One of the world's last few remaining permaskeptics, Bob Janjuah, has severed ties with the UK's most bailed out and nationalized bank, RBS, reports Bloomberg. And just as the departure of David Rosenberg from Merrill in early 2009 marked the start of a period of complete market schizophrenia, we hope that the purging of negativists from the Royal Bank of Scotland is not indicative of just such another period, at least on the other side of the Atlantic. However, unlike last March when the several trillion in global stimulus funds was only just entering the economy, this time around not even the ritualistic sacrifice of bears will do much to stop the slide. And just to confirm that this is likely a localized issue to RBS, the Chief Markets Econoist Kevin Gaynor has also left the firm.
- Aussie PM Gillard scales back Australian mining tax in boost for election prospects.
- Crude oil fell below $73 a barrel, after slipping 6.8 percent in the previous four days.
- Employment fell in June for the first time this year.
- Gartner cuts 2010 global IT spending view cut on Euro woes.
- Germany, France to press Brussels on transaction tax.
- Greece sealed a deal with the European Investment Bank for €2B in financing.
Forget stocks, gold, and oil. The story of the day was the EURUSD, and the various trading desks that blew up are a result of the 2.4% move in the pair... What the hell happened there? The confluence of the LTRO termination, today's MRO, end of quarter, the official descent into a double dip for the US, and who knows what else, apparently ended up blowing up one or more players. That, or someone gave Jerome Kerviel direct access to the RBS FX trading desk... well, unlikely, but someone in SocGen is very unhappy with the bank's short EURUSD positions. Note how every pair had a mind of its own today. The last time this happened was September 16, 2008. Also, as much as we love him, we can't help but feel for F/X Concept's John Taylor (if only for the ultra short-term; he will most certainly be proven right as all fiat hits parity with each other at +/- 0).
Attached are several charts used to explain to confused politicians all they need to know about the biggest ponzi scheme market ever created (synthetic derivatives), how these derivatives are created, how the leverage attributed to just one asset can result in infinite amplification of risk, and how Goldman is in the very middle of a web which encompasses tens if not hundreds of trillions in derivative counterparty exposure with virtually every single other financial company in the world.
In his latest column, the Daily Telegraph's A. Evans-Pritchard does a good job of recapping all the various reasons why Bernanke has now completely cornered himself, and facing a newly collapsing economy, is left with just one recourse: the printing of more, more, more paper. This should not come as a surprise to anyone who has read even a few posts on Zero Hedge - the only response the Fed is left with as deflation accelerates, and as the Fed and the banking cabal refuse to do an orderly reorganization whereby financial firms grow into their balance sheets via a debt restructuring (and equity wipe out), is the spewage of more, inflation-stimulating, fiat. Ironically, as this newly printed and rapidly diluted monetary representation (because it increasingly is not equivalent to money) makes its way only and almost exclusively to those with direct discount window access, i.e., the mega banks (and for some ungodly reason, the clearinghouses soon), the assets that will be bid up are all tangible commodities, while secondary assets, which are contingent on a properly functioning reserve banking (money multiplier) system, collapse in a deflated heap of liquidations. Yet one notable section in AEP's post draw our attention: "Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed's balance sheet from $2.4 trillion (£1.6 trillion) to uncharted levels of $5 trillion." We are very curious where the DT's reporter has found this information, since if it comes from a credible source this is a massive game changer, and while many have speculated this will happen sooner or later, to know for a fact that QE is definitely coming is major news, and, if true, we are stunned the WSJ's Jon Hilsenrath, who recently has had his ear "very close" to the Fed's internal process, has not reported on this yet.
- China kept Yuan's exchange rate unchanged against the dollar, after saying it was unhitching its de facto peg.
- Crude-oil futures inched closer to the $80/bbl in late Monday morning trading in Asia.
- Stocks, commodities, US futures rally as China gets Yuan off the USD peg.
- US corporate defaults have fallen to an annualized rate of barely 1% in 2010; future uncertain.
- Yuan climbs most in 18 months as China signals end to peg; Forwards jump.
A few months ago we drew the ire of RBS for suggesting that Greek savers are pulling their deposits out of Greek banks and expatriating assets, in other, less polite words, consummating a bank run. Today we risk that anger again, by taking the very same logic we used logic to the next degree, namely that there could well be a capital flight out of the entire continent of Europe. Some pundits have already suggested this, by looking at March and April TIC data, which however is sufficiently delayed to be irrelevant as the real European festivities only started in May. A far better proxy is the surge in Swiss FX reserves, which took these from 28% to 43% of GDP in one month! Obviously, this was due to intervention actions meant to moderate the rate of increase in the CHF, due to conversion of Euros into Francs as foreigners were depositing tens of billions into the country's banking system. With the EURCHF now back to 1.3743, or a level below all previous interventions, either the SNB has thrown in the towel or, as we wrote yesterday, another round of EUR buying is due any minute. In either case, the underlying problem continues - the broader public is buying CHF and selling EUR in droves, threatening to push the EURCHF to fresh all time lows, certainly signifying a capital flow out of the so-called European core, and into the little country by the alps with lots of cheese, chocolates and bank vaults. Below are Goldman's relatively more moderately noted, but just as troubling, thoughts on the matter.
The world's undisputed monetization grossmaster (Electronic Liability Outsourcing rating of around 1.8 trillion), representing Wall Street, the Federal Reserve, may be about to see some stiff championship title competition from the little Central Bank that could - the ECB, in a blitz (and very much blind) game of quantitative easing. In a speech, that not too surprisingly missed all the main wires earlier, Fitch head of sovereign ratings, Brian Coulton, warned a banking conference, in discussing the ECB's monetization activity to-date, that "there has been an unwillingness to follow through, and markets are going to want to see the ECB's money. It will require hundreds of billions in my opinion." Which means that Bob Pisani will report on many "extremely successful" Spanish bond auctions over the next year or so, as the ECB buys up every single primary issuance not just out of Madrid, but every single country in Europe, where the non-subsidized (i.e. private) capital markets are now officially dead. Courtesy of Greece, and the fatal decision to bail it out, the Eurozone will one day be described in textbooks as the greatest ponzi scheme ever created (or, at worst, joint in first place by the Fed).
As previously reported, BP has already hired Goldman, Blackstone and Credit Suisse. Now Charlie Gasparino reports that the British firm is apparently in the process of hiring every single investment bank in existence: new banks rumored to be in contract negotiations include Morgan Stanley, HSBC, UBS and Standard Chartered. According to Charlie "they are being asked to somehow guarantee that they would lend money to the company." Another angle is that the firm is preempting any possible hostile takeover, by preventing any competitor firm from hiring any of these banks, which pretty much round out all the megabank firms that have a credible capital markets desk (sorry RBS), and thus make a hostile acquisition problematic. At least so far there has been no taxpayer capital going to BP, so retainer and success fees for the 7 banks, which will likely run into the hundreds of millions, will only be footed by BP's ever angrier shareholders.
Tomorrow Spain is coming to market with €3.5 billion in 10 and 30 Year Bonds, which just like all previous recent auctions, are expected to come in at far wider spreads to prior issuance in May and March. The 10 Year benchmark will come with a 4% coupon, while the 30 Year will have a 4.7% clip. Which is not to say these will come at par. At the last 10 Year issuance on May 20, the 10 Year came in at 4.045%, while the 30 Year priced to yield 4.758% on March 28. Reuters reports that some so-called analysts see demand for the bonds to be strong: "Domestic has supported until now and I don't see why that would change," said sovereign debt analyst at RBS Harvinder Sian. Of course, this is the same Harvinder, who blasted Zero Hedge for correctly predicting the bank run in Greece in February, long before anyone else, at a time when investors could have listened to us, instead of Sian's soothing words, have a great exit point and not lose their shirts, unlike those who are still holding bonds at a 600 spread. In other words, in our book Harvinder is as good a contrarian indicator as Goldman's FX team, and is simply confirmation that in addition to Greek exposure, RBS is likely loaded to its nationalized gills with soon to be even worthlesser Spanish Treasuries. Our advice: fade the auction, especially with refuted, and thus confirmed, rumors that Spain is not, repeat not, about to demand €250 billion in European/IMF rescue funds. And, as if anyone needed another indication, the ticker of Banco Santander is STD... That about says it all.
Following up on the earlier report from El Economista that Spain is about to resort to another €50 billion in US taxpayer generosity and use €250 billion from the EU/IMF rescue fund, is this piece in the FT which confirms our disclosure from yesterday that Spanish banks have borrowed a record €85.6 billion from the ECB in May. And this is even before all the Cajas were scrambling to merge into Europe's biggest insolvent megabank. From the FT: "Spanish banks borrowed €85.6bn ($105.7bn) from the ECB last month. This
was double the amount lent to them before the collapse of Lehman
Brothers in September 2008 and 16.5 per cent of net eurozone loans
offered by the central bank. This is the highest amount since the launch of the eurozone in 1999
and a disproportionately large share of the emergency funds provided by
the euro’s monetary guardian, according to analysis by Royal Bank of Scotland and Evolution. Spanish banks account for 11 per cent of the
eurozone banking system. The rise in borrowing from €74.6bn in
April, or 14.4 per cent of the net liquidity pumped by the ECB into the
eurozone financial system, provides further evidence of the acute
tensions in the Spanish banking system." And here is the piece de resistance: "'If the suspicion that funding markets are being closed down to Spanish banks and corporations is correct, then you can reasonably expect the share of ECB liquidity accounted for by the country to have risen further this month,' said Nick Matthews, European economist at RBS." You can also expect the army of bureaucrats to deny, deny, deny until the US taxpayer has to fund another trillion dollar bailout. And speaking of spin, here is Goldman's take on all things Spanish.
Analysis of the CMBS market with a few notes on CC and ABS market.
JPM JPMCC 2010-C1 CMBS offering more sound than originally thought.
Something interesting just happened.
The Latest EUR Smackdown Comes Courtesy Of BofA, Which Lowers It 2011 EURUSD Target To 1.10 From 1.20Submitted by Tyler Durden on 06/05/2010 22:06 -0500
First Goldman came out with a "favorite tactical short" of the EURUSD, targeting a 1.18 rate several days ago, now BofA is out with the latest hit job on the European currency: the bailed out bank's John Shin has said that he is lowering his "forecast for the euro, pushing down the year-end 2010 target to 1.15 from 1.28 and the year-end 2011 target to 1.10 from 1.20." He continues, "the evolution of the crisis has not only been a near-term negative for the euro, but signals poorly for its medium and longer-term future." Now this is very ironic, because as we pointed out two short days ago, the very same firm's European strategist, Hans Mikkelsen, espoused a much different optimistic point of view: "While we continue to view funding pressures as contained due to the
ECB/Fed currency swap lines, the main risk to our tactical long credit
positions remains any disorderly declines in the Euro as that would
undermine the credibility of the ECB to contain the sovereign crisis." Presumably the take home here is that as long as the decline from 1.20 to 1.10 is orderly all shall be well? Because as has been repeatedly demonstrated, hedge funds always align calmly, in single file, when the Central Bank theater is burning, happy to see their sell EUR orders executed if and only if RBS, BofA, Barclays and GS so desire... We eagerly await Mikkelsen's positive spin to Shin's note, as otherwise those defending Europe's less than rosy liquidity situation may be down one more advocate.