ratings

Enough is enough, its already too much.

• U.S. Postal Service to Cut 35,000 Jobs as Plants Are Shut (BBG) -Expect one whopper of a seasonal adjustment to compensate
• European Banks May Tap ECB for $629 Billion Cash (Bloomberg) - EURUSD surging as all ECB easing now priced in; Fed is next
• Madrid presses EU to ease deficit targets (FT)
• Greek Parliament Approves Debt Write-Down (WSJ)
• Mentor of Central Bankers Fischer Rues Complacency as Economy Accelerates (Bloomberg)
• Draghi Takes Tough Line on Austerity (WSJ)
• European Banks Hit by Losses (WSJ)
• Moody's: won't take ratings action on Japan on Friday (Reuters)
• Athens told to change spending and taxes (FT)

Americans participating in a recent Gallup poll showed the highest level of confidence in an economic recovery in a year.  Sounds great, but you can’t ignore the nearly 13 million unemployed, the 46 million people on food stamps and the roughly 29% of the country’s homeowners whose mortgages are under water. They would find it hard to subscribe to the poll’s sunny conclusion. On the other hand, there’s no getting away from a bevy of seemingly increasingly favorable economic data, which, more recently, includes falling weekly jobless claims, four consecutive monthly gains in the leading economic indicators, somewhat perkier retail sales and a pickup in housing starts and business permits. Pounding home this cheerful view is the media’s growing drumbeat of increased economic vigor....Confused? How can you not be?

Benefitting from two diametrically opposed systems.

The softer PMI reports have weighed on risk markets, which as a result saw equities trade lower throughout the session. In addition to that, market participants continued to fret over the latest Greek debt swap proposals, which according to the Greek CAC bill will give bond holders at least 10 days to decide on new bond terms following the public invitation, and the majority required to change bond terms is set at 2/3 of represented bond holders. Looking elsewhere, EUR/USD spot is flat, while GBP/USD is trading sharply lower after the latest BoE minutes revealed that BoE's Posen and Miles voted for GBP 75bln increase in APF. Going forward, the second half of the session sees the release of the latest Housing data from the US, as well as the USD 35bln 5y note auction by the US Treasury.

This is just a small example of what we are uncovering. If we learned anything from the robosigning scandal, if there are more than two “irregularities,” there are thousands.

The day dawns with a deal for Greece that is full of smoke and mirrors; lies and deceptions. It is a deal pretty much as expected and, as I have said before, now the realities are going to be confronted. Europe has spun the agreement and the Euro has rallied some and the S&P futures are up but the next few weeks, I am afraid, will hold some serious disappointments. The page turns today because now we are about to confront not what is told to us but the actuality of what has been presented to us and just what will happen as a result.

While all eyes are on Europe and its Greek farce, Japan is advancing at an inexorable pace...

While Greece and Europe continue sinking ever deeper into the colonial quicksand of Pax Goldmania, Iceland, which blew up, pushed its banks into bankruptcy, and arrested its corrupt bankers, is well on its way to being the world's only normal country.

• ICELAND RATINGS RAISED TO INVESTMENT GRADE BY FITCH
• FITCH UPGRADES ICELAND TO 'BBB-'; STABLE OUTLOOK
• FITCH DOES NOT EXPECT ICELAND TO SLIP BACK INTO RECESSION
• FITCH SAYS ICELAND GOVERNMENT DEBT PEAKED AT 100% OF GDP IN '11

Too bad the Goldman colony of Greece (and soon everyone else - thank you first lien "bailout" debt) will not see headlines such as these written about it any time in the next century.

Market participants continued to react positively to yesterday’s reports that Euro-zone central banks, via the ECB, are to exchange the Greek bonds they hold for new bonds, without CAC’s, to help the Greek debt deal. As a result, stock futures traded higher throughout the session, led by the financials sector, while the health-care sector which is characterised by defensive-investment properties underperformed. Looking elsewhere, EUR/GBP traded briefly below the 0.8300 level, while GBP/USD continued to consolidate above the 1.5800 level following the release of better than expected retail sales. Hopes that a Greek deal is in the pipeline also lifted EUR/USD, which trades in close proximity to an intraday option expiry at 1.3110.

• German president resigns in blow to Merkel (Reuters)
• China central bank in gold-buying push (FT)
• Germany Seeks to Avoid Two-Step Vote on Greek Aid, Lawmakers Say (Bloomberg)
• Eurozone central bankers and the taboo subject of losses (FT)
• Bernanke: Low Rates Good for Banks in Long Run (WSJ)
• Cameron and Sarkozy to test rapport at talks (FT)
• Chinese Enterprises encouraged to invest in US Midwest (China Daily)
• Goldman Sachs Group Inc. and Morgan Stanley have reduced their use of "mark-to-market" accounting (WSJ)
• Regulators to raise trigger for rules on derivatives (FT)

A week ago we presented an excerpt from Credit Suisse's most excellent piece "The Flaw" - merely the latest in one of the best overviews of the neverending Greek soap opera by William Porter. Yet every soap opera eventually ends. Although when it comes to Nielsen ratings, the denouement is usually a whimper. In the case of Greece, it will be anything but. Yet listening to the daily cacafony of din from Europe's leaders, who are likely more clueless than the average reader as to what is really going on, one may be left with the impression that there is a simple solution to the problem, and Greece may be "saved... in hours." It can't. In fact, as of today, Porter's s conclusion is: "we are left with a sense that the probability of delivering the largest default loss in history in a disorderly way on or before 20 March has increased relative to doing so in an orderly way."

Now everybody's bank bashing, of course the reason to bash the banks is 4 years old, despite Bove-like analysis to the contrary. I will discuss this on CNBC for a FULL HOUR tomorrow from 12 pm to 1pm.

The good people at Knight put together a comprehensive list of potential ratings for banks in Europe after Moody's came out with their outlooks. We agree that banks getting shifted to non-investment grade is a big deal.  We saw the impact for Portugal once it got taken out of the indices, and we think for banks it will be an even bigger deal to lose that investment grade status.  Sure, they can still go to the LTRO, but it is hard to function as anything other than a zombie bank once you lose that rating...

While these pages have been warning for about a month that a Greek default is precisely what Europe wants, a self-deluded market has been ignoring this reality. That is no longer the case as the default (pardon the pun) thought is now one of Greek default. As for the assumption that "it is all priced in"... that too is being scrapped as revisionist histories of Lehman come to mind. As a result the EURUSD is drifting ever lower, and has been trading with a 1.29 handle for the first time in weeks. Needless to say, Europe is on the verge of panic as the nearly 2-month impact of the LTRO is now truly gone, and with unmistakable stigma (sorry Jernej Omahen - read this) associated with LTRO banks, we shudder at the thought how many banks will voluntarily subject themselves to being seen as desperately needing European Discount Window access in two weeks. Moody's downgrade of key insurance companies and threat to cut most banks, has not helped. Finally, some unpleasant news out of China, where commerce ministry said that the trade outlook is "grim" while a research with the Chinese Academy of Sciences said that Chinese EFSF contribution should be capped at Spain's €92.6 billion, rounds out the rout. So while we wait patiently as reality in Europe truly seeps into risk prices, here is Bloomberg with a summary of overnight catalysts.