Archive - Apr 2013 - Story

Housing is recovering. The Fed has your back. The consumer is healthy. All things that would suggest the commercial-mortgage bond business should be on the cusp of a renaissance. So the question is - what did Brett Ersoff and John Herman see, seven short days after being promoted to run the UBS real-estate finance division, that made them depart the venerable Swiss firm with the paintball sized Stamford trading floor?

Curious why so little has been said about cash flowing out of Italy's banks, especially when even UniCredit's CEO today proudly warned everyone he is all for confiscating uninsured deposits as long as "everyone else is doing it" - and no, he is not kidding, so when it does happen, nobody will be able to say they weren't warned. Maybe it is because Italian cash is actually not leaving the country at all. Instead, real "wealth" is departing the boot-shaped nation, quietly and under the radar, as fast as it can in another form: gold. As the clip below from Bloomberg shows, a car was intercepted at the Italy-Switzerland border, with a very special cargo: numerous bars of gold weighing a whopping one ton, worth $6 million. Furthermore, one can be absolutely certain that for every car that is caught at the border with a ton of "golden" cargo, there are 99 that pass through undisturbed and undetected. Which makes perfect sense: what better way to circumvent shadow capital controls such as those virtually everywhere in Europe, than to convert one's paper money within country A so it stays in country A, into a far more valuable, anonymous and transportable store of wealth, such as gold, and quietly move it to country B, the one where the risk of deposit confiscation is (for now at least) far less?

For the first time since 1981, the S&P 500 has rotated from up to down to up for 12 days in a row - adding 4 points in that time. 10Y Treasury yields have dropped 8 of those 12 days and closing today at 1.75% - their lowest of the year, the biggest 10-day drop in yields in five months - but stocks ignored that correlation. EURJPY was the story of the day as JPY weakened 4% against the USD from the BoJ news - but stocks ignored that correlation. Oil slumped once again on the day (-4% on the week) - but stocks ignored that correlation. Stocks in general oscillated intraday around VWAP (as we sense the algos have no confidence in their correlations) and real money awaits tomorrow's NFP debacle.

With the 10Y Treasury yield trading with a 1.75% handle - its lowest of the year - it would appear that the fallout from Cyprus (storm-in-a-teacup or not) has had a significant impact on cross-asset class correlations. With safe-haven sectors the only bid holding up a fragile US equity market and EURJPY having been discarded by the algos for any pump-and-dump, it appears stocks are on their own now.

From wealthy citizens trying to pay less tax, to savvy swindlers and drug lords with riches to hide, people have spent decades stealthily shifting money via European principalities, Caribbean archipelagos, and Pacific islands. ICIJ provides the following simple six-step process for 'stashing your cash'; from 'Choosing a haven' to creating a 'secret identity' and from opening the 'right' bank account to how to 'move' the money; this picturesque guide may be indispensable as Europe's final 'deposit haircut' solution draws ever closer - especially now we know there is 'no plan B."

This is your QE on Bernanke: $85 billion per month or $1 trillion per year.

This is your QE on Japanese monetary drugs: $200 billion per month or $2.4 trillion per year.

In the somewhat unsurprising conclusion of former FBI Director Louis Freeh's investigation into the MFGlobal collapse, Jon Corzine's aggressive bets on European sovereign debt led to the firm's dramatic collapse. The 124 page report (below) is extensive; noting, as Reuters reports, that Corzine's single-handed "negligent conduct" contributed to the company's failure. It was also "almost impossible to properly monitor the liquidity drains... caused by Corzine's proprietary trading strategy," the report said, adding that the "glaring deficiencies" in the firm's internal reporting were, "long-known to Corzine and management, yet they failed to implement sufficient corrective measures promptly." The investigation, based on interviews with former MF Global employees, board members and the review of hundreds of thousands of documents, concludes, "The risky business strategy engineered and executed by Corzine and other officers and their failure to improve the company's inadequate systems and procedures so that the company could accommodate that business strategy contributed to the company's collapse." Obviously, Corzine has denied any wrongdoing.

A cache of 2.5 million files of cash transfers, incorporation dates, and links between companies and individuals has cracked open the secrets of more than 120,000 offshore companies and trusts. The secret records obtained by the International Consortium of Investigative Journalists (ICIJ) lay bare the names behind covert companies used by people from American doctors to Russian executives and international arms dealers in more than 170 countries (as shown in the map below). One wonders how and why this sudden (and timely) leak of documents occurred. If we were a tinfoil-hat-wearing conspiracy theorist we might suspect that this is a staged coup to create a witch-hunt against all offshore capital (legitimate or illegitimate) - and an attempt, as with Cyprus, to push money out of banks and into circulation (pushing the velocity up) as all other monetary policy 'tricks' have failed. While 'offshore' is synonymous with 'tax cheat', there is nothing illegal in moving assets offshore. In fact, as Simon Black notes, given that there is going to come a time, likely soon, that retirement savings will be targeted; diversifying abroad is one of the sanest things you can do to protect yourself against the real criminals.

While the head of the ECB and his assorted kitchen sinks scramble to explain how Diesel-BOOM was horribly misunderstood when saying that depositor impairment may and will be the template for future European bank "resolution" (as should have been the case from Day 1), the CEO of Italy's largest bank appears to have missed the memo. As Bloomberg reports, according to the chief executive Federico Ghizzoni, "uninsured deposits could be used in future bank failures provided global rulemakers agree on a common approach." Or failing that, because if Cyprus taught us anything is that Europe will never have a common approach on anything, just use deposits as impairable liabilities, period, once the day of reckoning for Non-Performing Loans comes and these are forced to be remarked to reality, just as happened in Cyprus. One can only hope that uninsured deposits do not represent a substantial portion of the bank's balance sheet because the CEO basically just told them they are next if when risk comes back to the Eurozone with a vengeance. Especially since as Mario Draghi was so helpful in pointing out, "there is no Plan B."

What currency is feared by the European Central Bank as a threat to fiat monetary institutions?  What currency is cash like but digitally transmittable allowing for ultimate anonymity and global mobility? What digital currency is up over 2,200% over the last year? The answer?  Bitcoin. From mining, supply, demand, and security, Visual Capitalist's infographic covers it all.

Former Enron CEO Jeff Skilling may be the latest beneficiary of the culture of pervasive permitted, even at times encouraged, crime. After being sentenced to prison for 24 years in the aftermath of Enron's spectacular 2001 bankruptcy, the former CEO may be released after serving well less than half of his term. As a result his prison term, which scheduled to end in 2028, may be cut by more than half as a result of a new agreement with the Department of Justice. It appears that AG Eric Holder is so busy not prosecuting Wall Street for being Too Big To Prosecute, he has decided it is far wiser to spend his time productively by commuting the sentences of convicted financial felons, because apparently there is nothing more important to do.

Despite Draghi's downbeat utterings and explanation that there is no 'Plan B', EURUSD managed to jerk higher as US macro data hit and markets opened. European stocks were banged lower after he raised downside risks for the EU economy as the hope fades from Barroso's idiotic comments yesterday. European bonds did snap wider but from a tighter base and end stll 10-15bps tighter on the week - though Portugal was battered wider. Swiss stocks are the worst performer on the week - which is odd - especially as 2Y Swiss rates plunge to -3.9bps - its lowest since mid-January as safe-haven flows surge once again. European financial stocks are now negative year-to-date, still playing catch down to European financial credit.

The world's macro data is pointing a significant slowdown, and yet - as we noted here - stocks remain sanguine; buoyed by the promises of central planners everywhere that no harm will come to them. Deutsche Bank's Jim Reid, like us, is a little skeptical that this chasm of un-reality can remain for long. His perspective is from the correlation of PMIs and YoY changes in equities (based on data back to the 1990s). The current implied results for the US, UK, and the big 4 in Europe is more than a little worrying - with the French in most trouble.

For credit to be productive, there must first be productive uses for the capital. In an economy with over-capacity in virtually every sector, a massive surplus of labor, a predatory financial sector and a grossly inefficient government in thrall to crony-capitalist cartels, truly productive investments are few and far between. Instead we borrow trillions of dollars to squander on wasteful consumption and claim it's an "investment." Consumption is not investment, but this simple truth is taboo in our financialized, centrally planned Empire of Mis-Allocated Capital.

Scott Solano, DPA: Mr Draghi, I've got a couple of question from the viewers at Zero Hedge...

Mario Draghi, ECB: Well you really are asking questions that are so hypothetical that I don't have an answer to them. Well, I may have a partial answer. These questions are formulated by people who vastly underestimate what the Euro means for the Europeans, for the Euro area. They vastly underestimate the amount of political capital that has been invested in the Euro. And so they keep on asking questions like: "If the Euro breaks down, and if a country leaves the Euro, it's not like a sliding door. It's a very important thing. It's a project in the European Union. That's why you have a very hard time asking people like me "what would happened if." No Plan B.