RBS

We were pleasantly surprised earlier today when we discovered that the "head of European rates" at RBS, or as it is better known in the US as CRT LLC (see here, here and here), Harvinder Sian, not only sends out mollifying notes to clients with extended references to "excitable" blogs such as Zero Hedge, but that apparently cost-cutting measures have forced RBS to cancel their over-budget Dow Jones wire service.

With the threat of sovereign default and contagion now pervasive within the Eurozone periphery, it is relevant to quantify the relative exposure of various banking centers' assets as a percentage of host countries' total GDP. The reason for this is that in Europe for many countries a sovereign default would not have as great an impact, as a risk-flaring contagion impacting these countries' primary financial entities, whose assets account in some cases for multiples of host GDP. For example in Switzerland, the assets of the top two banks, UBS and Credit Suisse, alone account for nearly 600% of the country's GDP. And while Switzerland is relatively isolated from the budget and deficit crises in the PIIGS and STUPIDs, other countries such as Italy, Belgium and ultimately France, Germany and the UK, are much more exposed.

• Asian stocks, copper, Aussie Dollar rise as earnings boost confidence in recovery.
• Australia and China committed to starting negotiations on an “open skies” accord.
• Bank of Japan may refrain from easing credit even as deflation intensifies.
• Possible European debt crisis is seen pushing US Dollar to its highest point in 9 months.
• EU finance ministers are uniting to oppose Pres. Obama’s Banking overhaul.
• Indian inflation accelerated to 8.56% in January, up from 7.31% in December and 4.95% a year ago.
• Japan stays ahead of China as world's second-biggest economy as 4Q GDP strong.

It appears that earlier rumors of a Dubai World proposal to creditors for a 60% repayment been have just that, rumors. And unfounded at that. Debtwire reports that in reality nothing has been proposed, and nothing has been discussed.

You know the official version of how god's bank, aka Goldman, makes money: in the traditional, and not at all mysterious god's way, as a pureplay investment bank, which allocates capital, provides financing, advisory services, etc. Despite what Mr. Blankfein would want you to believe, that's only half the story. This two part PBS Series analyzes the other side of the equation. Who should know the truth better than former Goldmanite, Nomi Prins, author of "It Takes a Pillage." Classical investment banking function is a small portion of their revenues, I think it is about 10% or so. So if he is doing god's work, he is only doing it 10% capacity. The rest is prop trading." But wait, according to Goldman prop trading accounts for only 10% of revenue. Why the discrepancy? Simple - because that 80% "vacuum" is really just the client-facing prop/flow fixed income hybrid model, which after the disappearance of all big fixed income trading houses (Bear, Lehman and soon, RBS) Goldman has now monopolized. Being able to determine how big or small the bid/offer spreads on anything from cash bonds, to CDS to various non-CDS OTC derivatives should be, courtesy of having the largest fixed income inventory in the world at any one time, to which it can add or from which it can sell, makes Goldman not so much a pure play prop trader, as a market monopoly, which has to be dismembered as it now is the market (just like the Fed is the market in MBS and Agency paper) when it comes to all non-Fed dominated Fixed Income and OTC derivative products. This is, and always has been, an FTC issue: remember Ma Bell?

It is beyond a hallucinogenic-induced pipe dream to even consider that the Eurozone will come out of this attempt at replicating the US "extend and pretend" policy intact and unscathed. The US won't even get away with it, and we have the world's reserve currency printing press in our basement running with an ink-based inter-cooled, twin-turbo supercharger strapped on that will make those German engineers green with envy, not to mention green with splattered Greenback printer ink as the presses go berserk!

• Australia removes large-deposit guarantee amid signs of economic recovery.
• Brazil poised for Latin America's first rate increase as growth picks up.
• Corporate bond yield spreads widen the most since November: Credit Markets.
• Euro, Asian stocks fall as G-7 fails to end concern over Greece, fiscal budgets.
• G-7 governments risk 'muddled middle' with plan to spend now, save later.
• Greenspan sees 'slow' recovery, would be 'very concerned' if stocks drop.

• Annual inflation rate in 16 countries that use the euro rose to an 11-month high of 1%.
• Asian stocks fall as China manufacturing reports spur tightening concerns.
• Australian borrowing for home- buying fell to a five-year low last month on higher lending rates.
• China’s manufacturing expanded at second-fastest pace since 2008 in Jan, helped by exports.
• China's stocks slide to four-month low on tightening concern.
• Dubai world silence on debt standstill evaporates bailout rally.
• Euro proving no reserve alternative as Central Banks lead shift in assets.
• European stock markets started February on a negative note following Friday's US decline.

You asked for more, more, more Bob. You got it.

"I would expect to see a move in S&P thru 1080, 1030 and into the 950/1000 range over the rest of Q1. In this move credit does badly, esp. weaker rated credit, and govvies do well, as does the GBP and the UST. Why? Because the market will be pricing for lower grwth, and tighter money + smaller deficits esp in the UK and US)." - Bob Janjuah

Banks are giving up to 10x leverage to investors to buy MBS while foreclosures and unemployment are still on the rise against the backdrop of continuing diminishing home prices - all at interest rates that have nowhere to go but UP!

Are the regulators going to wait until after this blows up (AGAIN) or do something about it as it is blowing up.

Bob Janjuah's latest in its full, unabridged and grammatically irreverent version. A must read for all non-conformists. A juicy morcel:
"The budget should be balanced, the Treasury should be filled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome be bankrupt. People must again learn to work, instead of living on public assistance. - Cicero, 55 BC... Brilliant....and u know how Rome got away with it for so long - they secretly reduced the silver content in the coins (aka DEBASED) more and more - until they were worthless....and then the Empire imploded, ushering in the Dark ages..."

Let’s assume for a moment that Goldman Sachs is wrong. After all, at most points in time and space, predictions tend to fail—except the lucky ones. So it’s good to think through scenarios that one would consider extremely remote. Active risk management means low probability / high catastrophic outcome tail events must be hedged, and as importantly, gain exposure to those pesky Blacks Swans in ways that lead to advantage. To accomplish this, it helps to obtain a quantitative sense of their impact, to get a “feel for the cloth” as an wise former boss of mine used to say. So let’s try here.

What if the Fed more than succeeds in reflating and the end result is hyperinflation? As remote a possibility as I think this is, they really could print a way to another, completely different type of economic destruction. All they have to do is print proactively, not reactively.

Why we are likely hours away from S&P 1,150: Commentary from RBS Derivatives (alternatively, just more book pushing by the Scottish bank which has about 4 traders left)

• Abu Dhabi sovereign fund has most holdings in US, Europe; sees potential in the West.
• Asia stocks, metals rise as China exports soar
• Chavez, harried by recession and declining popularity, devalues Venezuela's currency.
• China's investigation of Rio Tinto executive complete, case with prosecutors.
• China is expected to rev up steel production by nearly 10% this year.
• China may overheat with 16% GDP growth in 2010, Govt researchers say.

A note released earlier by Citi analyst Keith Horowitz continues Citi's attempts at whacking the prevailing dogma, after the firm's recent downgrade of AA. Horowitz' primary conclusion: "Based on our analysis of the five main revenue pools, we see 2010 FICC revenues down 15-20% y/y – or closer to a 1H07 run-rate." As a result, Citi cut its EPS estimates for MS by $0.30 to $0.36, for GS by $0.25 to $5.25, form JPM by $0.15 to $0.55 and left BAC unchanged at a loss of ($0.66).