Archive - Sep 2011 - Story

"In light of the increasingly challenging economic and financial environment and fluid political developments in the euro area, Moody's is continuing to evaluate Italy's local and foreign currency bond ratings in the context of the risks identified. Moody's will strive to conclude the review within the next month."

Looks like SocGen pulled a TGIF today and in response to its Corporate Market Alert, in which it asked the rhetorical question, "Fed QE '2.5': gold and equities to take off again?" it answers itself quickly and to the point in just 6 simple charts. Here they are...

We discussed earlier how various non-US-equity asset classes were differing in their opinions on the likely events going forward. Even more short-termist, it seemed a large number of people really didn't want European financials exposure. Well, this afternoon has seen volumes dry up in ES and limp higher as IG and HY credit spreads have moved wider and wider quite comfortably. While we can never be sure, it seems credit professionals are not so comfortable being long and unhedged into the weekend.

For those seeking an oversold security, look no further than the EUR, which in the week ended Sept. 13, was the biggest FX loser, as non-commercial exposure rose 50% to a net short of -54,459 from -36,443 contracts the week before. This is the most bearish net exposure in the EUR since July  2010, and positions the currency for a short squeeze, although if history is any guide it still has a ways to go: the 2010 trough was -114k net contracts hit in May of 2010, just after it became apparent that Europe is falling apart. Also, despite speculation that traders have left the safe-haven status of the CHF following last week's SNB intervention, the Swiss Franc retained its bullishness, with net exposure remaining long, although declining modestly from 7,549 to 5,493 contracts. Also not surprising is that bullish bets in the JPY rose from 32,787 to 34,955 after declining past week. It seems that Yoda will be watching, watching, watching his Bberg terminal very closely in the coming days.

As we have been pointing out since the beginning of the week, the one defining feature of the past 5 days has been a relentless short covering rally. And while the mechanics were obvious, one thing was missing: the reason. Well, courtesy of David Rosenberg's latest, we may now know what it is. Bottom line: for all who think that Bernanke is about to serve just Operation Twist next week... you ain't seen nothing yet. "The consensus view that the Fed is going to stop at 'Operation Twist' may be in for a surprise. It may end up doing much, much more." Rosie continues: "Look, we are talking about the same man who, on October 2, 2003, delivered a speech titled Monetary Policy and the Stock Market: Some Empirical Results. I kid you not. This is someone who clearly sees the stock market as a transmission mechanism from Fed policy to the rest of the economy. In other words, if Bernanke wants to juice the stock market, then he must do something to surprise the market. 'Operation Twist' is already baked in, which means he has to do that and a lot more to generate the positive surprise he clearly desires (this is exactly what he did on August 9th with the mid-2013 on- hold commitment). It seems that Bernanke, if he wants the market to rally, is going to have to come out with a surprise next Wednesday." In other words, stocks are now pricing in not just OT 2, and a reduction in the IOER, but also an LSAP of a few hundred billion. There is, however, naturally a flipside, to Bernanke's priced in announcement: "If he doesn't, then expect a big selloff." In everything, mind you, stocks, bonds, and certainly precious metals. And, of course, vice versa.

Two years after being laughed out by a bunch of Chinese students, Tim Geithner realized that his hypocrisy may pass muster in the Beltway, but the crowd is tougher across the Atlantic. As Reuters reports, the much anticipated meeting between Geithner and the euro FinMins in Wroclaw, Poland, lasted all of thirty minutes and if nothing else managed to unite the Europeans... in their ridicule and derision of the man that has become a global muppet caricature. The litany of quotes needs no explanation: "I found it peculiar that even though the Americans have significantly worse fundamental data than the euro zone that they tell us what we should do and when we make a suggestion ... that they say no straight away," Maria Fekter, [Austria's Finance Minister] told reporters afterwards, recalling a difference of opinion between Geithner and German Finance Minister Wolfgang Schaeuble on how to reinvigorate the euro zone and tax financial deals." And the kicker came from Belgian Finance Minister Didier Reynders, who responded 'tartly' that "We can always discuss with our American colleagues. I'd like to hear how the United States will reduce its deficits ... and its debts." Alas, as Tim has found the hard way, being one of the biggest offendors when it comes to collapsed economies does take away from his credibility. So if we may suggest, Timmy should i) focus on fixing the US economy, and since he has repeatedly failed at that ii) to immediately resign.

It has been a while since JP Morgan has been sued for silver manipulation. Well, that changed on September 12, after JPM was served with its most recent lawsuit alleging silver manipulation, which we have no doubt will promptly move from JPM's Inbox straight to the trash can. Since this is a class action, virtually everyone who has ever traded silver and lost on the trade appears to be on the list of plaintiffs (we jest, although the list of impaired parties a through x is rather, well, dillutive of the purpose). It is unfortunate that the John Doe defendants are not named as the general media will merely see this as just another lawsuit which serves simply to remind us that the CFTC still has to investigate any of the allegations against JPM and HSBC for silver manipulation. And while a lot of the content in the filing is regurgitated filler, it does provide some suggested details (with price/volume - probably a first in a legal filing) on JPM's specific manipulation techniques, which makes for some engaging reading. There is substantially more, which at time reads like a diary of a conspiracy nutjob, and unfortunately that is how the conflicted legal system will see it. Because after all it is the CFTC's dute to monitor its member firms, and as long as the regulator is one of the alleged manipulators, nothing will change. That said, we certainly wish the plaintiffs lots of luck to at least get their case heard. That said, and going beyond the purvey of this lawsuit, we ask ourselves: why all the endless sound and fury over this purported ongoing price manipulation. Surely, the plaintiffs are smart enough to realize that every market intervention (such as the alleged JPM silver manipulation) always ends with price discovery in the end, i.e., silver, gold, spam, what have you, reaching its fair value. As such, should the litigants not be thanking JPM for allowing them to buy silver at lower than fair value prices? We wonder...

Austria will soon meet the limelight of international attention again. On Thursday the ruling coalition tried to set a date for the necessary vote on change of Austria's constitution that would allow the Eurozone to proceed on the ill-fated way of Eurobond issuance. Due to the opposition from the Green Party and the two xenophobic parties FPÖ and BZÖ the vote did not reach the obligator 2/3 majority in the upper house. The Green party had already issued a warning to the bank-controlled coalition in June, threatening to boycott a pro-Eurobond vote as long as Austria does not ensure that money lent to the PIIGS will be repaid absent the factor of pure hope. The Greens got unexpected support from conservative hardliner and finance minister Maria Fekter. on Friday In an interview with Austrian press agency APA she said Austria will reject a top-up of the €780 billion European Financial Stability Fund (EFSF). She also addressed US Treasury Secretary Tim Geithner and advised him to put his own house in order before handing out fiscal advice to the Eurozone. Austria's coalition is getting shattered day after day by new scandals alleging corruption involving a string of partly state-owned companies like Telekom Austria, public railways, the purchase of 12 Eurofighter jets (only 2 are operable during daylight hours), alleged kickbacks in the privatization of the country's real estate holdings. Scandals have so far centered on the conservative ÖVP and their former xenophobic coalition partners. But since Thursday allegations about current social democrat chancellor Werner Faymann concerning advertising of public companies in preferred media begin to make bigger and bigger headlines.

EFSF may have been the best invention ever.  Although it has done very little so far, the potential for it do a lot has kept the markets upbeat time and again.  The latest is the announcement out of Belgium that the EFSF will make up the shortfall of investors agreeing to the voluntary rollover.  I can't even begin to understand what that means.  If the EFSF doesn't hold bonds, how is it going to vote to exchange them?  If they don't own bonds, where are they going to get them? ... It's been a long week of finding White Knight buyers of European debt.  Some of the rumors may turn out to be true, but reacting to a headline like this is just another sign of how broken this market has become.  Nerves are frayed and people are instantly reacting to any move on the chance that someone knows something. In the meantime, I did pull up the Wikipedia description of the Kubler-Ross 5 Stages of Grief.  Denial, Anger, Bargaining, Depression, and Acceptance.  I think Greece is in Acceptance, Portugal is in Depression, and Italy, Spain, and Ireland are deep into the Bargaining phase.  Personally, I'm mired in the Anger phase.

Just out from Bloomberg:

• Jeffrey Gundlach Found Liable for Breach of Fiduciary Duty
• TCW wins trade secret claim against Gundlach
• TCW wins no punitive damages against Jeffrey Gundlach

Well, that's over and done with. At least a jury did not find him to be a worse bond investor than Bill Gross...

In the last few minutes of the European week, major financials have been crushed. It appears that someone (or perhaps a lot of 'someones') really do not want to be long into the weekend. Credit Agricole is -11% on the day, having fallen 12.3% in the last hour!! Senior financial spreads also reversed all their gains and closed wider on the day.

The real Troica in action.

One short month ago, when the Jefferson County, AL commissioners sat down to vote on whether or not to file for Chapter 9, they decided to delay the vote by a month. Until today. Follow along as the final vote takes place, only this time the expectation is that the commissioners will agree to the proposed reorganization as JPM and other creditors have agreed to substantial concessions of $750 million of the total $1.1 billion loan. Naturally, if this settlement is rejected, the county will declare bankruptcy. Incidentally, what Jefferson County has shown the world is that a market test on real manageable LTV on muni debt is about 70% lower than currently marked. To Meredith Whitney's Chagrin, however, most municipalities will use up all their cash first before acknowledging reality and pushing for comparable hard line negotiating tactics with creditors.