• Bruno de Landevoisin
    09/21/2014 - 14:52
    Dear Janet; If I may be so forward, as a concerned citizen of the Constitutional Republic of the United States, it is with great consternation that I feel compelled to write you this distressing...

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EURUSD Soars On No News: ECB Now Intervening In FX?

Out of nowhere, and based on no news whatsoever, the EURUSD just jumped by 40+ pips in what appears to have been one trade. There is no news to justify this move, as the only possibly related headline to come out was that the Greek finance minister sees parliament vote on the new EUR 130bln aid deal in January. This is neither news, nor is it bullish. In addition, we have information now that Intesa has now been halted on the Italian market due to excessive (downward naturally) volatility. Which begs the question: has the ECB decided it has had enough of bond monetizations and is now actively engaged in FX warfare against the Fed, or are French banks now massively dumping USD assets and buying EUR with the proceeds with indescriminate abandon, as was reported first previously here.

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S&P 500 Gaps Down As 50DMA Taken Out

Volume is further picking up as Financials move to the worst spot (down over 3%). ES is down 2.5% and has just taken out the 50DMA as the Dow is down over 300pts. HYG remains a significant underperformer but equities look like they are playing catch up finally to credit markets - short-term target 1166 for S&P 500 given current HY levels.

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Bank Of Spain Nationalizes Banco De Valencia

Some headlines from Spain, confirming that the buck did not end with Dexia, and that another bank which accounted for 0.74% of total Spanish assets has just folded. For now it is just the smaller ones. Soon, it will be the bigger ones.

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Guest Post: Europe Needs Debt Relief And Structural Reforms, Not Hyperinflation

The current governments in place in Italy and Greece are puppets of the banking system, making sure that countries do not default and pay as much interest for as long as possible by implementing short term austerity measures. This is not the type of technocratic government these countries need. They need a technocratic government that sees that the current debt burden is unsustainable and cannot be serviced, acknowledging that defaults are necessary. They should seize this opportunity to change the financial system and implement structural reforms, while exercising their powers to facilitate orderly defaults for both governments and household debt. This way countries will be able to start from a situation where there is breathing room to implement much needed structural reforms throughout society.

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How ZIRP and SNAC Made It Easier To Short Credit

Much has been made of "unintended consequences" of various policies.  Even ZIRP is gaining more attention.  ZIRP punishes savers. ZIRP forces bond managers to move out in duration or down in credit quality to get enough income to provide some semblance of a return after fees.  ZIRP may be encouraging people to wait on home purchases as they don't think interest rates or mortgages will rise anytime soon.  ZIRP has played a role in the credit crisis as well.  As has the SNAC protocol for CDS (which enabled - among other things - a fixed and lower running cost in CDS contracts) when combined with ZIRP means there is minimal carrying cost on the amount of up front premium paid in the case of credit shorts.

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Hague Says UK Treasury "Quietly" Preparing For "Contingencies On Euro"

Just a headline for now, but hardly a pleasant one for non Euroskeptics:

  • Hague tells UK Treasury preparing for contingencies on Euro. 
  • Preparations under way in a “quiet, assiduous way,” Hague tells CBI conference

More as we get it.

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Jefferies Is Back In Self-Preservation Mode, Releases Yet Another Defensive Press Release As Stock Tumbles

Just out from Jefferies which reports that it has lowered its Gross exposure to PIIGS by another 50% (down 75% in total), which we wonder: why, if Gross is not Net? Just ask Morgan Stanley.


And, like Europe, it is all evil speculators fault:

Last week, a representative of a hedge fund, who we understand has been spreading false rumors about Jefferies, sent us a letter with a series of questions that for the most part show what we must presume is an intentional misreading of our public filings to try to support these rumors. All these folks seem to be trying to take advantage of the MF Global bankruptcy and the volatile market environment with a view to harming Jefferies and all of us, presumably for personal gain. With the facts and truth on our side, we have responded to all this directly and completely. Fortunately, those who  take the time to understand and truly analyze the facts are reaching the right conclusion. While it may be necessary for us to continue to respond to these ill-conceived attacks, we fortunately can do so on a firm foundation and with confidence in our funding and business model.

One thing is certain: this is not the last promise from Jefferies that all is well.

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ES -2% As Volume Surges

Equity and credit markets are in close sync as broad derisking is evident everywhere. Energy, Materials, and Financials are the underperformers. HYG, the high-yield bond ETF, is notably underperforming both equity and high-yield credit spreads as its momentum-chasers exit fast and professionals find it the easiest / most-liquid instrument for hedging.

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Credit Suisse Goes For Broke: Predicts End Of Euro, Escalating Bank Runs On "Strongest European Banks"

Just because Credit Suisse bankers are people too (even if 1% people, but still people), and just because they know too damn well that "no ECB intervention" means "no bonus", and very likely "no job", they go for broke and join Deutsche Bank, JPM, RBS, and everyone else (but, again, not Goldman), in predicting the end of Europe unless Draghi does his rightful duty and remembers that without banker support he will also be lining up at the jobless claims office very soon. Of course, being a Goldman boy, Draghi will only do what Lloyd tells him to. Either way, here is Credit Suisse's rejoinder to the global Mutual Assured Destruction tragicomedy, which now makes Honk (as Lagarde calls him) Paulson's overtures to congress seem like amateur hour. "We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks. That may sound overdramatic, but it reflects the inexorable logic of investors realizing that – as things currently stand – they simply cannot be sure what exactly they are holding or buying in the euro zone sovereign bond markets...One paradox is that pressure on Italian and Spanish bond yields may get quite a lot worse even as their new governments start to deliver reforms – 10-year yields spiking above 9% for a short period is not something one could rule out. For that matter, it’s quite possible that we will see French yields above 5%, and even Bund yields rise during this critical fiscal union debate." Of course, the explicit message is: help us ECB-Wan Kenobi, you are our only hope. The implicit one is: do it, or we pull the trigger and blow it all up to hell.

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Are Economic Data Set To Disappoint?

The troubles in Europe remain front and center in the minds of most rational investors causing risk aversion to rise and safe-havens to become bid. However, much has been made (mainly by those hoping to increase AUM) of the admittedly better-than-expected US macro data of the last month or so inferring US equities are the safe-haven. While we do not want to pour too much cold water on the exuberant animal spirits that a mediocre payroll print or fractionally higher PMI or an LEI that is entirely useless thanks to the underlying factors regime change, we do note that once again it is much more about beating weak expectations than it is about underlying strength. Just as with earnings beats and the hoop-la that surrounds 70% of names beating every quarter, Citi's Economic Surprise Index shows that we have swung from wildly pessimistic to perhaps too optimistic very rapidly. The Citi Econ Surprise Index is about as high as it gets here and implies we should expect disappointing macro data relative to our lofty expectations from here (today's CFNAI?).

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As ECB's Stark Warns Contagion Has Spread To Euro Core, Bank Cash Parked With ECB Soars At Fastest Rate In Years

The Germans at the ECB, which just refuse to die, have been let out of the cage, and are making loud statements. ECB policymaker Juergen Stark warned on Monday the sovereign debt crisis had spread from the euro zone's periphery to its core economies and was affecting economies outside of Europe, according to Reuters. "These are very challenging times... The sovereign debt crisis has re-intensified and is now spreading over to other countries including so-called core countries. This is a new phenomenon," Stark said in a speech to Ireland's Institute of International and European Affairs in Dublin. "The sovereign debt crisis is not only concentrated in Europe, most advanced economies are facing serious problems with their public debt." Naturally this is not news to anyone, and certainly not to European banks, which have seen their deposits with the ECB (or a safe haven for any cash within the European interbank system) rise at the fastest rate in years, if not ever, since the last MRO. It has taken just 11 days to go from €73 billion on November 8, post the most recent LT liquidity operation, to €237 billion. We expect the total to surpass the two years high of €300 billion in under 5 days.

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Guest Post: A Message To The SPLC From A Montana "Extremist"

The Liberty Movement, and all it’s more specific and specialized branches, represents a resurgence of the immovable ideal. We refuse to set aside the truth. We refuse to relinquish our freedoms. We refuse to be silent. We refuse to negotiate. Regardless of the consequences, and despite contrary impositions of so called “national security”, we simply will not go away. This kind of philosophy is a serious obstacle for any establishment system which seeks to maintain or even expand its base of power. If you cannot buy off a person, if you cannot co-opt a person, and if you cannot frighten him into compliance, then all that is left to do is to demonize his public character, lock him up, or kill him. Men of conscience force the agents of centralization to expose their inherent tyranny before they are ready for the citizenry to know who they really are. Frankly, the Liberty Movement is a considerable pain in the neck for those who would see the American dynamic distorted to the benefit of a select few. We wear this distinction like a badge of honor. If we were not a threat to the globalist corporatist strategy, then they would not consistently go out of their way to attack us. They attack us, because we are doing something right. Only days ago the Southern Poverty Law Center (SPLC), the most prevalent propaganda think tank tied to the wretched tentacles of the Department Of Homeland Security (DHS), released yet another hit piece article slandering not just the Liberty Movement in general, or specific spokesmen like Stewart Rhodes of Oath Keepers, Chuck Baldwin of Liberty Fellowship, or James Rawles of Survivorblog fame, but also a specific action the movement has taken, namely, the relocation projects now gaining steam in the northwest Rocky Mountain regions of the U.S.

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European CDS Rerack - 5s10s Close To Inversion For All Core Countries

Belgium is the latest entrant to the fully inverted 5s10s club. Yet what is scary is that even Austria and France have just 14 bps to go before they also invert. And most worryingly, Germany is just 4 bps behind. Keep a close eye on the 5s10s. If it inverts for everyone in Europe, including the UK and German, it is game over.

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The Real Reason The "Voluntary" Greek Haircut Is Hurting

Suddenly, everyone is discussing how the IIF “deal” made sovereign CDS worthless and that is why we are seeing a renewed sell-off in sovereign debt.  That is just plain wrong.  What the Greek “deal” did was make it perfectly clear, that banks that survive on the benevolence of the ECB directly and the IMF/EFSF bailing out their positions indirectly, will do what the governments tell them to do.  The separation of banking and state has been violated.  That is the problem, and that means banks need to reduce positions because they are scared of what their masters will demand of them, and they cannot survive a haircut on Italian or Spanish bond holdings.

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Daily US Opening News And Market Re-Cap: November 21

  • Moody's said that rising French bond yields increase the fiscal challenges facing France
  • Members of the congressional deficit reduction committee voiced little hope of a breakthrough ahead of Wednesday’s deadline to agree a deal to reduce the US deficit
  • EU's Rehn said that the sovereign crisis is hitting core Eurozone countries, and there should be no illusion
  • ECB's Nowotny said an interest rate cut is possible, adding that the ECB will consider worsening economy at the next meeting
  • Bundesbank slashed its 2012 German growth forecast to 0.5%-1% from its previous forecast of 1.8%, sees German economy entering 'difficult waters' in the coming months
  • According to sources, EU governments rejected mutual guarantees for bank term funding, adding that the German opposition was key to the decision against mutual guarantees

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