- The only relevant piece from today's economic barrage: building permits down to 606k vs 680k exp., previous 685k
- Stephen Roach Op-Ed: New battle plan needed for a crisis-prone world (FT)
- Now this is funny: Goldman Sachs, facing a fraud lawsuit from U.S. regulators who accuse the company of misleading investors, is trying to convince more Americans to trust the firm with their retirement funds (Bloomberg)
- How the 'Flash Crash' Echoed Black Monday (WSJ)
- The day the Dow dived (NY Observer)
- Debt woes spur "Lehman II" concern for Europe's banks (Bloomberg)
Evans-Pritchard Reacts To The Passage Of The Cornyn Amendment For Blocking Indiscriminate IMF BailoutsSubmitted by Tyler Durden on 05/18/2010 07:21 -0500
Yesterday we highlighted the passage of the Cornyn Amendment to FinReg which essentially makes US participation in IMF loans to countries which have greater debt than GDP very difficult if not impossible. The amendment has received little if any press, until this morning, when Telegraph's Evans-Pritchard savages what it means for a now partially defunct Europe. "This is obviously aimed at Greece, which will have a debt of 130 per cent by the end of this year. The debt will rise to 150 per cent by the end of its the rescue/death package, leaving Greece in a worse position than before. The IMF share of the Greek bail-out is 30 times quota, more than double any other rescue in the history of the Fund. There is a very strong suspicion in Washington that the IMF is being misused by French chief Dominique Strauss-Kahn – French presidential candidate in waiting – to support ideological purposes regardless of economic logic or sanity. This can (and in my view most likely will) destroy the credibility of the Fund itself unless the US and Asians can wrench the institution back from the Europeans." As more people realize the ramifications of this Amendment, we expect the IMF to increasingly lose credibility as a backstop to any upcoming European risk flareouts.
- ‘There’s No Money Left,’ U.K. Minister Learns From Predecessor (Bloomberg)
- Meredith Whitney: The financial reforms currently contemplated will further restrict capital. Expect unemployment to stay high (WSJ)
- Euro swaps corner Trichet as euro keeps falling (Bloomberg)
- Man Group Agrees to Buy GLG to Expand Range of Funds (Bloomberg)
- Is Ben Bernanke having fun yet? (NYT)
- "Lack of trust" pummels bank lending in Europe (Bloomberg)
- Fleckenstein: In Europe, recklessness wins again (MSN)
It is early in the Asian morning session and the mood is decidedly like that in late September, early October of 2008, when every day felt like it could be liquidity's last. And while we have long discussed that the "liquidity"situation in equities is laughable, with May 6th confirming our concerns, tonight we are seeing, for the first time, the evaporation of liquidity from the FX market, where tight bid/ask spreads are needed for proper market functioning. The EURUSD and EURJPY as well as various cable pairs are plunging, taking out massive 10 pip steps lower with every block, something unseen since the Lehman collapse. Furthermore, with funds anticipating something, anything out of Europe this weekend after the major move down in the euro last week, and the disappointing silence out of both Brussels and Luxembourg, the EUR will likely test the next support of 1.18. It appears that tonight the LBMA is too busy with putting out other fires than to worry about a surging gold. At last check it was back on its way to retest $1,250. So the very same conditions that pushed gold higher today, were responsible for it plunging on Friday... The intervention (and lack thereof) is just getting far too blatant.
Last week we noted that several prominent Austrian and German gold dealers had run out of inventory and were no longer transacting with a European population that has suddenly discovered gold religion. As a result, dealers are now focusing procurement efforts outside of Europe, with South Africa receiving the brunt of Europe's panic for physical precious metals. As the FT reports, "At the Rand refinery in South Africa, the phone has not stopped ringing this week." Just imagine what will happen when the gold bug goes airborne and jumps across the Atlantic...
The only benefit of hitting rock bottom is you can't really fall further. Which is precisely what has happened with Greece. The little country that started off the chain reaction that has already led to a currency and liquidity crisis, and made the solvency crisis in Europe all too tangible, by belonging to a monetary union it had no place in (a union which no reason to exist in the first place), is once again reminding the world of its existence, this time by G-Pap opening his mouth and inserted two whole legs in it. In an interview with CNN's Fareed Zakaria to be aired today, G-Pap has threatened he may sue US banks for "contributing" to his country's debt crisis. For those of you lacking in analogy skills, Greece is in the same shoes as a bankrupt debtor who wants to sue his creditors for daring to hike up his interest rate when the only means he has to roll his debt is by using another credit card (this one issued by US and European Taxpayers), even as bankruptcy is literally hours away. The Greek summation: that of a petulant 5 year old who has just broken dad's favorite gadget: “We have made our mistakes,” Papandreou said. “We are living up to this responsibility. But at the same time, give us a chance. We’ll show you.” Now that would be amusing - after Greece destroyed its economy the first go round, we can't wait to see what the country does for an encore. The only reason Greece is not bankrupt now is because even as its past mistakes have caught up with it and climaxed in a solvency and liquidity crisis unseen since the Lehman days, the country's end would bring down all of Europe. If Greece would not have impaired French, German and UK banks, the country would have long been allowed to default. Yet diversion is always a good tactic: let's bring the "speculators" into this yet again. After all it is unheard of in these turbulent Keynesian times for anyone, especially our own Fed Chairman, to own up to their endless mistakes. It is always, without exception, someone else's fault.
Straight from the pages of "How to utilize a good crisis"; a manual written by Rahm Emanuel
By Marla Singer and Geoffrey Batt
In September of 2008 the Reserve Primary Fund, loaded with exposure to Lehman Brothers debt, faced massive withdrawals and promptly "broke the buck." (Slipped below $1.00/share NAV). The result was a cascade of credit crunches for major corporations dependent on commercial paper for not just their near term financing, but their day to day operations. Firms like Honeywell, General Electric, 3M, Boeing and WalMart were gripped in what might even be called a destructive co-dependent relationship with the short term cash available in the commercial paper market. Particularly in an environment of low interest rates, money market funds desperate for yield are ravenous lenders to these large cap firms that divert their cash elsewhere and use the commercial paper market to make up the difference. The constant "roll risk" means that any seizing up of the commercial paper market could deliver sudden and unexpected defaults by the country's largest and most respected firms.
PIMCO's McCulley Discusses The Ticking $3 Trillion Shadow Banking Time Bomb, Defends The Fed As Head RegulatorSubmitted by Tyler Durden on 05/12/2010 14:54 -0500
On August 9, 2007, game over. If you have to pick a day for the Minsky Moment, it was August 9. And, actually, it didn’t happen here in the United States. It happened in France, when Paribas Bank (BNP) said that it could not value the toxic mortgage assets in three of its off-balance sheet vehicles, and that, therefore, the liability holders, who thought they could get out at any time, were frozen. I remember the day like my son’s birthday. And that happens every year. Because the unraveling started on that day. In fact, it was later that month that I actually coined the term “Shadow Banking System” at the Fed’s annual symposium in Jackson Hole.
It was only my second year there. And I was in awe, and mainly listened for most of the three days. At the end, Marty Feldstein always does the wrap-up. Everybody wanted to talk. And since I was a newbie, I didn’t say anything until almost the very end. I stood up and (paraphrasing) said, “What’s going on is really simple. We’re having a run on the Shadow Banking System and the only question is how intensely it will self-feed as its assets and liabilities are put back onto the balance sheet of the conventional banking system.” - Paul McCulley
ENGLEWOOD CLIFFS, N.J. – May 12, 2010 – John Carney will be joining CNBC.com, the online destination for real-time global business news and expert analysis, as Senior Editor, it was announced today by Allen Wastler, Managing Editor, CNBC.com. In addition to writing for the site, Carney will also appear regularly on CNBC’s Business Day programming.
“John has deep connections on Wall Street and has a unique insight into its trading community,” said Wastler. “He is well-known within the financial world and we are delighted to have him on our team.”
The direct, unbiased, Wall Street Puffery filtered, skinny on Wells Fargo's latest results.
Rosenberg: "Greece Is The Same Coalmine Canary As Thailand Was To LTCM And As New Century Was To Lehman"Submitted by Tyler Durden on 05/11/2010 09:04 -0500
David Rosenberg is out with some very fitting analogies of the current sovereign crisis. If he is proven prescient, which we have no doubt he will, the Greek near-default will have massiverepercussions to the entire developed world when all is said and done."In my opinion, Greece is the same canary in the coal mine that Thailand was for emerging Asia in 1997, which ultimately led to the Russian debt default and demise of LTCM; the same canary in the coal mine that New Century Financial in early 2007 proved to be in terms of being a leading indicator for the likes of Bear Stearns and Lehman. So, the most dangerous thing to do now is to view Greece as a one-off crisis that will be contained." Furthermore, as he makes all too clear, if a $1 trillion bailout can only buy 400 points in teh Dow, Europe, aside from all the other fundamentals which confirm the same, is doomed, and even the ever-optimistic market now realizes it. Lastly, should Europe pursue the required austerity measures, the hit to European GDP will be massive, and is certainly not being priced in European stocks, but certainly not in US stocks, whose primary export market is about to disappear.
In what has now become the normal in expectations, European policy makers have announced a 750 BILLION EURO bailout policy late Sunday evening in defense of the Euro currency and a show of force between the USA FED, the European Central bank, the Bank of Japan, the Bank of Canada and the Bank of England. In a nutshell they will buy bonds and will intervene in markets and "do what they have to" in order to avoid a meltdown. This is akin to the USA bailout of 1 Trillion dollars. This will only buy time, but it is all that can be done right now. For the moment the term being touted this Monday morning is "putting a floor on risk assets”. This time they mean stocks and bonds and not commodities. In the same manner as the USA announcements, this move is being looked upon as "SHOCK AND AWE." What happened to cause such a turn in policy? While I am not certain, the plunge in liquidity of the world stock markets last week certainly must have played a role. The plan will buy private and sovereign debt. Virtually unlimited funds will be provided.
As I Warned Yesterday, It Appears the Market Is Calling the Europeans Bluff – It’s Now Put Up Or Get Put DownSubmitted by Reggie Middleton on 05/11/2010 02:01 -0500
I told you it probably wouldn't work. Now, you really have speculators lining up to put on the short trade of the a lifetime. Methinks those lines may start to get pretty long as well as I spy the Asian markets as well as the US and European futures drop like rocks in desalinated pond water. Asking 2 trillion euro, can I get a bid for 2 trillion euro, going... going... gone!
Did they really have a choice? Hell no!