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Frontrunning: August 15





  • Barack Obama's 'vacation from hell' (Politico)
  • Russian aid convoy checked; military vehicles mass near Ukraine (Reuters)
  • Ukraine Says APCs Entered From Russia to Aid Insurgents (BBG)
  • Islamic State Said to Challenge Al-Qaeda for Leadership (BBG)
  • Missouri protests calmer after governor puts black police captain in charge (Reuters)
  • Finally someone will prove the US is a pyramid scheme (in a 1000 page presentation): Ackman’s Pershing Square Sues U.S. Over Fannie, Freddie (BBG)
  • Banks, Financial Firms Load Up on Cheap Debt (WSJ)
  • Putin to Meet Finnish President as Threat of Cold War Grows (BBG)
 
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Greek Bonds Tumble To 2-Month Lows As Troika Gives Up And Goldman Downgrades Periphery





Greek 10Y yields, up 6 days in a row, have surged in the last few days to 2-month highs (bond price lows). The significant shift in sentiment appears related to two main factors. First, The Independent reports that Europe is considering pulling Troika (its economic oversight committee) - which has been likened to German Nazi occupation - out of Greece, forcing local politicians to come up with their own reforms by the start of 2015 (which clearly the market is not believing). Perhaps even more concerning is Goldman Sachs shift to neutral on European peripheral bonds, warning that "at current spread levels we think there is not enough of a buffer for investors to take credit risk in intermediate and long-dated peripheral sovereign bonds." Time for some more 'whatever it takes' we think.

 
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Is This China's QE?





Shortly after we exposed the real liquidity crisis facing Chinese banks recently (when no repo occurred and money market rates surged), China (very quietly) announced CNY 1 trillion of 'Pledged Supplementary Lending' (PSL) by the PBOC to China Development Bank. This first use of the facility "smacks of quantitative easing" according to StanChart's Stephen Green, noting it is "deliberate and significant expansion of the PBOC's balance sheet via creating bank reserves/cash" and likens the exercise to the UK's Funding For Lending scheme. BofA is less convinced of the PBOC's quantitative loosening, suggesting it is more like a targeted line of credit (focused on lowering the costs of funding) and arguing with a record "asset" creation by Chinese banks in Q1 does China really need standalone QE?

 
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Europe Gives Bulgaria A Bank System Lifeline As Battle Over "South Stream" Pipeline Heats Up





Earlier today Reuters reported that the European Commission said on Monday it had approved a Bulgarian request to extend a credit line of 3.3 billion levs ($2.30 billion) in support of banks that have come under speculative attack. “The Commission concluded that the state aid implied by the provision of the credit line is proportionate and commensurate with the need to ensure sufficient liquidity in the banking system in the particular circumstances,” the EU executive said in a statement. The statement said Bulgaria’s banking system was “well capitalised and has high levels of liquidity compared to its peers in other member states. For precautionary reasons, Bulgaria has taken this measure to further increase the liquidity and safeguard its financial system”. The move follows runs by jittery depositors on two major Bulgarian commercial banks in the space of a week. And while this latest backstop of the Bulgarian bank system should provide a respite from bank insolvency fears (if only for the time being), one wonders about Europe's true intentions.

 
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All The Presidents' Bankers: The Mid-1910s: Bankers Go To War





"...On June 28, 1914, a Slavic nationalist in Sarajevo murdered Archduke Franz Ferdinand, heir to the Austrian throne. The battle lines were drawn. Austria positioned itself against Serbia. Russia announced support of Serbia against Austria, Germany backed Austria, and France backed Russia. Military mobilization orders traversed Europe. The national and private finances that had helped build up shipping and weapons arsenals in the last years of the nineteenth century and the early years of the twentieth would spill into deadly battle. Wilson knew exactly whose help he needed. He invited Jack Morgan to a luncheon at the White House. The media erupted with rumors about the encounter. Though Wilson explained this did not signify the start of a series of talks with “men high in the world of finance,” rumors of a closer alliance between the president and Wall Street financiers persisted..." Woodrow Wilson and Jack Morgan’s collaboration to finance the Allies in the early days of the war - aside from its timeliness - provides one of the strongest examples of the intimate cooperation between the presidency and the highest levels of banking to drive American interests.

 
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Here They Go Again: Wall Street Is Offering Debt-On-Debt-On-Debt!





Wall Street is back in the business of lending money at the Fed’s gifted rate of zero plus a modest 80 basis point spread - so that the fast money can buy CLO paper on 9 to 1 leverage. There is your triple shuffle. It didn’t work out last time, but that doesn’t matter because the game is obvious. After enough buying on Wall Street’s triple leverage, junk loan prices might temporarily rebound. Then the brokers will put out the call to retail: The junk loan asset class is rebounding - its time to come back. For the final shearing, that is!

 
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Frontrunning: May 5





  • Fed’s Fisher Says Economy Strengthening as Payrolls Rise (BBG)
  • Russia Knows Europe Sanctions Ineffective With Tax Havens (BBG)
  • EU Cuts Euro-Area Growth Outlook as Inflation Seen Slower (BBG)
  • U.S. Firms With Irish Addresses Get Tax Breaks Derided as ‘Blarney’ (BBG)
  • Portugal exits bailout without safety net of credit line (Euronews)
  • Puzzled Malaysian Air Searchers Ponder What to Try Now (BBG)
  • Barclays, Credit Suisse Battle Banker Exodus, Legal Woes (BBG)
  • Germany says euro level not an issue for politicians (Reuters)
  • Alibaba-Sized Hole Blown in Nasdaq 100 Amid New Stock (BBG)
  • Obamacare to save large corporations hundreds of billions (The Hill)
 
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Futures Slide As Ukraine War Refuses To Go Away, 10 Year Yield Tumbles To February Lows





After months of ignoring events in Ukraine, HFT algos suddenly, if one for the time being, have re-discovered just where the former USSR country is on the map, and together with the latest economic disappointment out of China in the form of its official manufacturing PMI which missed expectations for the sixth month in a row, futures are oddly non-green at this moment now that talk of a Ukraine civil war is the new black (after two months of ignoring the elephant in the room... or rather bear in the room). Lighter volumes, courtesy of holidays in Japan and UK, have not helped the market breadth and stocks in Europe are broadly lower with the DAX (-1.33%) and CAC (-1.19%) weighed upon by risk off sentiment and market positioning for the eagerly anticipated ECB policy meeting especially after the EU cuts its Euro-Area 2014 inflation forecast from 1.0% to 0.8%. But what's bad for stocks continues to be good for equities, and moments ago the 10Y dropped to a paltry 2.57%, the lowest since February... and continuing to maul treasury shorts left and right.

 
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The Scarlet Absence Of A Letter Of Credit





If there’s one thing we all know about banks and bankers: they love to tell tales in public of how much they value their customers. However, what you’ll never hear them profess in private: is how much they trust them. Although one may think that’s unseemly, believe it or not there is another entity banks hold at an even lower tier. Other banks.  One of the known facts people remember about the melt down in 2008 (as opposed to general public) was when the banks no longer trusted each other, and what they earlier claimed was “collateral” wasn’t actually worth what it was stated to be. As we recently explained in How China’s Commodity-Financing Bubble Becomes Globally Contagious, the implications of this development and the consequences it portends just might make it the proverbial “canary in a coal mine.” The underlying issue that makes this far more dangerous or different from times past is three-fold...

 
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Bank Runs Spread To Thailand





Thailand's Government Savings Bank (GSB) president admitted that clients withdrew 30bn Baht (around $1bn) in a single-day last week and Bank for Agriculture and Agricultural Cooperatives (BAAC) and Krungthai Bank (KTB), although of a much smaller magnitude, have also seen withdrawal spikes of similar magnitude according to The Bangkok Post. The 'bank run' comes after speculation that cash at the state-run banks are being used by the government (which is in turmoil) to fund farmers (who have not received their 'promised' rice subsidies of over 130 bn Baht). Withdrawal requests are met with banks warning that there were insufficient funds at the time due to many depositors withdrawing cash. One depositor, rather ironically summed it up, "I started to feel concerned that my money may become only paper."

 
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S&P Junks Puerto Rico On Liquidity Concerns, Warns About $1 Billion Collateral Call - Full Note





Following the evaluation of liquidity needs (and availability) for the Commonwealth of Puerto Rico, S&P has decided that "it doesn't warrant an investment-grade rating":

  • PUERTO RICO GO RATING CUT TO JUNK BY S&P, MAY BE CUT FURTHER
  • GOVT. DEVELOPMENT BANK FOR PUERTO RICO CUT TO BB FROM BBB-:S&P
  • PUERTO RICO GO RATING LOWERED TO 'BB+': S&P
  • PUERTO RICO REMAINS ON WATCH NEGATIVE FROM S&P

Both the G.O.s and the Development Bank have been cut. Note that 70% of muni mutual funds own this - and it is unclear if a junk rating forces (by mandate) funds to cover. Worst of all, S&P warns Puerto Rico could now face a $1 billion collateral call on short-term debt - the same waterfall collateral cascade that took down AIG.

 
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1,582-Page Spending Bill Hinges On NSA Giving Congress 5 Years Of Records





The 1,582-page (apparently bipartisan) omnibus spending bill announced last night adds up to a cool $1.1 trillion. As Bloomberg reports, lawmakers notes "not everyone will like everything in this bill," and we can see why. There is no IMF funding, nothing that "blocks Obamacare," the IRS gets a reprimand - barring them from targetng groups based on their ideological beliefs, preserves language that blocks Federal funding for abortions and spending any money to legalize marijuana. But, perhaps the most critical aspect of the bill is the NSA is required to give Congress number of phone records collected, reviewed during last 5 yrs, including estimate for records of U.S. citizens (among other things). Will that be one step too far for the administration?

 
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Event Risk: Down But Not Out





The German election is over and the confrontation over the US debt ceiling has ended, so event risk should be minimal, right? Not so fast, UBS' Mike Schumacher warns - plenty of pitfalls could trip markets. Forward-looking measures of 'risk' are beginning to show some signs of less-than-exuberance reflected in all-time-highs across all US equity indices and if previous episodes of 'low-vol' are any guide, the current complacency is long in the tooth... no matter how 'top-heavy' stocks become; bloated by the flow of heads-bulls-win-tails-bears-lose ambivalence...

 
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Frontrunning: October 23





  • Top China Banks Triple Debt Write-Offs as Defaults Loom (BBG)
  • PBOC suspends open market operations again (Global Times)
  • Eurozone bank shares fall after ECB outlines health check plan (FT)
  • O-Care falling behind (The Hill)
  • Key House Republican presses tech companies on Obamacare glitches (Reuters)
  • J.P. Morgan Faces Another Potential Huge Payouta (WSJ)
  • Yankees Among 10 MLB Teams Valued at More Than $1 Billion (BBG)
  • Free our reporter, begs newspaper as China cracks down on journalists (Reuters)
  • Peugeot Reviews Cost-Saving Alliance With GM (WSJ)
 
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Fourth Day Of Hope For "Imminent Deal" Should Be Sufficient For New Record High Close





If mere hope of an "imminent" deal starting on Thursday and continuing through Monday, with no actual deal but who cares about details, was enough to push the DJIA up by 600 points, then all it would take to set a new record market high today, is for another day to pass - one day before the October 17 X-Date when one Senator can filibuster the US through the deadline on their own, and when the House still has to have a voice on what the Senate has been doing - without an actual debt deal. After all, the market is so "centrally-planned" all that is needed is knowledge that Bernanke will get to work, and is getting to work to the tune of $85 billion a month, mixed in with some hope. And with today's "market for idiots" facilitating POMO of over $5 billion which guarantees a green close, all that is needed is a complete failure in talks for the SPX to go limit up on even more hopes things will be fine any second now... if not right now.

 
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