When it comes to counterparty risk, one can look at CDS, for an indication of how the market view a given bank's counterparty risk, or, one can observe how the banks themselves evaluate each other, courtesy of daily Libor fixings by bank. When it comes to Europe it is well known that dollar funding pressures are the most representative of overall liquidity stress. As such, we look at the 3 Month USD libor for various BBA-reporting banks. The picture, over the past month, is not pretty, especially if one is Barclays or RBS. The chart says it all.
The just completed auction of $16 billion in 30 Year bonds, was, as Rick Santelli said, "a failure". And while this may be a little dramatic, this was without doubt one of the ugliest 30 Year auctions ever seen. The 30 year priced at 3.75%, a huge 11 bps tail to the When Issued which was trading at 3.64%, the Bid To Cover plunging from 2.80 to 2.05, the lowest since February 2009, and, most shockingly, the Indirect Bidders Imploded to a paltry 12.2%! Those wondering if Chinese posturing would led to anything more than just jawboning have their answer. The Indirect tendered bids were just $3 billion or about 20% of the total auction size, which resulted in a $2 billion take down. It was so bad that the Directs were for the first time in 30 Year history greater than the Indirects. And yes, while the yield was close to record low it won't stay there especially if as is now expected, August 26 will see the BEA report a second GDP revision of ~0.6% at 8:30 am, which will be promptly followed by Bernanke's 2011 Jackson Hole address. And so the yoyo continues: what today's auction has proven is that going forward the Fed will be forced to crash the market every day that there is a Treasury auction, while ramping stocks on days when Treasury does not need to fund its borrowing binge.
As The World Turns, The Contagion Spreads: I Can Hear The Pitter-Patter Of Feet Running From European Banks - Are YOU Ready ForSubmitted by Reggie Middleton on 08/05/2011 11:30 -0500
More evidence of European bank runs as both banks AND sovereign domicile states start to pull liquidity at the same time that said banks are trying to pull liqiodity from their customers. How do you think this will end?
Japan Launches Campaign to Weaken Yen (WSJ)
ECB to protect Europe by buying bonds (Telegraph)
Silent Scream of Swiss Franc Shows Great Distortion Amid Great Moderation (Bloomberg)
Pressured by White House, Treasury Secretary Is Expected to Stay at Post (NYT)
The U.S. Economy Feels the Pull of Gravity (BusinessWeek)
ECB Sees Lenders Rush to HoardCash (FT)
Groupon’s Strikeouts Reveal an Unspoken Truth (BusinessWeek)
Americans' Spending Increases in July (Gallup)
Pentagon’s First Installment on Cutting Debt May Be $28 Billion (Bloomberg)
Make no mistake, something big is afoot behind the rhetoric and political talking points being thrown around by the White House and the GOP. That something will be some means of letting the banks get through this period without getting crushed.
Relevant news by www.thetrader.se
- Spain Will Require Regions to Curb Deficits, Its Finance Minister Says (WSJ)
- Obama cancels fundraising appearances amid stalled debt talks (CNN)
- Toying With Default: The President isn't serious about real spending cuts (WSJ Editorial)
- QE2 is coming to the UK: Cable Appeals for New Dose of Easing (FT)
- Lawmakers Still Divided as Debt Deadline Looms (Reuters)
- Rail Stocks Tumble in China, Hong Kong (Bloomberg)
- Clinton Assures China on U.S. Debt-Ceiling (Bloomberg)
- Messing With Medicare (Paul Krugman)
A few days ago, when summarizing the key weakness of the second European bailout, we suggested that the fatal flaw in the entire package (which is predicated upon the expansion of the EFSF to about €1.5 trillion for full efficacy) are the "82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP." Specifically, we explained, "by not monetizing European debt on its books, the ECB has effectively left Germany holding the bag to the entire European bailout via the blank check SPV. The cost if things go wrong: a third of the country economic output, and the worst case scenario: a depression the likes of which Germany has not seen since the 1920-30s. Oh, and if France gets downgraded, Germany's pro rata share of funding the EFSF jumps to a mindboggling €1.385 trillion, or 56% of German GDP!" Sure enough, as the Telegraph's Ambrose Evans Pritchard confirms, the backlash has now officially begun.
- Moody's suggests U.S. eliminate debt ceiling (Reuters)
- ECB weighing eurozone default options (FT)
- Debt Deal Search Intensifies (WSJ)
- Obama struggles to get Wall Street funding (FT)
- Euro Zone Sees 3 Options For Private Role in Greece (Reuters)
- Germany Says It's Confident EU to Reach Agreement on Second Greek Bailout (Bloomberg)
- ECB's Mersch-Inflation risks to upside, eyeing developments (Reuters)
- Lockhart: Fed could keep rates low "much longer" (Reuters)
- Greece Seeks Advisers for Privatization (WSJ) - there's always Goldman
Over 3 weeks ago, before Italian treasury spreads blew out by several hundred basis points, and before Italian bank stock trading halts became a daily occurrence, we suggested that the European contagion was shifting to Italy based on Goldman dark pool Sigma X trading. To wit: "Today's most active names are Banca Monte dei Paschi di Siena, Unicredit and Intesa Sanpaolo. Translation: someone is actively positioning for serious action in Italy shortly." That someone sure was right, and it is precisely this trifecta of stocks that at last check was halted on the Borsa. Well, based on today's action at Sigma X, the next, and probably biggest domino may be about to fall: the UK itself, because coming in at position #2, just behind UniCredit, we see Lloyds Banking. And if Lloyds goes, the ones that will follow are Barclays and RBS. At that point, the financial crisis goes global.
Fed Releases Details On Secret $855 Billion Single-Tranche OMO Bailout Program: Just Another Foreign Bank Rescue OperationSubmitted by Tyler Durden on 07/06/2011 12:09 -0500
A month ago we reported about Bob Ivry's discovery that the Fed had been conducting a secretive bailout operation between March and December 2008, under which banks borrowed as much as $855 billion over the time frame for a rate as low as 0.01%. As the Fed itself explains following a just disclosed launch of a page dedicated to this Saint OMO, "The Federal Reserve System conducted a series of single-tranche term repurchase agreements from March 2008 to December 2008 with the intention of mitigating heightened stress in funding markets. These operations were conducted by the Federal Reserve Bank of New York with primary dealers as counterparties through an auction process under the standard legal authority for conducting temporary open market operations. In these transactions, primary dealers could deliver any of the types of securities--Treasuries, agency debt, or agency MBS--that are accepted in regular open market operations. By providing term funding to primary dealers, this program helped to address liquidity pressures evident across a number of financing markets and supported the flow of credit to U.S. households and business." Well, not really. As the chart below shows the banks, pardon primary dealers, that benefited the most from this secret iteration of Fed generosity were once again foreign banks, with the Top 5 borrowers being Credit Suisse, Deutsche Bank, BNP Paribas, RBS and Barclays. Together these five accounted for $593 billion of total borrowings, or 70% of the total. So perhaps the Fed should rephrase the last sentence to "supported the flow of credit to U.S. European households and business" which is to be expected. After all, as we have demonstrated before, the European banking system's liabilities are orders of magnitude greater than the US. So in order to preserve the global Ponzi (a main reason why Greece must never be allowed to fail), the biggest weakness that has to be addressed constantly is and will be in Europe.
Certainly, if we compare the fiscal trajectory of the Eurozone as a whole with the US, the US is not really on a better path.
The best thing to ever come out of RBS is back in its original format, now that Bob Janjuah has decided to begin releasing Bob's World again, if not with the unique trademarked grammatical style. That alone must be worth 95% of the intangible, and thus all, assets on RBS' balance sheet. To those who read just the first few paragraphs and are left scratching their heads if Bob was lobotomized in recent weeks and now sees nothing but upside, so contrary to his usual cheery disposition, we suggest reading on - that is merely his outlook for the short-term. The long one: "my view beyond July/August is bearish and very much risk-off. In late Q3/Q4 2011 I expect to see the beginnings of a meaningful sell-off in global risk which should take the S&P below 1220 and on its way possibly to the low 1000s. In this risk-off move I would expect – initially at least – USD to rally sharply, with the DXY index closer to 80 than 75, and major DM government yield curves to bull flatten, with 10-year UST yields falling to around 2.5%. Credit spreads should widen, but I expect non-financial corporate credit to outperform in relative terms. Having said that, in this major risk-off phase I still expect the iTraxx Crossover index to rise well above 500. And commodity weakness should be a major part of this late-2011 serious risk-off phase." Ah yes. Good old Bob.
- Papandreou Confidence Vote May Decide Greece’s Fate (Bloomberg)
- Fitch sees risk of Greece, U.S. debt defaults (Reuters)
- China’s new bond buying hints at shift to euro (MarketWatch) as was reported on Zero Hedge 3 weeks ago
- David Cameron: We won't bail out Greece (Telegraph)
- Change in China Hits U.S. Purse (WSJ)
- Debtors hail changes to EU rescue fund (FT)
- SEC Should Free ’Fab’ Tourre, Target Big Fish: (William Cohan)
- German energy plan seen as ‘viable’ (FT)
- Kenya Shilling at 17-Year Low on Inflation (Bloomberg)
- China Floods Claim Victims, Crops (WSJ)