Goldman Raises US Recession Odds To 40%; Sees More Fed Easing, Expects Recession In Germany And FranceSubmitted by Tyler Durden on 10/03/2011 - 19:37
We won't comment on the supreme imbecility of being able to predict something as amorphous as a recession in decile increments, but for what it's worth, here it is. Just out from the crack Goldman tag team of Hatzius and Dominic Wilson, who usually don't work together unless they have to make some big statement: "We now see the risk of a renewed US recession as around 40%." (this was 30% before - expect every other Wall Street idiot to follow suit with an identical prediction). Also, those wondering if Goldman is content with getting shut out on its IOER cut demand, we have the answer: no. To wit: "We expect additional easing of monetary policy beyond the ‘operation twist’ announced recently, although this may not come until sometime in the first half of 2012. In addition, the market’s focus on changes in the Fed’s guidance on future policies - including a greater emphasis on the employment part of the ‘dual mandate’ and/or a temporarily higher inflation target - is likely to intensify." Lastly, as relates to the saving grace in Europe, little surprise there - Goldman, whose plant Mario Draghi is about to take over the ECB, expects the very same ECB to open the spigots: "The increase in financial risk is likely to lead the European Central Bank to ease its liquidity policies further this month, and the economic weakness will probably result in a cut in the repo rate by 50bp to 1% by December." As for European economic prospects, well, sacrifices will be made: "we now expect a mild recession in Germany and France, and a deeper downturn in the Euro periphery." And with a former Goldmanite about to take over the European money issuance authority, we have a bad feeling about what will transpire in Europe after October 31, when Trichet finally exits stage left.
Things About To Turn Violent Again - Greece May Mobilize Police Against Striking Students And TeachersSubmitted by Tyler Durden on 10/03/2011 - 19:00
Even as the three bureaucratic stooges from the Eurogroup mumbled something or another about kicking the Greek can down the road in the just concluded press conference indicating that Finland will indeed get the Greek collateral its desires, only it will be in the form of worthless Greek bonds that can not be touched for 15 or so years, we have a feeling that Greek society may soon take matters into its own hands, and with quite a terminal outcome at that. According to Kathimerini, the Deputy Education Minister Evi Christofilopoulou (henceforth known simply as Lud-E-Chris) has "suggested" that the police be mobilized to break up "hundreds of sit-ins at schools on Monday a few hours after hundreds of pupils protesting cutbacks clashed with riot officers in central Athens." And if people think that our own version of occupational protests is troubling, just wait until a country's protesting student body comprehends that its country has just sicced the police force against it.
It appears the US has decided to apply a scorched earth policy to China. While we are seeing flashing headlines that the Senate just passed a China currency bill 79 to 19 (we don't know what is in the bill yet), we doubt it will be something that China will be too pleased with, as most likely there will be some language about currency manipulation and/or some such typical politician propaganda. What is more troubling is that the CME just made sure the tens if not hundreds of billions of Chinese copper collateralized Letters of Credit just lost even more value following yet another margin hike in Copper, which raised initial and maintenance margins by 15%. If China perceives US actions as provocative (and it made very clear that US overtures in Taiwan already are), we may just see an 'oopsie' moment tomorrow when the Mainland decides to offload a few billions in US Treasurys. And the cherry on top was a 28.6% margin hike in Platinum: a direct warning to gold and silver longs once again.
Mitsubishi UFJ Releases Rescue Attempt Of Morgan Stanley: Time For Orkimedes Of Omaha To Take Another Bath?Submitted by Tyler Durden on 10/03/2011 - 17:33
Just because outright denials by Dick Bove, Alliance Bernstein, Credit Suisse, Jim Cramer and Wells Fargo were not enough to prevent a rout of Morgan Stanley stock after someone dared to point out one simple observation, here comes the 2008 deja vu when the Asians had to step up and protect their "strategic alliance" partners, also known as deeply underwater investments. We expect another Eureka moment from the Orkimedes Of Omaha (and grand tax vizier) shortly.
The S&P cash made new lows for the year as we aggressively probed lower into the close and penetrated Doug Kass's bottom from Aug 9th with cash and futures closing below 1100 back to 13 month lows, with the pain spreading wide following rumors of hedge fund blow ups. Financials led the dance and just could not get a break all day despite the early perfectly fadable cheerleading from Cramer et al. Credit markets were a disaster with red everywhere and notable gaps suggesting some desperate reaching for hedges/unwinds as index overlays started to disengage from single-names. TSYs saw an enormous day as 'Twist' started with 30Y -18bps and 10Y -16bps and both investment grade and high yield bonds were net sold - something we have not seen for a while. Instead of its normal sideways plod after Europe closes, FX markets continued to weaken dramatically against the USD with only JPY holding stronger while EUR broke to a 1.31 handle. Gold and Silver managed decent gains (the former outperforming the latter) as oil and copper lost 2-3% on the day. Stocks remain slightly expensive relative to where credit currently trades.
US Closes 2010-2011 Fiscal Year With $14,790,340,328,557.15 In Debt, $95 Billion Jump On The Day, $1.2 Trillion Increase In One YearSubmitted by Tyler Durden on 10/03/2011 - 16:26
America has now officially closed the books on the 2010-2011 fiscal year. It is only fitting that the last day of the year saw the settlement of all outstanding and recently auctioned off debt. The result: a surge of $95 billion in total government debt overnight, and a fiscal year closing with the absolutely unprecedented $14,790,340,328,557.15 in debt. Net net, in the past fiscal year, the US has issued a total of $1.228 trillion in new debt and has accelerated over time. At a rate of $125 billion per month, total US debt to GDP will pass 100% in just over a month. Incidentally, one may inquire about the benefits of centrally planned fiscal stimulus (cough Solyndra cough): the US economy added over 3$ trillion in debt in the past two years and the stock market is almost back to where it was back then. Perhaps it is about time someone demanded that all those lunatics who say that issuing debt for the sake of growth (and pushing the S&P higher of course) be finally locked away in perpetuity, and the key dropped into the deepest volcano in Mordor.
According to the German edition of the FT, G-Pap is once again using the R-card (that would be resigning-cum-retiring) - the last time he did this was back in early July when he had to persuade the government to vote for the July 21 Greek bailout #2. He was bluffing then. He is likely bluffing now, although if he isn't, it means game over for Greece and probably for the European dream, not to mention united currency. From FT: "[G-Pap] has been trying for months to keep his country from bankruptcy - Tens of thousands of Greeks are against the austerity policies of the government on the barricades. No wonder the prime minister is thinking of throwing the rocks." Since this is google translation, we assume "throwing rocks" is loosely translated as getting the f#*$ out of Dodge while the getting is good, while the private jet still has fuel and while the gold is still in the cargo hold.
John Paulson Is Not An American Airlines Investor... But Here Are The Top 25 Holders Who Have Gotten Crushed TodaySubmitted by Tyler Durden on 10/03/2011 - 15:14
As most know by know, a flurry of rumors that American Airlines may be on the verge of bankruptcy not only took down the stock by about 40% at one point today, but was halted around 6 times following repeated consecutive circuit breaker triggers. Yet none of that is material at all to the biggest holders in the stock, and especially those analysts at their companies who recommended AMR, and are all about to be summarily sacked. While John Paulson is not an investor in AMR, other "balls to the wall" funds like Appaloosa, with 5.6 million shares, are. Below is the full list of top 25 entities losing about a third of their notional on AMR today.
Where is the US and global economy going? What will happen to the dollar and euro? And how can investors protect themselves from the fallout? All these questions and more were answered at the Casey Research/Sprott, Inc. Summit When Money Dies. Kevin Brekke reports live from the conference…
The credit markets here are actually deteriorating and are showing signs that there is growing default concern, rather than just pressure to reduce risk. If investors only wanted liquidity they could sell some of the bonds that have performed better. If they weren’t hedging jump to default exposure, they wouldn’t be starting to bid up the front end of the curve. Investors are examining their positions closely and are exiting the positions they fear the most in an economic downturn.
From NBC: "A massive fire is burning at Magnablend chemical plant in Waxahachie. The company has three facilities in Waxahachie and the fire is at the Central Facility at 1601 state Highway 287 Bypass just east of Interstate 35E. According to their website, the chemical company has 80,000 gallons of bulk liquid storage at the facility. The fire is very intense and moving beyond the property and into an adjacent field toward the Ellis County campus of Navarro College. A fire truck in the parking lot managed to keep the fire from spreading to the building. The college was evacuated immediately after the fire broke out. The fire continues to push toward a train loaded with tankers stopped on the tracks. A fire truck at the property was engulfed by the fire as it spread quickly across the ground." Watch the live video below.
UPDATE 3: C -9.7%, BAC -9.3%, MS -7.1% & CDS blowing too in Financials (GS +60 at 387bps, MS +53 at 547, BAC +34 at 451, C +32 at 347...and Insurers (AIG +70 at 540, HIG +45 at 465, MET +27 at 390, PRU +35 at 340, and BRK +20 at 270)
UPDATE 2: Citi, MS, and BofA all down 8%!!!
UPDATE 1: Citi, MS, and BofA all down over 7% now, XLF -3.5%!!
In the last hour, financials have accelerated to the downside very rapidly. It seems perhaps that the credit markets were on to something and now equities are realizing that something is definitely worrying market professionals.
MS -5.7% at $12.7 (from highs just above $14 this morning as Cramer recommended), BAC -4.75% at $5.82 (lows since MAR09), GS -3% at $91.7, C -6%, XLF worst performing sector -2.5% (Is Kass still renting?)
Now that the FT is reporting that as part of the ongoing emergency talks to rescue an expiring Dexia, one of the proposals is a spin off of a Dexia "bad bank" - something which worked for UBS, which is still a partial protectorate of Switzerland, but will most certainly not work for governmentless Belgium, the question is "who is next" Luckily, we have the following handy summary, courtesy of Reuters' Peter Thal Larsen who has pulled a chart from an Espirito Santo report, showing a 2-D matrix of liquidity (i.e. liquid assets as a % of wholesale funding assets), versus reliance on wholesale funding - the one component in European interbank markets which is now completely dead. Needless to say red is bad. And if one thinks that Dexia is about to file, then it may be last rites time for Soc Gen, BNP, Raiffeisen, and DnB Nor.
As of milliseconds ago, one share of Bank of America stock is now $5.99, a level it has not seen since the apocalypse back in March 2009, and upon penetrating it, a huge volume surge followed as an avalanche of sell orders were activated. However, we are confident this will be temporary. According to largely amusing rumors, Bank of America will follow through with its expropriation procedure and withdraw $5 from longs' brokerage accounts for each share they hold, effectively doubling the market cap in the process. So you see: there is nothing to worry about. Warren: resume your bath, both literal and metaphorical.