With hours to go until Argentina's grace period runs out and default occurs, investors are less than frantically selling Argentine bonds and pesos. They are lower but do not appear in full panic mode as we presume investors cling to hope that Argentina folds and pays off the holdouts (though there has been no sign of that so far). ARG 2033 bonds are down 3 points to 81 and the black-market peso is modestly weaker at 13.0 (near its record lows). Argentine CDS tightened modestly (as BofA warns the facts surrounding Argentina’s bond payments continue to be unique and deciding if CDS are triggered could take longer than expected) but 1Y CDS are holding at 4600bps (equivalent) - a 52% probability of default. Paul singer continues to defend himself (and the holdouts) from claims they are "dangerous fundamentalists" hell-bent on making it impossible for foreign sovereigns to restructure their debts.
There has been little in term of tier 1 data releases to drive the price action so far in the overnight session which means participants focused on the upcoming US related risk events including the Fed, Q2 GDP and July Payrolls. This, combined with WSJ article by Fed’s Fisher who opined that the FOMC should consider tapering the reinvestment of maturing securities and begin shrinking the Fed’s balance sheet (note that Fisher’s opinion piece is written based on a speech he gave on July 16th) meant that USTs came under pressure overnight in Asia and in Europe this morning. There has been little notable equity futures action (for now: the USDJPY algo team gave it a good ramp attempt just before Europe open, and will repeat just around the US open despite Standard Chartered major cut to its USDJPY forecast from 110 to 106 overnight), although we expect that to change since today is the day when Tuesday frontrunning takes place with full force. We expect equities to completely ignore the ongoing deterioration in Ukraine and the imminent release of EU's own sanctions against Russia, as well as what is now shaping up as an Argentina default on July 30.
Amazon is Exhibit A of how the Fed’s free money for Wall Street and corporate mastodons is destructive to the rest of the economy.
Working for the government was always pitched as somehow being better guaranteed than risky private corporations. However, the problem with government pensions has been they promised whatever sounded nice, with zero accountability. The presumption that tax revenue was an endless pit is one of those fallacies that nobody ever investigates. The ramifications of what happens in Detroit will ripple through the entire debt structure nationally for if this will be the new game plan to follow, why should people buy any government debt whatsoever if not even bankruptcy laws apply? As we said – he who makes the laws never goes to jail for breaking them.
Having admitted that the banking system problems in Portugal could be systemic, the President has a bigger problem now as the 3rd (and final) Holdco of the Banco Espirito Santo capital structure fiasco just filed for bankruptcy:
*ESPIRITO SANTO FINANCIAL GROUP SEEKS PROTECTION FROM CREDITORS
First it was ESI (storm in a teacup), then RioForte ("contained"), and now ESFG ("systemic"), and given the CEO's recent "detention" for money-laundering, we wonder how long before Banco Espirito Santo is forced to liquidate?
Argentina Debt "Mediation" Goes Surreal As Neither Side Turns Up For Meeting, Black-Market Peso TumblesSubmitted by Tyler Durden on 07/23/2014 14:02 -0400
Despite Judge Griesa's demands that the holdouts and the Argentinian government hold "continuous" mediation until the debt conflict is resolved "or fear the worst," this morning's headlines are somewhat surreal:
*NEITHER SIDE IN ARGENTINE DEBT CONFLICT HAS ARRIVED TO MEETING
Argentina decided not to send the economy minister (just a 'delegation') as BTG analysts warn that "all the music from the Argentine government indicates default," and judging by the tumble in Argentina's black-market Peso (Dolar Blue) the last few days, that risk is starting to rise.
Despite yesterday's lackluster earnings the most recent market levitation on low volume was largely due to what some considered a moderation in geopolitical tensions after Europe once again showed it is completely incapable of stopping Putin from dominating Europe with his energy trump card, and is so conflicted it is even unable to impose sanctions (despite the US prodding first France with BNP and now Germany with the latest DB revelations to get their act together), as well as it being, well, Tuesday, today's moderate run-up in equity futures can likely be best attributed to momentum algos, which are also rushing to recalibrate and follow the overnight surge in the AUDJPY while ignoring any drifting USDJPY signals.
As RioForte joins its parent ESI in bankruptcy, in a strangely honest turn of events from a European leader, Portugal's President Anibal Cavaco Silva warned on Monday that fallout from the financial troubles of the founding family of Banco Espirito Santo (BES) could affect the wider economy. With Portugal's hope-strewn GDP growth expectations at only 0.9% for 2014, they do not have much room for disappointment before the nation (whose yields remain near record lows) double- or triple-dips back into recession. Silva concluded, "We cannot ignore that there will be some impact on the real economy," which is odd given every talking-head has explained it is "contained" and "priced-in."
Bank of England officials led by Mark Carney, the Bank of England governor, are attempting to bridge sharp differences among leading G20 countries as they prepare a landmark set of proposals aimed bringing in the new bail-in regime. The issue is of major consequence also to depositors who could see their savings confiscated as happened in Cyprus. Bail-ins are coming to banks in the western world with consequences for depositors.
"Dear Grandma and Grandad, thank you for making the valiant effort over these past decades to achieve a measure of self-reliance in your dotage and for allowing us jacks-in-office full use of your savings in the meanwhile as both a means to fulfill our political ambitions and as a way to act out our own economically-illiterate and usually illiberal prejudices at the expense of you and yours... Sadly, it transpires that we have not only wasted a goodly part of your savings, but we have greatly added to the host of irredeemable promises which we made to you..."
Following this morning's farce of huge investor demand and then Bank of Portugal's Costa 'hoping' for demand from investors willing to pile more money on losing money into Espirito Santo, it appears things have escalated rapidly...
*ESPIRITO SANTO INTERNATIONAL SAYS IT CAN'T MEET OBLIGATIONS
*ES INTERNATIONAL APPLIES FOR `CONTROLLED MANAGEMENT' REGIME UNDER LUXEMBOURG LAW
The "controlled management" application is the equivalent of declaring a breakup or controlled bankruptcy process (as we explained here). ESI is the ultimate HoldCo in the Banco Espirito Santo family.
The Argentina default battle is in its final fortnight, with a July 30 grace period expiration looming, one which would result in a second bankruptcy in 13 years to formally be written down in the history books, and which could spoil the serene glow all global capital markets have found themselves in thanks to the central bankers' soothing words. As a result, Argentina has resorted to a last ditch strategy to ferret out the full list of holdout creditors (the hedge funds led by Elliott, Aurelius and various other known and unknown bondholders) as well as get a full list of the restructured bondholders (those who are perfectly happy to clip whatever coupon Argentina will pay them instead of seeing their payment stop altogether if and when CFK announces an official default). The logic behind the ruse: to circumvent the court and pay the restructured debtholders in the 11th hour.
The Atlantic City casino industry implosion continues. Following the second, and final, bankruptcy of AC's "state of the art" Revel Casino a month ago, as well as the shuttering of Atlantic Club hotel Casino and the Showboat hotel casino, the grim corporate reaper has come for one of the most prominent boardwalk casinos of all: Trump Plaza. "Trump Plaza Hotel & Casino will shut its doors for good in mid-September, according to state officials who were briefed Friday by lawyers for the casino."
Behind the veneer of “all is well” being promoted by both world Governments and the Mainstream Media, the political elite have begun implementing legislation that will permit them to freeze accounts and use your savings to prop up insolvent banks.
But... but... the VIX said everything is ok, and European rates were the lowest they have been in centuries... How can something possibly go wrong?
It just did.