Gross Domestic Product
Founder Of $30 Billion Hedge Fund BlueCrest Says Most Euro Banks Are Insolvent; Euro Situation Much "Worse Than 2008"Submitted by Tyler Durden on 12/15/2011 12:22 -0500
The Founder of one of the world's largest asset managers, the $30 billion hedge fund BlueCrest, Michael Platt, spoke to Bloomberg TV and cut right to the chase, saying most of the banks in Europe are insolvent and the situation in the region is "completely unstable." On how he approaches market risk: ""I do not take any exposure to banks at all if I can avoid it. All the money at BlueCrest Capital Management is in Two-Year U.S. government debt, Two-Year German debt, we have segregated accounts with all of our counterparties. We are absolutely concerned about the credit quality of the counterparties." On investing in illiquid assets, Platt said he "would not touch them with a barge pole" and that "the major opportunities will come post-blowout." Something tells us Russia and China know this all too well, and realize that the best time to "invest" in Europe is after the single (or multiple) bankruptcy. Which incidentally, as Kyle Bass said yesterday, after the "blowout" is when the ECB will finally step in as well, at which point the entire world will go all in on that now infamous 2-7 offsuit. And his view on how that bluff will end: 'In my opinion, what's going on now is significantly worse than 2008."
Year end markets are infamous for distorting price action as illiquidity, bank and company window dressing, and risk paring tends to characterize investment decisions and valuation quirks. In this market climate it can be challenging to differentiate between fundamental moves versus liquidity provisioning and the pursuit to flatten books and race to the finish line. In the above spirit, typical year end position imbalances are suspicious as are global finance needs and the apparent dysfunctionality of funding market functioning and an information arbitrage between different markets in understanding of such minutia...The circular nature of worsening emerging and global fundamentals, lower sovereign growth prospects, associated financing challenges, lower asset valuations, regulatory cushions to such catalyzing asset sales, bank balance sheet illiquidity and, hence, funding stains tis the season. Just a DAILY comment to elevate the ebb and flow adjustments of markets and policy makers to such linkages.
Today at 8:30 am at least one HFT vacuum tube will short a filament as we get not one, not two, not three, but four concurrent economic data releases at the same time. And then there is a whole bunch of other stuff later in the day... which is not to say that the 3pm rumor will not determine the outlook of the day.
The European banking system is on the verge of collapse.
David Rosenberg Discusses The Market With Bob Farrell, Sees Europe's Liquidity Crisis Becoming Solvency In Q1 2012Submitted by Tyler Durden on 12/14/2011 10:57 -0500
For the first time in while, Gluskin Sheff's David Rosenberg recounts his always informative chat session with Bob Farrell and shares Farrell's perspectives on the market ("his range on the S&P 500 is 1,350 to the high side and 1,000 to the low side. He was emphatic that there is more downside risk than upside potential from here. His big change of view is that we have entered a cyclical bear phase within this secular downtrend (he sees the P/E multiple trough at 8x). Rosie also looks at Europe and defines the term that we have been warning against since May of 2010: "implementation risk" namely the virtual impossibility of getting 17 Eurozone countries (and 27 broader European countries as the UK just demonstrated) on the same page when everyone has a different culture, language, history and religion... oh, and not to mention animosity to everyone else. So yes: Europe in its current format is finished, but what will it look like in its next reincarnation? And why does he think the European liquidity crisis will become a full blown solvency crisis in Q1 2012? Read on to find out.
Sadly, in Hamlet, pretty much everyone ends up dead.
This tax is going to happen, and we're going to hate it.
As the IIF continues to believe it is negotiating with Greece on voluntary haircuts and Ireland follows the Greek playbook by threatening referenda and asking for bailout term adjustments, is it any wonder that the words of a supposedly united Europe ring hollow in the ears of investors who seem to expect a Euro breakup sooner rather than later. Deutsche Bank's credit team see two noteworthy similarities between the world today and where it was in the 1930s. First, they view the Euro today as creating the same problems for Europe as the Gold Standard did in the 1930s and secondly, the austerity now is perhaps equivalent to the tightening of fiscal and monetary conditions in the US in 1937. Obviously this led to a deep recession after the fragile post-Depression recovery and given the current central bankers' tendencies outside of Europe, the inevitable (and so much more easy to achieve now) print-fest solution to the necessary deflation.
In a double-whammy of downbeat dystopian discussions, GMO and Kyle Bass are active on the inevitability of Europe's demise. Perhaps that is too strong but the two are focused directly, in separate pieces, on the huge need for capital and the dire dearth of it available. GMO's central focus on the direct capital needs of the European banking system in the case of a recovery (but under Basel III) and under stress scenarios. Dismissing the EBA's efforts, and recognizing that the problem is capital/solvency (if there were more, the market would not be worrying about liquidity and deposit flight), their 'neutron bomb' scenario where sovereign debt is recognized as a 'risky asset' (which seems more than plausible to us), the capital needs are almost EUR300bn with Spanish and French banks dominant but Italian and German banks are close behind. As Kyle Bass notes "There is no savior large enough with a magic potion of capital to stave off this unfortunate conclusion to the global debt super cycle.". This leads to only a bad and worse outcome for Europe, as the cataclysm plays out because the banks do have an alternative to raising capital – shrink the balance sheet. Deleveraging is already going on in a number of countries, with loan-to-deposit ratios dropping in recent months in Portugal, Spain, and Italy. This reduces the capital needs of banks, but fairly quickly starts to cut into the muscle of the financial system. The banks have little alternative but to keep holding sovereign debt in the short term, since it is the collateral for their borrowing needs. And as we have been so vociferously explaining recently, should they be forced to delver even more, and sell reduce these sovereign assets, then the daisy-chain effect of de-hypothecation on shadow banking will not end well for anyone.
Perhaps it is time for the stick-jockeys who are controlling US drones to put down the twinky and focus a little more. Reuters is reporting that yet another US drone has crashed, this time while it was vacationing in the Seychelles. The Seychelles Civil Aviation Authority (SCAA) confirmed the incident and said that the plane was on a "routine patrol" and had crashed because of mechanical failure. On the bright side, this has to be good for GDP as Durable Goods orders (or maybe they should be repositioned as non-durable) will get a bump as General Atomics gets some new Predator orders.
It is always amsuing to listen to market narratives, however goal seeked they may be, when presented by market veterans such as Art Cashin, who in this case deconstructs the violent clash between reality and post-summit hype as represented by yesterday's amusing market action.
Earlier we just got confirmation out of Best Buy that one can not, as expected, offset negative margins with near-infinite volume (as the stock tumbles). Now we get advance retail sales proving that all speculation about a record Black Friday was just that. Oh, and a lie. In short - everything missed. Advance retails sales in November (including Thanksgiving) came at 0.2%, on expectations of 0.6%, and down from a revised 0.6%. Retail sales less autos was 0.2%, half of the expected 0.4%, while ex Auto and Gas also printed at 0.2%, also missing big. So... where did all the money go, aside from generating even more negative profits for retailers, who now have to eat a huge cash hole in addition to everything? Or were speculations that Black Friday was a bust, spot on? Expect lower Q4 GDP revisions based on this data.
Only time will tell if ECRI or Wall Street has the brighter crystal ball.