RBS

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Frontrunning: August 22





  • Merkel's Dilemma: Risk Euro Zone or Her Government (WSJ)... as first suggest by ZH 2 months ago, with only one resolution: referendum
  • Russia warns West over Syria after Obama threats (Reuters)
  • Consider keeping Bernanke, Romney adviser Glenn Hubbard says (Reuters)... Glenn Hubbard is the star of the movie Inside Job
  • Spain Deficit Goals at Risk as Cuts Consensus Fades (Bloomberg)
  • Czech Austerity Revolt Threatens Cabinet as Slump Bites (Bloomberg)
  • Greek cuts to be deeper than trailed (FT)
  • Akin rebuffs Romney, Republican calls to quit Senate race (Reuters)
  • Obama Leads Romney in Poll Showing Disdain for Congress (Bloomberg)
  • Greece needs more time to reform, PM Samaras tells paper (Reuters)
  • UK banks face scandal over toxic insurance products (Reuters)
  • Iceland Shelves Monetary Tightening as Krona Seen Appreciating (Bloomberg)
  • India Considers $35 Billion Debt Revamp After Biggest Blackout (Bloomberg)
 
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Guest Post: The 'Beautiful' Deleveraging





Bridgewater's Ray Dalio is quoted in a recent Barron’s interview, describing the current phase of the U.S. deleveraging experience as “beautiful”. He goes on to explain the three options for reducing debt: austerity, restructuring and printing money. “A beautiful deleveraging balances the three options. In other words, there is a certain amount of austerity, there is a certain amount of debt restructuring, and there is a certain amount of printing of money. When done in the right mix, it isn’t dramatic. It doesn’t produce too much deflation or too much depression. There is slow growth, but it is positive slow growth. At the same time, ratios of debt-to-incomes go down. That’s a beautiful deleveraging.” That sounds pretty good and makes sense. Or does it?

 
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Complete Q2 Hedge Fund Holdings Summary





Q2 hedge fund reporting season has come and gone. Below is a summary of the key funds, and who held what at the end of June.

 
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Peeking Beneath The Surface Of The 'Most Hated' Stock Rally





Since hope re-blossomed at the start of June and was reignited by Mario's musings, the equity markets of the US and Europe have surged in an outpouring of faith in central bank excess and policy-maker's abilities to 'fix' everything (despite decades of truth that points in the exact opposite direction). But while the market levitates on ever-increasing multiples (as earnings current and forward are dragged lower by the economic reality of a debt-deleveraging world), the true picture of what is driving stocks become clear. For the first time since the BTFD rally began in March of 2009, cyclical stocks (or economically-sensitive firms) are underperforming notably - implying notably lower expectations for a levered recovery by the consumer. As Bloomberg's Chart of the day notes, either the economy will hockey-stick back to a significant rebound or broad equity market indices will fall back to a more defensive reality - given the non-economy-helping nature of LTRO/QE, we suspect the latter. Do you believe in miracles?

 
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"RBS Algo Went Berserk"





This Monday, a few shorts days after the Knight algorithm decided to do what it and the Fed does best, and go on a shopping spree, gobbling up $7 billion in stocks in 45 minutes and in the process almost destroying its host like any self-respecting virus, something weird happened with the 1.20-pegged EURCHF in the minutes after the marked closed: it shot up for no reason, only to slam right back down. Some speculated it was a fat finger. Turns out they were right. Only with a twist, as first it appears it was purely human error, which in turn set of an avalanche of algo trades which had no idea why they were buying, except that someone else was buying, so they had to be buying: the purest definition of momentum trading insanity, where one buys or sells with no rhyme or reason, but simple because someone else, marginal enough, is moving the market. And that is why every single capital market: stocks, bonds, commodities and FX, is always one trade away from total collapse.

 
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Frontrunning: August 3





  • U.S. nuclear bomb facility shut after security breach (Reuters)
  • EU Commission Welcomes Greek Reform Pledge, Wants Implementation (Reuters) -> less talkee, more tickee
  • China Cuts Stock Trading Costs to Lift Confidence (China Daily) as France hikes transactions costs
  • Holding Fire—for Now—but Laying Plans (WSJ)
  • ECB-Politicians’ Anti-Crisis Bargain Starts to Emerge (Bloomberg)
  • Dollar falls back as non-farm payrolls loom (FT)
  • Ethics Plan to Raise Consumer Confidence (China Daily)
  • Brazil backslides on protecting the Amazon (Reuters) - fair weather progressive idealism?
  • Japan Foreign-Bond Debate May Boost BOJ Stimulus Odds (Bloomberg)
  • Japan’s Lower House Passes Bill to Let Workers Stay on to 65 (Bloomberg)
 
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Frontrunning: August 2





  • What's wrong with this headline: Obama authorizes secret support for Syrian rebels (Reuters)
  • Hilsenrath promptly dusts off ashes of sheer propaganda failure, tries again: Fed Gives Stronger Signals of Action (WSJ)
  • Fed Hints at Fresh Action on Economy (FT)
  • Fed Poised to Step Up Stimulus Unless Economy Strengthens (Bloomberg)
  • IMF Chief Lagarde Praises Greece, Spain for Efforts (Bloomberg) - efforts to beg as loud as possible?
  • US sanctions against bank 'target' China (China Daily)
  • Trimming China's Financial Hedges (WSJ)
  • ganda central bank cuts key lending rate to 17 pct (Reuters)
  • Greece Agrees €11.5bn Spending Cuts (FT) - Agrees? Or does what a good debt slave is told to do
  • Germany Retains Stable AAA Outlook at S&P After Moody’s Cut (Bloomberg)
  • Spain’s Bond Auction Beats Target as Borrowing Costs Rise (Bloomberg)
 
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Frontrunning: July 31





  • Hilsenrath: Heat Rises on Central Banks (WSJ)
  • Some at Fed Are Urging Pre-Emptive Stimulus (NYT)
  • Obama Warns of Headwinds in Europe; Urges European Leaders to Take Decisive Action on Euro (WSJ) - also needs reelection
  • ECB thinks the unthinkable, action likely weeks away (Reuters)
  • Games Turn London Into ‘Ghost Town.’ (FT)
  • Greek Leaders Seek to Defer Austerity Cuts (FT)
  • Hong Kong Builders Unload Properties to Raise Cash for Land Rush (Bloomberg)
  • North India Crippled by Power Cuts (FT)
  • Euro-Area Unemployment Rate Reaches Record 11.2% on Crisis (Bloomberg)
  • Italy's Monti sees hope of end to euro crisis (Reuters)
 
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Frontrunning: July 26





  • Draghi Says ECB To Do Whatever Needed As Yields Threaten Europe (Bloomberg)
  • Spain not mulling seeking further EU help (Reuters)... and it won't need a Bank bailout either. Oh wait
  • Weak lending adds pressure for ECB action (Reuters)
  • Sweden's economy still resilient to eurozone woes (Reuters)
  • Bo Xilai’s Wife, Zhang Xiaojun, Prosecuted for Homicide (Xinhua)
  • China’s Changsha City Unveils $130 Billion Investment Plan (Bloomberg)
  • Foreclosure Filings Increase in 60% of Large U.S. Cities (Bloomberg)
  • Free ECB’s hand to aid states, says minister (FT)
  • Hungarian Premier Says Aid Deal Not Near (WSJ)
  • Nomura Chief Resigns Over Insider Trading Scandal (NYT)
 
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Spain's Second Largest Company, Telefonica, Cancels Dividend And Share Buyback





Up until this point, Europe has been transfixed with severing the linkage between the sovereign and the banking system. This has been a particularly big issue in Spain because as is now well known, its banks are insolvent, yet the country is trying to pass off as not needing a bailout. Of course, if RBS is correct, that is all going to change very soon as the entire country demands a formal bailout. Yet link that has been largely ignored is the link between the sovereign, the financial sector and the broad corporate sector. Because if the first two are imploding, it is only a matter of time before the latter is also dragging into the maelstrom. As of minutes ago, this has just happened, following an announcement by Telefonica, Spain's second largest company, that it has cancelled its dividend and share buyback for the entire year.

  • TELEFONICA SAYS CANCELS DIVIDEND AND SHARE BUYBACK FOR 2012

Why is Telefonica doing this? Simple - to conserve cash ahead of what may be a sovereign default which will have a huge adverse impact on all Spanish corporations.

 
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RBS Says To Expect A Spanish Sovereign Bailout Request "Within Days"





Probably not the news those who hopped on the Hilsenrath bandwagon of hope, prayer and bullshit were looking for. From Bloomberg:

  • Spain likely to lose market access in near term, and will probably ask for precautionary sovereign bailout MOU “within days,” strategist Harvinder Sian writes in client note.
  • ECB can act as agent to EFSF and buy Spanish bonds, lowering yields for Spain; BTPs to benefit by “correlation”
  • Due to small size, this backstop would have “no credibility”; excluding risk that Moody’s cuts Spain to junk, ultimately SPGBs and BTPs will head to “double-digit” yields
  • Giving ESM banking license is only “high-impact turnaround policy left”; however, Germany likely only to drop opposition to move at close to point of failure for EMU

It also means that those who bought non-local law Spanish bonds are about to be cremated as the PSI rears its ugly head once again. Everyone else who listened to us and bought UK, Swiss and Japanese law near-term bonds, should get taken out at par.

 
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Bob Janjuah: "You Have Been Warned"





"The global growth picture is, as per our long-term contention, weak and deteriorating, pretty much everywhere – in the US, in the eurozone and in the emerging markets/BRICs.... We in the Global Macro Strategy team still think the market consensus is far too optimistic on policy expectations both in terms of the likelihood of seeing more (timely) fiscal and/or monetary policy assistance (globally), and in terms of any meaningful and/or lasting success of any such policy moves. In particular, we think that the period August through to November (inclusive) represents a major global policy and political vacuum. Based on the reasons set out earlier and also covered in my two prior notes, over the August to November period I am looking for the S&P500 to trade off down from around 1400 to 1100/1000 – in other words, I expect over the next four months to see global equity markets fall by 20% to 25% from current levels and to trade at or below the lows of 2011! US equity markets, along with parts of the EM spectrum, will I think underperform eurozone equity markets, where already very little hope resides. For iTraxx crossover, this equates to a spread wide for 2012 of – in my view – 800/1000bp.... And of course I still see a very clear path to 800 on the S&P500 at some point in 2013/2014, driven by market revulsion against pump-priming money printing central bankers, but this discussion is also for nearer the time."

 
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The Hedge Fund Trail In Liborgate Gets Hotter: Mega Fund Brevan Howard Next?





Two days ago we made the "missing link" connection between traders in Libor manipulating banks (all of which curiously had a hub in Singapore: something else for the media that has been about 4 years too late on this topic to focus on) and hedge funds (most of which curiously centering on the otherwise sleepy bastion of banking: Geneva, Switzerland). The immediate aftermath was the loss of trading privileges of one Michael Zrihen. We are fairly certain this is just the beginning of the hedge fund bust: when all is said and done, many more funds will have terminated traders they hired for reasons (and kickbacks) unknown over the past 2 years as Lie-bor manipulators sought to put a clean firewalled break between their old employer and current one. Because apparently sometimes the regulators are that stupid and can be confused by a simple job change. And while many have assumed (and even calculated based on completely groundless assumptions) that only BBA member banks have benefited from Libor manipulation, the reality is that hedge funds were just as complicit and benefited just as much if not more. What is worse, they took advantage of their whale client status with manipulating banks, and courtesy of Total Return Swap and other leveraged gimmicks, made far more money when they co-opted two or more banks to do their bidding. Impossible you say: hedge funds would never be so stupid. Oh very possible: we present exhibit A - Brevan Howard, a "fund, with assets of $20.8 billion as of Dec. 31, has never had a losing year and returned 14.4 percent annualized from its April 2003 inception through the end of 2008" as Bloomberg said in a made to order profile of the funds recently. Perhaps there is a very simple reason for this trading perfection: "Brevan Howard telephoned on 20 Aug 2007 to ask the defendant to change the Libor rate," according to a paper filed with the Singapore High Court cited by Bloomberg."

 
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Spanish 10 Year Yield Back Over 7% Following Ugly Bond Auction





Instead of sticking to selling short-term, LTRO covered debt, Spain was so desperate to show it has capital markets access that this morning it tried selling bond due 2014, 2017 and 2019 with a maximum issuance target of €3 billion. It failed to not only meet the target, but to price the €1.074 billion in bonds due 2017 at anything less than an all time high (6.459%) as a result sending the entire curve blowing out wider, and the 10 Year above the critical 7% threshold again, for the first time since the June Euro summit, whose only function was to give a positive return for the fiscal year to such US pension funds as Calpers and New Year. In summary:  Spain sold 2.98 billion euros of short- to medium-term government bonds on Thursday in a sale at which borrowing costs rose and demand fell. The average yield at a sale of 1.07 billion euros of five-year bonds rose to 6.46 percent compared with 6.07 percent at the previous auction of the debt last month. Investors' bids were worth 2.1 times the amount offered for the five-year paper versus 3.4 times at the last auction, and 2.9 times for the seven-year bond. The average yield at the seven-year sale rose to 6.7 percent from 4.83 percent.

 
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Deep Into The Lieborgate Rabbit Hole: The Swiss Hedge Fund Link?





That Lieborgate is about to spill over and take down many more banks is well known: as previously reported that the world's biggest bank Deutsche Bank, has become a rat for the Liebor prosecution having turned sides. The reason: "Under the leniency programs of the EU, companies may get total immunity from fines or a reduction of fines which the anti-trust authorities would have otherwise imposed on them if they hand over evidence on anti-competitive agreements or those involved in a concerted practice." However, just like in the case of Barclays (with Diamond), JPM (with Bruno Iksil), UBS (with Kweku) and Goldman (with Fabrice Tourre), there always is a scapegoat. Today we find just who that scapegoat is. From Bloomberg: "Regulators are investigating the possible roles of Michael Zrihen at Credit Agricole, Didier Sander at HSBC and Christian Bittar at Deutsche Bank, the person said on condition of anonymity because the investigation is ongoing. The names of the banks and traders were reported earlier today by the Financial Times." Of course, as so very often happens, the link between the investigated firm, and the person in question no longer exists - after all what better brute way to tie up loose ends, than to fire the person in question at some point in the past: "Michael Golden, a spokesman for Deutsche Bank, confirmed that Bittar left the bank last year and declined to comment on the investigation." And since neither Bloomberg, nor the earlier FT article have any discussion of just where Mr. Bittar ended up, knowing quite well there is very likely a full-scale investigation forming into his Libor transgressions. The first place we went to, naturally, was LinkedIn, not because we expected to find his profile there: very few higher echelon bankers actually post their resumes on LinkedIn, but because we were fairly confident that the very useful function of seeing whose other profiles had been looked at in the context of even a "fake" Bittar, would provide us with clues. Sure enough that's precisely what happened.

 
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