With everyone confused over why Draghi has put himself in a position from which he can't deliver and satisfy the market one hour ahead of the ECB announcement, and everyone placing their last bets on the EUR and the SPGBs before the ECB press release hits without really having any clue what the Italian has in store that will make both the EuroStoxx and the Bundesbank happy, here are some additional last minute "insights" from Deutsche Bank that promise not to clarify the situation all that much. Because while "We'll be honest and say we've been totally confused about what to expect from the ECB ever since Draghi's speech last Thursday" DB does say: "In short it doesn’t look like we will get any explicit action today." Clear as mud.
Or any other weapons. A panacea, yes, but it doesn’t work.
Just when you thought the Li(e)bor scandal had jumped the shark, Germany's Spiegel brings it back front-and-center with a detailed and critical insight into the 'organized fraud' and emergence of the cartel of 'bottom of the food chain' money market traders. "The trick is that you can't do it alone" one of the 'chosen' pointed out, but regulators have noiw spoken "mechanisms are now taking effect that I only knew of from mafia films." RICO anyone? "This is a real zinger," says an insider. In the past, bank manager lapses resulted from their stupidity for having bought securities without understanding them. "Now that was bad enough. But manipulating a market rate is criminal." A portion of the industry, adds the insider, apparently doesn't realize that the writing is on the wall.
- Bundesbank’s Weidmann Says ECB Shouldn’t Overstep Mandate (Bloomberg)
- Hollande and Monti Vow to Protect Euro (FT) - be begging Germany to death
- Monti Calls French, Finns to Action as Italy Yields Rises (Bloomberg)
- not working though: Banking license for bailout fund is wrong: German Economy Minister (Reuters)
- Switzerland is ‘New China’ in Currencies (FT)
- Regulator Says no to Obama Mortgage Write-Down Plan (Reuters) - tough: there will be socialism
- Gauging the Triggers to Fed Action (WSJ)
- When domestic monetization is not enough: Azumi Spurns Calls for Bank of Japan to Buy Foreign Bonds to Curb Yen (NYT)
- Indonesia’s July Inflation Accelerates on Higher Food Prices (Bloomberg) - remember: the Deep Fried black swan
- China Manufacturing Teeters Close to Contraction (Bloomberg)
- Spain Introduces Regional Debt Ceilings to Achieve Budget Goals (Bloomberg) - yes, they said "budget goals"
Pushing them to build up more debt to push additional debt on over-indebted nations who clearly can't pay back their current debt is quite foolish. Recession and depression looms everywhere.
"September will undoubtedly be the crunch time," one senior euro zone policymaker said. "In nearly 20 years of dealing with EU issues, I've never known a state of affairs like we are in now," one euro zone diplomat said this week. "It really is a very, very difficult fix and it's far from certain that we'll be able to find the right way out of it."
- ECB's Nowotny - ESM banking license could be advantageous (Reuters) - just keep regurgitating headlines until they generate a short squeeze
- IMF Says China Downside Risks Significant as Growth Slows (Bloomberg)
- Moody's cuts outlook on EU stability facility to negative (Reuters)
- Rome places spending controls on Sicily (FT)
- Big banks' glory days feared to be gone for good (Reuters)
- China's CNOOC scoped Nexen, partnered, then pounced (Reuters)
- Germany backs Spanish austerity plans (FT)
- Are 2012 Games one too many for London? (Reuters)
- Euro Crisis Spreading East Damps Growth, Development Bank Says (Bloomberg)
- Japan Flags Yen-Sales Impact as BOJ Eyes More Easing (Bloomberg)
For over four years, virtually everyone in the finance industry knew that Libor was manipulated. The stench of manipulation rose to the very top and thanks to a document release of formerly confidential information, we now know for a fact that even the Fed was in on it - recall that as part of production, the Fed provided a transcript of an April 2008 phone call between a Barclays trader in New York and Fed official Fabiola Ravazzolo, in which the unidentified trader said: "So, we know that we're not posting um, an honest LIBOR." And yet without any tangible, black on white evidence, there was no catalyst for pursuing legal action. That all changed when in a desperate attempt to protect its ass, Barclays decided to rat out everyone by settling with regulators, and "turn state" producing e-mail based evidence, most of it quite visual (after all what is more tangible to the common man that evil bankers sipping on Bollinger), which essentially threw years of quiet cartel cooperation under the bus. As a result, regulators, enforcers, and legal authorities, many of whom were in on this manipulation from the beginning, no longer had an excuse to not pursue civil and criminal charges against perpetrators, who until recently were footing the tabs at various gentlemen's venues and ultra expensive restaurants. And while the imminent waterfall of civil prosecution will force bank litigation reserves to go through the roof, here comes, with a very long delay, the criminal charges. As Reuters reports, here come the arrests.
Market-top economics could be an entire university course, if people cared enough about such phenomena. Most only consider the signs of a market top months or years after a crash when some unyielding economics researcher puts the pieces together. As human-beings we have developed an uncanny ability to rationalize what we know to be bad news and convince ourselves, "This time is different," despite the fact that it usually never is. In a previous article we provided analysis on economic/equity decoupling (cognitive dissonance) and showed that the economy as we know it cannot persist--we are either due for a literal gap-up in leading economic conditions, or we are due for a serious correction in US equities. With today's 5.4% slip in existing home-sales, let's go with the latter.
China has proposed to broaden trading of precious metals in its local market in order to help China become a "major gold trading centre" (see News). The Wall Street Journal was briefed about China's plans by "a person involved with the matter." The paper reports that "the move could increase liquidity and help Beijing gain stronger pricing power for key commodities like gold". China is the largest consumer and now the largest producer of gold in the world and has aspirations to become a major gold trading center on a par with London and New York. China is also the fifth largest holder of gold reserves in the world after the U.S., Germany, France, Italy. Chinese officials have spoken of China’s aspirations to have gold reserves as large as the U.S. in order to help position the yuan or renminbi as a global reserve currency. Indeed, it would be only natural for China to aspire to have their currency become the global reserve currency in the long term. In the longer term, being a major gold trading center would make China a more powerful financial and economic player and indeed could allow them to influence commodity and other important market prices. Indeed, Reuters reported that becoming a major gold trading center "would boost the country's clout in setting global prices".
That Lieborgate is about to spill over and take down many more banks is well known: as previously reported that the world's biggest bank Deutsche Bank, has become a rat for the Liebor prosecution having turned sides. The reason: "Under the leniency programs of the EU, companies may get total immunity from fines or a reduction of fines which the anti-trust authorities would have otherwise imposed on them if they hand over evidence on anti-competitive agreements or those involved in a concerted practice." However, just like in the case of Barclays (with Diamond), JPM (with Bruno Iksil), UBS (with Kweku) and Goldman (with Fabrice Tourre), there always is a scapegoat. Today we find just who that scapegoat is. From Bloomberg: "Regulators are investigating the possible roles of Michael Zrihen at Credit Agricole, Didier Sander at HSBC and Christian Bittar at Deutsche Bank, the person said on condition of anonymity because the investigation is ongoing. The names of the banks and traders were reported earlier today by the Financial Times." Of course, as so very often happens, the link between the investigated firm, and the person in question no longer exists - after all what better brute way to tie up loose ends, than to fire the person in question at some point in the past: "Michael Golden, a spokesman for Deutsche Bank, confirmed that Bittar left the bank last year and declined to comment on the investigation." And since neither Bloomberg, nor the earlier FT article have any discussion of just where Mr. Bittar ended up, knowing quite well there is very likely a full-scale investigation forming into his Libor transgressions. The first place we went to, naturally, was LinkedIn, not because we expected to find his profile there: very few higher echelon bankers actually post their resumes on LinkedIn, but because we were fairly confident that the very useful function of seeing whose other profiles had been looked at in the context of even a "fake" Bittar, would provide us with clues. Sure enough that's precisely what happened.
Life ain’t fair
Escalation. The inevitable collapse of the Prisoner's Dilemma that kept the LIBOR contributors together is occurring rapidly. After Barclays' forced admission and initial fine, the 'he-who-defects-first-wins' strategy has been trumped by Deutsche Bank as they turn all 'Donnie Brasco' on their oligopolistic peers. As Reuters reports this morning "The bank last year obtained the status of being a witness for the prosecution in the EU and in Switzerland," and "as a result of that, the bank could get a lighter penalty if a punishment is imposed," though of course this does not mean they are admitting guilt (sigh). Under the leniency programs of the EU, companies may get total immunity from fines or a reduction of fines which the anti-trust authorities would have otherwise imposed on them if they hand over evidence on anti-competitive agreements or those involved in a concerted practice. How quickly the worm turns when trust leaves the system - the warning the rest of the Liebor contributors - be afraid, be very afraid.
On Friday morning, Jamie Dimon as head of the bank many (well, some: Zero Hedge) expect will be the first casualty when the Liebor scandal finally breaks on US soil, which it will within 2-3 weeks, faced several questions on his Q2 conference call trying to extract more information from the bank as to where it may stand in the Liebor scandal. Jamie was not only not very talkative, but refused to answer questions why by default should have had an answer - i.e., internal controls, which after the discovery 10 minutes prior to the earnigs release that the bank had found a material internal controls weakness vis-a-vis CDS marks, is probably rather critical. Of course, the market being as headline drive as it is, took the lack of further Libor clarity as an "all clear" and send the stock up 6%. That may well have been rather premature. Because as the NYT reports, criminal charges are coming, which may explain JPM's reticence to say much if anything while it is the subject of a multi-year long criminal investigation which is about to break.
Continuous Spain running ahead , dragging Italy. Micro movements in equities and FX in total pip for tick sync.