Archive - Feb 2012 - Story

• Eurozone dismisses Greek budget deal (FT)
• Germany Says Greece Missing Debt Targets in Aid Rebuff (Bloomberg)
• Germans concerned over Draghi liquidity offer (FT)
• Azumi Says Japan Won’t Be Shy About Unilateral Intervention (Bloomberg)
• Schaeuble Signals Germany Is Flexible on Revising Terms of Portuguese Aid (Bloomberg) - food euphemism for "next on the bailout wagon"
• Venizelos Tells Greek Lawmakers to Back Budget Cuts or Risk Exiting Euro (Bloomberg)
• Putin May Dissolve Ruling Party After Vote (Bloomberg)
• HK Bubble pops? Hong Kong Sells Tuen Mun Site to Kerry for HK$2.7 Billion, Government Says (Bloomberg)
• Gross Buys Treasuries as Buffett Says Bonds Are ‘Dangerous’ (Bloomberg)

Remember the pomp and circumstance with which Venizelos showed up in Brussels yesterday carrying a two paragraph statement from Lucas Papademos in hand, saying Greece promises it has agreed to agree to make idiotic "pledges"? Well, as was largely suspected by cynical old us, even that "deal" has lasted not even a whopping 24 hours.

• GREECE'S KARATZAFERIS SAYS CAN'T VOTE FOR TROIKA ACCORD AS IS - BBG
• GREEK FAR-RIGHT PARTY LEADER SAYS ELECTIONS WOULD NOT PROVIDE A SOLUTION NOW, WOULD NEED MORE TIME

This is coming from the LAOS coalition member whose support for the Troika accord was supposedly in place yesterday.Alas, without his endorsement, the whole thing is off. And just to complete the sheer chaos that is about to be unleashed in Greece:

• Greeek far right party leader says asks for reshuffle of Papademos technocrat gov

-> Kiss this whole thing goodbye. Just as Germany wanted all along. And the EURUSD, which lately had traded with the sheer idiocy with which one trades US 3x beta stocks, and which had soared on what was glaringly idiotic hopes that this time, just this time, things in Greece would be different, tumbles.

The situation in Greece has taken a more sinister turn. The outrage in Greece is growing. More and more of the people on my distribution list with ties to Greece are pointing out how bad things are there. Daily life is getting more difficult by the day for most people, yet the EU has told the Greeks that their current offer isn’t enough and that they have doubts about its implementation. At least they got that right, the austerity measures, will not remain implemented. It seems obvious to anyone who hasn’t become locked into a negotiating stance that the whole austerity idea isn’t working. It is possible over the weekend that the Greek parliament will defer to EU demands and vote in a plan that is “acceptable” but I don’t see it lasting. The people are fed up and more and more realize that defaulting and costing the foreign bankers money is worth a shot. Default is NOT the end of the world or of Greece. For all the politicians who keep saying default is the end, they are just wrong. It will cause problems, but Greece will survive, and for the first time can start focusing on a plan to move forward rather than dealing just with problems of the past.

Summary of stock, bond, commodity and FX news.

Most people read the headlines (and heard Obama tell us) today that the federal government and 49 state attorneys general reached a $25bn agreement with the five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses. It seems that many people are unclear on what the implications of the various aspects of the settlement are and so we present Bank of America's concise summary of the costs, commitments, penalties, and scope of the long-awaited agreement. Theoretically this by no means closes the book on bank litigation liabilities, as BofA discusses, but we note very mixed performance post the settlement announcement (which admittedly seemed well telegraphed) as WFC rallied modestly (+0.2% from the 10amET announcement), with Citi (-1.2% from the announcement), BofA (-0.85%), and JPM (-0.4%) underperforming.

Our friends at Demonocracy have once again surpassed themselves, and have followed up the infographic showing the truckloads of cash that are needed to rescue the insolvent PIIGS, with this masterpiece which, while making the naive assumption that debt is represented by physical paper (when it is nothing but a bunch of electronic ones and zeros stored in various computers around the world), presents in gloriously visual terms precisely what the literal debt burden of the world's would look like expressed in piles of one hundred dollar bills. The result is quite stunning...

The Greek daily http://www.dimokratianews.gr/ (price 1 Euro, not 2000 Drachma) may have summarized best what at least a prominent subsegment of Greece feels toward Die Frau, who quite adeptly managed to dodge the Greek "pledge"  gambit, so thoroughly discussed earlier, and put the ball back in the Lucas Papademos' court, who now must be tearing his hair out: not only did Europe put him in his current position, but now it is the same Europe who no longer wants him in... What's a former ECB apparatchik and Trilateral Commission member to do...

Regular readers of Zero Hedge know that in recent months tracking the portfolio and thoughts of one Bill Gross via the holdings of his flagship Total Return Fund (which just jumped by $6 billion in the past month and is just shy of its all time record north of $250 billion) has meant one thing and one thing only: betting on the Fed monetizing Mortgage Backed Securities or bust. Well, in January he just took it to a whole new level. The fund has now borrowed a record $88 billion, or -35% of its AUM, in cash (shows how much he thinks of the dollar) and used the proceeds (together with dumping European sovereign bonds from 18% to 11% of AUM) to bet on MBS which now stood at a whopping 50% of the entire portfolio - the highest since July 2009 when QE1 was in full force. However, in absolute dollar terms, due to the growth of the fund's AUM, the actual bet on MBS has never been bigger, and at $125 billion, represents the biggest notional bet ever made by PIMCO. Treasury holdings of just over $100 billion with an effective duration of 6.33 complete the epic bet that the fund has now put on QE3.

Hands up anyone who is surprised that the Bank of England has added another £50 billion to the quantitative easing pot? The same hands will also believe that the Greeks have agreed terms for the next bail out tranche with the Troika (the European Union, the IMF and the European Central Bank). This ongoing epic odyssey of the voyage to nowhere has grabbed the headlines, but the BoE’s quiet announcement is equally significant to us Brits. Central banks never utter the words quantitative easing, so the Bank calls it an addition to its “asset purchase programme”, which was only hiked to £275 billion back in October. The accompanying rhetoric states that inflation is on the way back down and may fall below their target of 2%, mainly as a result of the VAT increase last January falling out of the equation and lower energy prices, (despite Brent crude being over 10% higher Y-o-Y in sterling terms..); a convenient excuse perhaps.

UPDATE: Ironic timing (via Bloomberg)...*VENIZELOS SAYS GREECE FACES CHOICE OF STAYING IN EURO OR NOT,  *GREEK DEBT SUSTAINABILITY NO WAY NEAR 120%, DE JAGER SAYS, and *ECB SHOULD CONTRIBUTE TO REDUCTION OF GREEK DEBT, JUNCKER SAYS

In an incredibly candid 'informal' discussion caught on video by Portugal's TVi24 television crew, German finance minister Wolfgang Schaeuble gives Portuguese finance minister Vitor Gaspar 'the nod' that after the Greek deal is done, Germany will relax the conditions of the financial assistance program for Portugal. While the soundtrack is a little flaky, it is clear that the German finmin notes they must remain resolute in their conditions against Greece in order to maintain the appearance of 'seriousness' with the fellow members of the Greek parliament and more importantly the people of Germany. It would appear that once they have flexed their muscles against the Greeks (think Lehman?) then (and only then) can (and will) they 'help' the Portuguese. Perhaps the hard default is the way they expect this to play out with the assumption they can post-hoc avoid contagion in some manner but nevertheless, Samaras' comments this afternoon on growth and a focus away from austerity do not sit in any way complementary to Schaeuble's comments in this candid-camera moment.

Portuguese TV is having a field day with the clip as they note: Vítor Gaspar was "looking like a student trying to impress the teacher," was how the commentator saw the episode. Adding, the minister "did everything but say that not only is doing everything right as even very fond of the austerity policy."

It has been so long since the CME cut gold and silver margins that frankly we are a little bit stunned... In an extended announcement, which saw outright margins for virtually every commodity get cut, the CME just lowered Initial and Maintenance margins of gold (by 12%) and silver (13%), to $7500 maintenance for GC and $16000 maintenance for SI. Did the paper bull trap season just open? And how long before these are re-hiked by 15%, 20% or more? For now, however, this is certainly near-term bullish.

Remember last year when the tiniest snowfall was reason for everyone and their grandmother to miss every possible estimate, always blaming it on the weather? Or rainfall in the spring? Or warm weather during the summer? Oddly enough one never hears about the opposite: the beneficial, and one-time, impact to trendline due to countertrend weather, such as the fact that we just had April weather in January. Granted, nobody in the programmed MSM will touch this topic, which is why we go to the most trustworthy filter of real economic data - David Rosenberg. "...Be careful in assessing the seasonally adjusted data when January weather feels like April. It was four to five degrees warmer than usual and the third fewest snowflakes to hit the ground in the past 50 years. On top of that, let's not lose sight of what real GDP did in Q4 — considerably below consensus view from last summer and sub-1% at an annual rate once inventories are stripped out. The only variable preventing real GDP from stagnating completely was the fact the price deflator collapsed to just 0.4% at an annual rate. If it had averaged to what it was in the previous three quarters, real GDP growth would have come in close to a 0.7% annual rate. Strip out the inventory build-up and real sales would have contracted at a 1.3% annual rate and recession would be dripping off everybody's tongue right now."

Credit markets are continuing the trend of the last couple of days with this afternoon seeing their underperformance accelerating. Major underperformance this week in investment grade and high yield credit markets relative to stocks (and as we noted this morning, we are also seeing financial credit in Europe notably underperforming) as Maiden Lane II assets are sold and high yield issuance peaks (and liquidity dries up). Adding to the concerns, VIX futures saw their biggest 2-day jump in over two months despite equity's modest rally. On a day when Pisani tells us there was much to rejoice about, stocks managed only negligible gains (even with broad risk assets in risk-on mode, TSY yields up, FX carry up, Oil up) and while stocks are limping higher now (aside from AAPL of course) with financials underperforming, perhaps this week of notably higher average trade size in equity futures is the calm before the real storm gets going - as credit and vol seems to be hinting at.

Much has been made of today's Reuters story how "Iran turns to barter for food as sanctions cripple imports" in which we learn that "Iran is turning to barter - offering gold bullion in overseas vaults or tankerloads of oil - in return for food", and whose purpose no doubt is to demonstrate just how crippled the Iranian economy is as a result of the ongoing US embargo. Incidentally this story is 100% the opposite of the Debka-spun groundless disinformation from a few weeks ago that India was preparing to pay for Iran's oil in gold (they got the asset right, but the flow of funds direction hopelessly wrong). While there is certainly truth to the fact that the US is actively seeking to destabilize the local government, we wonder why? After all as the opportunity cost for the existing regime to do something drastic gets ever lower as the popular resentment rises, leaving the local administration with few options but to engage either the US or Israel. Unless of course, this is the ultimate goal. Yet going back to the Reuters story, it would be quite dramatic, if only it was not the case that Iran has been laying the groundwork for a barter economy for many months now, something which various other analysts perceive as the basis for the destruction of the petrodollar system. Perhaps regular readers will recall that back in July, we wrote an article titled "China And Iran To Bypass Dollar, Plan Oil Barter System." Specifically, we wrote that "according to the FT, China has decided to commence a barter system in which Iranian oil is exchanged directly for Chinese exports. The net result: not only a slap for the US Dollar, but implicitly for all fiat intermediaries, as Iran and China are about to prove that when it comes to exchanging hard resources for critical Chinese goods and services, the world's so called reserve currency is completely irrelevant." Seen in this light the fact that Iran is actually proceeding with a barter system, something that had been in the works for quite a while, actually puts the Reuters story in a totally different light: instead of one predicting the imminent demise of the Iranian economy, the conclusion is inverted, and underscores the culmination of what may have been an extended barter preparation period, has finally gone from beta to (pardon the pun) gold, and Iran is now successfully engaging in global trade without the use of the historical reserve currency.