Archive - Jun 29, 2012 - Story

Bloomberg News may be the most read news source in the world, but as of today, it is no longer available in China. Why? According to Bloomberg TV News Editor Denise Pellegrini, all it takes is for some investigative reporting exposing the dirty laundry, or in this case the even dirtier assets of one Xi Jinping - "the man in line to be China’s next president." In "Xi Jinping Millionaire Relations Reveal Fortunes of Elite" Bloomberg writes: "Xi warned officials on a 2004 anti-graft conference call: “Rein in your spouses, children, relatives, friends and staff, and vow not to use power for personal gain.” As Xi climbed the Communist Party ranks, his extended family expanded their business interests to include minerals, real estate and mobile-phone equipment, according to public documents compiled by Bloomberg. Those interests include investments in companies with total assets of $376 million; an 18 percent indirect stake in a rare- earths company with $1.73 billion in assets; and a $20.2 million holding in a publicly traded technology company." That a country's will seek to block the internet when the wealth of its humble leaders is exposed is expected. However, what is unexpected is that the hidden assets of China's president in waiting are rather easily discovered is troubling: it means Goldman has still much work to do in China, and much more advisory work to the country's elite over how to best hide its assets in various non-extradition locations around the world under assorted HoldCos. Just like in the US. The good news, for GS shareholders, however, is that this indeed provides a huge new potential revenue stream.

In the final analysis Europe is quite exposed at this moment and may be for quite some time. The ESM, after the change in seniority status, must be re-affirmed in at least two countries that are the Netherlands and Finland and Germany has not yet approved it yet either. The EFSF has already spent $450 of its capacity on Greece, Ireland, Portugal and now $125 billion for Spain. The balance left in the fund is tissue paper thin and that is all that is in existence presently for any more problems in Europe. Plans and schemes aside, the amount of money that could actually be used today is a drop in the proverbial bucket.

While Italy is already celebrating the double whammy of its victory over Germany in football and in the corridors of bureaucracy (read the following from Spiegel for the German perspective: "How Italy and Spain defeated Merkel at EU Summit"), Germany may have some other plans. While the ESM ratification vote has planned to take place later today, many are now saying this vote should be delayed as its represents a "180 degree" shift in previous commitments. Die Welt reports: "Given the confusion over the results at the EU summit in Brussel, speculation has been raised in Berlin to postpone the vote on the euro rescue ESM. Several Members of the CDU-FDP coalition also called for a dismissal of the agenda item on the evening, it was said from the CDU and FDP immediately before the start of a special meeting of the Budget Committee. Point of contention is that Chancellor Angela Merkel in Brussels more concessions for easier credit to ailing banks in Europe has been as expected." And more: "The Budget Committee of the Bundestag will hold a special session on the summit resolutions. The government must explain its turn through 180 degrees, called the SPD budget expert Carsten Schneider. With the decisions on permanent euro rescue ESM "means any obligation of a country are only a paper tiger," Schneider criticized with regard to that ailing banks are to receive direct assistance ESM. The meeting will take place on Friday afternoon." In other words while the CDU conservative budget expert is calling for an all normal vote, the SPD is getting worried. The question now is what happens to the ESM ratification vote today: that is the key catalyst for the time being.

Much has been speculated about who promised what at last night's summit, and who guaranteed that the ESM would do this, that and the other, as once again, just like last summer, the ESM is becoming the most universal Swiss army knife ever conceived (just pray it never has to be actually used). Here, courtesy of Reuters, are excerpts of what they all really said.

Below is Goldman's quick take on the E-Tarp MOU (completely detail-free, but who needs details when one has money-growing trees) announced late last night. In summary: "We recommend being long an equally-weighted basket of benchmark 5-year Spanish, Irish and Italian government bonds, currently yielding 5.9% on average, for a target of 4.5% and tight stop loss on a close at 6.5%." By now we hope it is clear that when Goldman's clients are buying a security, it means its prop desk is selling the same security to clients.

There was just one relevant phrase uttered in all of last night's bluster, and ironically it came from Italy's own Mario Monti who said that there are "no plans for boosting bailout funds." This really is all that matters. Why? The Bridgewater chart that we presented before once again explains it all.

In the aftermath of last night's bombastic European announcement coming in the late night hours, in which Europe has virtually promised the kitchen sink, one would imagine that the response for the biggest beneficiary, Spanish bonds, would be far more dramatic. Instead after ripping 60 bps tighter in a kneejerk move, the yoyo reaction has seen bonds slide wider ever since, and the result being a SPGB level last seen... on Monday. Why is the market not more enthusiastic? Because what happened last night is nothing short of the second Greek bailout announcement from October, which followed a similar pattern: a late night announcement by Europe that Greece is saved, followed by a brief rip of a rally, only to give it all back, and to require global central bank intervention one month later. Because what really happened last night? Merely promises. We will not dwell much on the fact that the ESM has yet to be ratified by the paying countries, that the ESM will now have to be scrapped in its current format, and resigned by all 17 member countries since the seniority provision is somehow scrapped: an event that amounts to a cramdown exchange offer, that while everyone is talking about the uses of funds, nobody has uttered a peep about the sources, that Germany has yet to say what the German conditions will be or whether the revised deal will even pass the Bundestag, that the deal is contingent on the formation of a "effective single supervisory mechanism is established, involving the ECB" which in Europe is next to impossible, and that finally the whole "arrangement" is nothing but an Memorandum of Understanding - the weakest form of non-binding agreement possible. Which is why we are just a little skeptical and that today's E-Tarp is merely the latest catalyst to be faded.

The early Friday morning release of an entirely conditional 'plan' for a 'plan' that will likely require the ESM contracts to be torn up and a new contract to be re-ratified (by ALL members - including Finland and Germany), due to the stripping of the ESM seniority via the EFSF 'workaround', was high-fived by any and all EU leader still standing. Is it any wonder (given the conditionality and ratifications required) that the best the market could manage, on what is now obviously nothing but yet another watered-down talking-point ridden 'promise-of-more-to-come' plan (as opposed to the impossible becoming possible as Ireland's Kenny so eloquently described it), is a 1% pop in US equity futures.