Fail

We’re still not sure whether CNBC was making a joke or simply advertising its ignorance with a recent headline, “Accounting Tweak Could Save Fed from Losses,” This was a tweak about as subtle and ingenuous as Bernie Madoff’s balance sheet. What the central bank did was revise and advantage its own rules so that if some financial catastrophe were to inflict huge losses on the Federal Reserve System, the U.S. Treasury would take the hit, not the Fed itself.

The first casualty of the great Irish "pension funded banker bail out" is the man responsible, Brian Cowen, himself. The Taoiseach has stepped down as the Fianna Fáil party leader, but says he will continue to remain in office as Taoiseach. According to The Journal, "Speaking at a 2pm press conference, Cowen began his announcement in
Irish, saying he was proud to have been elected party leader in April
2008. He said at that time, he saw the role the party had in the
development and growth of the country, but now he believes Fianna Fáil’s
role in the public is in doubt. He said that he understood the membership of Fianna Fáil is concerned
about the party’s prospects on 11 March and he believes the focus
should be on the policies each party is offering." In other words: the Olli Rehn protectorate now is leaderless two months ahead of a key election that may well overturn the recent bailout of the country's senior debtholders. Which of course ties in rather well with our theory that in April and May there may well be an "unexpected event" to quote Fed's Plosser, which will serve as the springboard for the QE2+ extension. And since this year has been a complete rerun of 2010 so far, we expect the source of such market "contagion" to naturally be in Europe once again.

Someone forgot to change Johnny 5's fuses. The result: no mas liquidez.

The Art of Bankmail etc..

As a reminder today is the day when Europeans are supposed to withdraw money from their bank, not necessarily in a beneficial manner. And maybe the action is already having an impact with the Bank of Ireland apparently the first casualty. BBC reports: "Customers of one of Ireland's largest banks have been unable to access their cash accounts through ATMs or online. The Bank of Ireland said it became aware at 1000 GMT on
Tuesday that ATMs were not working and customers were unable to make
online transactions. A spokesperson said the fault lay with the bank's internal system and engineers were working to restore normal services." And by bank's internal system presumably one meant lack of money...Perhaps Eric Cantona will have the last laugh after all.

Can silver bullets stop a monster from terrorizing us further?

19 Oct 2010 13:40 BST *DJ Trichet: Warns Not All EU Govt Finance Statistics Are Reliable
19 Oct 2010 13:40 BST *DJ Trichet: Must Close Information Gaps In Global Statistics

What's that, Trichet? The EUR is too high you say? Must kill the EUR you say? It was all a lie you say?

Read you 5x5 partner.

The NBER tried to pull a fast one on America a few weeks back when out of the blue it concluded that the recession ended in June 2009. Alas, Google Trends shows otherwise. The attached chart demonstrates the average use of the terms "food stamps", "I need a job", "unemployment claim" and "government assistance" via google trends. Either Americans are really clueless and are completely unable to get the memo that it is now all clear to spend, spend, spend, or the BLS, as John Lohman has suggested, aka the US version of the Ministry of Truth has infiltrated the corpulent and proud NBER Ph.D.s flagbearers.

One of the more obvious side-effects of Ben Bernanke's simplistic QE 2 plan is to force retail investors out of their existing trajectory directed at fixed income products, and back into stocks, so that retail can once again occupy it long-coveted (by the bankers) position of buying Apple and Amazon at triple digit forward multiples. Unfortunately, as JPM's Nikolaos Panigirtzoglou explains, all that QE's lowering of bond yields will do (in addition to sending soybeans limit up every day for the balance of 2010, despite what others claim is merely a hallucination) is "reinforcing retail investors' flows into bonds." The biggest problem with the secular shift away from equities, and into bonds, is that the very mindset that the banking cartel loved for so long: retail buying stocks high, buying even more higher, has now translated completely into bonds. As JPM says: "The more bonds rally, the stronger the buying of bond funds by retail investors." In addition to the daily flash crashes in now countless names, surely this phenomenon explains why retail investors have taken money out of stocks for 23 weeks now (leaving many mutual funds running on fumes and a prayer) and put it into the best performing asset category (after precious metals of course). And QE2 will cement not only retail, but institutional demand for bonds as well: "lower bond yields are widening the deficits of pension funds in both the US and Europe inducing them to move further into fixed income to reduce the mismatch between assets and liabilities... This raises the risk that these institutional investors will move more towards corporate bonds in search for yield. So a potential aggressive move away form government into corporate bonds could exert strong downward pressure on credit spreads." Suddenly the world will realize that the average duration on rate-based exposure is 10+ (especially if Mexico issues a few more 100 Year bonds). And when rates creep up even a tiny little bit, it is game over as the next negative convexity event will be the (credit) market itself. Which is why we have long said that the black swan is not a failed auction, but the merest hint that rates are finally starting to creep up.

Few people in the world know more about oil drilling disasters than Dr. Robert Bea. We would be wise to listen to what he has to say ...

Global macroeconomic policy seems to be veering between world-historic deficit spending (as is the case in the U.S.) to near-Dickensian austerity measures (as is the case in the United Kingdom). But both policies fail to understand what got us to the current mess—which is why both policy prescriptions are misguidedly trying to recapture the good ol' days before the current depression. But those days of Hummers and McMansions are not only gone—they were a lie. Here's why. - Gonzalo Lira

Ironically, Moody's whose own business model is now kaput courtesy of Donk (but managed to get a 6 month rolling SEC reprieve for the time being), has an unfavorable opinion on banks as a result of the just passed worst, and most corrupt legislature known to humankind. : "Moody's Investors Service today affirmed the long-term and short-term ratings of Bank of America (BAC), Citigroup (Citi), and Wells Fargo (WFC) while at the same time changing the outlook to negative from stable on their ratings that currently receive ratings uplift as a result of Moody's assumption of systemic support (including their senior debt and deposit ratings). The outlook change is prompted by the recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) -- a law that, over time, is expected to result in lower levels of government support for U.S. banks. "Since early 2009, Bank of America, Citigroup, and Wells Fargo's ratings have benefited from an unusual amount of support," said Sean Jones, Moody's Team Leader for North American Bank Ratings. This support has resulted in debt and deposit ratings that range from three to five notches higher than that indicated by the banks' unsupported, intrinsic financial strength. "The intent of Dodd-Frank is clearly to eliminate government -- i.e. taxpayer -- support to creditors," said Mr. Jones. To achieve this, the law attempts to strengthen the ability of regulators to resolve complex financial institutions, while at the same time strengthening the supervision and regulation of such institutions to reduce the likelihood that they will need to be resolved in the future."

Leaks that 5 Spanish Cajas will fail (ooohhhh) including CajaSur, Caixa Catalunya, and Caja-Duero. The denoument is that no Spanish commerical bank will fail (aaahhhh). We will be back to the very dramatic conclusion of this season's finale of Who Wants To Invest In A Bankrupt Continent after 20 minutes of advertisements from our sponsor, the US taxpayer.

The bank that has been bailed out a hundred times before is, shockingly, rumored by Bloomberg to not pass the stress test. In other news, all Greek banks are doing swell for now.

Some interesting developments in the mutual fund arena, where a trailblazer, the Appleseed Fund, has announced that beginning July 1 it will no longer invest in Too Big To Fail banks: "Given the failure of regulators to prevent the previous credit crisis
and the subsequent failure of legislators to break up the massive and
very much interconnected banks that helped to create the crisis, it is
incumbent on depositors and investors to vote with their wallets. Until
the financial system is truly restructured, the Appleseed Fund will
avoid investments in too-big-to-fail banks, choosing instead to invest
in regional banks, community banks, and credit unions which lend money
to families and businesses that operate in the productive sectors of our
economy."