LIBOR Hasn't Fallen For 46 Days As Someone Is Getting More Desparate To Overpay (By Over 200%) For FundingSubmitted by Tyler Durden on 09/28/2011 11:24 -0400
3-month USD Libor has not dropped day-to-day since July 25th - a 46 day streak - and while the individual rates indicated by LI(E)BOR are 'around' 37-43bps currently, someone (or more than one) is willing to overpay (by over 200%) as the Fed's USD swap line usage (or non-EURO tender operations) remains $500mm at a rate of 109bps (vs 107bps the previous week). Perhaps it is time for a certain French bank CEO (who enjoys all the media exposure when telling naive gullible mom and pops just how stable his balance sheet is) to sell some more non-performing assets? Or CSFB to explain how their rate has been flat for 11 days in a row now?
Primary Dealer Treasury Holdings Surge At Fastest Pace Since Summer 2007 Market Peak In Anticipation Of Twisting, Market DumpSubmitted by Tyler Durden on 09/19/2011 08:29 -0400
Back in the summer of 2007 two important things happened: the market hit an all time high, and the smart money realized what was about to happen (following the subprime and the Bear hedge fund blow up, it was pretty clear to all but Jim Cramer) and bailed out of stocks and into bonds, with Treasury holdings of Primary Dealers soaring at the fastest pace in history. Well according to the Fed, in the past few months Dealer holdings of Treasurys due in more than a year have soared by a whopping $90 billion, from a $75 billion short on May 6 to a $15.1 billion long on September 7. As Bloomberg reminds us, "the last time dealers bought bonds at such a rapid pace was between July 2007 and September 2007, as losses on subprime mortgages began to infect credit markets and the central bank unexpectedly cut interest rates." Also, as noted above, all hell was about to break loose. So what explains this surge in Dealer bond holdings? Well, expectations for said hell breaking loose all over again is one reason, as is the imminent announcement of Twist, QE3+, and who knows what else Bernanke has up his endless sleeve that will make the 2s10s as close to inverted as possible, putting Bank of America permanently out of business. To quote from Bloomberg again, "The problems are endless” for the economy, William O’Donnell, head U.S. government bond strategist at RBS Securities Inc., a primary dealer, said in a Sept. 13 telephone interview. “What will surprise people is how long this period lasts of very, very low rates.” Judging by leading market indications, perhaps people will not be surprised after all.
With each passing day bringing us new predictions in the form of research reports, white papers, analyses, and plain old rants on what a Greek default would mean for the Eurozone, for the Euro, for markets, and the for world in general, it is clear that absolutely nobody knows what will happen. Alas, since this topic will be with us for a while until the can kicking finally fails, many more such prognostications will be forthcoming. Today, we present three different pieces, one from Reuters, which gives a 30,000 foot perspective, one a slightly more technical from Citi, looking at a Greek default from a rates point of view, and lastly, a primer from Goldman's Huw Pill, looking at the aftermath of the current situation for the euro area, with or without a Greek bankruptcy. While we have no idea what will happen to global markets should Greece default, and it will, we are 100% certain that we will present many more such analyses in the future as more and more people piggyback on the Cassandra bandwagon.
What just happened? The Central Banks have agreed to either create programs to lend in $'s or in the case of the ECB, expand their existing 7 day program. It is definitely globally co-ordinated, but for any central bank to offer a USD program, they need to work with the Fed, so assuming the ECB decided to work with the Fed, it seems like a no brainer to involve the other central banks. Bank of England is an obvious candidate - look at the share price declines of Barclay's and RBS. The Swiss Central Bank was likely to join already, but a day with UBS announcing a $2 billion loss, they had extra reason to go along. Japan always seems to be up for a good intervention. So it is globally co-ordinated, that is important, but it was also and easy and obvious co-ordination. What is the next action? I suspect we will see some effort to push sovereign CDS spreads tighter. Would it be something as intelligent as immediately forcing all sovereign and bank cds to be cleared? Heck no, that might annoy someone. It is more likely to be announcement of banning naked shorts, increased margins, and the ability for the EFSF if not central banks themselves to sell protection. CDS would gap tighter and bonds are unlikely to react much. When the ECB intervened in the Spanish and Italian bond markets, the initial reaction in the bond market was big. Over 1% in yield terms across the board in a very short time frame. The CDS never reacted as positively. In any case, the market remained dubious of the effectiveness and we have seen yields rise in spite of continued buying. CDS shorts will be painful if this occurs, but it won't fix anything long term. There is nothing about the budget problems in various countries that are affected by CDS. It also means that auctions are likely to do less well as the short covering bid dries up and that moves down will be exaggerated, just like the moves up.
While it is not all too surprising in light of news that Greece may be insolvent in 48 hours, that the ECB is about to commence printing with the abandon of a drunken chairsatan, and that New York has a "credible threat" of another terrorist attack, it is a fact that liquidity across virtually every European vertical is now at its worst levels in years, starting with the EURIBOR-OIS (or interbank/central bank funding spread), which soared by 6 bps to 81.2, or the most since March 2009, the 3M USD LIBOR rising for the 34th day in a row to 0.338% at multi-year highs, and with deposit facility usage at the ECB rising to a new one year high of €172.9 billion, an increase of €7 billion overnight. Of particular note is the dramatic deterioration at Credit Agricole overnight which hit 0.4% in the 3M USD Libor, far worse than the "self-reported" dollar funding at Barclays and RBS which as we reported earlier, are perceived as the riskiest European banks should the inevitable bond haircut take place. Just as Dexia long-CDS was the slam dunk trade of H1, is CA poised to be the H2 one?
This email is making the rounds and catching most traders' attention:
From colleague: trader friend just hit me with the following: There is “Chatter” in the market of a Greek Default this Weekend - and their CDS is over 400 wider… Soc Gen is off 7% on exposure - German CDS more expensive than UK;s - despite the ballooning in the CDS prices for Lloyds and RBS.
In other news, Reuters is reporting that Stark is about to retire; with announcement to come after the German market close according to sources. His potential departure is due to a conflict over ECB bond buying according to sources.
We’ve already seen the banking community write down over $1Tn in losses and survive to screw us over another day – do we really think this little wrist-slap will end them or is this just another example of retail suckers being stampeded out of the sector that is likely to benefit most from QE3?
According to the Handelsblatt, while the majority of the members of the ECB's shadow council - an unofficial panel, independent of the ECB/Eurosystem, and comprising fifteen prominent European economists drawn from academia, financial institutions, consultancies, companies and research institute - supported an unchanged policy the bias is increasingly shifting to one of easing. This comes on the heels of Trichet's idiotic decision, just like in 2008, to start hiking rates in several months ago (ridiculed extensively on these pages and elsewhere) which not only ended up costing Europe its common currency much faster than had it merely kicked the can down the road, but could very well be the last bad decision by the ECB: should Greece be kicked out of the Eurozone as a result of this decision, the ECB is over. It is therefore not surprising that not only is the shadow council scrambling to undo 5 months of bad decision making by the ECB, but the bankers on the council, particularly RBS, PIMCO, RBS (RIP by the way), Barclays and Tudor and HSBC are either expressing an easing bias or outright pushing for a 50 bps cut. Alas, this is too little too late. And the irony is that once the Fed proceeds with QE3, and commodities surge again, the ECB will really be helpless as the continent's core redlines even as the Periphery remains terminally insolvent (ignoring for a minute the inflationary elephant in the room that is China). So will Trichet disgrace his already discredited central banker career by pushing a rate cut before he is swept out of the corner office by Mario Draghi, or will the former Goldmanite Italian become the most hated man in Germany soon, after he proceeds to ease, even as Germany still experiences Chinese inflationary re-exports. The answer will be all too clear in just a few months.
Gold Reaches $1,900 Again - Supported by Risk of U.S. Recession, German Euro Risk and Wikileaks China Gold CablesSubmitted by Tyler Durden on 09/05/2011 09:02 -0400
Gold’s London AM fix this morning was USD 1,896.50, EUR 1,341.13, and GBP 1,174.67 per ounce. The gold fix was higher than Friday’s in all currencies (USD 1,854.00, EUR 1,301.23, and GBP 1,143.81 per ounce). Despite continuing denial, a recession in the U.S. is inevitable; the question is only with regard to how deep the recession is and to the nature of the recession – inflationary, stagflationary, hyperinflationary or deflationary. The consensus, especially amongst Keynesians, is that deflation is most likely. However, given the degree of currency debasement being seen internationally stagflation is also a risk. Hyperinflation, as being experienced in Belarus today, is the macroeconomic and monetary ‘black swan’. There are growing concerns that the Eurozone crisis might degenerate again soon due to the Greek debt crisis and risk of default. Over the weekend talks between Greece, the IMF and ECB representatives over new bailout funds broke down. The euro has fallen and the German local elections have added to concerns over Greece.
While the US was panicking over a double zero jobs report, things in Europe just fell off a cliff. As both the WSJ and Reuters report, it seems that the second Greek bailout, following repeated and consistent disappointments by Greece which has resolutely refused to comply with the terms of its fiscal austerity program, has just collapsed.And with the US closed on Monday: long a counterbalance to European risk pessimism, this week (especially with the news fro the latest FHFA onslaught against global banks) may just be the one that "it" all comes to a head. But back to Europe, and more specifically Greece, which it now appears is doomed. From the WSJ: "I expect a hard default definitely before March, maybe this year, and it could come with this program review," said a senior IMF economist who is keeping close tabs on the situation. "The chances for a second program are slim." It is not only Greece - Italy also thought it would sneak by with getting quid pro no and continue leeching off of Europe, or specifically Germany, indefinitely, at least until the ECB said that absent Berlusconi taking austerity seriously that implicit ECB support for Italian bonds would be yanked, sending the second most indebted country in the world into a toxic debt tailspin. And so it comes that after 2 years of waffling, Europe finally realizes that the piper always eventually gets paid. Alas, it is now far too late.