Why are the only people smart enough to trick a bank's risk system, so stupid that they lose billions of dollars? The odds that the only rogue traders that exist have phenomenal losses are very small. Some must have small losses, and some must have profits that quickly get converted from "rogue" profits into bonus eligible profits. Why are so many capitalists and "free-market" champions calling for government support? Many of the same people who rant against government regulations and interference, are happy to demand handouts, subsidies, and "helpful" intervention. Can you really be a commucapitalist? I guess if capitalist is redefined as self-serving, this wouldn't be a paradox.
The unerring belief that powers greater than mere mortals will vanquish the enemy of lack-of-bank-capital this weekend was enough to spur a significant turnaround in European stocks and spreads as they headed towards the close. While optically, the strength in senior financials spreads appears wondrous, we note that subordinated spreads are underperforming seniors significantly (when one would expect them to be outperforming if all was really well) and broad equity indices (and credit indices) only managed to get back to marginally unchanged. Sovereign risk remains notably wider still - which has the smell of a bailout/nationalization risk-transfer to it in our ever so humble opinion.
- SENATE HAS VOTES TO DEFEAT HOUSE SPENDING PLAN; VOTE CONTINUES - BBG
Next up: headline risk and a push for Bernanke to print more. Why? Because when all is said and done the market will have plunged (even more) on the realization there is no fiscal stimulus coming in the next two years, despite the Chairman's clever gambit.
Last night a GOP controlled Congress passed the Continuing Resolution bill which would provide funding for the government past the end of the Sept 30 fiscal year end. To pass it, Boehner invoked clauses which antagonized Democrats even more. Which is why now that the bill is in the Senate, it appears to have hit a dead end. As Goldman explains, today the bill will likely die, which means that with a one week recess coming up from the government next week, government is about to be well and truly shut down.
Ben Bernanke promised to sit, like an elephant, on short-term interest rates for another two years - at least. What were US Money Market Funds (MMF) going to do? US Treasury yields are 0.09% for 12 months, 0.02% for 6 and negative 0.01% for 3 months. You can’t deliver negative yields to investors (that would empty the fund pretty quickly) and you still want to charge some management fees. Enter funding-hungry European banks. You might be surprised to learn the following: the world’s largest bank (by assets) is – French...
As rumors circulate regarding recaps, EuroTARPs, nationalizations, no-need-for-new-capital, no-NET-exposure-to-French-banks, we point out that Greek government bonds (GGBs) have quietly crept into the night with the 2Y price breaking below EUR40 for the first time and the long-end bond prices breaking below EUR30 for the first time. Given the 20% haircuts in the stress tests and the 60-70% haircuts the markets are expecting, we can only guess at banks need for capital - or will MtM suspension magically wipe all of those fears away? Meanwhile, away from the headline grabbing PIIGS, Germany CDS is +7bps at 113bps, Austria is 15bps wider at 185bps, and Belgium just broke 300bps.
Some much needed veteran trader perspective from the fermentation committee Chairman. "We’re going to adjust our usual format a bit to try and put yesterday in a little bit of perspective. Having done this over 50 years, I’ve seen a good deal of market history - the Cuban Missile Crisis, the Kennedy Assassination, the ’87 Crash, various wars, and much more - and perspective is essential to survival - at least financial survival."
Just hitting Dow Jones, another set of cold hard factual bricks for the bailout rumor brigade. From Germany's FinMin Wolfgang Schaeuble:
- GERMAN FINANCE MINISTER: MAY NEED TO REVISE 2ND GREEK BAILOUT - Dow Jones
- GERMAN FINANCE MINISTER: DOES NOT MAKE SENSE TO SPECULATE ABOUT NECESSITY FOR ADDITIONAL DECISIONS ON GREECE: RTRS
- GERMAN FINANCE MINISTER: THE RECAPITALIZATION OF EUROPEAN BANKS IS NOT A MATTER FOR THE ECB BUT FOR MEMBER STATES
It appears the euro is now soaring on expectations of a rumor to refute this latest fact.
Watch History Being Made As Solyndra Execs Plead The Fifth, Confirm Failure Of Government Stimulus ProgramSubmitted by Tyler Durden on 09/23/2011 - 09:19
Is this the beginning of the end of Obama, with impeachments and much more to follow? Today's pleading of the 5th amendment by Solyndra execs may be the starting point. Watch the live hearing below.
30Y rates move more than three standard deviations this week - the greatest move since Black Monday (1987) - as it drops 55bps - hhmm - stability.
Uh... did a member of the status quo just tell the truth? "It is clear now that the Fed cannot bail equity markets out any more and any interest rate cuts by the ECB may not have much of an impact on markets" Cue panic?
As overnight hopes of global bailouts fade, the reality that the markets are on their own has started to sink in across every asset class but perhaps credit - the life-blood of everything we do economically - is hurting the most. Senior financials are 14bps wider at 317.5bps (record wides), Main is 11bps wider at 209bps, and XOver 36bps wider at 880bps. Yesterday saw sovereign selling focused in the majors but today it has spilled over into everyone else as commodity producers have maintained their relationship with oil and have snapped wider. While SovX is 'only' 11bps wider at 368bps, CEEMEA is 41bps wider at 390bps overtaking SovX for the first time since June back to its more 'normal' position cheap to Western Europe.
- Finance ministers and central bank governors of the G20 countries pledged for a strong and coordinated international response to boost global economic recovery
- ECB’s Coene said that the central bank may take action as soon as next month if the economic data continues to disappoint. However, he also said that giving EFSF bank license would not be a good idea. Meanwhile, ECB’s Knot said that a Greek default cannot be excluded
- Kathimerini wrote that several Greek MP’s are resisting a new round of austerity
- The Head of Finnish Parliament said that the use of new EFSF powers should always require parliament approval
- Handelsblatt quoted a German economic professor saying that Germany has EUR 5trl of hidden debt, while Deutsche Bank said co.’s write downs on Greek bonds could be higher than the 21% level foreseen in a July agreement
We can only imagine the frantic calls being place between Omaha and Washington this morning...