Yesterday we were quite amused to note that following the Hilsenrath leak (pre-backpeddaling as a result of some FRBNY spanking) of a sterilized QE that for supposedly tries to avoid "generating" inflation (hence confirming that QE does in fact stimulate inflation instead of being a tool to lower rates and make housing affordable) the market reaction was... inflationary, with stocks rising, but far less than crude and gold. So much for the Fed's trial balloon to see if it can intervene in the market without costing Obama a few million ballots. Today, Art Cashin observes precisely the same paradoxical response in his daily note.
Lies, damn lies and charts. Why no one in charge dares utter the "F" word (fraud).
Markets appear to be tentatively recovering some of yesterday’s heavy losses, recording modest gains so far this morning. Comments made overnight by the German finance minister as well as senior officials from the Greek finance ministry may have mercifully given market participants some hope as they are confident the Greek PSI deal will be completed by the deadline tomorrow evening. The DAX index has underperformed the other European equity indices in recent trade following the release of some disappointing factory orders data for January, with markets expecting an expansion of 0.6%, however the reading came in at -2.7%, moving DAX stock futures into negative territory. WTI crude and Brent have also retraced some of their losses made earlier in the week following a drawdown in US gasoline inventories reported last night as well as a generally weak USD index in the FX markets today. Markets are awaiting US ADP employment change later in the session, as well as the weekly DOE oil inventories casting further light on the US energy stocks.
- Key rate for $350 trillion market in limbo - Libor Links Deleted as U.K. Bank Group Backs Away From Rate (Bloomberg)
- Rift Grows Between Germany's Bundesbank and ECB (Spiegel)
- Athens issues threat to bond holdouts (FT)
- SNB to Reveal Board Members’ Currency Transactions After Hildebrand Furor (Bloomberg)
- Sarkozy Floats New Corporate Tax (WSJ)
- Super Tuesday Ensures a GOP War of Attrition (WSJ)
- Martin Wolf - The pain in Spain will test the euro (FT)
- Refinancing Fees Are Reduced for Some F.H.A. Borrowers (NYT)
Not many websites, analysts or authors have both the balls/temerity & the analytical honesty to take Goldman on. Well, I say.... Let's dance! This isn't a collection of soundbites from the MSM. This is truly meaty, hard hitting analysis for the big boys and girls. If you're easily offended or need the 6 second preview I suggest you move on.
Insolvency will keep dragging the Euro-Area economy down until sovereign and bank balance sheets are repaired, but as Lombard Street Research points out: eliminating the Ponzi debt without fracturing the entire credit system is impossible. The Lehman default occurred 13 months after the US TED spread crossed 100 basis points. The European equivalent crossed 100 basis points in September 2011, so its banking crisis would occur this autumn if a year or so is a normal incubation period. A Greek or any other significant default will precipitate a European banking crisis in the foreseeable future. Markets are already speculating on Portuguese negotiations for haircuts and Ireland can’t be far behind and the contagion to US (and global) banking systems is inevitable given counterparty risks, debt loads (and refi needs), and capital requirements (no matter how well hidden by MtM math). The contagion will likely show up as a risk premium in the credit markets initially as we suggest the recent underperformance of both US and European bank credit relative to stocks is a canary to keep an eye on.
While everyone was busy ruminating on how little impact a Greek default would have on the global economy, the IIF - the syndicate of banks dedicated to the perpetuation of the status quo - was busy doing precisely the opposite. In a Confidential Staff Note that was making the rounds in the past 2 weeks titled "Implications of a Disorderly Greek Default and Euro Exit" the IIF was doing its best Hank Paulson imitation in an attempt to scare the Bejeezus out of potential hold outs everywhere, by "quantifying" the impact form a Greek failure. The end result: "It is difficult to add all these contingent liabilities up with any degree of precision, although it is hard to see how they would not exceed €1 trillion." In other words, hold out at your own peril. Of course, what the IIF does not understand, is that for hedge funds it is precisely this kind of systemic nuisance value that makes holding out that much more valuable, as they understand all too well that they have all the cards on the table. And while a Greek default could be delayed even if full PSI was not attained by Thursday, it would simply make paying off the holdouts the cheapest cost strategy for the IIF, for Europe and for the world's banks. Unless of course, the IIF is bluffing, in which case the memorandum is not worth its weight in 2020 US Treasurys.
What is one sure thing sure to set triggerhappy warmonger fingers in the US and Israel on Defcon 1 more than the word Iran? The words Iran and North Korea. How about three nouns that will send crude soaring by at least $10 the second a CL trading algo sees them fly across Bloomberg? Try "Iran" "North Korea" and "Nukes." And if the following report just released by the Wiener Zeitung is even remotely correct, then Israel, the military industrial complex, and crude are all about to go ballistic, not necessarily in that order.
The cash settlement world of OTC derivatives is not investing, but gaming. And the House sets the rules.
While 9/11 was far more traumatic for many Americans than for myself, it really messed me up emotionally for a while. I thought about joining the armed forces or the newly created Department of Homeland Security. I almost quit my job to get a graduate degree in something I could do to help fight the “war on terror.” The city of my birth was attacked and two great symbols I had seen repeatedly growing up had suddenly vanished. I never once questioned anything about 9/11 for many, many years. I was emotionally reprogrammed. I now realize that was the intent and I am not happy about it. Look, I will be the first to say I have no idea what really happened on that day, but I can tell you one thing. I am 100% convinced that it wasn’t 19 cave dwelling Al Qaeda members who hate us for our “freedoms.” I can also tell you that two planes didn’t take down three buildings. The real reason I am writing this piece today is because of a very, very important article from the NY Times, parts of which I have quoted at the top. The article shows how two former Senators have said in sworn statements that they believe the government of Saudi Arabia was directly involved in the attacks. Now, such speculation is not new; however, let’s not forget the very close relationships that many of the elite in the U.S. have with the Saudi government. Furthermore, let’s analyze some of the passages in the article in a little more detail.
Here's concrete proof of a mass European bank run. If you missed it, don't worry - there'll be plenty more from where these came from...
Since for all intents and purposes the ECB's LTRO is equivalent (and likely accepts even 'looser' collateral) to the Fed's massive (for its time) liquidity injection following the failure of Lehman, a good question is what happened to stocks after the Discount Window usage spiked back in the fall of 2008. Spoiler alert: nothing good.
It had been a quiet week in terms of geopolitical developments out of Middle East. Too quiet, well aside for that whole US escalating once again bit, and forcing Iran to eventually go over the edge. And while the role of the US and Iran has been extensively digested in the past few weeks, it is Iran that has remained in the shadows recently. No longer: as Al Arabiya reports, "Israeli officials say they won’t warn the U.S. if they decide to launch a pre-emptive strike against Iranian nuclear facilities, according to one U.S. intelligence official familiar with the discussions. The pronouncement, delivered in a series of private, top-level conversations, sets a tense tone ahead of meetings in the coming days at the White House and Capitol Hill. Israeli Prime Minister Benjamin Netanyahu and Defense Minister Ehud Barak delivered the message to a series of top-level U.S. visitors to the country, including the chairman of the Joint Chiefs of Staff, the White House national security adviser and the director of national intelligence, and top U.S. lawmakers, all trying to close the trust gap between Israel and the U.S. over how to deal with Iran's nuclear ambitions, according to The Associated Press." Needless to say, the thoroughly effete and comical US foreign policy has no response to follow up queries: "The White House did not respond to requests for comment, and the Pentagon and Office of Director of National Intelligence declined to comment, as did the Israeli Embassy." And while there may be no comments here, look for more warnings about Israeli citizens being targetted by deranged Iranian around the world. Because when all else fails, fearmonger. Next up: the Status Quo will be telling the world how not attacking Iran would be tantamount to global destruction. The only trade off - will the spike in crude to $150 outdo the surge in Obama's popularity rating as the Nobel Peace Prize winner puts his name in the hat for a nomination in the Nobel War Prize category as well.
There is broad disagreement among European banks on whether they should (and whether they will) choose to access the LTRO. We have discussed the top-down perspective and the very granular bank-by-bank perspective, and we end with a more bottoms-up perspective on the bank's own views of the LTRO. As SocGen notes, the investment banks (and certain Swedish banks) are very skeptical (and rightly so given the 'LTRO Stigma') while the Italian and Spanish are open to taking whatever they can, whenever they can (is that really a good sign?). Bank management must weigh the transparency they will face at the end of the quarter when sovereign bond holdings are exposed and just as SocGen points out, banks with considerably higher exposure (implicitly through the carry trade) may well face much more negative market action (even if Basel III doesn't handicap that risk). As with LTRO 1, the ECB will only reveal aggregate data, leaving the individual banks themselves to reveal their own take-up - we suspect the investment banks will make a point of highlighting that they did not take the funds, while the Portuguese, Italian, and Spanish banks will promote the benefits of their government-reach-around self-immolating ECB life-line.