RBS

• 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)

• 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)

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.

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.

"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."

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."

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.

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.

The Financial Services Authority (FSA) primary role is to make retail markets for financial products and services work more effectively, and so help retail consumers to get a fair deal. In June 2006, the FSA created its Retail Distribution Review (RDR) programme which they are enacting in order to enhance consumer confidence in the retail investment market. The RDR has a target for full-implementation of 31 December 2012. The RDR is expected to have a significant impact on the way in which financial services are delivered to retail investors in the UK. The primary delivery mechanism of financial services to retail customers is via approximately 30,000 Independent Financial Advisers (IFAs) who are authorised and regulated by the FSA. They are expected to bear the brunt of the force of the RDR. Gold bullion is set to benefit from the axing of commission for IFAs and the implementation of the RDR “should be regarded as a game changer” for gold as an investment in the UK, according to the World Gold Council. Managing director of investment Marcus Grubb, says: “These extremely challenging times mean it’s impossible to quantify the risks for UK investors. They are facing an unprecedented combination of threats to their assets including extreme and unexpected market shocks that can trigger widespread value destruction.” “As UK investors reduce allocations to traditional investments such as equities and bonds and increasingly dash to cash, they face a double whammy, with the potential for stagnation of capital due to the lack of returns from cash and the increased possibility of inflation as a result of ongoing monetary stimulation.”

Life ain’t fair

Scandal After Scandal, Lie Upon Lie ... What's Going On?

Because I pay attention to these things; I have the sense that there has been a lot of praying recently. Prayers for QE3, prayers for Quantitative Easing mortgage bond buying, “Please SIR;” and for words to the effect in each and every FOMC minutes that “Money will be printed forever and ever Amen.”

“Now I know I'm not normally a praying man, but if you're up there, please save me, Superman!”

                          -Homer Simpson

Now I hate to do this to you and I feel like the bad boy with the pin about to prick someone’s bubble but these prayers have gone unanswered as you know and are not likely to be answered any day soon unless Europe goes up in pixie dust which, while certainly possible, will be far more serious for the markets and will more than offset the Fed dragging out their printing presses and plugging them in once again.

Federal Reserve REWARDS Fraud By Throwing Money At Criminal Manipulators

Digging into the details of US and UK Liebor duing the crisis period is stirring both bad memories and some very clear disclocations from reality. While we noted many of these at the time, they seem even more egregious now and as Peter Tchir of TF Market Advisors notes, outliers seem to be Citi, RBS, and to a less extent UBS. Our perception was that RBS was viewed as a worse credit than Barclay’s. CDS seems to confirm that, yet they are posting LIBOR significantly tighter. UBS always seemed to have some decent government support, so while maybe a stretch that they were quoting LIBOR close to JPM and DB, it isn’t totally unreasonable. DB if anything looks conservative relative to other prices. Citi just seems ridiculous. The CDS market was trading it as the worst of the credits, yet here they are with the best LIBOR. That looks consistent throughout the entire the period. Maybe there is something we're missing and just don’t remember, but it does seem surprising that Citi thought they could fund at the same level as JPM at the time in the unsecured interbank market. At this point it is all just speculation where the information Barclay’s has provided the FSA leads, but so many people have been talking about LIBOR so long, that we would be shocked if it ends at Barclay’s and there is enough data, in our mind, to warrant some much deeper investigation.

Fed Chairman Bernanke should be impeached if he does not restore Fed surveillance over primary dealers immediately.