the EUR drifted back under 1.38) and Gold trod water as oil managed a modest rally while silver and copper lost more ground on the week. TSYs rallied only modestly today with the belly outperforming as we saw major duration reduction in corporate bond trading on the day as the long-end was net sold. VIX rose modestly into the close, disconnecting from stocks - like every other asset class.

An ugly close for the coupon company as GRPN is held at $26 - its low of the day.

As expected, following the maximum pain rip in the EURUSD late last week, which took the pair from 1.38 to just under 1.4250, all the weak hand shorts took their losses and run. And indeed, as the CFTC has just reported, bearish bets tightened substantially from -76,512 in non-commercial net contracts, to -60,060. At this point it is safe to say that if the ridiculous move higher in the EURUSD did not force the covering of these hands, then they surely have the balance sheet to withstand such epic rips and then some. We no longer expect major short covering in the EURUSD to take the market higher, as the residual shorts not only have the conviction, but the marginable capital to see the EUR, and with it the stock market, much lower. And while of lesser significance, USD net long contracts declined by 25% from 32,110 to 23,823, simply meaning that when the scramble in a risk off moment returns, there will be quite a few incremental buyers of the USD, and thus shorters of that other currency: the EUR, now that both the JPY and the CHF are effectively pegged courtesy of their central banks decisions.

One of the long-term recurring themes both here and in other more objective media, has been the encroaching domination of the central planning regime, or monetary authorities, read central banks, in the domain of capital markets and overall broad sovereignty, to the point where there is neither technical nor fundamental analysis left, but merely the question of where is the next batch of excess liquidity going to come from. Welcome to the death throes of the fiat system. Artemis Capital has released an extended must read presentation that summarizes just how global changes in trade, currency exchange, global monetary excess liquidity in recent decades, and especially in the coming future, will increasingly determine and define risk, and more troubling, the centuries old anarchism of state sovereignty. Anarchism, because as Europe has demonstrated so very well, in the current world the only real actors are the central banks. And with each passing day they become ever more powerful players in the global capital markets arena, as confirmed by correlations that rise every higher, approaching 1.000 across all asset classes. Anyone wondering why the only fulcrum variable for the future of risk will be FX exchange rates, and why any and all wars in the future will be primarily in binary "currency" format, we urge a careful reading of the attached slideshow by Artemis Capital titled "Fall of the House Of Money: Changes in Global Trade and Currency Exchange."

Jefferies is out with its third consecutive promise it has done nothing wrong, issuing a press release in which it says "Jefferies has no meaningful credit risk in respect of the sovereign debt of these nations, and an insignificant risk related to interest rate movements" and hopes to slay the dragon of doubt once and for all. Furthermore as CEO Dick Handler adds, "Later today, after the markets are closed in Europe and we have completed our inventory control accounting, we will post on our web-site our day-end, CUSIP-level holdings in the securities of these countries. We care for our clients, shareholders, bondholders and employees and want to allay any concern that may have arisen. As was the case yesterday, the facts about our sovereign debt exposure and other matters are straightforward and easily understood. We encourage all market participants and interested parties to review our public filings that contain extensive disclosure of the nature, extent and financing of our assets. Our firm stands on a solid foundation of over $8.5 billion of long-term capital and we look forward to continued success." We congratulate this espousal of transparency and clairty. We are also 100% certain that Jefferies will be so kind to disclose not only the Cusips but the maturities and tenors of all synthetic products. It will of course also publicly highlight the dates of all transactions: the last thing the public will want to think is that Jefferies took advantage of the grace period of the past 2 days to neutralize its cash book sufficiently. Because one can't help but be curious what the reason for the material difference between the numbers posted as of yesterday and those posted today is, or rather, when the offsetting buys and sells took place.