Archive - Mar 2012 - Story

When explaining the practical effect of Wednesday's second and certainly not last LTRO, we said that "when it comes to explaining why Europe's banks are not only not deleveraging but increasing leverage while paying an incremental 75 bps on up to €700 billion in deposits soon to be handed over to the ECB, one needs all the favorable spin one can muster." We also estimated that net of rollovers and other tangents, the true net liquidity add would be €311 billion and "the final number by which the ECB's deposit account will increase will be about €210 billion less than the overhead number" of €529.5 billion. Sure enough, as of this morning, which takes into account the full settlement and allocation of the second LTRO cash installment, the ECB's deposit facility has soared by precisely as expected, rising by €302 billion overnight to an all time record of €777 billion, or just over $1 trillion. In other words, Europe has now successfully managed to fool everyone that it is executing the carry trade, when it is doing nothing like that at all, and it continues to park record amounts of cash with the ECB on which not only is it not earning a carry spread, but it is losing 75 basis points as it is paid a meager 0.25% for a deposit that cost it 1.00%. Said otherwise, instead of building a cash position and retaining earnings to fund €3 trillion in debt rollovers over the next three years (by the time the LTRO matures incidentally - good luck paying down that additional €1 trillion, which makes it a total of €4 trillion in maturing debt), roughly 800 European banks will bleed by €6 billion in the next year just to store their cash with the ECB. So much for promises of the carry trade. And we certainly commiserate with all those who bought European bonds on the assumption that they were frontrunning banks who are buying up BTPs, Bonos and what not. They were only frontrunning themselves.

• Brazil declares new ‘currency war’ (FT)
• Postal Cuts Are Dead Letter in Congress (WSJ)
• China state banks to boost selected property loans (Reuters)
• ECB Says Overnight Deposits Surge to Record (Bloomberg)
• Van Rompuy confirmed for 2nd term as EU Council president (Reuters) - you mean dictator
• BOJ Shirakawa: Japan consumer prices to gradually rise (Reuters)
• IMF Says Threat of Sharp Global Slowdown Eased (Reuters)
• Eurozone delays half of Greece’s funds (FT)
• BOJ Openings Can Shape Monetary Policy (Bloomberg)

Yes, another infographic, and yes, another answer (always the same) on whether gold is a bubble.

The latest quarterly report out of CoreLogic is as usual full of curious insights about the state of US housing. Key among them is the finding that "negative equity and near-negative equity mortgages accounted for 27.8 percent of all residential properties with a mortgage nationwide in the fourth quarter, up from 27.1 in the previous quarter. Nationally, the total mortgage debt outstanding on properties in negative equity increased from $2.7 trillion in the third quarter to $2.8 trillion in the fourth quarter." In other words, courtesy of no Mark To Market, there is at least $2.8 trillion in debt held by investors (read banks and GSEs) that is marked at par and should be impaired. And one wonders why Fannie lost $16.9 billion in 2011 (up from $14.0 billion in 2010), and needed another taxpayer injection of $4.6 billion in Q4: it is so banks can pretend reality exists, and in the process avoid evicting tenants who live in these underwater homes, and who can pretend they don't have to pay their bills, but can spend money on iGadgets instead. Yet the scariest data point is that if one is currently in Nevada and looks at three houses right this second, two of them are underwater, or said otherwise, have negative or near-negative equity.

And now for something off the beaten path. As the title implies, while the rest of the world is transfixed on the usual bubble candidates in traditional asset classes, two of the bubbles currently brewing well beneath the radar are a second derivative on the uber-wealthy class in China and Hong Kong, which appears to have a very disproprionate impact on spending patterns for ultra luxury goods, in this case cognac and Swiss watches. Not only that, but investing in these up and coming bubbles has some useful externalities: one can drink cognac, while a Swiss watch can be melted into its constituent gold or platinum once the inevitable hyperinflation finally hits. Alternatively, as these are some of the most marginal products available, any changes in consumption patterns here will be the first indication that the Asian party is ending...

When reporting on yesterday's bizarre market action, which in addition to criss-crossing the DJIA 13,000K a total of almost 70 times in the past 4 days, saw some very curious fireworks throughout the day, we noted a very curious sell off in stocks in the last second of trading, which we jokingly (or so we thought) claimed was another flash crash. As it turns out, the move may indeed have been a mini flash crash, with all the salient features exhibited by the market on that fateful day in May 2010 when the DJIA plunged by 1000 points in seconds. Nanex, which unlike the SEC, is eager to explain and unearth strange and unexpected market moves, has performed a forensic analysis on this data, and has uncovered the same quote dissemination delay that occured during the Flash Crash, only this time not in the NYSE, but on the Nasdaq. Which, in turn should answer readers' questions whether any exchange is safe (if anyone were to care to find out the answer), aside from Sizma X of course.

Earlier we presented a photo gallery showing Sarkozy's dignified retreat from 'his people.' This time we bring several video clips of the same event as there is quite a bit lost in translation. For one - it certainly explains why democracy is verboten in the old world: imagine putting the fate of the chosen ones in the hands of this mob? What next: proceeds from the payperview cams at La Bastille used to pay down Italian debt?

With 9 days left until the end of the Greek exchange offer, many are curious for hints on how the uptake may be proceeding and whether funds have amassed enough of a blocking stake in the Greek bonds (they certainly have it in the UK-law bonds whose exchange offer will take place conveniently in Apil after the Troika's €130 is funded, if at all). Which is why the following statement by Juncker will likely be very closely scrutinized:

• JUNCKER SAYS THERE'S `PLAN B' IF GREEK DEBT SWAP FAILS
• JUNCKER DECLINES TO PROVIDE DETAILS ON BACK-UP PLAN

The last time Laszlo Birinyi came out with a bold market prediction was back in January 2011, when he forecast that the market would go to 2,854 by September 4, 2013 (more or less precisely to the dot). Many thought he was joking; he was not, and a month later he repeated the same forecast, leading to the advent of the Birinyi ruler. Needless to say, a year after his initial forecast the market was down. However, now that we have had yet another of the now traditional market blow off top moves on massive liquidity injected by central banks, the time to trot Birinyi back on the stage is upon us, and sure enough earlier today he made an appearance in Bloomberg where he proposed his latest forecast of 1,700 in the S&P by year end. Granted this is less aggressive than his previous forecast, which however still stands, so below we present visually the move that the market has to undergo in order to hit both of his targets, courtesy of John Lohman. Since we now have two waypoints on the road to exponential market nirvana, it is no longer a smooth single sloped, but rather a bi-sloping ramp, for which we can only assume one has to use a "bi-ruler" whatever that may be.

Everyone's favorite banker-controlled CDS determining organization took offense to media reports saying it may be secretive, corrupt, and borderline manipulate if not worse. To wit: "In sum, we think the credit event/DC process is fair, transparent and well-tested.  There’s simply no evidence to the contrary.  Perhaps after today this non-secret secret will be a secret no more." Well, that takes care of that. ISDA is now certainly "fair, transparent, and well-tested", and for those who wrongfully feel that a 70%+ bond haircut could possible be an event of default, tough. Anyone else who wishes to express their feelings on the matter, can respond on ISDA's blog site.

Saudi saying no, PressTV saying yes. Watch live coverage from the Iranians below.

The latest in this story:

• Saudi oil officials says reports about attack on pipeline are untrue- Dow Jones
  

So someone is lying. And now we can go back to assuming that Saudi Arabia has limitless excess supplies of crude.

Another update from Arab Digest.